The battle among fund platforms is now a full-blown war  

January 6, 2010

One of India’s largest mutual fund distributors, ICICIdirect, on Wednesday announced the launch of an online platform for the exclusive benefit of independent financial advisors (IFAs), in a bid to bring down its costs associated with servicing customers. This could be an ambitious move to give rival platforms a run for their money.

iFAST Financial was the first company to come out with an online transacting platform for IFAs. Recently, Computer Age Management Services (CAMS) and Karvy Computershare (KCPL), the two largest service providers of the mutual fund industry, joined hands to launch ‘FINNET’, which facilitates transacting, execution and customer service on an integrated system. As these are essentially similar product offerings, ICICIdirect will have to play catch-up with its competitors. 

After recent regulatory changes in the mutual fund industry, IFAs have been largely left fending for themselves. Post the ban on entry loads, they are struggling to ensure a steady stream of income, with customers expecting better quality advice in return for upfront commissions. Also, with costs not coming down in line with business volumes, IFAs are in dire need of a revamped business model.

An interesting factor is ICICIdirect getting IFAs to eventually fall in line and come into their business fold, taking advantage of their reach in the market. ICICIdirect, with close to two million customers, is itself a big player in the financial product distribution space. Given the fact that IFAs have their own client database, their involvement with ICICIdirect could pose a conflict of interest. However, the company officials claim otherwise.

According to them, IFAs will have complete ownership of their clients. Vineet Arora, head, product and distribution of ICICIdirect, said, “We have a large online equity broking system as also a large sub-broker network. Our systems are very clear that a customer of one channel cannot get into another channel. IFAs can be rest assured that the customers they bring in will remain as their customers and will not be touched by other channels.”

Anup Bagchi, executive director of ICICIdirect confirmed, “One of the things we have done is not to incentivise one channel over the other. The end cost to the customer remains the same whether he goes through the IFA or comes directly to us. It is a completely different customer segment. We are not charging IFA customers differently.  In the end, the customer will choose what he wants, not what we offer.”

ICICIdirect claims that this platform will create a ‘win-win-win situation’ for all the parties concerned, namely, the advisors, customers and ICICIdirect itself. Deeper penetration, reduced costs and the ICICI brand association will benefit the advisors while customers will get access to quality advice. ICICIdirect would also stand to benefit from the increased revenues as they steadily go about bringing thousands of IFAs into their fold.

For this service, ICICIdirect proposes to adopt a revenue-sharing model with nominal fees for IFAs to get themselves enrolled in the ICICIdirect platform. ICICIdirect will pass on the upfront commissions to the IFAs as per the terms of the agreement. However, IFAs would have to follow the charge structure as proposed by ICICIdirect.

— Sanket Dhanorkar