WF: What prompted you - a husband-wife duo - to become independent financial advisors?

G V Iyer: This was way back in 1990. In those days we never had a broker in Nagpur at all. Lot of our friends and associates had lot of difficulty in applying for an IPO or transferring or buying shares. They normally used to get in touch with somebody in Chennai or Mumbai depending upon their contacts. And those were the times when lots of frauds were happening in the market due to lack of transparency. That is the time when I just completed my graduation. So I came into this profession as a hobby to help my friends and known people. From my college days, I used to help them in suggesting what to buy and what to sell, so it started as a hobby. We slowly started meeting more and more investors and then we started an office for ourselves.

WF: What is your broad product and client mix?

G V Iyer: We started as a pure equity broking firm. Those were the times when we had to send the order by fax and confirmation had to come by fax - execution was difficult and time consuming.

We started changing based on products that clients wanted. If there was a requirement in portfolio for tax reasons, we would suggest NABARD Bonds or Capital gain bonds. Gradually, mutual funds and later insurance became important revenue pillars for us.

Today, about 40% of our income comes from stock broking, 40% from mutual funds and the rest from insurance. Our mutual fund AuM is around Rs. 125 crores at present. We have a good mix of over 1000 retail, HNI and corporate clients and a team of 20 experience staff to take care of our clients' needs.

WF: You have made some aggressive market calls - you got your clients to invest in equities in Dec 2008 at sub-10,000 levels - when most others were running scared. What are you asking your clients to do now?

G V Iyer: We feel that this whole rally has been based on lack of faith in the market. At every correction we are see that stocks are moving from weaker hands to stronger hands. Participation has been one of the lowest that I have seen in the past 20 years. Exactly 1 year ago, in March 2009, the market was at 8200 levels - it has doubled in exactly 1 year. In the whole process, majority of investors have missed this rally. My sense is that by March 2012, market should be at 30000 levels.

But that doesn't mean clients should invest everything in equities. Disciplined profit booking is very important. Moving into other asset classes is important to protect gains. We aggressively recommended gold to all our clients right from 2005 to 2008. We continue to be bullish on gold.

Many times, asset classes test your patience before they reward you. You must have patience with your investments.

WF: Have you made any changes to your business model post Aug 09, in response to the margin shrinkage after the entry load ban on mutual funds?

G V Iyer: Right now we have not done any changes in our working; we continue to do what we were doing. The market is not mature enough to permit fee charging. SEBI and the insurance guys will have to come up with a uniform structure for clients. Until then, there is a flux. We cannot go on changing our business model every time one regulator or another changes one piece in the whole set of products that clients buy from us. We will wait for a uniform structure to emerge and will then see what changes are needed in our business models. The industry needs more clarity - I don't just mean MFs - the industry for us has multiple products - MFs, insurance, stocks, bonds. We need a clarity and parity across products.

WF: Some advisors are shifting focus away from mutual funds due to lower margins. Do you see this shift in your firm as well?

G V Iyer: These are long term calls to be taken - and will also depend on what clients want. Now, we do a lot of IPO business - we don't get anything, it is hardly peanuts; still we do that business also. When you are handling the clients overall portfolio, then there maybe some services we might get lower income on for a certain period of time.

In mutual funds, there is very little clarity - there is no long term commitment. For example, AMCs continue to give us only quarterly commission structures - they don't want to commit to longer term commission structures!

WF : We are seeing very low investor interest in mutual funds in recent months. The poor collections in ELSS products is a telling example. To what extent is this due to distributors de-focussing from mutual funds? Why do we not see a demand pull towards ELSS products from investors?

G V Iyer : If you look at investors who bought ELSS funds in the last 2-3 years, they have not made money. That is the big reason for poor response this year. They feel it would have been better to pay the tax and spend the money!

Also, investors confidence has been shaken. When markets hit 21,000, everybody was busy launching NFOs and collecting money. But, when it went down to 8,000, nobody was out there giving reassurance - no press ads, no advice telling investors that this is the time to invest. Now, after markets have doubled, they are back again and visible. This will obviously not go down very well with investors.

Its not just the AMCs - how many distributors went out and told clients not to stop their SIPs, how many had the conviction to tell clients to invest at sub-10,000 levels with proper justification and research? How many were there for their clients when they were losing money?

WF: Being an active equity broker, how do you see the new MFSS online MF platform that has been developed by NSE and BSE? Are you considering this for your MF business?

G V Iyer: No. We have tried to keep our clients' equity investments separate from their mutual fund investments. We are not happy to get the mutual fund into the same demat account where equity is also parked.

There is a psychological issue that will make clients take wrong actions. They see direct equity investments as something that they control while mutual funds are not controlled by them - because they don't decide what to buy and sell within the fund.

Suppose I have a demat account in which my shares and MFs are shown and I have bought some shares and the market has gone down, I generally tend to liquidate my mutual fund or equity fund wherever which is not directly managed by me. I may resist selling the shares I purchased - because that was my call - but, to cover losses, the first thing I will sell is the equity mutual funds - which are not directly managed by me. So, the first opportunity, he will sell those funds to make good his losses in direct equity holdings. We have a lot of difficulty in convincing to have a balance between direct equity and mutual funds. And, if both holdings are shown in the same demat statement, the picture will get even more distorted. Less and less investors will keep their equity funds for long term - while maintaining an active strategy in direct equity - if both are shown in the same statement. Eventually, the investors will start looking at all their holdings in their demat statement from the same perspective - which will be short term oriented.

WF: There is a lot of debate on the agent change process - specifically on whether the new agent should get trail on old investments. What is your view and how is this impacting business in the Nagpur market?

G V Iyer: This move helps the big NDs and banks to grab business from small IFAs. They don't want to create their own investor bases and their own business models - they are just grabbing existing AuM. That is the pathetic story of whole industry. The AMCs have created a big monster and are unable to tame it now.

I think it is perfectly fine for an investor to move to another distributor / advisor. But trail on old investments must continue with the original distributor - unless he gives an NOC for moving trail as well.

The state of MF business is such that FIIs are net buyers in a big way in this bull market, insurance companies are buying into this bull market - but AMCs are continuous sellers in this bull market!

So, what has SEBI achieved with its micro level management and frequent and abrupt policy changes? Is this the way retail penetration is going to be achieved?

We cannot have one set of rules for MFs and another set of rules for insurance and other products. There has to be uniformity. The intermediaries are the same, the investors are the same - yet only rules are different!

WF: What are the 1 or 2 most important things you think need to be done for momentum to be restored into the MF industry?

G V Iyer: First - bring clarity and parity across all investment and insurance products. Until then, you will money flowing into products that have higher commissions - like insurance.

Second, a large investor awareness program must be undertaken by AMFI / SEBI on merits of various products. Depending only on individual AMCs and distributors is not going to get the message across. Financial literacy must become the number one agenda for SEBI and AMFI.

For example, take these capital protection funds - they are fantastic alternatives to fixed deposits. But, how do I communicate this to the lakhs of investors in Nagpur who invest in FDs? How much reach do I have? How much money can I spend on this?

Another example : ETFs are very efficient vehicles for retail investors to participate in equity markets. How much investor awareness has been created around this?

These are the issues the higher ups should think about, find answers to and execute at a national level. That is what will get the right kind of momentum into the MF industry.