A majority of the Independent Financial Advisors (IFAs) have given a lukewarm response to new transaction charges on mutual funds, finds a Cafemutual survey of 755 IFAs across the country
A majority of the Independent Financial Advisors (IFAs) have given a lukewarm response to new transaction charges on mutual funds, finds a Cafemutual survey of 755 IFAs across the country. SEBI has recently allowed transaction charges on mutual fund applications above Rs. 10, 000: Rs. 100 for existing investors and Rs. 150 for the first time mutual fund investor.
Only 9% of IFAs felt it was a good incentive while 55% felt it was too insignificant. When asked if the transaction charge would facilitate distributors in urban areas and smaller towns to reach people with small saving potential, only 31% of IFAs agreed.
Clearly, the transaction charges are seen too be too inadequate to have any impact on the IFA’s propensity to push mutual funds. The survey shows that only 25% of IFAs felt that mutual fund sales would go up as a result of the transaction charges.
With the incentive being paid on each application, IFAs will split applications; say 71% of the respondents. This may present an opportunity to the less known funds with a decent track record. Smaller AMCs with a basket of well performing funds could get a foot in the door.
Finally, the survey confirms the trend of IFAs transitioning to a fee based model. 50% of the IFAs said they were charging a fee to all or some of their clients. Of the IFAs who are not currently charging a fee, 42% said they would seriously consider charging a fee.
The transition to a fee-based model is picking up momentum. In the earlier Cafemutual surveys carried out in July 2010 and December 2010, 24% and 42% of IFAs had said that they were able to charge a fee. This is encouraging news as there will be closer alignment between client and IFA interests.
Research Methodology
Closed-end, multiple choice questionnaires were administered through email to IFAs in the AMFI database. 755 IFAs responded to the survey by sending the filled in questionnaires.
