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Firing Your Distributor

A good fund distributor plays a key role in helping a large number of investors start off…

I received a very interesting email from a mutual fund investor a few days back. This investor wanted to know why he shouldn’t sack his mutual fund distributor. He didn’t just want to stop using mutual fund distributor (and deal directly with the fund company) for future investments, he also wanted to know whether it was possible to get the distributor’s name removed from his older investments and get them marked as a direct investment in the records. He wanted to know if there would be some advantage in this—if the commissions that the distributor was getting currently would get added to his returns.

I know that this sort of a thing that would make a fund distributor angry. It does sound like a pretty ruthless way of going about things—first you use a distributor’s services and then you try and cut him out and not pay his commission. Still, the investor has done some reasoning. After he invested, he has taken the trouble of educating himself about investing and mutual funds. As a result, he finds that his distributor had never been very useful.

Firstly, there is no financial benefit from doing something like this—the saved amount will just go back into the fund. However, there are some broader issues. There are many investors who undergo this sort of an experience, not just for funds but also for stocks and many other investment avenues. However, advisors and distributors are not meant for knowledgeable investors, who may be better off in the DIY mode. However, a good advisor certainly plays a role in helping a large proportion of investors, especially when they are starting off. In fact, even if you are an expert, the servicing part of a broker’s functioning can be valuable. The issue really is about the quality of service that distributors ad advisors are providing, and that’s something that SEBI has just started to pay serious attention to.