Can relationship managers replace independent financial advisors?
April 1, 2010
Many private banks are already selling mutual funds (MFs) and now public sector banks are planning to enter this space. According to media reports, the country’s largest public sector bank, State Bank of India (SBI), has trained some 18,000 employees to sell MFs.
But can the new banking foot-soldiers be as good as independent financial advisors (IFAs)?
A relationship manager (RM) needs to have a minimum qualification of an MBA. The remuneration he would get—on an average—is Rs15 lakh per annum. Considering the remuneration, the RM has to generate 10 times his salary as business to justify his package—a revenue of approximately Rs1.5 crore. If the RM achieves his target or even exceeds it, then he may be promoted to a higher branch where more high net-worth individuals (HNIs) would be available. If the RM does not achieve his target, he may be moved to a suburban branch. So an investor would come across new faces every year.
“Banks factor (in) every cost into the employee. I know of many banks who calculate the average rent they pay per employee for the premises that they are using. When the market was in a bull run, banks used to churn clients’ money three to four times and easily earn 2.25% brokerage,” said a distributor.
When asked about the recent Securities and Exchange Board of India’s (SEBI) diktat on upfront commission, a distributor described the market watchdog’s rules as “working towards systematic elimination of brokers and intermediaries.”
Before the ban on entry loads, MF distributors were providing door-to-door services to their clients. After SEBI banned entry loads and subsequently cracked down on upfront commissions, distributors can only hope to profit from trail commissions (an insignificant amount, which again depends on the MF client staying invested with the distributor).
Most IFAs have developed a good rapport with their investors in the area which they operate, so the chances of any mis-selling can be less. Even if they do indulge in mis-selling, they remain with their establishments, while relationship managers have to work keeping in mind the ambitious targets set by bank managements.
“On an average, you get to meet one relationship manager for one year. Then you have a new face (in the bank), while an IFA cannot keep hopping from one colony or housing complex to another by mis-selling to clients he meets. His bandwidth to source new clients is limited,” said Rajesh Krishnamoorthy, MD, iFast Financial India.
SEBI has brought about sweeping changes in the MF industry over the past few months. The latest move mandating asset management companies from paying upfront commissions from load accounts to distributors is yet another dampener for IFAs.
“India definitely needs regulation for financial advisors. What is important is that regulatory changes must not force the choice of any particular distribution channel on the investor,” suggested Mr Krishnamoorthy.
“The cost of losing a client is a lot higher than the revenue from a ‘high commission’ bearing product,” he added. Moneylife had earlier reported on how banks have indulged in mis-selling of products and how they get direct access to accounts of their banking clients for selling MFs. — Ravi Samalad