It seems that financial planners and investment advisors are having tough time ahead. Capital market regulator SEBI (Securities Exchange Board of India) 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 trading account and demat account, if an investor wants to buy a fund, the broker will pay for the purchased units from his own account. After the investor receives the purchasing note, he writes a cheque worth the value of investment including brokerage commission, in the name of the broker. Then the fund units purchased in the name of the investor will get credited to the demat account of the investor.
This is the usual process. But the entire chain makes the broker an important stakeholder in the mutual fund investment process via trading exchange route. To acquire more and more investors as their clients, brokers are said to be poaching the mutual fund investors who use the exchange gateway to invest in mutual fund units.
Brokers are attracting small and marginal mutual fund investors by offering them free trading accounts, margin and portfolio leveraging facilities. This is making the job of financial planners and investment advisors tougher in the time just over the crisis. Some of the brokers are said to be offering free trading accounts, life-time commission free trading facilities in mutual funds, and cash margin on the portfolio of investors. Financial planners and investment advisors are finding it very difficult to compete with them.
Acquiring clients is a natural process in any business in general, and broking business in particular. Small and marginal investors come to brokers because they get a wide spectrum of financial services under one roof. In the time of stiff competition, giving freebies is one of the most influential strategies adopted by business to acquire more and more customers. So far, so good. Private wealth planners and investment advisors are required to render better services and work toward value addition to their service portfolio in order to maintain their business. Alternatively, they can be professionally associated with certain brokerage houses for offering trading services to mutual fund investors.
Filed under: Behavioral Finance |