Mutual fund distribution requires human touch

By Morningstar |  04-01-19 | 

Shilpa Kumar, MD & CEO of ICICI Securities, shared her views at the Morningstar Investment Conference held in Mumbai on October 23 & 24, 2018. Below is an excerpt from that discussion moderated by Ajay Bagga, Executive Chairman, OPC Asset Solutions.

As the largest distributor in India, how are you coping with the recent changes (rationalization of TER and the shrinking margins) in the industry?

The regulatory focus has been on expanding the market by bringing down intermediary fee. We have seen that in banking and investment management. I think transparency helps expand the market.

That said, a majority of Indian households still invest in bank fixed deposits. Thus, the mutual funds are yet to penetrate in India. We have a long way to go.

When we talk about Fintech it sounds wonderful. Technology can bring down distribution cost to zero. ICICI Securities is an 18-year-old FinTech. We have the power of digital distribution. But when it comes to mutual funds, I find the power of digital distribution is not as easy as one thinks. It's because when you are talking to a bank customer, the conversation goes something like this - this is a product, it's going to make you a lot of money in the long run, but we cannot assure that you will not face loss in the next year, we cannot assure you of any fixed return, we cannot assure you of return of principal. We can’t have such a conversation on a digital platform with investors across India, especially smaller towns. You need a human touch. Our market is still expanding. The reduction in margins could impact the growth.

How are you competing with the new age robo advisers? Is it quality of advice?

You need to be with your clients through difficult times. You need to do what is good for them.  That said, how do you translate that to sales teams who work on a target? To address this, we have transitioned to all-trail model. We have focused on SIPs rather than large ticket investments. We hope that all these practices will help us win over client trust in difficult times.

Given that the margins are shrinking, is it a good time for new entrants?

I think one thing about being a new entrant in challenging times is that you skip generations in terms of your ability to access infrastructure. You suddenly end up with the best of infrastructure. It pushes you. I think it's a good time to become an adviser as the size of opportunity is huge.

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