At 10:1, life insurance agents outmatch mutual fund distributors

There are only 220,217 MF distributors compared to 2.1 million insurance agents

The mutual fund (MF) industry has lost further ground to life insurance players. The Insurance Regulatory and Development Authority of India’s (Irdai’s) annual report for 2018-2019 revealed that there were 2.1 million individual insurance agents, 10 times the total ‘feet on the street’ for the MF industry. 

According to industry estimates, there are 220,217 MF distributors at present.

Last year, the tally for individual insurance agents stood at 2 million, which was eight times the MF distributor count of 265,000.

“This has been a challenging year for MF distributors because of several regulatory changes. For smaller distributors, the viability of business has become challenging as upfront commission has been scrapped for systematic investment plans (SIPs),” said Radhika Gupta, chief executive officer of Edelweiss Asset Management Company (AMC). 

Upfront commissions are allowed for SIPs of up to Rs 3,000 per scheme only for first-time MF investors.

According to the data from Association of Mutual Funds in India (Amfi), the MF industry added 5,709 independent financial advisors in April-November 2019, which was 57 per cent less than the corresponding period last year.

“We have seen too many changes and over-regulation in the MF industry, which has perturbed distributors,” said Srikanth Matrubai, chief executive officer of SriKavi Wealth. 

“We are seeing cases of distributors switching to insurance products like unit-linked insurance products, where commissions offered are higher,” said an executive of a fund house.

In September 2018, the Securities and Exchange Board of India (Sebi) introduced new slabs for charging total expense ratio (TER), which brought down the maximum ceiling on TER to 2.25 per cent, from 2.5 per cent. 

According to industry officials, larger fund houses passed the bulk of these cuts onto the distributors. 

 According to industry players, Sebi's move to scrap upfront commission has pinched smaller distributors in recovering their client acquisition costs.

“New distributors will take time before they can build enough asset base to cover their costs through the trail commission model,” said a fund manager. 

Gupta said: “We need to find a way to make sure that smaller distributors are efficiently incentivised so that they have a sustainable business model.”

In 2018-2019, the MF industry’s payouts to distributors stood at Rs 7,938 crore, which was 7 per cent less than the previous year. This was the first time that distribution commissions had seen a dip in five years.

To compound matters for distributors, growth of digital platforms has added to the competitive intensity for these participants.

The industry has witnessed the entry of deep-pocket players, such as Paytm Money, which are charging no commission. These 'direct' plans have also found the backing of Sebi, with the regulator often encouraging the industry to do more to ensure growth of such plans.