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‘I and my Family Will Commit Suicide’

Ban on entry loads will threaten the livelihood of fund advisors

After the Securities and Exchange Board of India (SEBI) said that entry loads will be discontinued Value Research asked the very people who will be most affected by the move to give their reactions – the fund advisors.

Here are some samples:

Prasanna Kumar: “Bhave has inspired me to commit suicide”

I am patient of kidney failure. I got a transplant 10 years ago. After that I switched my business to insurance advisory and later diverted to investment advisory. I am undergoing treatment for post renal transplantation. Doctors have saved my life.

Mr Bhave, on the other hand, has done the opposite by abolishing entry loads. Mr Bhave has inspired me and my family to commit suicide by doing this ‘great’ job. This is a sufficient reason to finish my family.

One is punished when one kills someone, but Mr Bhave will be awarded to kill families of IFAs.

Isn't it a great job?

Mr Bhave is sitting in an a/c office and assessing IFAs’ income or potential sources of income very efficiently. But he does not know that he does not have to make any expenditures from his income, but we have to spend our income to sell MF products.

As it is, I have to spend huge amounts of money for my treatment. Mr Bhave has his office car, but I am not able to purchase my own bike and now Mr Bhave has even banished bread from the mouth of my family.

I would like to congratulate him for that. I think he should be awarded for the serial-killing of IFAs.

Mr Bhave wants to spread MFs into remote areas. Does he know that without IFAs, who will distribute MF products in remote areas? I know he will make comment that post offices and AMCs will directly sell these products. I hope that he might be aware his own earlier circular about abolishment of entry load for direct investors. But, does he know how many retail investor's are approaching AMCs directly? The entire business of MFs is run by IFAs.

Shabbir: “Investors may get restricted to just 4-5 AMCs”

At the outset, thank you very much indeed for providing us a forum to air our views about the abolishing of entry loads in mutual funds that involved payment of commissions to distributors by investors.

It appears to be a very callous of SEBI. Probably because there is no forceful representation of the distributors' interests in our country.

Having said that, as a distributor, I have always believed firmly in providing substantial value additions to all my clients in terms of:

1. Quarterly portfolio updates, showing not just fund performance, but also benchmark index comparisons;

2. Intimation of dividend news;

3. Weekly performance data of 9 categories of mutual funds downloaded from www.valueresearchonline.com (5 year data for equity funds and 1 year data for debt funds because the time horizons are important);

4. Articles, insights, perspectives affecting global and Indian markets and economies that are collated from either The Economic Times or AMCs and emailed periodically, often once a fortnight or more.

Besides the above, any service request with regards to corrections or changes in personal or bank data asked for by the investor is carried out on a regular basis. I have often taken up issues on behalf of my clients with AMCs for either non-payment of dividend in a timely manner or delay in logging an application.

I have never recommended an NFO to any of my 95 clients in my more than four-and-a-half years of practice unless it was offering something that did not exist in the Indian MF industry and it would add value or diversification to her/his portfolio.
All my clients will vouch for the authenticity of all I have said above so you can feel free to publish this letter.

In fact I am marking a copy of this mail to each one of my clients as well.

Based on the above, although I am confident my clients will not grudge me the fair brokerage commission decided by the AMC, I still foresee a number of problems:

1. Not all clients will be fair about the quantum of brokerage commission and this will lead to unnecessary friction between distributor and investor;

2. Has SEBI given a thought to the service tax repercussions on distributors in this model? If we have to collect the brokerage commission directly from the investors, do we issue a bill to them (like share brokers) showing the break-up of brokerage commission and service tax and will they pay up both willingly? What about registration with the Excise department for service tax and quarterly filing of service tax returns that adds to our administration headaches?

3. If, let's assume, my clients willingly pay up the brokerage commission to me along with the service tax, then how has it helped my client reduce his investment cost? In fact, it has increased, so how has this move benefited clients?

4. Finally, is 2.5 per cent such a significant amount that it will make a substantial difference to the portfolio of a client regardless of whether s/he gets good advice or not ?

Has SEBI not heard of the adage "there is no free lunch in this world" so why do they want to provide a "free lunch" to investors of mutual funds at the cost of distributors ?

Moreover, with retail participation in equity markets through equity and mutual funds put together comprises less than 5 per cent of the retail investor's savings in our country, don't we need more retail participation instead of creating hurdles in the path of growth for the entire MF industry by bringing out such ridiculous rules at a time when it is still in it's infancy?

If, let us assume, due to this new rule many distributors let go of their business from clients unwilling to pay a fair brokerage commission then how many of them have the time and energy to visit AMC offices for various service requests ?

Will the AMCs be able to cope with the crowds at their offices and won't it add to their costs of attending to customer complaints and issues?

To my knowledge, only 4-5 AMCs offer online transaction facilities so far out of the 35 AMCs which is only about 14 per cent or so. Will the investors restrict themselves only to the funds of those few AMCs?

Based on my sales and marketing experience and understanding of the Indian customer's mind-set in my career of 17-and-a-half years, I honestly do not think this is a wise rule and sincerely hope good sense prevails to revoke it.

Subhendu Nath: “I seek opinions of my clients and leave it at that, whether I survive or not”

I’m really very confused. My investors mostly invest money through SIPs. How could I charge advisory fees for them. In India all other investments need a single cheque. They know their investment amount included my commission. But now how can I teach them that they have to pay me separately. Nobody believes me.

Now, What I have started doing is taking advise about this guideline from my valuable and educated clients. I seek opinions of my clients and leave it at that, whether I survive or not -- after all their decision is final. Some of them ready to pay me, but rest I don’t know. I also don’t know how to manage my new customers.

It is surprising that action has been taken against entry loads, while ULIPs remain untouched in the country -- I’m also an agent of LIC.

So, I have decided to sell LIC ULIPs to my new clients.

Arvind Thakur : “Hamara toh sarkar aur SEBI ne ghar basne se pahle hi ujad diya

This move by SEBI will hurt us in a direct manner. Because In India each and every person wants he should get something free, why will he pay a separate cheque to distributors.

Vaise bhi SEBI ka yeh kadam sarkar ki revenue ko kam karega. Kyonki koi bhi MF distributor client se kitni fees lega? Kisi ko pata nahin sarkar service tax kahan se legi. Koun sarkar ko tax dega? Sarkar ko TDS kahan se milega?

Hamari income to ab nahin hogi. Hamara toh sarkar aur SEBI ne ghar basne se pahle hi ujad diya.

Sarkar ek taraf kahti hai hum rozgar denge, doosri taraf voh apne sarkari agent ke madhyam se karib 1.5 lakh MF agento ki naukri vapas le rahi hai.

Also read:
'It is Like Being Laid Off'
'Sebi's decision will be counter productive'
'SEBI Has a Grudge Against Distributors'
'Investors Are Not Self-Motivated'