BW MF India Summit 2016: Future Of Distribution

The Mutual Fund distribution ecosystem is both complex and dynamic, with a number of players and moving parts functioning in tandem.

In the past five years, we've witnessed material shifts in the distribution business as a whole, with regulators, AMC's, distributors as well as clients undergoing attitudinal, strategic as well as tactical shifts. A number of technological developments have prompted the advent of innovative business models, and there has been an increased focus on improving retail participation.

An accomplished panel consisting of Brijesh Dalmia of Dalmia Advisory, Rajesh Krishnamoorthy of iFAST&Dr. Mohit Batra of MarketsMojo got together during the first BW Mutual Fund India Summit to answer a very important question - "What exactly is the future of distribution, and where is it heading"?

LovaiiNavlakhi of International Money Matters returned after his earlier panel discussion in the avatar of a moderator.

Brijesh Dalmia kicked off proceedings with an interesting quote on trail commissions, effectively conveying the message that trail fee income is the key element of the advisory function, and as long as trail income remains, the distribution business can be expected to enter the future relatively unscathed.

Recently, there was some talk about SEBI capping or doing away with trail commissions altogether, but this was later quashed. Dalmia was confident that IFA led distribution of Mutual Funds in India is here to stay, and viewed the future with a high degree of optimism.

Dr. Batra brought to light an important issue regarding market penetration. "Twenty years back when we graduated from college, we were at 3 per cent penetration. Today, the size of the pie may have grown, but we're still at 3 per cent, in spite of superlative returns!" he observed.

Batra expressed his view that the industry should not be averse to Advisors earning fair degrees of commission income, and that a fair degree of Advisor remuneration is one of the key inputs to ensuring that we actually do move past this hurdle of 3 per cent. Batra also expressed his reservations about the willingness of Indian clients to pay for advice.

Krishnamoorthy had relevant points to make about both compliance and technology. Stating an example from the U.S, he highlighted that the strongest compliance requirements there can be observed in the department of labour, where it is mandated that anyone and everyone involved in retirement planning needs to be a 'fiduciary'; that is, they can only make money directly from their clients as fee incomes. If the HRD ministry were to impose similar norms in India, Advisors would have no option other than to adapt, cautioned Krishnamoorthy.

Navlakhi stated that with commission margins shrinking (and in all likelihood, continuing to shrink), the only plausible option is to scale ones base and increase their breadth and depth by leveraging technology. He also brought up the point of the possibility of widespread consolidation being a distinct future possibility.

Krishnamoorthy expressed his belief that consolidation was the key to the future. "I can count more than 25 such companies that have been created by consolidating their assets, in the past 12-18 months", he said. He made a strong case for this trend of aggregation continuing into the future.

Dalmia provided some interesting counter points, stating that technology is overhyped in this business. "This word is gorgeous, sexy and everybody is therefore talking about it", he said. He stated that an IFA can do extremely well by even working with rudimentary technologies - that is, if they get their basics right, and if they continue giving good advice to the clients.

Dalmia urged clients to focus on building long term relationships with their clients instead of chasing 'the next big thing'. He even went on to say that the future of Robo Advisory is not necessarily as bright as it is made to sound, as most of these businesses are really in the valuation game and not in the business of creating genuine long term value for clients.

Navlakhi concluded the engaging and interesting panel discussion by inviting questions from the audience.