Seven of top 10 distributors in FY18 are banks
Business likely to shift to a pure distribution model
Penetration of mutual funds (MFs) in smaller cities may be hit
MF distributors may gravitate to selling insurance products
"Not allowing companies to segregate advisory and distribution services, even through a subsidiary or an associated company, might not stand legal ground. Similarly, disallowing immediate relatives from offering advice or distribution services is not practical and can be legally contested," said a person on condition of anonymity.
Unlike the blanket ban on advice mentioned in the proposals, Sebi
is now likely to allow distributors to offer incidental advice, provided it is targeted only at wealthy individuals. Current norms allow distributors to offer incidental advice to all categories of clients.
"We have seen in the UK the consequence of banning distributors from giving advice. Today, small investors there don't have any access to advice. You can’t stop incidental advice, as it is but natural for a client to get some inputs from the distributor on suitability of a product for him, given his investment goals," said A K Narayan, former president of IFA Galaxy, a Chennai-based IFA association. According to him, it's the IFAs and not the registered investment advisors (RIAs) who were responsible for building the robust SIP (systematic investment plan) book. Mutual funds (MFs) now get Rs 50-60 billion every month through SIPs. “Incidental advice should suffice to serve the majority of clients. In the final analysis, it should be left to an investor, whether high net worth individual (HNI) or retail; whether he wants to opt for an RIA or a distributor," said Mukesh Dedhia, director, Ghalla & Bhansali Securities.
The proposed changes would have also hampered MF penetration in smaller cities, as these investors need hand-holding. One of every six rupees invested by individual investors in MF schemes now comes from beyond the top 30 cities (B30). As of April, the assets under management from B-30 locations stood at Rs 4.02 trillion; those from the top 30 (T-30) centres accounted for Rs 19.2 trillion. This translates into a share of 17 per cent for the B-30 locations.