Individual MFDs and national distributors (NDs) have the highest commission to AUM ratio. Data shows that they make 76-77 paise for every Rs 100 worth of assets under their advisory.
In FY 2021, NDs have a commission to AUM ratio of 0.77%. MFDs have the second highest ratio of 0.76%. Banks were at the bottom of the table with a ratio of 0.56%, shows data compiled by Prudent Corporate Advisory in its draft IPO prospectus.
The commission percentage of distributors depend on the type of assets they sell. The commission for selling equity funds is higher than that of debt funds. Banks lag behind in % commission earnings as their AUM is debt heavy.
There are other reasons too. Prudent said that quality of services and bargaining power play a role in deciding how much a distributor would earn as commission.
"This (higher commission ratio of NDs and MFDs) can be largely attributed to them offering value added services such as personalised portfolio construction, customised client dashboard and the close connect they have with their customers leading to better customer experience. Also, there is a wide variation in the commission structure within the players of same category depending on the bargaining power and the operational asset class of the player," the document said.
The industry's commission to AUM ratio was 0.65% in FY 2021. It was slightly lower in FY 2020 at 0.61%. The ratio was at its peak in FY 2018. In that financial year, individual distributors had earned over Rs.1 for every Rs 100 worth of assets under their advisory.
