Mutual fund intermediation: what awaits the industry

The panel consisted of Amit Bivalkar, Founder and CEO, Sapient Wealth Advisors & Brokers Pvt. Ltd; Renu Maheshwari, Founding Director, Association of Registered Investment Advisors (ARIA) and Co-Founder, Finoscholarz; Srinivas Jain, Executive Director and Chief Strategy Officer, SBI Mutual Fund; Anuj Kumar, Managing Director, CAMS; and Raghav Iyengar, Commercial Director, Axis MF. Edited excerpts from the round table.

Why has the share of direct plans remained at 45% of assets under management in the sector, the same as 3 years ago, despite an increase in the number of fintech players offering this service?

Friend: I don’t think we should see it that way. Intermediation, whether advice or distribution, is very important. The advent of direct plans has given advanced investors the opportunity to buy direct. They are not competition to distribution or intermediation. Another thing is that due to the stock market boom of the past two years, there has been less direct plan participation in the retail sector. But, on the business side and on the family office side, we’ve seen a lot of new accounts being added to the direct route.

Anuj: The 45% of direct investments in 38 trillion AUM is perhaps a slightly distorted metric. At the level of aggregated data, after a long period, individual investors represent 56% (about 21 trillion) of our market. And 80% of this 56% is intermediated, ie via an ARN (AMFI registration number for a distributor) or an RIA. So it’s almost 17 trillion and that number has almost doubled in the last three and a half years now.

If we take the RIA platforms, the AUM went from about 35000 crore in 2019 by four times for 1.3 trillion now.

Last year, our industry grew 2.4 crore as SIP and almost 80 lakh via RIA road.

What do you observe of the portfolios of investors who come to you for financial advice?

renu: People come with a few MF investments, but it doesn’t match their financial goals. They buy them because someone told them they would get a lot out of it. There is a lot of financial illiteracy, and intermediation is going to play the biggest role in bringing these products to the masses of the country. We believe that RIAs are capable of providing a good investment experience to an investor.

When MF Central was launched there was a debate about whether this was necessary when MF Utilities was already there? Can you provide us with statistics on the number of registered investors and app downloads and the main issues facing investors?

Anuj: We launched MF Central in September last year. It is the only fully real-time platform built as a very thin veneer on top of the RTA system. The MF industry has typically operated in batch mode for many decades, but here it’s all real-time. Any transaction that begins will enter the RTA systems directly without any aggregation. MF Central is now integrated and you can see all your SOA (non-demat) and demat holdings and ETFs (exchange-traded funds) all in the same statement.

Until now, the unwritten rule in the industry was that as an intermediary, or broker or adviser, you could only show on your property the transactions that the consumer had made with you. This will go away now, which means that based on consumer consent, we will be able to download all transactions and show them to the investor.

One thing for consumers that we have tried to do as an industry is deal with nominations. But we didn’t have much success as it meant a physical trip to one of the RTA or AMC offices. We see a very high traffic in the insertion of candidates. In terms of numbers, we have 85,000 app downloads and 3 lakh registered users and around 10,000 login sessions. Now, we expect a good number to be at least 20-30 times larger than that.

If you see the element of automation that exists in our industry, and if you see banking and insurance, we have done much better. We instantly give you the integrated picture of all your assets. We offer you an unlimited service at no cost and with just the payment of the TER on the plan. A lot of banks will charge you for a lot of things you ask them, we don’t charge you anything. And then for these integrated platforms, it’s almost instantaneous service today.

How will the MFD business evolve in the near future?

Anuj: I think there are a lot of tinkerers trying to do everything on a six inch screen and they will continue to do so. They will be selfish and make mistakes. And it’s not just the number we see in our industry. If you look at the 20 million demat accounts, each opened in 2020 and 2021, those are exactly the people who feel they don’t need advice. They didn’t go into bank deposits, then moved into mutual funds and direct stocks and F&Os (futures and options), then into crypto. They landed straight on crypto. How many of them are long-term deaths? I do not know. But many of them will never return to the market. So I think it’s clear that skipping this cycle is not easy.

The machines can transact and give you the information very easily. But there has to be sound advice and more than that, there is an emotional hand holding a part of it, which is very essential. The industry has been debating this for many years. I would conclude that while these platforms will proliferate, much of relationship management, emotional care, deal-making, and introducing the uninitiated into MF for the first time will have to be done by people.

AMFI, in its recent campaign, said it wanted to promote distribution as a career option. Will this change the equation?

Raghav: I think the challenge for us as an industry is that we lack intermediation. There is a lot of fintech and DIY but investing has largely become a personalized experience and for that you need intermediation. So I think the challenge for us is to convince someone to become an entrepreneur. First, this business takes a long time to build. I think it’s still early days and we haven’t seen big numbers.

The other thing is the Sebi sandbox, where we can take 5,000 interns and pay them some fixed compensation. And that’s a big change because in the past the regulator said upfront payments should be banned and you can’t pay someone quasi-pay. I think we will go into pilot mode in the next 2-3 months. So I think these are brilliant initiatives and we need more.

Srinivas: I agree with the consensus that there is definitely an urgent need to add more MFDs to the market. Thus, the insurance has about 2.4 million agents, of which 1.3 to 1.4 million come from the LIC itself. In 2021, they added 170,000 new agents. The MF industry has only 170,000 agents.

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Dolores W. Simon