A cut in commissions has severely battered the confidence of independent financial advisors (IFAs) in their ability to grow their revenues. A recent survey by WealthForumTV showed that leading IFAs (on an average) were expecting a 20 per cent drop in revenues.
According to the survey, the IFAs’ confidence in growing revenues and volumes stood at an eight-year low, which also means the willingness of IFAs to invest in the mutual fund (MF) business was at an eight-year low. The survey analysed responses from 246 leading IFAs across 45 cities. The survey also showed that most IFAs were unhappy with the way in which some MF players passed the entire burden of expense ratio cuts onto them.
Since April 1, the new slabs on total expense ratios, as laid down by the Securities and Exchange Board of India, had come into effect. What is concerning is that the confidence-level highlighted in the survey only pertains to leading IFAs, which could have been quite worse had the sentiment of smaller IFAs been taken into account.
“IFAs have an important role to play if the MF industry wants to penetrate beyond the top 15 cities. They play the role of hand-holding investors that lack awareness of MF products and capital markets,” said a senior industry executive.
According to industry participants, the silver lining is that top IFAs still don’t see MF distribution as an unviable business. They, however, point our that smaller IFAs may look to switch from MFs to other investment products in which they feel the incentive structure is better.