Archive for November 5th, 2009

IFAs tying up with Brokerage Houses to turn Sub-Broker :)

IFAs - Sub-Broker

IFAs tying up with Brokerage Houses to turn Sub-Broker

 

Independent financial advisors (IFAs) are tying up with large distributors and brokerage houses to act as sub-brokers, to keep themselves afloat after the entry load ban on mutual funds.

Earlier, IFAs used to make most of their earnings by selling fund schemes.

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A sub-broker is a person who acts on behalf of a stock-broker as an agent, or otherwise for assisting the investors in buying, selling or dealing in financial products through stock-brokers.

Many independent financial advisors have approached the company asking it to create a platform through which they can offer advisory services to their clients.

There is a plan by companies also to launch such a platform in coming weeks.

Broking industry representatives said that IFAs have been left with no option but to tie up with large brokerage houses after they have been denied of their basic source of income (2.25 per cent entry fee on mutual fund investment).

Brokerage Houses are set to provide them with basic infrastructure and resources to provide investors advisory services.

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IFAs are now required to charge a fee for providing their advisory services, instead of a commission on each transaction that they received earlier.

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The Securities and Exchange Board of India (Sebi) had asked mutual fund distributors not to charge any entry load with effect from August 1. It had instead asked them to charge as per the service provided.

It means that a distributor cannot charge any fee for merely selling a product but can charge only if they offer advisory services to investors.

The new norm has queered the pitch for thousands of independent financial advisors, who used to make their earnings by merely selling mutual fund products.

Jagannadham Thunuguntla, equity head of Delhi-based brokerage house SMC Capital, said that the entry load ban has come as blessing in disguise for large brokerage and distribution houses.

β€œMost of the mutual fund business would now be routed through big distribution houses as IFAs struggle to provide the necessary advisory service on their own.

The sub-broker model is one of the few viable options available with the small financial advisors,” he added.

When asked if IFAs approached SMC showing their interest in becoming sub-brokers, Thunuguntla said that though inquiries were not so aggressive, they expect more IFAs to come seeking their help as the time passes.

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RBI, Monetary Projections And Indian Economy

Hello Friends,

Just an extension of our previous blog ”RBI And Its Policies – Part 1β€³.

RBI, Monetary Projections And Indian Economy

RBI, Monetary Projections And Indian Economy

In this Blog we would touch upon the aspects as that of Monetary projection from RBI, assessment of economy scenario at present and relevance of RBI policy on economy.

Monetary projection:

For policy purposes, money supply (M3) growth for 2009-10 is placed at 17.0 per cent, down from 18.0 per cent projected in the Annual Policy Statement.

Consistent with this, aggregate deposits of scheduled commercial banks are projected to grow by 18.0 per cent.

The growth in adjusted nonfood credit, including investment in bonds/debentures/shares of public sector undertakings and private corporate sector and Commercial Papers (CPs), has been revised downwards at 18.0 per cent as in the Annual Policy Statement.

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Economy:

Since the last review in July 2009, there has been a discernable improvement in the global economy.

The recovery is underpinned by output expansion in emerging market economies, particularly in Asia.

World output has improved in the second quarter, manufacturing activity has picked up, trade is recovering, financial market conditions are improving, and risk appetite is returning.

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A sharp recovery in equity markets has enabled banks to raise capital to repair their balance sheets.

If we talk about the home country then there are definitive indications of the economy attaining the ‘escape velocity‘ and reverting to the growth track.

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The performance of the industrial sector has improved markedly in recent months.

Domestic and external financing conditions are on the upturn.

Capital inflows have revived.

Moreover activity in the primary capital market has picked up and funding from non-bank domestic sources has eased.

Liquidity conditions have remained easy and interest rates have softened in the money and credit markets.

Growth projection for GDP for 2009-10 on current assessment is placed at 6.0% with an upward bias, the same as the previous policy review.

But some darker parts also persist.

There are clear signs of rising inflation stemming largely from the supply side, particularly from food prices.

Private consumption demand is yet to pick up.

Agricultural production is expected to decline.

Services sector growth remains below trend.

Bank credit growth continues to be sluggish.

The central bank has warned of possible asset price bubbles, raised banks’ provisioning requirements for commercial real estate loans and lifted inflation forecast.

WPI inflation for end-March 2010 is projected at 6.5 per cent with an upward bias.

This is once again higher than the projection of 5.0 per cent made in the Annual Policy Statement in July 2009.

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Stay Tuned for more on the topic.

We would look into Monetary Policy stance, more facts about economic indicators and Analysis from the Analyst from monetary point of view.

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ULIPs to be Commission Free after April 1, 2011 :)

ULIPs to be Commission Free after April 1, 2011

ULIPs to be Commission Free after April 1, 2011

Those investing in Unit Linked Insurance Plans (ULIPs) are set to be secured of this burden of paying commission after April 2011 even though consumers buying pure-life insurance products will have to go on paying commission to sellers of these policies.

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However this is said :

– to help improve returns to investors in ULIPs,

-curb mis-selling and

– help raise insurance penetration by having a modest commission on pure insurance products in turn creating incentives for sellers.

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Further, it will also pave the way for a load-free regime on most financial products after April 1, 2011.


Moreover, the suggestion to cut commissions from the policy-holders” premium is against the insurance regulator IRDA‘s demand to keep the existing structure intact
while agents are entitled to get a commission of upto :

– 40% of the premium in the first year,

– 7.5% in the second year and

– 5% in the third year and thereafter.

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Further, if the panel”s proposal passes muster with the HLCC, upfront commissions embedded in the ULIP premium will be cut to 15% by April and 7% by October next year.

While, ULIPs will be load-free by April 1, 2011 just like mutual
funds and pension products under the new pension scheme
and insurance companies will help their agent”s transit to a
fee-based model instead of a commission based model.

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Additionally, sellers of term insurance products with pure lifecover sans investment will have to reconcile to lower commissions which will be cut to 5% of the premium after April1, 2011 and will continue till penetration reaches the targets set by the government.

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