Mutual Fund advisors take their problems to Jayant Sinha

Sinha assures them that Sebi will meet their delegation soon

India's independent financial advisors (IFAs) in the mutual fund sector, who have been feeling the regulatory heat for the last one year, have found a sympathiser in Jayant Sinha, the Minister of State for Finance. The country's IFA community met Sinha early this week and apprised him the problems they are facing in current situation.

After the meeting, in response to one of the IFAs, Sinha tweeted, "You are very welcome! I have followed up with Sebi - they will meet your delegations."

One of the IFAs, who was present in the meeting, said, "The discussions were cordial and the big achievement of the meeting was that he (Sinha) acknowledged the role of an IFA in improving the reach of the industry and expand it manifold."

At the meeting, Sinha expressed concerns about small IFA. Further, he assured the IFA fraternity's representatives that he would assure a meeting with Ananta Barua, executive director of Securities and Exchange Board of India (Sebi), said sources in the IFA community.

A K Narayan, president of chennai-based IFA Galaxy, told Business Standard, "It was a generic meeting and we discussed issues about the industry and how to increase penetration of the mutual fund products. Given the fact that mutual fund is a very transparent product and well regulated, it's need of the hour to educate and spread awareness among investors. Else, they get caught in the ponzy schemes."

He further added that there is need to bring more people in the mutual fund distribution business as the sector has great potential to create employment.

However, over the last one year, in particular, regulatory moves like capping of commission, push for advisory model, attempts to abolish upfront and also doing away with the trail-based model along with service tax of 14 per cent on distributors' income; have put pressure on mutual fund advisors-cum-distributors. The players in the mutual fund sector, in private, echo distributors' issues but prefer not to raise voice against the regulator.

Currently, there are about 100,000 mutual fund distributors in the country. This is too less compared with what the insurance industry has. Moreover, out of the 100,000 mutual fund distributors, market players say, hardly a tenth are active in doing business. Many prefer not to come in mutual fund distribution given the poor commission they get for brining in investors.

Client acquisition is quite costly in mutual fund industry as it continues to be a push product. On an average, sector players say, a distributor spends not less than Rs 200-300 to bring in an investor to mutual funds. "Initially, we need to hand hold him to make sure his expenses are taken care of to keep him enthused. But strict regulations tie our hands and we can remunerate distributors in a limited way," said chief executive officer of a large fund house, who wished not to be named.