Advisor Speak

7th December 2009

Should you take up an NSE terminal now?

WF: Now that we have the BSE and NSE offering us the Mutual fund transactions services, how will that impact the way an advisor conducts his business? Would you be looking at offering transaction services through stock exchanges or due you think that life will go on as normal.

Bagla: My view and my opinion would largely depend upon, where I think is this whole process terminating into. If I can interpret the thoughts that the regulator is thinking, then the premise on which he is coming from is more, where that he wants to bring regulations into the distribution and advisory of Mutual funds.

Because, at the moment this fraternity is an absolutely unregulated territory. I am sure that he did work on the idea where AMFI would have been empowered to regulate the distribution community but having not succeeded in getting them to take up this responsibility, he has now found a solution in putting NSE and BSE at the helm of that assignment. The moment this whole transaction gets on the BSE and NSE, they themselves become the regulators of the broking communities and invariably then that platform which is NSE and BSE is regulated by SEBI so the vigilance and everything becomes far more possible for SEBI to do.

As far as I take that view forward I don't think that offline model is going to continue for a long time. So personally I think that if the regulator would allow multiple platforms and online as well as offline models, again there will be areas were it will be unregulated, so the whole purpose will get defeated. So I personally think that it is only the beginning. It is now being introduced as a facilitation platform, for people to accept this as one of the options. The platform will be perfected based on experience over the next 3 to 6 months. Once this trial period is over, we will probably live with only this online mode - offline will become a thing of the past.

WF: Does this also mean that advisors would either have to be members of stock exchanges or align with a member of a stock exchange?

Bagla: Absolutely, absolutely, this is what personally I think is the natural culmination of this whole exercise which the regulators have initiated. Now if, we would agree to that, then comes my approach. So, if we agree on that then I do not have a choice to speak, so that's what I think - I will not have a choice and I will invariably be required to get on to the trading platform, if at all I have to remain in financial services. Okay so either I am in financial services going forward or I am out of it. So if I want to remain in this, then I have to get on to this bandwagon and having come on this bandwagon - I have to choose my route - whether I want to take an memebership with the exchage directly or for that matter I want to become a sub- broker or a fanchisee with an exisiting broker.

WF: Are you incidentally a member of a stock exchange?

Bagla: At the moment I am a franchisee with Reliance Money, which provides online trading options to my investors. Of course that is going on ? now there is naturally going to be some amount of conflict of interest when it comes to online transacting. The way i am thinking is that if I see six months later that online is the only option and I am actually advising my clients to buy mutual funds online, then my interest is going to gradually become transaction oriented. So if it is going to be transaction oriented, then somewhere or the other I will be induced to transact, because the moment I transact I will generate revenue.

So the inclination to trade will become higher but mutual fund being a more passive product which will not permit very active transaction on a regular basis, there may be a conflict.

WF: So what would therefore happen to these super-distributor mutual fund platforms that are now already up and running?

Bagla: Yeah., that is going to be difficult scenario for them also, because everything is going to be on the exchange, I don't know how they will be able to integrate data from there on the platform. Ideally, a wrap platform that allows automated or semi-automated asset allocation, fund selection and rebalancing of portfolios can add a lot of value. But we don't have such platforms in the market today. A pure mutual fund transaction execution platform may not have much of a future in the new scenario.

I also believe these changes will have far reaching implications on the business models of advisors. Advisors will need to make a clear choice of either becoming HNI oriented pure advisors with 50-100 clients on a fee based model or go fully retail through NSE platforms at minimal charges and little advisory inputs. Guys in the middle will need to move in either direction - remaining in the middle is asking for trouble.