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MF News ‘Trail commission is like pension income for distributors’

‘Trail commission is like pension income for distributors’

Kailash Kulkarni, CEO, L&T Mutual Fund shares his views on what needs to be done to attract more IFAs in the industry and his company’s success mantra.
Nishant Patnaik Aug 19, 2018

L&T MF has been growing exponentially. Over the last one year, your fund house has grown 60% while the industry AUM went up by 20%. What has contributed to this growth?

We had sown the seeds of this growth much earlier. In fact, the outperformance is the outcome of, creating our own expertise in the fund management business. We developed a suitable philosophy to deliver consistent fund performance and grow business.  Over the years, we have consistently explained to distributors who we are, what we offer and what our strength is.

In my view, three things have helped us achieve this growth.

  • We focussed on strengthening our existing offerings, and looked at NFOs only if there is a gap in the existing fund offerings.
  • We worked with a diverse set of customers and distributors
  • We delivered consistent fund performance across years

We never subscribe to the view of making a fund ‘hero fund’. We have managed to attract inflows in all our existing open ended funds. A few years ago, just two of our equity funds had assets over Rs.1000 crore. Now, we have just two funds having less than Rs.1000 crore AUM.

Share with us three of your key initiatives that have helped your fund house grow.

Our focus on building an SIP book has clearly helped us grow. We are not just focussed on SIP numbers, we also monitor our SIPs very closely. For instance, we -diligently track the termination of SIPs by finding out the reasons for discontinuation. While  some SIPs are discontinued due to technical reasons such as cancelation of bank mandate or signature mis-matches in cheques, others are terminated due to short term focus. We work with our  partners to rectify these issues.

Over the years, our SIP book has grown from Rs.24 crore in FY 2013-14 to over Rs.400 crore in FY 2017-18. Also, our SIP accounts have increased from 8 lakh in FY 2013-14 to 30 lakh today. Currently, we have 20 lakh customers doing SIPs with us. In fact, L&T Mutual Fund now accounts for 11 percent of the total number of unique customers.

Another key initiative that has helped us grow business is building a strong distribution network. We focus on few key parameters-; which includes, giving insights to distributors on products; help them with business development tools; and provide inputs relevant to them. In addition, we prefer working with a diverse set of distributors - banks, NDs and IFAsWe have 18000 distributors working with us today.

Finally, our true to label philosophy has helped us gain trust among distributors. You will be surprised to know that we did not have to make any major changes to our offerings post scheme recategorization. Distributors appreciate this and they are comfortable doing business with us.

Currently, we have 58% of our assets in equity funds and 42% of assets in debt funds.

What is your roadmap for the fund house three years down the line?

We do not have an AUM number in mind, however we would like to grow our market share by continuously growing our SIP book and number of customers. AUM is just an outcome of things you do. Our focus is to mobilize assets for long term.

How are you going about increasing engagement with distributors?

As I have mentioned, we focus on 360-degree engagement with distributors which includes enhancing their knowledge, product outlook and provide them  with relevant inputs and information. Apart from  giving them timely inputs crucial to their business, we also help them grow business through knowledge events. For instance, we have recently conductedevents on using excel to manage clients; and generating leads on Facebook. Similarly, we also provide our distributors insights on products through infographics.

We also stay in touch with our distributors through regular meetings. The sales team is encouraged to meet more distributors every month, rather than focusing on a few.

In addition, we hold two events a year for distributors  wherin we invite experts to share their insights on economy, politics; and motivation sessions  for distributors.

You have considerable experience in sales, how do you think the industry should attract more IFAs?

Compared to the insurance industry, which has 20 lakh plus agents, we have just one lakh plus distributors. Clearly, we have not really managed to attract people to take up mutual fund distribution.

In my view, we should tell them the power of trail

 commission. Trail income is like pension income for distributors. We should spreadawareness amongst people that they can make a lot of money through trail income. However, we first need to clarify to them that they have to give at least 3 years of hard work before making money in this business to ensure longevity.

What will be the impact of new distribution channels such as Paytm and Zerodha (who are largely into direct plans) on the mutual fund distributors?

I think online distributors will complement existing distributors. There are 60 odd platforms offering such services. In my view, they will create awareness about mutual funds. Today, we have around 2 crore unique investors. With entry of these players, we will have 20 crore customers in the future.

These 20 crore investors need quality advice and handholding to invest their money in mutual funds. Advisors having better systems and processes in place, such as online execution facility will be in a better position to service this large customer base. However, advisors who are not willing to adapt to these technological changes  may struggle with customer retention in future.

SEBI has asked AMFI to comply with the best practices circular. What will AMFI do to ensure the adherence to the circular in letter and spirit among members?

AMFI is discussing this matter internally among members. However, we should first understand why SEBI has initiated this dialogue. SEBI thinks that aggressive commission payouts to distributors can lead to sale of schemes that may not be suitable for specific investors. A uniform commission structure will ensure level playing field among fund houses.

While some fund houses have reduced trail commission to the extent of 15 to 20 bps with rationalization of TER, a few decided to cushion the impact of such a reduction. What is AMFI doing to bring uniformity in the industry?

This is a commercial decision. Ideally, everybody has to cut TER to some extent. Whether a fund house wants to absorb such a cost or reduce the trail commission is at the fund house’s discretion.

 

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13 Comments
K N Dasmahapatra · 7 months ago
A single platform to be made nationally to approach SEBI with problems faced by IFAs .
We are to strengthen the local IFA associations and combine to make a National platform WITH FIFA.
Then only something can be achieved.
Siddhartha · 7 months ago
How to get associated with FIFA
Reply
Alagappan · 7 months ago
I hv my personal view that this AMC (L& T) is particularly interested only in big Ifa (distributors) last year I did business for their amc say less by 30 Lakhs less than their reqd for Asia trip I wanted them to consider my eligibility but I heard from their team that target is target they can’t support people who hv tried but couldn’t make it or missed like me from a retail distributor they business and support only distributors who hv achieved their target, I felt they must support retail distributor/ like me since I would encourage us to do more business for them in next years
Hunny tarika · 7 months ago
How ironical this is the only AMC who backed off in giving B30 incentive in month of April
Ravikumar · 7 months ago
This is an interview by Mr Kulkarni from L&T and you are misleading the readers by putting out as Trail Commission is Like Pension for Distributors. I hope the editor understands that your annual income also comes from Distributors and Fund Houses. Please don’t hit below the belt. As you toil for your work so much so each distributor puts in his or her effort. It is your prerogative to print what you like, Let Cafe Mutual not become obsolete for News.
rakesh · 7 months ago
This CEO is believed to have resigned from L&T because he was unable to find suitable buyer for the promoters who want to quit mutual fund industry. these mutual fund companies have reduced the payout for distributors & on the contrary increased their own salaries & perks multifold
Jatin · 7 months ago
Meeting more IFAs??? In our region of Kutch there is no office of LTMF. Person from other district who has given charge to our district doesn't have man power (according to him) to come and meet IFAs of our region. Active IFAs can google out how much potential our region has. Meeting more IFAs is not perfectly matching with reality. There is no supportive activity too from this AMC. This interview is misleading as per my view. If LT AMC is taking this site and views seriously they should consider what every one has commented in reply.
Prashant · 7 months ago
Every fund house official is diplomatically correct and by this I mean they want to earn more by reducing our commissions and at the same time show us that they are in our side. If they were on our side they would never have done what they have done in the harbour of best practices and SEBI regulations.
Shame on them
Prashant · 7 months ago
Also what does he mean by pension? Do we get trail even after redemption? Have we earned such huge margin on the investment in terms of upfront or trail? This is just a sham.
Reply
GYAN PRAKASH SHARMA · 7 months ago
Please clear the concept. Trail commission is not like the pension. It's against services to our investor. Even after sales,our work never end. We always stand with the investor at the time of need and also at the time of redemption, when we are going to loose our so called pension. As Govt. blessings, the pension always goes to upward in the name of pay-commissions, inflation etc. etc.. But, what's about trail commission, it's always goes to downward because of SEBI's blessings. Why are you compairing two things of opposit nature.
Murali subramanian · 7 months ago
It is like comparing with apple to orange. How can he says trail commission is like pension. We are sitting on top of valcano. If sebi wants it can wipe of trail commission by just giving a circular as it did now. Don't say rubbish for name sake. Sebi asked to reduce trail even for the existing sum retrospectively. It should be prospective one. Then only we can say good practice.
Manoj Singhal · 7 months ago
After so much of effoorts and follow up by a distributor a new investor is created in industry.
A lay man doesnot comfortable with market volatility. A good distributor hold the hands in the bad
time when a investor wants to do a mistake of pulling out money in worst scienerio and sit with
investor to train with volatility. He trained the investor to stay with your investment for goal fixed
at the time of investment. Disributor is compansated by trail to serve the investor till both are in touch.
All types of focaty work i. e. fatka Kyc change of bank address change is done by distributor because
he is compansated by trail. What a improper word is used by industry people i Donot know. A child
of our own will admit parent in vradhhaashram is you donot had sufficient money then what is expected
by industry people in charity.
Raghuramam · 7 months ago
When the AMCs are allowed to sell direct schemes , in fact AMCs are practically competing with IFA. But the irony is that they are also bestowed with the fungibility in expense ratio by SEBI. This facility the AMCs are taking undue advantage and are trying to squeeze out IFAs. Ideally SEBI should have made the commissions uniform , and should directly control them rather than allowing the AMCs to play with them. When there is no assurance for the income , who will work?Afterall the extra expense ratio charged in regular schemes is legitimate value add by the IFA. Then why are they not being treated equitably?
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