Tuesday, April 30, 2019

Mutual Fund Distributors are on the Verge of Death

The Mutual Fund distributors are the biggest risk currently. The Rs 25lakh cr industry will double in the next 5 years but the distributors will number will come down to 1/3rd from the current numbers. Old assets and new assets in both segment brokerages have been reduced significantly which is a threat to the survival of the community. 

AMC and clients will both remain advantageous from the new reduced brokerage structure but the ones who helped to build this the industry will be out of the market soon. The question is no longer restricted to which AMC has chopped the hands of the distributors but the final result that the bugle of death for the distributors have been blown.

The dramatic cut down of the brokerage raises a significant question about the long term outlook of the AMCs towards the distributors.

By cutting down brokerage and keeping around 50% to 80% of TER the industry has been able to reduce the outflow of the brokerage being paid to the distributors.  The CIO, CFO, CEO, Fund Manager and even the National Sales Head of the AMC gets a significant amount of remuneration but nothing has been chopped at their end. The below list itself speaks for the same.

The salary figures are old and the new ones will be high and this has grown also in the current year. How the AMC does is able to pay such high salaries to the CIO and CEO and Fund Managers? Why these salaries are not being reduced? Well, the distributor is killed for the sake of these people through the reduction of brokerage.

The industry leaders think that as the size of the industry is significantly high and clients are being acquired through a digital medium the so-called distributors are no longer required in this industry. The mutual fund has been one of the bread and butter products for the 10000+ distributors. SEBI in its circular has asked to cut down TER but the way it has been reduced by the AMC that it turns out to be a question mark of survival for the whole distributor fraternity.

The significant rate cut down by the AMC has zero impact on the AMC itself. Rather they are keeping 50% to 80% of the TER with themselves.

Its, time for the Distributors community to raise voice about the disastrous revenue structure created by the AMC. The 2nd generation of the distributor community is reluctant to run the business.  The way the brokerage on old assets is being reduced that client servicing is now impossible.

Many AMC has come with zero exit load strategy for the transfer of investments from Regular to Direct. Well, what do the AMC leaders want to communicate that we are no longer required?

Brokers will stop the MF business soon.  The industry sales will be impacted for the short term and the larger impact will come when future inflows will get dried due to the wrong decision in a scheme selected by the investor.

Distributors should come together to fight against these malpractices and inferior brokerage structure decision taken by these AMC. It finally proves that those who wanted the distributors to be eliminated, finally their true face are now out.

Friday, April 19, 2019

U.K 2nd Referendum will Happen Soon...Verdict is Clear

The Brexit deadline has been extended till 31st October 2019. A second referendum is being thought over where around 30 to MPs’s don’t want to have the second referendum and on the other side around 80 MP’s wants to have the 2nd referendum.  The chances of the 2nd referendum and the result of the same seem to be very clear. The deadlock situation can only be eliminated through people vote and through 2nd referendum. The people of the UK may not go for Brexit. It is not 2016 but 2019. Theresa May might come to an end of her position soon. The cost of Exit was not calculated in the 1st Referendum which currently has been figured very well. This calculation is the key to decide the verdict.

If the second referendum happens the Vote will be not to leave EU. Yes, the time has changed from 2016 to till now. UK will vote to stay within the EU. The citizens have already felt the heat of leaving the EU. From 2016 to 2019 things have changed dramatically where every citizen knows the dire consequences they have witnessed and will witness further once the UK exit the EU.

The chances of the 2nd referendum are high and that cannot be ignored. The citizens are already facing the heat where analysis from a Research company, it has been found on an average household has paid £550 more since 2016.   According to the report it has been found that at least £15bn more have been spent on the household consumption items by the UK people. For example, the price of filter coffee has risen by 10 per cent, the cost of bananas has increased by the same amount and a glass of wine bought in a pub or restaurant has gone up by 8 per cent. Well, the cost of energy bills increasing by an average of £75 a year.

Coming to the corporate segment of the UK, companies have already burnt their fingers with escalated cost on machine and transportation to the tune of with £4.4bn out of the £15bn.

Citizens living in other EU states will be under severe pressure once the Brexit happens. In France, till now Income Checks are not there on the UK people living in that city. But soon income checks will come into place.

France has a rule where it states that if one is  single then  must earn at least €559.74 a month, a figure that increases to €958.237 if they have a child. In the case of couples, one must earn €839.62 as a household or €1007.55 in case you have a child. Pensioners must have an income of €868.20 if they are single or €1,347.88 if they are in a couple. In the future, these numbers will increase. Currently, the French government doesn’t check these numbers but once the Brexit kicks in these checks will make life miserable.

Further the burden of exit liability in monetary terms will make life difficult post Brexit.  The EU pension is one of the biggest liability and the EU does not have provisions in advance. They follow the rule of Pay as you Go. Hence when the UK will exit EU the liability of pension at that point of time including the currency impact will have a significant burden.

Already we have witnessed that most of the jobs have shifted out of London due to Border arrangement and free movement regulatory fears. This will have a significant impact on the cost of living for UK people in the long term.

The the job market of UK is in a miserable state of condition. Job vacancies in London’s finance industry have halved in two years. Recruitment agencies state that the number of jobs available in the city’s financial services industry and the number of finance professionals seeking new jobs have each fallen by more than half in the past two years.

According to the report by the Department of Finance and the Economic and Social Research Institute (ESRI)  ano Brexit deal would cost 80,000 jobs to the Irish economy.

Its time to hear the demand of citizens of U.K. The citizens of UK will decide the fate of Brexit now. Situation has changed from 2016 to 2019. I repeat what I told at the beginning, the cost of Exit was not calculated in the 1st Referendum which currently have been figured very well.

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