The Hindu Business Line : MF vendors may levy financial planning fee

Kolkata, July 8 The scrapping of entry load might prompt traditional distributors of mutual funds to consider offering fee-based financial planning – a service that was available nearly free till recently.

Entry load is an amount deducted by mutual funds from the investor’s subscription for making payment to distributors and for other marketing expenses. It usually ranges between 2 and 2.25 per cent.

Research base

Fee-based financial planning services are still at a nascent stage in the country.

According to industry experts, the removal of entry load by the Securities and Exchange Board of India may bring about a shift in distribution from plain-vanilla products to a holistic financial planning model.

“Investors might prefer seeking advice and portfolio services if backed by strong independent research, as that would enable the selection of the right scheme from the 300-400 equity schemes available in the market,” an industry expert who did not wish to be identified said.

Customised service

Most asset management companies have already set up financial advisors’ wings to tap the potential.

ING Mutual Fund, for instance, has set up ING Financial Advisors Network for offering such services.

“Distributors will now look at customised financial planning based on the client’s profile – factoring in age, income, number of dependents and risk profile,” said Mr Malhar Majumder, Partner, Black & White Financial Managers.

“Working out a client’s risk profile is a serious business and can take up a lot of time.”

Explaining the spirit of the regulator’s circular on scrapping of entry load, an industry expert said, “The essence of the circular indicates the need for differential pricing/commission to distributors based on the quality of advice offered to the client.”

The business model of financial advisory was radically different from the current business model of fund houses and might call for readjustment in the way business has been conducted, senior officials observed. However, it might soon become the order of the day, they added.

“If it (concept of financial planning) is logical then people will come to adjust in due course of time,” said a senior official who did not wish to be identified.

Lowering costs

The scrapping of entry load would ensure responsibility and accountability and would act as a key differentiator between a good and a bad financial planner.

“There will be a tough competition among advisors which will help bring down costs for the investors – the primary goal of SEBI,” the official added.

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