Can relationship managers of banks replace independent financial advisors?
Ravi Samalad 01 April 2010

Banking channels are starting to gain a foothold for selling mutual funds, but will this new distribution model help out investors?

Many private banks are already selling mutual funds (MFs) and now public sector banks are planning to enter this space. According to media reports, the country’s largest public sector bank, State Bank of India (SBI), has trained some 18,000 employees to sell MFs.

But can the new banking foot-soldiers be as good as independent financial advisors (IFAs)?

A relationship manager (RM) needs to have a minimum qualification of an MBA. The remuneration he would get—on an average—is Rs15 lakh per annum.

Considering the remuneration, the RM has to generate 10 times his salary as business to justify his package—a revenue of approximately Rs1.5 crore. If the RM achieves his target or even exceeds it, then he may be promoted to a higher branch where more high net-worth individuals (HNIs) would be available. If the RM does not achieve his target, he may be moved to a suburban branch. So an investor would come across new faces every year.

“Banks factor (in) every cost into the employee. I know of many banks who calculate the average rent they pay per employee for the premises that they are using. When the market was in a bull run, banks used to churn clients’ money three to four times and easily earn 2.25% brokerage,” said a distributor.

When asked about the recent Securities and Exchange Board of India’s (SEBI) diktat on upfront commission, a distributor described the market watchdog’s rules as “working towards systematic elimination of brokers and intermediaries.”

Before the ban on entry loads, MF distributors were providing door-to-door services to their clients. After SEBI banned entry loads and subsequently cracked down on upfront commissions, distributors can only hope to profit from trail commissions (an insignificant amount, which again depends on the MF client staying invested with the distributor).

Most IFAs have developed a good rapport with their investors in the area which they operate, so the chances of any mis-selling can be less. Even if they do indulge in mis-selling, they remain with their establishments, while relationship managers have to work keeping in mind the ambitious targets set by bank managements.

“On an average, you get to meet one relationship manager for one year. Then you have a new face (in the bank), while an IFA cannot keep hopping from one colony or housing complex to another by mis-selling to clients he meets. His bandwidth to source new clients is limited,” said Rajesh Krishnamoorthy, MD, iFast Financial India.

SEBI has brought about sweeping changes in the MF industry over the past few months. The latest move mandating asset management companies from paying upfront commissions from load accounts to distributors is yet another dampener for IFAs.

“India definitely needs regulation for financial advisors. What is important is that regulatory changes must not force the choice of any particular distribution channel on the investor,” suggested Mr Krishnamoorthy.

“The cost of losing a client is a lot higher than the revenue from a ‘high commission’ bearing product,” he added.

Moneylife had earlier reported on how banks have indulged in mis-selling of products and how they get direct access to accounts of their banking clients for selling MFs.
(For more, read here and here)

1 decade ago
good work by ML. originally wanted to post this even for the article"fidelity exit a slap for sebi..." All large MFs want the IFA/ small distributors and small MFs to shut down. once banks become the only channel and only the larger MFs remain, the business will become super profitable, as by then suddenly you will find, RBI and SEBI acting together to kill bank commissions from Mf sales as well as churn. Don't dismiss it as a conspiracy theory, think about it!
sunil hemnani
1 decade ago
Well the fact that SEBI has put in time to bring about a change in our way of investing in mutual funds.Very often an organisation sets out to do some good by setting an ordinance just because some IFA agents have been found out.What happens very often is people are misguided into mutual fund investments by relationship managers with the intent that money in sb a/cs are better off in SIPs and so on.How often we get misguided by stock- brokers well its these modern day banks which will soon attack from all fronts.IFAs are definately a lesser evil in this messy world of mutual funds.
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