IFAs welcome regulation

Mumbai: An overwhelming majority, 95% of Independent Financial Advisors (IFAs) want regulations to be framed for them so that their business environment gets better.

This was one among the many important findings of a survey of 371 IFAs across the country conducted last week by Cafemutual and released to the media on the occasion of the launch of their web site www.cafemutual.com, an online resource for the mutual fund industry.

Speaking on the survey, Mr. Prem Khatri, Founder & CEO, Cafemutual said “Given the sweeping changes happening in the mutual fund industry with many of them having far reaching consequences for IFAs, it was important to gauge their views and opinions. As with the research findings of our earlier survey, IFAs exhibit high maturity and professionalism in dealing with the changed circumstances. Though often held out to be weak link in financial services, they are acutely aware of their responsibilities towards their clients. Those industry players who can support them and facilitate this transition can expect to win higher loyalty and respect.”

Here is a summary of the key findings. 

Life post entry load ban

1. Please bring on regulation
   An overwhelming majority (95%) was in favour of being regulated. 61% felt this will help raise the standards of financial advisory business. The body/agency of choice for IFAs was AMFI (38%) followed by SEBI (27%) and a self-regulatory body of distributors (21%).
   Cafemutual comment:  A regulatory body for distributors will strengthen this vital link in the business by setting up clear rules and regulations.
   
   
2. Mutual fund industry not supportive enough
   70% of the IFAs feel that the stance of the mutual fund industry on entry load ban has not been supportive of the IFAs.
   Cafemutual comment: The industry players need to articulate their commitment to the concerns of the IFAs more clearly.
   
   
3. Shifting to fee based model
   42% of the IFAs say they have started charging their client fees. 12% said they had stopped selling mutual funds altogether. 36% said they had made no change in their approach.
   Cafemutual comment: The transition to a fee-based model is picking up momentum. In an earlier Cafemutual survey carried out in July, 25% of IFAs had said that they were able to charge a fee.
   
   
4. Low expectation of a reversal
   Only 26% of IFAs said that the new SEBI Chairman would reverse the decision.
   (Media reports about the selection of Mr. U.K. Sinha as the next SEBI Chairman had started appearing mid-way through the survey and may have influenced the final results marginally)
   Cafemutual comment: Most IFAs are reconciled to the ban on entry loads.
   
   
5. Unfair, say most IFAs
   69% of IFAs feel that media coverage of IFAs has been unfair. However, only 30% felt it has a negative impact on their business.

Fund selection

1. Scheme push influenced by commission structure
   57% of IFAs said that the commission structure was very influential in pushing products. The balance 43% said it did influence distributor push.
   Cafemutual comment: This confirms the widespread belief that commission structure has a major influence on which products to push for many distributors.
   
   
2. No place for debt funds
   Well performing equity funds were seen as having highest acceptance among clients, say 65% of IFAs. Only 4% of IFAs feel debt funds (NFO or existing) have the highest acceptance among their clients.
   Cafemutual comment: Fund houses need to do more to ensure that debt funds get their rightful share in the clients’ portfolio at the retail level. This will not only help to increase their AUM in debt funds but also reduce the dependence on the more volatile category of equity funds.
   
   
3. Portfolio quality is criteria no. 1 in recommending schemes
   For 37% of IFAs, portfolio quality is most important while reputation of fund house/manager was important to 24% and absolute returns to 24%.

Competition

1. Banks seen as competition no. 1
   IFAs see banks as the biggest competition (44%) followed by online transaction platforms (39%) and stock exchange platforms (17%). 

IFAs on their career

1.  47% of IFAs think IFA career is rewarding and satisfying. 16% think it is a hopeless career.
   
   
2. Most IFAs say they draw up financial plans
   When asked what they do for their clients, 71% of the IFAs say that they draw up plans based on client needs and execute them.
   
   Cafemutual comment: This clearly indicates that IFAs recognize that they need to be seen as advisors focused on client needs.

Research Methodology

No. of IFAs covered across the country – 371

IFAs were picked up on a random basis from AMFI database.

Closed-end, multiple choice questionnaires were administered through email.