Cover Story
Should You
Go Direct ?
Consumers of financial services
products are increasingly
shunning distributors and agents.
While going direct can be cost-
effective, Malini Bhupta and
Preeti Kulkarni highlight some
of the challenges that come with
this behaviour
T
he financial services
business is witnessing a
silent, but decisive shift,
in consumer behaviour.
Thanks to the rapid rollout of
high-speed mobile broadband
services over the last two years,
Indians are increasingly looking
at investing and buying financial
products directly from companies
or through other digital channels.
Disintermediation is a reality that
is playing out in India as well,
with the Millennials preferring to
50
transact without the involvement of
distributors or agents. Be it mutual
funds or insurance, Indians are now
expressing a desire to cut out the
physical intermediaries because of
an inherent belief that distributors
tend to have a commission bias,
which is why they only push
products that help them earn more.
Direct plans are now gaining
currency as a lot of high networth
investors (HNI) are reluctant to
pay 2.5 per cent commissions to
distributors. The market regulator,
Outlook Money February 2018 www.outlookmoney.com
Securities and Exchange Board of
India (SEBI), mandated in 2012
that all mutual fund schemes
should offer direct plans. These
plans come with an expense ratio
that’s as low as 70 basis points
compared to 2.5 per cent charged
by regular schemes. Says Aashish
Somaiyaa, CEO of Motilal Oswal
Asset Management, “In six years,
data shows that there is a gradual
shift towards direct plans as many
large investors are choosing direct
plans and paying advisory fees to