Much more than the entry load ban, it is the trading of mutual fund units on exchanges that is giving a headache to independent financial advisors.
Private wealth planners are accusing brokers, and rightly so, it appears, of poaching clients who use the exchange gateway to transact in mutual fund units. Brokers are attracting customers of small investment advisors by offering them free trading accounts, margin and portfolio leveraging facilities.
In their bid to tide over the crisis, a batch of influential wealth planners recently met BSE officials to start an exclusive low-cost mutual fund trading window (on BOLT) for registered financial advisors. According to fund industry officials, the aim of this request of wealth planners is to empanel themselves with the Bombay Stock Exchange (BSE) at a lower cost. Currently, any intermediary to get empanelled (and get trading rights) with BSE has to pay about Rs 1 crore.
Capital market regulator Sebi had allowed investors to buy or sell their mutual funds units through stock exchanges last month. As per Sebi guidelines, any investor who wants to use the exchange gateway will have to open a trading account with a broker and a demat account with either of the two depositories.
After opening relevant accounts, if an investor wants to buy a fund, the broker will pay for the purchased units from his own account. Upon receiving the purchase note, the investor writes a cheque (which includes the money paid by broker to buy the units and brokerage commission, if any) in the name of the broker. The fund units — being purchased in the name of investor — will be entered into the demat account of the investor.
“The entire chain puts brokers at a greater advantage. They acquire our investors by offering them free trading accounts, life-time commission-free MF trading facilities and cash margin on their portfolio. We are in no position to compete with them,” said a Mumbai-based independent financial advisor. By offering free demat (offered free of cost by very small number of brokers) and trading accounts, investors save on initial charges up to Rs 750. Relationship managers at brokerages advise new investors to “make good use of their demat accounts” by starting equities trading as well. They also agree to lend money, keeping the investor’s mutual fund portfolio as the margin. Brokerages are also allowing rich investors (who have MF investments in excess of Rs 10 lakh) to leverage on their portfolio and take more exposure to the equity market.
Portfolio leveraging is a method of raising easy interest loans wherein investors leverage on their own fund portfolio to raise a loan that will be re-invested in either mutual funds or stocks. According to market sources, brokerages allow 60-70% exposure on the portfolio pledged.
“Acquiring clients is a natural process in broking business. We give a run-down of all the services that we offer when customers approach us,” said Vinay Agrawal, executive director - equities broking, Angel Broking.
“Online clients are joining us because they are getting a wide spectrum of financial services under one roof. We want such clients to join us; we’re not charging any fee on mutual fund transactions,” Mr Agrawal added.
According to Ranjeet Mudholkar of FPSB India, an international professional body of financial planners, client acquisition will always happen in a market where there are several intermediaries.
“Giving freebies is one of the many strategies adopted by competition to acquire more clients. But then servicing a client is tougher than acquiring one,” Mr Mudholkar said.
“As long as private wealth planners render good service to clients, there is nothing to fear. They should try to add value by offering services like tax planning and succession planning. They can also tie up with select brokerages for opening trading accounts as well,” Mr Mudholkar added.
Private wealth planners are accusing brokers, and rightly so, it appears, of poaching clients who use the exchange gateway to transact in mutual fund units. Brokers are attracting customers of small investment advisors by offering them free trading accounts, margin and portfolio leveraging facilities.
In their bid to tide over the crisis, a batch of influential wealth planners recently met BSE officials to start an exclusive low-cost mutual fund trading window (on BOLT) for registered financial advisors. According to fund industry officials, the aim of this request of wealth planners is to empanel themselves with the Bombay Stock Exchange (BSE) at a lower cost. Currently, any intermediary to get empanelled (and get trading rights) with BSE has to pay about Rs 1 crore.
Capital market regulator Sebi had allowed investors to buy or sell their mutual funds units through stock exchanges last month. As per Sebi guidelines, any investor who wants to use the exchange gateway will have to open a trading account with a broker and a demat account with either of the two depositories.
After opening relevant accounts, if an investor wants to buy a fund, the broker will pay for the purchased units from his own account. Upon receiving the purchase note, the investor writes a cheque (which includes the money paid by broker to buy the units and brokerage commission, if any) in the name of the broker. The fund units — being purchased in the name of investor — will be entered into the demat account of the investor.
“The entire chain puts brokers at a greater advantage. They acquire our investors by offering them free trading accounts, life-time commission-free MF trading facilities and cash margin on their portfolio. We are in no position to compete with them,” said a Mumbai-based independent financial advisor. By offering free demat (offered free of cost by very small number of brokers) and trading accounts, investors save on initial charges up to Rs 750. Relationship managers at brokerages advise new investors to “make good use of their demat accounts” by starting equities trading as well. They also agree to lend money, keeping the investor’s mutual fund portfolio as the margin. Brokerages are also allowing rich investors (who have MF investments in excess of Rs 10 lakh) to leverage on their portfolio and take more exposure to the equity market.
Portfolio leveraging is a method of raising easy interest loans wherein investors leverage on their own fund portfolio to raise a loan that will be re-invested in either mutual funds or stocks. According to market sources, brokerages allow 60-70% exposure on the portfolio pledged.
“Acquiring clients is a natural process in broking business. We give a run-down of all the services that we offer when customers approach us,” said Vinay Agrawal, executive director - equities broking, Angel Broking.
“Online clients are joining us because they are getting a wide spectrum of financial services under one roof. We want such clients to join us; we’re not charging any fee on mutual fund transactions,” Mr Agrawal added.
According to Ranjeet Mudholkar of FPSB India, an international professional body of financial planners, client acquisition will always happen in a market where there are several intermediaries.
“Giving freebies is one of the many strategies adopted by competition to acquire more clients. But then servicing a client is tougher than acquiring one,” Mr Mudholkar said.
“As long as private wealth planners render good service to clients, there is nothing to fear. They should try to add value by offering services like tax planning and succession planning. They can also tie up with select brokerages for opening trading accounts as well,” Mr Mudholkar added.
Source:http://economictimes.indiatimes.com/markets/analysis/Brokers-give-financial-planners-a-run-for-their-money/articleshow/5371946.cms
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