imgbd Advisor Speak : Straight Talk

The hype, the reality and the dual play

Brijesh Dalmia, Dalmia Advisory, Kolkata

16th June 2016

In a nutshell

Straight talking Brijesh Dalmia is back - with his take on topical industry issues ranging from the question on reduction/elimination of trail commissions, disclosure of commissions and salaries and growth of direct plans. Disclosure is unwarranted - but given that, why is implementation different for AMCs and distributors, questions Brijesh. Why are filters put up on AMC sites to permit only existing investors to view compensation details? What if a prospective investor seeks that information before investing? And why then should AMFI's website display commissions of leading distributors to all instead of only to their clients? On dealing with commission disclosure, Brijesh has a simple 3 piece advice for IFAs - which can be summed up as follows: be proactive with clients and engage maturely with regulators.

Being an IFA myself, I have been closely watching the developments in the industry in the recent past. I am putting down my thoughts on some of the issues the industry is facing now.


While reduction in expense ratio, and thereby affecting a part of trail, looks to be on the cards, a major tinkering with trail will kill the industry beyond repair for years, if not decade. There have been so many changes in the recent past that the wild imagination in the mind of IFAs that regulator may do away with trail in future or stop it after 4-5 years of investment, sends the mind into a tailspin.

An IFA would accept a little reduction in trail as the industry grows but she may prefer to leave the industry if trail is done away with. An IFA is betting her life on trail. Removing trail will throw her out of business. I don't think trail should ever stop since direct route is open to investors. In my opinion, even before regulators even think on these lines, they should give indication years in advance so that IFAs can take an informed decision, plan their business model or look for alternatives if they want to exit the business. Specially, new IFAs who are joining the trade now deserve a roadmap from regulators about trail before committing their life into this business. While regulators have absolute power and authority to bring in any change, in my sense, they have a moral obligation towards this and need to be a little bit more sensitive.

Dual play by AMCs

I don't think disclosing AMC personnel salaries make much sense for investors. Most of it was done may be because of hue and cry by IFA fraternity that if there brokerage is going to be disclosed, they want AMC personnel salaries also to be disclosed. May be regulators heard and did it. Though I am not in favor of this move, yet I find a conflict and dual play by AMCs. Most of them have security layers and allow viewing employee compensation only by existing investors in there schemes. This is not in the right spirit of the law. A prospective investor should have the option to look at it before he decides to invest. I guess this was also one of the parts what the regulators intended. AMCs need to come clean on this. Otherwise, disclosure of commissions earned by top IFAs on AMFIs website should also have security layers and should be allowed to be viewed only by existing investors of respective IFAs only. Why open it up for the entire world to look at it. Why dual play?


Direct is surely a risk but the current hype is more than reality. While everyone is concerned with 'Direct', only few IFAs have been hugely impacted as of now. For most IFAs, a few clients here and there have gone direct but not many. Having said this, 'Direct' will pose serious challenge in future and IFAs need to gear up and provide higher value addition to clients. While IFA community is not happy with this, we should know and accept that it is going to stay. So, we need to manage our clients in a better way. Too much negativity on this subject is killing IFAs productivity and efficiency. Let's get back to work.

A lot of IFAs complain that AMCs are putting a lot of resources for 'Direct' business and they should not do it. Well, 'Direct' is a reality now and AMCs will do every bit to garner more business. I don't find an issue with this and IFAs should come to terms with it. The only contention is that AMCs should not engage is un-ethical practice of reaching out to existing investors and pursuing them to go direct. As far as they create new investors, there is no problem.

Disclosure of commission

I don't have issues with disclosure of commission at all but the methodology could have been better. However, it has happened and so I want to look ahead. IFAs now have to deal with it. I have the following 3 piece advice for IFAs.

  1. Disclose commissions (if not already done) to all your clients before 30th Sep'2016. Chances of retaining a client by an IFA by disclosing herself is much more likely than the client finding it out themselves. Thoughts like, clients won't know it for long since they don't open ECAS; thoughts like, it's better to wait and watch and let the client find out and then deal with it, etc. are short term strategies and not recommended at all.

  2. Disclose commissions to all prospective investors in the first meeting itself along with the option of doing it directly, etc. If they come, fine. Else, find another client.

  3. Have a dialogue with the regulators through a unified body (efforts are in progress) and express our concerns and views. Let's not fight individually. No log in, strike, not meeting RMs, etc won't help at all. I can understand the pain but it will damage more. It's a long drawn process and we have to have unity among ourselves.

  4. Every profession has ups and downs. Mutual Fund distribution business is also facing a bit of turbulence as of now. All the industry participants need to work in the interest of one another and that way we will grow together. If we can have our seat belts fastened, it is only a matter of time and we will find the clear sky ahead.

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