Monday, July 26, 2010

Are Mutual Fund advisors not honest???

Local newspaper "The Telegraph" in it's editorial on 12/07/2010, carried an article which to us seemed to come out from a person who is either too short sighted in his view about the Mutual funds or is a die-hard anti MF person.
We had written to the editor trying to make a case for MF advisors. Reproduced here below is the letter:-


This letter is in response to your editorial in The Telegraph of Monday 12th. July 2010. In the said article you have stated—amongst other things--that:-

  1. MF agents do not render any essential services.
  2. Hence there is no logic in paying them any remuneration; and that
  3. They are robbers.

It seems that the Mutual Fund advisors have become the popular whipping boys of all and sundry. Everything that is wrong, not investor friendly, or unethical is in MF industry only; while everything in every other industry including media and journalism is respectable ethical & acceptable. Sir, you seem to have breached all norms of etiquette, and reasonableness expected of an editor of an “unputdownable” paper!!

In writing “(SEBI’s probable action of rescinding its ban on entry load) will return the investors to the situation where they would have to shell out money to agents for no essential service” you have conveniently overlooked or ignored the fact that it is this supposedly redundant set of MF advisors—who have taken the MF to Tier II & Tier III cities of India. In a recent study (conducted jointly by Boston Consultancy Group and CAMS) published in it has been shown that over a period between 2003 and 2010, share of Mumbai, New Delhi and next Top 8 cities in Mutual Fund holdings have gone down from 90%(47%+14%+29%) to 75%(32%+12%+31%) respectively. Simultaneously, the share of next 90 cities+others has gone up from about 9% to 25% during this same period. Certainly, this shift would not have been possible without the MF agents/advisors!

You further go on to say that an investor does not need an agent to buy MF! Agreed, that today internet has facilitated online transactions and thus by-pass an intermediary! There is nothing wrong in it also. There are many financial magazines that dole out so called “best buys” every week or fortnight! However, the underlying point to be considered is whether the average retail investor equipped enough to identify the scheme that suits his risk profile? More importantly how does an investor ascertain the neutrality of the recommendation(s)? Can the investor be assured that the journalist’s recommendations of MF schemes are not the result of their collusion with MF houses? Is there a Regulator who will ensure that schemes are not recommended based on ad revenue generated by magazines out of MF house?

Nowhere in the world is a salesman expected to work in an environment of falling and uncertain revenues! It happens only in India! Let us be honest enough to accept the fact that the MF agent is here to do business and as is normal bottom-line of a business is “bottom-line”. However, events of the recent past and the article in question seem to suggest that sky would fall down if a MF agent speaks of remuneration! No body questions the legitimacy of the reimbursement earned by the Small savings agent or the insurance advisor from their respective institutions! Then why this step motherly treatment to MF agents?

Sir, you have only showed your ignorance by equating the MF agents’ remuneration with robbery—and by logical extension of the phrase---MF agents are robbers—since only robbers rob! If you so believe, than why don’t you-- through your newspaper-- or anybody petition the courts/government to ban Mutual Fund industry! Let investors buy only ULIPs—where upfront charges are acceptable and the company paying its agents is not robbery but proper! This will ensure that there will be no mis-selling in insurance in times to come.

In conclusion, I—being a part of the MF industry will be honest enough to accept that there have been some excesses in the past—which industry has not had its share of excesses? However, in view of such excesses to paint the entire breed of the MF agents & advisors as corrupt is not proper. There were and are honest advisors in the industry who keep their client’s interest first. I AM PROUD TO BE A MF AGENT/ADVISOR.

At the end, I would only like to request you to be neutral in the article that you write and not be a judge your self. Your job is to place the facts of the matter before your reader. Let the reader/investor judge for himself what he wants and at what price.

Yours truly,

A MF advisor