Even as Sensex is scaling new high and mutual funds are on people’s top of mind, the industry is seeing a slump in attracting feet-on-street talent.
Data from Association of Mutual Funds in India shows that the industry has added just 605 new Independent Financial Advisers (IFAs) in November 2019, which is 42% decline from 1,047 new enrollments in November 2018. In November 2016, the industry had added 1,655 IFAs.
In Apr 18- Mar 19, the industry had seen 17,625 new AMFI Registration Number (ARN) registrations in individual category. In the current fiscal so far, April-November 2019, only 5,709 new ARNs have been registered.
There are 2.20 lakh ARN & Employee Unique Identification Number (EUIN) registered with AMFI, which include 1.17 lakh EUINs.
The competition is heating up in wealth management space with the launch of many new online/robo advisory firms which help investors invest on the go.
Also, shrinking margins due to cap on upfront commissions and move to all-trail has meant distributors have to put in capital from their pockets to sustain their practices in the initial years. A new IFA has to build an AUA of Rs 10 crore to earn a trail of Rs 62,500 per month, considering a commission of 75 basis point per annum.
Before the all-trail model was implemented, many established IFAs had already moved to full-trail model. Full-trail model benefits IFAs in the long run with mark-to-market appreciation. However, budding IFAs used to opt for an upfront plus trail model which used to take care of their working capital. The era of upfront has now ended.
Fund houses are allowed to pay upfronted trail commission from their books on SIPs of up to Rs 3,000 per month, per scheme for distributors who get first-time mutual fund investors. Only the first SIP purchased by the investor is eligible for this upfronting. The commission is recovered on a pro-rata basis from distributors, if the SIP is not continued for the period for which the commission is paid.
To overcome the hurdle of declining margins, advisers are focusing on scaling up their businesses by adopting technology. Many IFAs are collaborating with stock exchange platforms like BSE StAR MF and NSE MF II for executing MF transactions, helping them cut costs and expand geographically.