SEBI may include the advisory fee in MF application form itself
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There is anticipation in the industry that SEBI may come up with a fee based model for the mutual fund industry. What is more, this fee would be mentioned in the application form as a percentage of the investment or as a fixed amount for every application, goes the buzz in the industry.
A few AMCs feel that this initiative is necessary for the mutual fund industry to grow. IFAs are exiting the industry as they feel that the mutual fund business is no longer profitable. “It is a good initiative from SEBI. Distributors need to be incentivized so that they deliver quality advice. Incentivizing will also help in the expansion of the industry,” said A. Balasubramanian, CEO, Birla Sun Life AMC.
“If the incentive model is introduced by SEBI, IFAs would be benefited,” said Piyush Desai of V Care Investments.
A few AMCs feel that the incentive model is not going to work for this industry. The industry is also not clear on the kind of incentive model that SEBI is planning to bring into action. “We feel that the fee based model should be up to a specific ticket size. We don’t think the fee based model can include SIPs and we feel that this model will not serve the purpose universally. It would be only helpful for certain section of retail clients,” said an official from a top AMC.
Distributor community is expecting some positive response on advisory fee from U K Sinha. Mr Sinha has already set up a seven-member committee, comprising SEBI members, representatives from the mutual fund industry and investor association for reviewing the proposal.
“We can see from the decline in KYD numbers that IFAs are no longer interested in this industry. Out of 90,000 ARN holders only 40,000 went ahead and got their KYD done, which means that more than 50% of them have opted out of business and probably no new IFAs are interested to enter this industry. In India charging separate advisory fee does not work. However, I am in favor of charging advisory fee,” said Mukesh Dedhia of Ghalla Bhansali.
He also added, “We feel under the current incentive model which SEBI is said to be planning, investors have to pay one cheque which would include the advisory fee instead of two cheques. The investor has to mention in the application form the percentage (1%, 2% or 3%) of fees he wants to pay to the distributors.”
But a few IFAs feel that SEBI needs to walk hand-in-hand with the Income Tax department while introducing the incentive model. “Firstly, we don’t believe in upfront commission. Secondly, income tax rules need to be clear because if the client is not getting a set off from IT department as an expense to manage his/her portfolio then there is a problem. We feel that there should be a step up trail for incentivizing the distributors. We work on a fee based model but we only charge a fee if we are able to beat the market. SEBI and IT department has to work hand-in-hand so that investors are not doubly charged,” said Dinesh Khemlani of Comsol Financial Solutions Pvt Ltd.
We need to wait and watch the final incentive model that SEBI will reportedly launch in another five weeks’ time.
