The cut in commissions has severely battered the confidence levels of independent financial advisors (IFAs) in their ability to grow their revenues. A recent survey done by WealthForumTV showed that leading IFAs (on an average) were expecting a 20 per cent fall in revenues.
According to the survey, the IFAs' confidence in growing their revenues and volumes is at eight-year lows. This has also meant that IFAs willingness in investing in the mutual fund (MF) business is at eight-year low. The survey was analysed responses from 246 leading IFAs from 45 cities.
The survey also pointed out that most IFAs were unhappy with the way in which some of the MF players passed the entire burden of expense ratio cuts onto the IFAs.
Since April 1, the new slabs on the total expense ratios laid down by the Securities and Exchange Board of India, had come into effect.
What is concerning is that the confidence-levels highlighted in the survey only pertains to the leading IFAs and the levels could have been quite worse if sentiments of smaller IFAs were also taken into account.
"IFAs have an important role to play if the MF industry wants to penetrate beyond the top-15 cities. They play the role of hand-holding investors that lack awareness of MF products and capital markets," said a senior industry executive.
According to industry participants, the silver lining is that top IFAs still don't see MF distribution as an unviable business. However, they add that smaller IFAs might look to switch from MFs to other investment products, where they feel the incentive structure is better.