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.