IFAs are gaining momentum especially in equity assets under advisory. Not only has the market share of IFAs increased, they have overtaken banks and NDs in distribution of equity funds, shows the FIAI-CRISIL research report ‘Indian Financial Distribution Industry at the cusp: Vision 2020’.
The report shows that the share of IFAs in equity fund assets under advisory has grown from 13% in 2004 to 41% in 2015. A rough calculation done by Cafemutual shows that IFAs manage Rs.1.46 lakh crore in equity funds as on March 2015. The growth was primarily driven by increasing participation of retail and HNIs.
Surprisingly, the market share of banks and NDs has shrunk in equity funds assets under advisory. While the share of banks has declined from 45% in 2004 to only 29% in 2015, NDs, too, have seen an erosion of 11% during the same period from 41% in 2004 to 30% in 2015. Banks and NDs manage assets of Rs.1.03 lakh crore and Rs.1.10 lakh crore respectively in equity funds. The report has attributed this decline to market volatility post financial crisis and reduction in incentives like entry load ban.
Another reason in this sharp decline could be the post 2012 exodus to direct plans of large number of HNIs and corporates who typically invest through banks and NDs.
In debt funds too, the assets under advisory of NDs has declined significantly from 65% in 2010 to 49% in 2015 due to introduction of direct plan in 2012. Direct plan accounts for over 30% of mutual fund industry’s AUM of which, majority of money is invested in FMPs and liquid funds. Currently, direct plan equity AUM is close to 7%.
Banks have witnessed a flat growth in debt assets under advisory. However, IFAs share in debt funds has increased from 10% in 2004 to over 20% in 2015.
Overall, the market share of IFAs in mutual fund assets under advisory has currently grown to 28%. In 2004, the market share of IFAs in mutual fund distribution pie was less than 10%. Currently, NDs have the highest market share of 43%, says the report.
Ajit Menon, EVP, Head – Sales & Co-head Marketing, DSP BlackRock MF attributed this growth to focus of IFAs on retail clients. He said, “Majority of IFAs cater to retail clients who typically invests through SIP and remain invested for a longer tenure. The longevity of assets helps investors and distributors to get benefit of compounding. “
Aashish Somaiyaa, Managing Director and CEO, Motilal Oswal MF points out that the market share of IFAs in mutual fund distribution pie is higher than it appears in the report. “NDs channelize their business through IFAs under sub-broking model. So, the actual share of IFAs in mutual fund distribution space is higher than it appears. Going forward, this trend will continue as IFAs are dedicated to their business.”
Meanwhile, the report has estimated that the fund houses has paid a total commission of Rs. 5000 crore to distributors in FY 2014-15 of which 37% had gone to IFAs, 35% to NDs and 28% to banks.
