How much commissions did mutual funds distributors make last year? Have the expense ratio cuts had any impact?

Any idea how much in commissions did distributors make last year. With SEBI rationalizing expense ratios (TER), I’m curious to see if it has had any impact.

For FY 2018-19, Rs 7938.25 crores were paid out in commissions vs Rs 8500 cores in 2017-18.

The top 20 commissions earners:

ARN Holder Gross Amount paid (Cr) Gross Inflows (Cr) Net Inflows (Cr) AAUM FY 2018-19 (Cr)
NJ IndiaInvest Pvt Ltd 807.6719 28356.599 11148.7114 62946.561
Axis Bank Limited 555.6306 134550.061 755.847 52923.0518
HDFC Bank Limited 496.6722 136790.5898 2430.5064 72943.8864
State Bank of India 487.5777 92081.3227 15368.2081 64280.0482
ICICI Bank Limited 355.2562 23142.4928 738.9202 41803.2488
ICICI Securities Limited 318.8525 17791.4582 2659.1121 34510.3262
Kotak Mahindra Bank Limited 255.0071 34503.5609 -3627.9875 37554.7995
Prudent Corporate Advisory Services Ltd 234.7168 11377.1556 4081.2643 19033.3367
Citibank N.A 181.8469 14624.6126 -869.2916 28664.2917
IIFL Wealth Management Limited 176.1135 144615.8204 -3590.1057 30568.1787
Standard Chartered Bank 150.7703 11355.2184 -52.629 17904.9612
Anand Rathi Wealth Services Limited 121.0897 27894.259 1633.9514 11241.5848
HSBC 113.6447 8560.1854 2078.7311 18106.7752
Indusind Bank Ltd 94.9448 2372.3938 494.0902 6795.4176
Bajaj Capital Ltd. 92.0628 6064.8387 -144.6759 10127.5061
Julius Baer Wealth Advisors 90.5635 10962.7923 161.5083 13837.965
Karvy Stock Broking Limited 88.0057 7196.4592 1038.5275 10170.243
JM Financial Services Limited 62.2337 58122.1311 -2125.74 11926.2972
Pioneer Client Associates Private Limited 59.326 3248.0038 234.2663 6318.8063
ADITYA BIRLA FINANCE LIMITED 52.5928 373742.5435 -355.3615 11273.3779

Biggest platforms

Platform Gross Amount paid Gross Inflows Net Inflows AAUM FY 2018-19
FundsIndia 45.816 2543.7641 667.0011 5439.5804
Scripbox 8.5477 551.5344 245.3694 892.494
MyUniverse 5.0606 248.3349 138.0031 466.6952
ET Money (Now direct) 4.8945 253.3038 33.602 258.5338
Fisdom (Direct with Myway) 2.2598 282.6313 119.3126 224.8843
Cleartax 1.07 83.96 77.86 54.44
Goalwise (Now direct) 0.7132 119.001 67.3067 97.8994

Here’s the comparison for the previous years:

Today, it is an absolute no brainer to invest in direct mutual funds if you know what you are doing. Even you have an advisor, it is always best to consult a fee-only RIA who uses direct mutual funds. The thing about mutual funds costs is that, since they are automatically deducted we don’t realize they add up significantly as we keep investing.

For example: If you were to invest Rs 5000 every month for 30 years and assuming a return of 12%, your corpus would have grown to Rs 2.47 crores in direct mutual funds vs Rs 1.76 crore in regular mutual funds. A massive difference of Rs 71.2 lakhs.

Investment management fees might be one of your household’s top budget line items, but you don’t realize it because you pay in auto-deducted basis points instead of an invoice. - Morgan Housel

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Do you really think the RIA (fee only) is going to charge you the same fee for next 20 years? Try asking an RIA about this.

I understand investing in Direct funds, if you have the right aptitude (Statistics suggests that almost 90% of direct investors lack this. This is where an advisor helps). But seriously!!! A fee only RIA is better than an advisor? Put your hypothesis and numbers in excel, it never lies.

The fee only RIA will increase the fees regularly (Come on!!! He also has to survive and beat inflation. He cannot always be acquiring new clients - he also has only 24 hours in a day) and ultimately there will be no difference between a regular fund and direct fund (While calculating add the fee that you have paid to your investment and use regular returns only to check the accumulated corpus). But you will not notice a difference because, you wouldn’t deduct the fees paid to the fee only RIA or add the fees paid to the original investment while calculating for regular funds. That’s why, put the cash flow and numbers in excel. The truth will come out.

About your example, 5000 invested per month for 30 years, assuming 12% return, will come to 1.76 Cr. Assuming a return of 13.25% (difference of 1.25% as commission - I’m sure difference will be less than 1.25 in good funds, but still let’s consider it) is around 2.3 Cr not 2.47 Cr. A difference of less than 57.5 lakhs not 71.2 as you quoted. A difference of 24% (Huge, I guess). Talk about misreading facts.

A fee only RIA gets his pay whether you make money or not, because you cannot afford to not pay him or any other RIA (you approached them because you couldn’t handle the investments). A commission based advisor’s commission increases as your corpus increases, if your corpus falls, his income also falls. He has a hidden agenda to make your money grow faster (He is greedy and wants to make more money, but he will make it only when you make it).

Decide very very carefully and don’t misread facts and figures. I say (you don’t have to listen to me, but since you have read so far, you might as well) go direct with due diligence (No RIA or any other advisor) or use a good advisor (fee only or normal, you decide) after taking the facts and figures on paper, along with promisory note about future increase in fee.

PS - I also advice on financial planning , no fees and regular funds only.
I also tweet my daily trades on EOD basis in twitter. If interested, my handle is @AnanthaRaman19

Wah! What utter horsecrap!

Yes, distributors are saints. Go tell that to the people who sold Balanced funds as guaranteed dividend funds. When the taxation changed and the music stopped, we are now seeing the truth. Approx Rs.9812 outflows since Jan 2018. Whatay display of consumer interest. Let’s give them a medal, shall we?

I can do this all day with Credit Risk Funds, Low Duration Funds, Gilt Funds and so on! Spare me the nonsense! Of course, there are handful good distributors who provide good advice, but a vast majority of them chase commissions and that’s the simple truth.

I’m not even talking about the lakhs of ULIP policies that these MFDs have sold on the side to compensate for falling commissions. I am also not even talking about how MOST MFDs ALWAYS SELL FUNDS WHICH YIELD THEM THE HIGHEST COMMISSIONS. I am not talking about how this is the biggest conflict on the planet.

An RIA is not a saint. But at the very least, he has no conflict of interest when it comes to selling products.

Do you think MFDs will remain saintly and be okay with falling commissions won’t start selling ULIPS and other high yielding insurance products? Which is already happening by the way!

“Naturally, if the expense ratio goes down, the distributor commission will also drop. While many fund houses are yet to come out with revised distributor commissions, many distributors preferred to wait and watch, waiting for the new commission structures of fund houses. Some distributors, especially banks, have now started selling alternate products,” said the chief executive officer of a mid-sized fund house

Yeah, my friend, horse crap! Every industry has its black sheep. Have you never heard banks selling Savings Account or other products with wrong information??? I was sold one by an executive of ICICI Bank for my wife’s account few days back (I knew he was talking crap, so I escaped. Otherwise?). But is it OK if I blame entire ICICI Bank for being fraud because one executive / manager tried to cheat??? I have all respect for ICICI Bank, having my account and my family accounts there. I’m also a share holder of ICICI Bank.

The simple truth is that a handful of MFD’s mis sell, but the vast majority, who are decent, get blamed. It’s simple, bad experience / NEWS travels faster than good. The upfront commission ban was a bolt from the blue for all, but the decent MFD’s evolved because they knew that money was not in upfront but in higher trail commission. So getting more clients and keeping them satisfied was the key. Huge display of consumer interest. So I guess, these MFD’s do deserve a medal and what do they get? You can guess it (Also the upfront commission was around 2.25%, how much mis selling would have happened for such low commission? I don’t know)

Also when you are writing the cheque, you do write the words “BALANCED FUND” (every radio ad, etc shouts at the top of its lungs "MUTUAL FUNDS ARE SUBJECT TO MARKET RISK, etc etc) , if that doesn’t raise all your red flags, I don’t know what will? This funda of blaming some one else is ingrained in most of us. UNFORTUNATELY!!!

Now I’m not saying that all MFD’s are saints. Some of them deserve to be shot publicly (but our great nation is not barbaric, for good or bad is individual opinion), but those were days, when transparency was low. Today it is much more transparent. So chances of misselling are much less (not nil though).

Nevertheless the issue was MFD vs RIA. Are you trying to tell me that RIA’s are not gravitating towards Life Insurance??? Why blame MFD alone then, if one is guilty, the other is equally guilty, if not more. Also RIA shouts from the roof top that there is more profit in going through him vs the MFD. Is that really true, the numbers talk differently. Isn’t that mis selling???

I have never heard MFD saying the same about RIA’s. The decent one’s always say, there is not much difference in both. Why doesn’t the RIA put all the facts upfront. Why don’t they give in writing that their fee will not increase with increase in AUM? Weren’t the RIA’s being sponsored by some AMC’s before the rule came up they should not. Isn’t there conflict of interest? Today, thanks to changes by SEBI, etc there is less conflict of interest in selecting the funds / fund houses. As humans, greed is a part of us (It should be, otherwise growth might stall). So long as greed is there, conflict of interest will always be there. Atleast with MFD the commissions are clear. They make money only when their AUM grows, which will grow only if the clients are satisfied. The new breed of MFD’s definitely deserve a medal. I reiterate this, at the risk sounding redundant.

The MFD, whose commission is hardly 1% (majority are in this slab), is cheating (Come on!!! whats the incentive in cheating with such low commissions). The RIA is saying that giving him money is better than the fund house paying MFD commission, this is not cheating. He says by going direct you stand to gain in almost crores. Is that really true? This isn’t cheating, correct? The investor definitely stands to gain by going direct, without paying any fee, provided he has the acumen required. Otherwise, he is only making a, not good decision.

The day, I see any RIA, saying this to the client’s face, is the day when the RIA gains respect. Till then it is MFD only.

If both are guilty, then why make a saint of one and devil of other? Both are in the same boat. I only say give the investor all the facts and let them decide.

For how long will you continue to provide this free lunch or will you leave your clients disappointed half way through their 30 - 40 years of mutualfund investment cycle?

I don’t do it for money. I’m a full time trader, the market has been taking care of my expenses (it’s been doing that for almost a decade now and praying that it will continue doing so).

Trading is a very boring and lonely job. The more bored you are, the more chances of making money. I got mentored for free (My mentor is a very good trader, Zerodha also recognized him as one), so just returning the same. I love personal finance, so I’m doing this to keep myself sane, money is a side effect (a lovely side effect though).

This is a systemic risk for any investor approaching for free investment advice isnt it?

After 10 -15 years , when they want to review their investment health, they are not sure if you going to be around with the free coupons.

And the new advisor they approach has to start all over again, the clients loose on time and an investment vision.

I agree with the point, that I may not be available, few years down the line for review (Though I’m not planning on quitting anytime soon. Infact, planning to monetize it along with my trading). That’s why I suggest regular funds, which are routed through an MFD.

Since the MFD is earning commission, he will be around. The risk that he also may not be around is a risk that is ever present, RIA or MFD. The only solution to this is to learn the nuances and get financially savvy. Till then . . . one has to accept the risk and live with it.

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In the previous posts , I was trying to put some pressure on you to test how far you will bend with your helping attitude. Looks like you are really determined in your vision to help others sharing your knowledge. All the best.

Thanks a lot