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IFAs, FIFA show concerns over direct plans

FIFA believes that the direct plan variant will further weaken retail investors’ access to investment advice

September 05, 2012 5:07 IST | India Infoline News Service
In August, capital market regulator SEBI (Securities and Exchange Board of India) announced several decisions to attract retail participation in the mutual funds industry. But, the regulator’s decision stand imperilled by the clause that mandates mutual fund companies to create a direct plan variant for their schemes. Such a variant would be available only to those who are investing directly with the asset management companies and would be available at a lower expense ratio. However, no details are provided about how much lower the expense ratio would be.

Indian financial advisors (IFAs), Foundation of Independent Financial Advisors (FIFA), Mumbai and Mutual Fund Distributors Association (MFDA, Gujarat) have represented their concerns on the proposed direct plan structure with the regulator, according to media reports. They have requested SEBI not to introduce the direct structure.

However, it seems SEBI is reluctant to modify its decisions, the reports added.
FIFA had represented to SEBI on 10th August, when it first heard of SEBI's intentions to consider a direct plan variant. FIFA believes that the direct plan variant will further weaken retail investors access to investment advice, as such a move can potentially further reduce an already shrinking IFA community. 

According to FIFA, if SEBI is indeed taking a leaf out of the insurance industry—where a lower cost direct channel has been introduced—let them at least be consistent and announce that a lower cost direct share class will be available only for direct online transactions—like what we see in the insurance industry. If an investor goes direct in the offline mode, he will be using the AMC's sales and service infrastructure, which does cost a lot of money for the AMC to maintain. 

DFDA—northern India’s IFA group with over 100 members from 32 locations—has been campaigning among AMCs and distributors against the direct plan structure. MFDA, Gujarat too has written to SEBI to review the proposed decision.

Though details on the direct plan structure are still unknown, distributors are concerned about the possible impact of this measure on their business. Some AMC officials are of the opinion that direct plans are an expensive suggestion since it is likely to increase their cost overheads to service direct clients.

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