Advisor Speak

7th December 2009

Should you take up an NSE terminal now?

WF: How do you see life changing for advisory firms with the advent of MF trading on BSE/NSE? Would you be inclined to doing your clients transactions on the stock exchanges?

Babu Krishnamurthy: My view at this point in time is, this is a procedure that enables stock brokers to sell mutual funds. I don't think it is for advisors to offer mutual funds using this platform. It is an enabling tool for stock brokers. I am not a stock broker and SEBI has not made this platform in a different format, so that others who are Non-Brokers can also be part of it, so I have to go in as a sub broker to a main broker and that's not essential.

There is another aspect to this. If mutual funds are going to be held in a demat account, the statement will come out in alphabetical order - so you will have 20 shares in ACC as the first entry followed by 1000 units in Axis Equity Fund and so on. That's not the way I would look at offering portfolio disclosure to my clients. Our asset allocations are done differently and reported differently.

This new facility of trading funds on exchanges can give mutual funds greater visibility and there could be investors who will buy funds from brokers. But its not for advisors like us

WF: There is a greater transaction convenience that stock exchanges offer. Do you think this is an important aspect that clients may expect out of their advisors, going forward?

Babu Krishnamurthy: I certainly believe so, the convenience that these stock exchange platforms offer is fantastic when compared to what we offer today to our clients so no two ways about it. Having said that, I do believe that online mutual fund platforms will serve the purpose in a pretty similar fashion. I am hopeful that by Mar-Apr 2010, if we get the mutual fund oriented platform, that will largely take care of this issue as well.

WF: From what we understand, the single application form and single cheque may not be in the agenda for phase 1 of the proposed AMFI platform. Will this be an issue?

Babu Krishnamurthy: No - so long as it comes through in a reasonable time frame. I also think that clients may not be oriented towards writing large cheques favouring their advisors. Its one thing for a client to write out a cheque favouring his broker for Rs. 1 lakh worth of shares he may have bought. But in mutual funds, we have clients who invest substantially larger amounts of upwards of Rs. 1 crore. Clients will be more comfortable writing out these large cheques in favour of the fund directly rather than the broker or advisor.

I think the convenience aspect of exchanges is clearly there - but I don't think customers will migrate. We have not had too many clients calling and saying that they want to buy funds on the stock exchanges.

In my view advisors should not take up a stock exchange terminal - because if they do, they will start mimicking a broker over time.

WF: We have seen the emergence of number of mutual fund platforms in a super distributor format even as AMFI is progressing with its own platform. What role do you see a platform playing in the life of an advisor?

Babu Krishnamurthy: Today if you ask me, the one piece that's missing with advisors is tools. I have the knowledge, I have the advisory, my team is well equipped but we do not have the tools. To give you a simple perspective, we don't have a tool that automates portfolio rebalancing. Platforms that offer sophisticated tools that help advisors - will see a demand for their service. Having said that, I think there will be only a small set of advisors who will seek such facilities and will be willing to pay a price for it.

With the stock exchanges offering pure transaction execution capabilities, retail clients and advisors who are only looking for that and nothing more - can as well use the exchanges rather than pure transaction based fund platforms.

In the new environment, I see a new set of advisors emerging - who will progressively move towards a fee based model and whose requirements will be vastly different from the pure execution oriented intermediaries.