April 19, 2019

The Risk for Financial Advisors

Aakash Bansal
Co Founder and CEO at Mercury Financial

The Risk for Financial Advisors

From History, Challenges to Solutions!

1 - Intro

What more could you have asked to end the financial year 2018-19, by celebrating The Financial Advisor’s Day and on the 1st Day of the new Financial Year you have the New TER structures getting implemented.

Welcome to The New Era of Intermediation!

I go down the memory lane back to 2009 trying to visualize the trends in the industry, the direction it is moving and how the regulations are evolving!

0. Timeline

Let us glance through the years quickly: 

2009: We were recovering from the global crisis, it all started with Ban of Entry Loads in Mutual Funds (overnight), issuing Guidelines of Change of Broker to Disclosure of Commissions to clients and finally making Online Transactions a reality by allowing & activating Exchanges for facilitating mutual fund transactions.

2011: We saw the Introduction of Distributor Due Diligence which aims to regulate large distributor’s satisfying fit and proper criteria. The distributors are expected to follow certain guidelines like evaluating customer risk, investment objective, MF schemes and its appropriateness to various customer risk categories, defining customer relationships & transactions, advisory or execution only, the disclosure of conflict of interest, compliance, risk management and transparency of information.

2013: What I see is a game changer year where we saw the Introduction of SEBI Investment Advisers Regulation and Introduction of Direct Plans. On one side, Regulator defined “investment adviser” as any person, who for consideration is engaged in the business of providing investment advice to clients. I won’t go deep into Consultation Papers but the fact remains that we have two sets of Intermediaries called Advisors and Distributors. On the other side, Direct Plans came into existence which means higher NAV for the same fund.

2015 and 2016: While intermediaries were trying to reshape the practices either as RIA’s or MFD’s, all the forums had this discussion on how to bring in New Investors and create more Awareness and we saw “Mutual Fund Sahi Hain Campaign which changed conversations from Mutual Fund Kya Hain to Mutual Fund Sahi Hain. While the industry was celebrating this huge success we saw another circular which introduces a new column in Statement of Account and Commission was Disclosed in Absolute Amount along with disclosing the NAV of Regular and Direct Plan.

2017: We saw a clear trend and Emergence of New Intermediation Models like Fintech’s, Start-Ups, Robo’s advertising ZERO commission products and how much saving will happen if you invest in Direct Plans. Wealth Managers/Bankers becoming Entrepreneurs, Stock Brokers, Wallets, Research Firms also entering the industry. Clearly, the Popularity of Direct Plans was increasing.

2018: Reintroduction of Long Term Capital Gains for Equities. Implementation of Categorization and Rationalization of Mutual Fund Schemes, Benchmarking of Scheme’s Performance to Total Return Index. Time will prove about Alpha Generation Possibilities or Emergence of Low-Cost Products like ETF’s and Index Funds and how it shapes up in the country. 22nd October 2018, in order to bring in transparency in expenses, reduce portfolio churning and misselling we saw a circular on Revised TER with a complete ban of upfront commissions and adoption of full trail model, no payments directly or indirectly in cash or in kind including no contests or clubs, etc. to any intermediary. While the training and programs are allowed but with a strict mandate of not misusing it for providing any rewards or non-cash incentive and the rest is history now.

2019 Regulator Defining Retail Investor’s with a modified definition and floating the Consultation Paper for SRO which is expected to do the same due diligence which is done by AMC’s today on large intermediaries. New TER gets implemented with new Financial Year and time will prove again the impact of the same on intermediary’s revenues (Add in GST, Income Tax and the Operating cost of running a business), overall has the revenues go down and will they continue to go down?


With all the regulations through the years, the community needs to be ready for challenges at any point of time with new regulations and roadblocks coming up. Some of the Challenges Intermediaries can face over the next few years would be:9. Challenges 1

  1. Lower Margins and Reduced Commissions, in short lower bottom line.
  2. Increase in Operating cost for running businesses.
  3. The operational challenge in Fee collection mechanisms.
  4. Compliance will continue to become more stringent, costly and universally applicable.
  5. Increase in Popularity of Direct Plans.
  6. Client becoming more demanding and sophisticated.
  7. Need for sophisticated portfolio management skills and tools.
  8. Need for Diversified Asset classes and solutions.
  9. Scaling practices will be challenging and difficult due to disconnected systems.
  10. Transitioning business models and practices.
  11. Availability of affordable and effective technology to achieve business scale.


Given the above background where: Rules and Regulations are changing at a pace never dreamt of, Clients are now more Informed, Empowered & Demanding now in the new age of the digital world, Intermediaries now have to become more Knowledgeable, Compliant and focus on Adding Value in their client acquisition, retention and engagement processes, Adopt Technology & Tools which would help in:

  1. CRM pre and post salesChallenges 2
  2. Risk Profiling, Financial Planning or Goal Planning
  3. Client Acquisition (KYC and Account Opening)
  4. Multi Products, Solutions based on client’s requirements & Risk Appetite
  5. Defining & Demonstrating measures on Performance, Risk, Behavior
  6. Implementation of various Investment Strategies, Model Portfolios
  7. Doing Research and Analytics before and after Investment
  8. Implementing Machine Learning for scaling and intelligence
  9. Choosing the Right Revenue Model which is controlled by Intermediary
  10. Lastly tracking all of the above till the financial goal or the objective of the investment is achieved.


We have to change with Time and ring-fence our practices to not get Disrupted!

Taking cues from the Progression of Economic Value, Technology has got its whole new meaning (Online Transactions, Reporting, Online Login to clients is already commoditized). We don’t use Pagers, Radios & Walkman today, they are outdated and hence it’s time for the evolution of New Technology, New Tools, New UI / UX, New Measures, New Screens, New Models.

With commissions going down, compliances becoming stronger, clients becoming more demanding, flows continuing into financial assets, competition heating up, we continue to dream of adding those 0’s to our AUM’s.

It’s time to redefine the way we engage clients and create practices which will remain for generations by adopting technology and Be Future Ready!

The information contained in this article is intended solely to provide general views and guidance on matters of interests for the personal use of readers, who accepts full responsibility of its use. Given the changing nature of laws, rules and regulations there may be omissions or inaccuracies in information contained on this article. 
As such, it should not be used as a substitute for consultation.
Before making any decision or taking any action, the reader should always consult a professional adviser relating to the relevant article posting. While every attempt has been made to ensure that the information contained on this article has been obtained from reliable sources, the Author or Mercury Financial is not responsible for any errors or omissions, or for the results obtained from the use of this information.
Nothing herein shall to any extent substitute for the independent investigations and the sound technical and business judgment of the reader. In no event will Author or Mercury Financial, or its partners, employees, be liable to the reader or anyone else for any decision made or action taken in reliance on the information on this article. Third parties may submit comments for publication on this article. Any such comments are submitted on the basis that the Author or Mercury Financial will review and may edit such comments, and that not all submissions will be published.
Any third party comments published on this article (whether edited or not) are third party information for which the Author or Mercury Financial takes no responsibility and disclaims all liability, and the above disclaimer applies to any such third party comments. The copyright in the article and any other materials on this article (other than any third party comments) is owned by the Author and Mercury Financial. All rights are reserved. If you wish to use or copy any of the text or other materials on this article (or any extracts from the same), you must first contact the Author or Mercury Financial for copyright permission in relation to the proposed use.
In addition, any use of text or other materials on this article (or any extracts from the same) in published materials must identify the Author or Mercury Financial materials involved and reference the Author's name and Mercury Financial and if so request the email and contact details of the Author and Mercury Financial.

4 Thoughts to “The Risk for Financial Advisors”

  1. Santosh says:

    Nice article and its eye opening…

  2. Bhas says:

    Good analysis and usefull information.

Leave a Reply

Your email address will not be published. Required fields are marked *