Small investors in funds need access to advice

Over the last few months, a common question and concern from participants has been lack of access to a good financial adviser. Most people write in asking us to manage their money or refer a trustworthy financial adviser. A friend’s niece wanted to invest Rs30,000 per month in systematic investment plans (SIPs). She had some specific requirements and hence needed professional help. She had tried calling various advisory firms and independent advisers but none were interested in taking her as a customer. I also called some advisers but found that most of them had a minimum threshold requirement. Finally, one of my teammates spent time to understand her financial situation and helped her.

The problem is that retail investors have nowhere to go for financial advice. Unlike in the case of insurance, where there is always a relative who cajoles family members to buy policies, mutual fund agents are not easily available. Also, investors do not trust bankers and are not sure about robo advisors. In the absence of having the right person to talk to, they end up investing based on advice from friends or influencers around them like colleagues or by searching the internet.

Here are some of the issues mutual fund investors face.

1) Given that retail investors invest smaller amounts, most advisers are usually not interested in dealing with them regularly. Seldom do agents approach clients with mutual fund products.

2) Customers want to take advice but are not willing to pay the commensurate amount to the adviser for the time spent.

3) Even if retail investors use advisers, they don’t ask the right questions. With insurance being the dominant investment in their portfolio, the most common question that I come across is: “If I put X amount, how much will I get after 10 years?”

4) Investors are often confused by fund names. This issue has been addressed with the recent circular on re-categorization.

5) Investors do not like to spend time understanding a product. In almost all sessions, people find goal planning laborious and want a quick fix, i.e. the names of the funds to invest into. The preferred mode of investment is still signing blank forms.

6) As far as robo advisors or online platforms are concerned, retail investors are not comfortable sharing data digitally and want to have someone to talk to. Maybe people don’t want to go with online platforms as they won’t have a person to blame if their investments go wrong.

 7) Opening accounts with industry platforms is equally confusing. I tried helping a friend, who was KYC (know-your-customer) verified, set up an account with an industry platform, but it took long and the procedure was not simple.

It is a catch-22 situation as advisers don’t make enough through distribution fees to service smaller clients regularly and investors expect as much service as a high networth customer would, but don’t want to pay the corresponding fees or use online platforms. As a result, retail investors are forced to invest through their bankers, which they don’t want to do because they feel banks suggest products where they earn higher fees and also send less experienced relationship managers.

Mutual fund penetration in India is still low compared to the global average. If asset management companies (AMCs) want to get loyal and long-term customers, they would need to put in place some concrete measures to have more advisers. With the markets being buoyant, mutual funds are being looked upon positively, but in extended downtrend periods, advisers will be required to hand-hold customers. While the ‘Mutual Fund sahi hai’ campaign is a good start, it doesn’t help operationally as investors get stuck at the planning and implementation phase.

Here is what can be done to ramp up the adviser network:

1) AMCs need to work towards increasing the number of fee-only financial planners.

2) Instead of promoting features or specific schemes in advertisements, AMCs should highlight the need for financial planning while investing in mutual funds.

3) They should also develop an agent network like the insurance industry. For this, AMCs need to identify advisers who will cater to retail customers and train them. Apart from subject matter knowledge, AMCs can provide on-call assistance to advisers.

4) The Association of Mutual Funds of India can have a list of all financial advisers on their site where investors can get reviews and ratings as well as search for advisers based on PIN code.

Mrin Agarwal is a financial educator, founder director of Finsafe India Pvt. Ltd and co-founder of Womantra


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*Photo credit: iStockphoto

Source: Article written by Mrin Agarwal in Livemint on May 08, 2018

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