MF News IFAs worried over emergence of online direct plan distributors

IFAs worried over emergence of online direct plan distributors

However, direct plan distributors say that they will bring new customers to the mutual industry and have no plans to compete with mutual fund distributors.

Nishant Patnaik Sep 15, 2018

Emergence of online direct plan distributors such as Paytm, ET Money, Zerodha and Paisabazaar has worried many IFAs.

In fact, the latest ET Money advertisement has reignited the discussion around direct plans. ET Money has come with an advertisement called ‘Upar ki Kamaai’ in which it has claimed that investors can save up to Rs.25 lakh on commission if they invest in mutual funds through direct plans. The advertisement has assumed an SIP of Rs.5000 for 25 years and annualized returns of 14% in direct plan and 12.5% in regular plans.

However, most online direct plan distributors to whom Cafemutual spoke to said that they would bring new customers to the mutual fund industry and have no plans to compete with mutual fund distributors. In fact, Vijay Shekhar Sharma, founder and CEO has assured the mutual fund industry that his company would bring two crore new investors in the mutual fund industry within two years. He also said that his company would not compete with distributors; in fact, they will complement them.

In an interview with Cafemutual, Nithin Kamath, Founder and CEO, Zerodha said that online players would help expand the market. He said, “The biggest challenge in India is the very shallow market participation - approximately 20 million Indians investing through mutual funds and 6 million directly into stocks. So growing this is the main problem to solve.”

Swarup Mohanty, CEO, Mirae Asset also said in an interview with Cafemutual that online distributors will not be a threat for the mutual fund distributors. “I see online distribution space as a completely new vertical which will cater to a new set of investors. Currently, a majority of young customers prefer these websites to buy products and they are yet to invest in mutual funds.”

He further said that IFAs would continue to be dominant players in the mutual fund industry since investors need handholding to invest in mutual funds.

Seconding his views, Kailash Kulkarni, CEO, L&T Mutual Fund said, “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.”

Many industry veterans feel that the mutual fund pie is big enough for every player to co-exist be it mutual fund distributors or direct plan sellers. Moreover, online distributors would largely focus on first time investors who are tech savvy.

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38 Comments

K v raghupathi · 5 years ago `

Recent development in the MF industry and over enthusiasm of AMCs through AMFI to propagate Direct plan, leading to confusion and suspension on the integrity of professional distributors.

The advertisement of ETmoney, sphereheading to promote direct plan, both in local language and in English, among other things comes with an advice, existing investors to switch from regular plan to direct. This is nothing but poaching the existing valuation graduated over the years with the advice and services of distributors.

And, they are into commercial business prompting with no financial cost to investors. How do they justify their charity service. Else, AMCs must have agreed to compensate the revenue, either at the cost of NAVs of investors or from AMC’s Balance Sheet.

AMFI don’t miss any opportunity to regulate the distributors but have not screened and approve or disapprove the unethical attempt in the ETmoney advertisement to poach the existing investors.

AMFI should not compromise the ethical values for the hunger of business.

I request Mr Venkatesh CEO, AMFI to come with explanation.

RAHUL AGARWAL · 5 years ago

Sir you are absolutely right I think the biggest challenge for these so called charitable organisations like Paytm and ETMoney is handling consumer behavior I believe a mass redemption will be seen in case of a downturn in the market and the major contributors will be from the direct plan as they have taken a biased decision before entering the market and will exit also in the same manner.

Nakul Mullick · 5 years ago

Slowly these AMCs and direct plan sellers will start extracting percentage in the form of PMS, same way many years ago no one had the slightest idea that banks will charge penalties if minimum balance criteria is not met.
I strongly believe that there is more than what is being portrayed.

sandeep · 5 years ago

Well said sir ,
all regulations are just for Individual IFA .
PAYTM, ET,Zerodha Dont need any expertise & regulations to sell Mutual Fund.
I think that if a Client him self want to buy Direct MF He must clear a exam.

waryam singh · 5 years ago `

We well know from MahaBharat, what happened to Yodhister when he played Dhoot without Advisor (Lord Krishna) . So IFA need not to worry..After its matter of Money and People will give in Safe Hands.

neeraj ramani · 5 years ago `

ifas are worry about online direct platform ...
wat about cams which have introduced digi sip or aadhar based e-mandate registration. karvy will also do that
any investor who are computor savy and know about basic things kyc & fatca norms can easily register himself/herself on these platforms ...
i have a question ....
how an ifa can protect himself from these chanllenges....

Ratnesh · 5 years ago `

Don't worry sooner Mutual fund scheme will be treated like shock

Ratnesh · 5 years ago `

Don't worry sooner Mutual fund scheme will be treated like stock intraday-week-month trading by direct plan buyer investors. Most of direct planner will loose money & regular plan investors will gain in longer term

Manish Srivastava · 5 years ago `

Very rightly said.People are being given low dosage of cocaine in the name of direct plans by the Media house which is backed by AMC's without its repercussions.A client's portfolio is not just made in a day or two or needed patience discipline risk profiling with dedicated person to advice him in hard times of the market conditions.You can't play around with clients.Moreover My personal experience says Indian customer are classified into 2type categorries.1 who are willing to pay extra of given value. 2.Will ask you extra what's more there for me apart from returns??.LOL

Mehul Shah · 5 years ago `

Mutual fund is treated as commodity instead of asset class. Everybody wants to dump it to investors. When market crashed and entry load was abolished where were these upar ki kamai log. As. A fraternity we welcome new entrants for healthy compitition but the way they portray picture is wrong and ultimately it will be loss of an investor

Prashant · 5 years ago

This is antimarketing and is not allowed so we should all go to court together and sue SEBI, AMFI and ETMONEY. Also what does ETMONEY get from this is also to be proved.

Vishal Kumar · 5 years ago `

The word "DIRECT" itself means no medium between AMC and Investor. Then how can any third party distribute ,"DIRECT" plan?
Further, can these new players make me understand their business model, I will be very grateful to them?

sandeep · 5 years ago

Right Point

J sinha · 5 years ago `

If the focus is to target new clients y paytm ET uses Upar ki kamai. Ad simply focuses on churning the client who has been created after a head on struggle n hand holding by Ifa channel. Simply churn the active base is the mantra.

Tushar Choksi · 5 years ago `

The entire focus has shifted from regular to direct plans and the saving in cost is highlighted. However the investor at the end of the day is interested in meaningful returns wether it's through direct plans or through IFA. I see that the lure of this online distributors to acquire new customers will play havoc in a post 2008 kind of scenario. The myopic view on investment will hurt everyone.

Sanjay Sonawane · 5 years ago `

How they can say not competat with distributor while advertising 'switch your regular plan to direct plan' and avoid the commission to broker.
All advertising against distributior and AMFI Still "khamosh"

Prashant · 5 years ago

Bhaiya AMFI hi toh hai jo yeh Kar Raha hai. Woh kyon Kuch bolegi ispe? Aur switch your plan Ka matlab sidhe hamster clients aur hamari kamai pe humla.

sanjay · 5 years ago `

what these online platforms don't disclose who will give investors after sales services eg in case of death transmission procedures,taxation aspects etc
most of the ifas have long term personnel relations with their investors & they are providing to them a lot of services to investors other than investments free of cost. can sebi/amcs/amfi/online platforms ignore these facts
If direct plans in funds are so economical why do people visit hospitals/doctors
why don't some of these bodies recommend them to do online direct treatment

Prashant · 5 years ago

Now they are confident that they will get enough business without us also so these things are happening. They are only worried about their profits and nothing else.

C BASKAR · 5 years ago `

When direct plans are there for long period of time, then why ET Money didn't offer the same to its customers... recent advt., of (you can save cost) means you have cheated your customers all these days...Will they voluntarily ask there existing customers to switch from regular to direct ...

As the article ends with saying investor universe is large.. let's focus there and even instances will happen where online /app based users will search for an advisor if he is really want to create wealth by proper planning and execution.

Menghraj · 5 years ago `

Paytm owner Vijay sày at AMFI Summit I sale MF like one hour or 2hour horizons basis.. ready for Miss sale in front of All AMC CEO

Pranab · 5 years ago `

Uppar ka kamai: kaisey bolta hai ...adv. Mei...#25 lac. Fixed hai kiyee sob kuch...loss v too ho sakt
a hai... Jaha adv.
He galot hoo... Advisory kai sey ho ga... Direct plan seller customer ko agey ja key niras korega.. Stop this. And 2nd. Thing. Commission hona chaiyee... India meey har selling mey to hai... Commission (earning) ..Direct plan seller tum log kiyee ghanta bajney key liyee mutual fund sell ka advisement kortey hoo...

Vishal Kumar · 5 years ago `

Will a first timer investor come by himself in direct plan, without any support and knowledge? Who thinks so?

This is all about removing IFAs from the way as now a days online transaction is easy due to common OTM. So, everybody thinks, why IFA, why to pay them?

The intention is very clear to remove IFAs from existing folios.

Sanjay Bangar · 5 years ago `

Its not about worrisome of Direct plan penetration. Rather It is a vision of SEBI and AMC to abolish Regular plan in near term.

shiv · 5 years ago `

When a seller sells products at below cost its against rules as per CCI, where is CCI in this industry when big corporate sell MF schemes free of cost.. basically they will sell other products and charged their customers on that.

P.Bandyopadhyay · 5 years ago `

For few months, I am going through bad experience. The people initially acquire knowledge and intricacies of MF Investment.But when investment, all went direct investment through AMC. AMC's are canebolising theirs past players who played vital roll since inception of MF
Henderson my suggestion is to restrict AMC'c to corporate investments only. The logic placed by AMC's are childish nature.

Ashok Kumar · 5 years ago `

According to me this is totally trap model of awared invester.
This awareness is given by advisor.
Swich option should not be there from regular to direct. Then new investment in Direct can achievement in industries.

Else nothing else, media and propegenda is only trap and making his own pocket by et money.

Balram Kr. Mishra · 5 years ago `

Dear Mr. Nishant Patnaik,

Is this article worth writing. and if you took pain to write it, then should you not had asked the promoters about the 'switch to Direct Plans and save commissions'sort of advertisements through various mediums, like television (Paisa Bazar advertisement featuring Akshay Kumar), Facebook, Twitter, Emailers and Newspaper advertisements, etc.? Further, do you think that a person knowing how to select a suitable mutual fund all by himself will still be unware of the ways and platforms available to go direct even after 4 years of Direct Plans being in force? As a matter of fact, Direct Plans of any mutual fund are supposed to be bought and not to be sold. But in practice, Direct Plans of mutual funds are being sold to investors with little knowledge about the nature and suitability of mutual funds just on the name saving cost.

But, then, there is no point in complaining about all these too. As, every thing is fair in the name of 'Customers / Consumers / Investors' these days. After all who cares for the long term impact of the same. A classical example is Reliance Jio's launch where the whole Telecom Industry is being allowed to bleed, putting probably Lakhs of crores of Bank Debts (public money) at risk.

I have failed to understand, as to what was the reason that it was and it is till date not allowed to distribute mutual funds without getting certification after clearing a test prescribed and designed as per industry watchdog? The need of the hour was to make the bar high for new entrants and mandatory scaling up of the skill levels of existing certified workforce on a yearly or bi-annually time frame. Also, a responsibility fixing sort of framework was to be put in place. But, the whole emphasis is being focused on the premise of 'buyer be aware' regime as it is in the case of physical tangible goods by creating a framework where invisible middlemen evolves and visible middlemen vanishes. The past 25 years of mutual fund distribution history in India is a testimony of institutional distributors such as Banks being more in the practice of mis-selling third party financial products than the individual distributors or agents. Sooner or later, the world will come to realize that fixing and honoring of responsibilities in the case of tangible and intangible is world apart. But then, who has the time to ponder on these in a country like India, where even after 72 years of celebrating Independence Day and Republic Day, sense of owning one's own country has not even crossed the thoughts of citizens.

The whole purpose of writing this in the comment box is to urge you to write wholesome article covering all aspects and avoid writing stuff just to flash your name as the writer.

Parminder Singh · 5 years ago `

we are not bothered about Apps selling new business direct or regular. What make us sad is, Apps poaching upon our existing business. Recently one of my client shifted all is portfolio to Direct through an APP being advertised on Facebook. That APP is openly asking people to switch to Direct "free of cost".

V.GOPALSWAMY, Chennai · 5 years ago `

Ever since the system of online Investing (with waiver of IFA fees) was started by AMCs, the IFAs have been put into suffocation. The AMCs have become competitors to IFAs by rewarding Investors for direct investing. They should never have hit the IFAs below the belt like this. Had they not offered the incentive for direct Plans, Investors might have preferred to take the help of IFAs.In their bid to woe the Investors, AMCs have done a great disservice to the IFAs, who after all are their agents, working for them.

V.GOPALSWAMY, Chennai · 5 years ago `

anurag dureha · 5 years ago `

Lets not forget that the idea behind Direct schemes was to open up a channel for bulk purchases by High Networth investors or corporate investors, where they could save on the IFA’s brokerage. Basic assumption was that such investors have adequate knowledge about investments in Mutual Funds and do not need any additional knowledge support from IFAs.
In the recent past, lot of text is circulating which is encouraging retail investors to move to Direct Schemes from Regular plans. Surprisingly, even SEBI is supporting this idea. I can understand the recent articles by Economic Times on this issue, where it clearly shows that they are advocating this cause just to promote their product, viz. ET Money. Most of these articles are being written by those who want to promote their online platforms. I would call it highly unethical.
A single point advantage being highlighted and written in bold is that the returns in Direct plans will be higher than Regular plans…this is simple arithmetic only but far from reality. You remove the advisor…reduce his cost and the result will be higher wealth. Same way as you remove the doctor to eliminate the cost of consulting and buy directly from the chemist. But will it really result in better health ? Answer is a big NO. Then why you all are bent upon risking the wealth of retail investors ?
In 37 years of my banking experience I have hardly seen any retail customer going through any document before signing – whether pertaining to loans or to deposits. They are so impatient and lethargic that they simply want to be shown the dotted lines where they could sign without reading the documents. Just imagine, despite the statutory warning regarding Mutual Funds, alerting ‘…read the scheme related documents carefully…’, how many of them read them ? …and out of those, how many of them actually understand them ?
This is where the role of IFAs matters. S/he is an educationist. If the retail investors start bypassing them they will be bypassing the knowledge source and exposing themselves to graver risks, forget about 1% gain being thrown as a bait in favour of Direct plans by many, whose sole aim is to sell their online investment products.

sandeep · 5 years ago

well said

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