There is a huge inequality of income between IFAs of B15 and T15 cities. A recent analysis of commission payout published in a report called ‘Riding the wave of opportunity and optimism’ by the McKinsey & Company said that IFAs can only expect to earn a little over Rs.4 lakh per annum in B-15 locations as against over Rs.21 lakh per annum in the T15 locations on an average. This report was released at CII’s Mutual Fund Summit 2015 recently held in Mumbai.
The study was conducted by assuming average commission payout of 2.35% upfront and 0.75% trail in equity funds in B15 locations, 0.85% upfront and 0.75% trail in T15 and 1% upfront and 0.35% trail across B15 and T15 in debt funds.
The senior official from a large fund house attributed this to higher concentration of AUM in T15. “Since T15 accounts for over 80% of AUM, the commission payout in such locations is high. However, SEBI and fund houses are trying to bridge this gap by various initiatives like investor awareness programs and IFA training,” he said.
The sales head of a foreign fund house points out that T15 IFAs focus on trail income to grow business as against their B15 counterparts who concentrate on upfront commission. He said, “A major portion of earning of T15 IFAs comes from trail commission. In fact, majority of large IFAs in T15 locations have adopted an all trail model. However, B15 IFAs continue to focus on upfront commission. Such IFAs should focus on creating a long term wealth for them as well as for their clients through trail commission. Upfront may look lucrative in a short run but trail can give a long term sustainable growth to their business.”
The research has found that brokers don’t prefer to distribute mutual funds in B15 locations due to low incentives for selling mutual funds as compared to other financial products.
Another key finding of the report is that majority of IFAs based out of B15 locations have assets under advisory of less than Rs.50 lakh. “Though the B-15 market has about 53% (35584 registered IFAs) of the pan-India retail distributor count, only a third of them are productive (defined as having average assets more than Rs.50 lakh),” said the report. Also, these IFAs have 28% share in total assets under advisory coming from IFA channel in FY 2014-15.
Of 67,140 IFAs, 17% or 11,400 IFAs from T15 locations have assets under advisory of over Rs. 50 lakh, contributing close to 70% of total assets under advisory coming from IFA channel.
Concentration of assets under advisory of IFAs in FY 2014-15
Source: McKinsey and Company
