Many insurance companies are trying to empanel distributors whose earlier core business was mutual funds, especially after the ban on entry load on funds by SEBI
A few days back, a Chennai-based certified financial planner (CFP) allegedly received an email communication from Aviva Life Insurance detailing two business proposals from the insurer.
The first model is ‘Business Service Associate’ (BAS) under which one distributor has to refer at least one person to the company who can pass an Insurance Regulatory & Development Authority (IRDA) examination. The distributor who referred this person enters into an agreement with the company after which he gets a business code. The former gets an amount from all the business generated by the new agent.
Moneylife could not confirm from the company that such a communication emerged from their end. The Independent Financial Advisor (IFA) who received this proposal was not available for immediate comments either. Distributors contacted by Moneylife indeed confirm that various insurance companies have approached them with similar proposals in the past and they have refused to be part of such a deal. These distributors’ core business area was selling mutual funds (MFs). Since the ban on entry load by the market regulator Securities and Exchange Board of India (SEBI), smaller intermediaries who found it unviable to continue selling MFs have been gradually shifting towards insurance products, especially Unit Linked Insurance Plans (ULIPs), which offer better commissions.
“I sell only relationship and trust with my client. It will be very difficult to stay in the business if you start selling for the extra commissions. They had met me in my office. I have received several proposals like this, which I had refused,” said Thiru Murugan, CEO, Wealth Creation & Management Services.
The benefits of this business BAS model were detailed in the email are as follows: Distributor A gets an average 20% commission in the first year plus an additional overriding commission ranging from 30%-55% and around 5% from the second year onwards. The proposal also assured marketing and advertisement support for the scheme including reimbursements of stationery, phone and staff expenses.
The second proposal is ‘Corporate Alternate Database’ (CAD), also similar to the first plan. Unlike the first plan, here the distributor only has to refer a client to the company’s exclusive manager who advises the client. Here the IFA gets 20%-55% commission depending on the product bought by the investor. Financial advisors say that such business models are prevalent among many insurance companies.
While some intermediaries question the morals of such proposals, others say that if the business is done in a fair manner there is nothing to worry about.
Established distributors believe that they prefer not to work on a referral model as it can be detrimental to their long-term relationship with the client. Financial advisors say that insurance companies have been wooing them since more than a year and especially after the SEBI’s ban on entry load.
“These sorts of plans are business models with all leading companies with minor changes but the spirit is the same. I don’t see anything wrong as long as all people are properly licensed and you work as a team manager and licensed individuals work under your code,” said Vivek Rege, CFP, VR Wealth Advisors Pvt Ltd.
“It’s like you start a business and they fund it. They don’t want to manage a big team under them. Recruiting under payroll is becoming an issue. Since IFAs know the business well they want us to sell ULIPs. They want us to manage it because IFAs can motivate better,” added Mr Rege.
“They (insurance firms) have approached me for this. In fact, since the ban on entry load by SEBI in August, I started getting calls from insurance companies. I don’t agree with this concept. I don’t want to become empanelled just for the sake of business. When I told them about my view, they (insurance firms) never got back to me. Insurance companies are not interested in selling other products like term insurance. Commission is good but I run a risk of losing all my customers whom I know from quite some time,” said Harish Mohan, MD, Time Financials.
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Please understand and compare all charges of Birla sunlife classic life premier with and other fund. The fund management charge is a killer as far as expenses are concerned with mf also. i have done it. I am proud to sell ULIP's and my clients are happy. Mr.Bhave made a mess by following what D.Swaroop said and applied in his system. Today PFRDA's NPS is bleeding very badly. There's no business even after so many benefits.
do u think once top ranking JM basic,HDFC core and satellite,or ICICI emerging star funds will be beaten so severly?did any IFA had knowledge that these top funds will go in last rows -
we did not-and today also we cannot predict abt any funds or products performance-
this is bcos we are not in touch with those cos or bonds where the fund manager is putting money-
and there comes the real problem-
if we take responsibilty to a client abt any guarantee of performance of the fund in comparison to other benchmark funds-then we can be proved wrong-
we may be very very knowledgeble and expert about product history but we cant be sure of its future-
we can make only assumptions-
so advising is a real real tough job-which we try to do-but in doing this we are just spreading the products aming client base-
so i call ourselves as messengers-just like a medical representative gives advice to medical stores abt a medicine-but he can never give guarantee of success rate of medicine-bcos he is not manufacturing-he is just marketing-so our job is spreding and marketing financial products-
we should avoid any guarantee to our clients-either you call it advisory or you call it marketing-
but when we call ourselves advisor it becomes a matter of responsibilty which cannot be taken for mere1 or 2 % in this unceratin financial world-
i have written all this just so that we IFA do not get caught in any trouble with disputes to clients-if markets dont perform as per our assumptions-
i have adopted this strategy-and all others are free to awork in their style-choice is theirs-i hope you understand my point
so lets wait for the time to come when deaf and blind authorities will accept their mistake of nullyfying the MF industry-
they will one day realise that this was a big mistake-
let the time come-those who trying to corner out the MF industry are yhose who are all culprits for bigger scandals-they have big skeletons hidden-some day justice will be done
 Mutual Funds charge 2.25% Entry Load to the investors and pay the same to Distributors after deducting 12.36% Service Tax. This is direct source of revenue for the Government, in addition to the 30% Income Tax paid by the distributors. Hence the net earning of Distributors is only 1.25%, negligible compared to the Expertise provided and Service rendered. In addition he works for diverting money to the better return products so that the investor is benefited in the long run and serves for the better cause of the country.
 In India there are lot of other investment products where there are NO CONTROLS on investment objectives, disclosures of portfolios, declaration of NAVs, Registration of Companies, intimation of risks to clients etc for the case of INVESTOR PROTECTION and no noise is made.
 Mutual Fund industry is considered to the most regulated industry in any country, where the Structure, AMCs, Investment pattern of various schemes, Expenses are all authorized within the limits.
 Considering the financial intellectual of the common Indian investor it is really Herculean task to bring the investor to MF Products where the returns are not guaranteed (like the fixed rate products), and even the past is never the indicator for the future growth. Therefore the intellectual capacity of both the Financial Advisor as well as the Investor is at high level of understanding. Investments are to be made projecting the growth story; understanding the economy and considering the risk capacity of investor.
 There should be level playing field among the distributors of all categories of investment avenues; like in Post-Office, Bank FDs, Company FDs & Shares, RBI Bonds where 1-2% commission is distributed for promotion as well as distribution cost for these products. In case of Insurance Products commission distribution is very high: 15-40%, which is illogical even to common mind. Insurance companies never inform their customers the LOAD they charge on various policies. These companies are not even informing yearly portfolio and valuation / NAVs to their investors. AND NO NOISE IS MADE.
Let us hope Government/SEBI/AMFI will provide level playing field for all.
so if a surgeon makes a opeartion with only luck by chance and not by his skills-will any body pay fees?
i have always wrote that we IFA's are mere mere courier people-we should be pid commission same like a medical rpresentaive gets for his selling-if IFA"s dont sell-AMC's will hire salried people-
things will not change mere by laws-
Mr Bhave should realsie that what are results coming of his actions-are they really benifitting the investor or benifitting stock marekt exchnage brokers or so called EXPERT PMS managers?
it is really very tough to LIVE with morals in heart-bcos most people are lured by words and by presentaion methods-very few understand the genuinity of a honest broker-
but i have faith in my heart that some day truth will come to surface-and they will get their due position-
with todays article abt PMS fiasco launched by most of broking firms and MF cos-it has been revealed that normal diversified equity funds are far better managed then of most other schemes-
and in due course regulator will realsie that KILLING MF will kill every other avenue-bcos every retail investor is here to make profits-not losses-
his losses become sprofits of few-
when this retail guy will vanish-no one wil survive-
remeber LION cant survive without herbivorous-if lion eats up every cow goat-he will starve to death-
today i can go and meet my cleints proudly with eye to eye contact just bcos i did not cheat them-
most clients tell me story of their ulips being too much undervalued-and some even threat to pull the collor of that run-away agent who sold them such policy-most of them have been cheated by their own young cousins-wher they cant make a fight-
i guess Mr Suri u wont blame me for manipulating these comments-as u have commented for moneylife team-
i can write still more if u will raise any doubts about my comment-
Thanks for your response. Perhaps I went a little overboard.
It is a fact that Insurance Cos as well as MFs try to reach the mktg force each of the other for the elementary reason that the market is more or less the same.
This has nothing to do the "Commission Starved MF Agents". My objection was for the very word and the attempted inference there from. It is belittling the entire profession and is certainly painful to those who make every attempt to live up to their name how so ever small in number they are. Are all Doctors, Lawyers, Journalists, Accountants Bad? Yet we find quite a few of them doing the wrong deeds in conduct of their profession which should not be projected as a general way of life in media. And if it is done, it should be protested.
Sincerely appreciate your response and share many of your views.
Regards,
SURI
He wants to cook up a believable story and publish in his name, no matter if there isn't any truth in it.
I strongly object to his terminology
"commission-starved mutual fund distributors".
Neither Insurance Companies nor the MF Distributors are that third rate as he is trying to project.
Knowing nothing about the industry and the people working for it for ages, suddenly these journalists come and write nonsense and also find access to their writings to be published. In fact such Journalists are livelihood starved.
SURI
Keep it Simple Stupid
http://www.tflindia.in/2010/05/keep-it-simple-while-investing.html