Only a handful of financial planners & distributors also known as
independent financial advisors, or / IFAs have registered as investment
advisors after SEBI Investment Advisors Regulations came into effect on April
21 this year (2013).
Belying expectations, merely 28 entities, including institutions, have
opted to register as investment advisors, according to SEBI data.
Most of the financial planners & IFAs preferred to stick to their
current status for a host of reasons, ranging from the current attractive
commission structure to reluctance of clients to cut a cheque for advice.
IFAs opting for investment advisor registration have to forgo
commissions, which are a significant & assured income stream than fee
income, explains Mr. A.K Narayan, President, IFA Galaxy, Chennai, a group of
IFAs.
IFAs earn upfront commission and trail commission from fund houses &
other product manufactures. This forms the major chunk of their revenue as the
fee income is quite minuscule in most cases, say financial planners, who charge
a fee for their services.
For IFAs,it is choice between distribution & advisory, says Mr. Vijay
Venkatram, MD, Wealth Forum. And the choice is a tough one, because they have
to forego attractive commissions & be satisfied with unsteady income from
fee if they decide to become investment advisor.
Many investors are not comfortable writing a separate cheque to pay
advisory fee. There is no assurance that the investor will keep paying fee each
year despite getting good investment advice, said Mr. Abhinav Angirish,
MD,investonline.in, an online mutual fund distribution entity. When investors
do not make any money during a prolonged bearish phase, the fee becomes a
tricky issue. It is a good idea to make the investment advisor to keep a record
of risk profiling of the client, investment advice given & other
interactions, but all these things come with cost associated with it, says Mr.
A.K. Narayan. Thecompliance costs associated with an investment advisor are far
more than the distributor. Appointment of support and administration staff,
research & accounting software, investment in IT, among other things, are
expensive.
Market participants say only institutions can afford to have 2 separate
legal entities in both distribution &
investment areas of advice, but IFAs cant afford to take the path,
because of the higher cost associated with it. Apart from the cost benefit
equation, many IFAs are also waiting for more clarity on these regulations
& want to see how the scenario
evolves over a period of time.
Fee-driven model is yet to evolve and it is too early to make financial
planners to choose between commission &
fee, says a Mumbai based financial planner
Src: ET
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