When you set out to chart your business plans for 2020, you have to ascertain where you are currently and review the year gone by. The year 2019 was an eventful one for mutual fund distributors.
From clampdown on commissions to the debt fund defaults, distributors had their task cut out. Here we take a look at the game changing events that transpired in 2019 for distributors/advisers.
Systematic Investment Plan (SIP) Marathons
Many distributors across India challenged themselves to clock in bulk SIPs in a single day by burning the mid night oil to achieve this feat with their team. The success stories of these distributors encouraged many distributors to achieve similar feat. This has helped the industry get sustained inflows averaging Rs 8,200 crore per month in FY19-20 through SIPs.
Aadhar KYC made a comeback
The re-introduction of Aadhar based e-KYC was cheered by distributors and online investment firms. KYC done through biometric is considered as full KYC (no investment limit) while OTP based KYC investors can investment up to Rs 50,000 per AMC annually. From September 2018, fund companies had stopped accepting Aadhaar based e-KYC following the diktat from Supreme Court which struck down section 57 of the Aadhaar Act as unconstitutional.
Debt funds saga
Distributors and their clients received a jolt when credit risk funds, fixed maturity plans and even liquid funds saw erosion in net asset value due to credit events. Debt funds positioned as an alternative to fixed deposits and this notion changed for good. SEBI swung into action by putting in place more stringent investment and valuation norms for funds. These events taught advisers to be more careful while recommending debt funds to their clients.
Ban on upfront commissions
The era of upfront commissions ended with Securities and Exchange Board of India (SEBI) introducing all-trail model. This hurt small and new distributors who have to now put in capital from their own pockets until they build a sizeable asset base. A lot of established distributors had anyway transitioned to full trail model. All trail is win-win for all – distributors, investors and AMCs.
Shrinking revenues
After the cut in total expense ratios, fund companies passed on the lower TERs by reducing distributor commissions. This resulted in a drop of at least 20% in commissions for distributors. Commissions on old assets have also come down drastically. Distributors have to now focus on increasing their volumes, diversify product offerings and adopt technology.
Increase in PMS ticket size
Market regulator increased the ticket size in Portfolio Management Services (PMS) from Rs 25 lakh to Rs 50 lakh. This essentially narrows the potential pool of clients whom distributors could approach. With the increase in ticket size, distributors have to now reach out to high net worth clients who have investable assets of at least Rs 1-2 crore. Unlike mutual funds, the commission structure in PMS is not capped yet.