For all Mutual fund investors – Subramoney

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I DO NOT KNOW THE AUTHOR. THIS CAME AS A COMMENT..I thought it was too big and too good not to be put as a post. Not revealing his name unless he specifically asks for it. I neither agree nor disagree with what the author says. I am not recommending nor saying this is wrong. It is the equivalent of letting one side being allowed to write.

sir, I read your blog and I found it very practical. here is something that you could spread to other IFAs. there are two CEOs of Indian AMCs that are spreading a message in a very careful way that all “foreign” AMCs will vanish. when it comes to financial services, the Indian companies know how to defend their turf by using all means possible.

Many years ago, foreign banks had an advantage over Indian banks with good technology, ATMs, and high service standards. they were capturing the cream segment in the urban areas. what happened then? there was a regulation passed that even ATMs need a license from RBI. who lost the most? foreign banks. The next regulation was on branch expansion. the regulator was reluctant to give new branch licenses to the foreign banks. who lost? again the foreign banks. next was the regulation on branch expansion where they said that for every x number of branches a foreign bank opens in an urban area they need open y number of branches in semi-urban /rural areas. this killed their growth. at our peak, we had citi, HSBC, scb, Barclays, etc expanding their networks and adding people. now they are curtailed. now foreign banks are marginal players in most of the segments. mission accomplished.

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insurance – Newyork life, ing, Aviva, etc were doing well. what happened to all of them? the message here is if you want to be a partner in an Indian JV be a silent partner. bring your capital and take what we give in return – thats the message from Indian financial services companies.

coming to mutual funds – the message that is being spread by 2 CEOs of bank sponsored AMCs :

  1. we are Indian and we will remain here
  2. the foreign companies are not bothered about India and they will leave
  3. over the next few years, bank-sponsored AMCs will have over 80% market share and people will trust only them

what is the implication for IFAs?

  1. once it is just a few players left running the show, the bargaining power of pricing will go away from the IFAs
  2. globally, independent asset managers are most favored due to their focus on the core business of asset management and enjoy the majority of the market share. the IFAs will have very little choice in choosing an independent asset manager.
  3. many global banks exited their asset management business due to lack of focus. this could happen in India too.
  4. we all know what happened during TER cut last year. the large Indian AMCs ruthlessly cut the trail commission for the IFAs
  5. the large bank-sponsored AMCs will have their own bank as their largest partner in sales and you will always be given step-motherly treatment (barring a few very large IFAs or one or two AMCs)
  6. once you are at their mercy for pricing, you lose it. IFAs will be at a huge disadvantage for many years to come. RIA is the preferred mode for all these bank-sponsored AMCs and they are also driving the agenda with AMFI and SEBI
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what is the implication of FT taking this hit for IFAs?

  1. FT always showed their channel bias towards IFAs. they spent decades in providing high-quality training and treated IFAs with a partnership approach. when I had an issue with their pricing their regional head explained to me the logic of sharing and being fair to both the parties. they showed this commitment when they did not cut our trail commissions on the old assets (at below a threshold) last year
  2. The Indian AMCs know that FT enjoys a lot of brand equity and is very popular with IFAs with this approach. they also know that FT has the strength in both equity and debt to deliver performance and give a tough competition to the bank sponsored AMCs. They are taking this opportunity (only 2 CEOs) to create this kind of bad will for FT and kill it.

what should the IFAs do?

  1. Please maintain high AUMs with only independent asset managers. the bank sponsored Indian AMCs will cut your pricing ruthlessly in the years to come.
  2. since FT is in a bad shape, please work with other independent guys but don’t grow big with these bank-sponsored AMCs. they will kill your business in years to come by cutting your trail commissions.
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Subramoney
As a professional trainer, Subra trains a lot of people – corporate employees, promoters, non-finance managers, fund managers, entrepreneurs, life insurance agents, journalists, PR agencies, and anyone who wants to learn. His style is simple – He tells stories of real people, real experiences, and breaks down complicated topics into easy to understand lessons.
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