Anyone buying, selling or converting an open mutual fund from an asset management company (AMC) in Pakistan knows just how tedious is that exercise. Even investors who already have an account with an AMC have to either visit its office or at least otherwise download the relevant form, fill it, scan it and send it to over to the AMCs office. The AMC then process the request, and in the case of redemption give you the cheque the following day which is then cleared 1-2 days later. But what if all of this was made online without any limitation of being confined to any single AMC or dealing with each AMC individually?
In his interview with BR Research last month, Richard Morin, CEO Pakistan Stock Exchange, said the exchange is trying to set up a mutual fund platform in collaboration with the NCCPL, the CDC and MUFAP. The platform, which will not be routed through the exchange, will allow brokerage house clients to buy or sell any open-ended mutual fund of any AMC in nominee form (the client details will not be shared with the AMC) within their brokerage account.
“The platform will capture all the purchase and redemption orders and send to the relevant AMC. The orders will remain pending and eventually settled within the brokerage account at the close of business once the AMCs announce their NAVs,” Richard said.
Richard had shied away from giving any indicative timeline for the launch of this product, and based on BR Research’s channel check within the brokerage industry it may take at least six months before the product is up – and that’s optimistically speaking.
As of yesterday, three out of four heads of online trade departments at various brokerage houses didn’t have any clue of what’s happening. Whether that’s a reflection of them being clueless of changing market dynamics or a reflection of PSX’s failure to take inputs from relevant market participants is another story. But rest assured whenever this product is launched it could potentially help take off the market to next stage of development. Here is some context.
Even after so many years into existence Pakistan’s asset management industry has about 0.25 million mutual fund investors at present as against nearly 28 million insurance policy holders. In his recent interview with BR Research, NAFA CEO Amjad Waheed informed that the whole of country’s mutual industry has sales staff of 1,200 of which NAFA has about 700.
But with once a mutual fund platform is rolled out, brokers, especially through online broking channel, brokers could become the main distributors of mutual funds, as is in the case of developed markets. As luck would have it some leading Karachi-based brokers do not like the idea of this platform. To them it is case of shooting themselves in the foot.
“Why would I like to divert my existing and potential client to an AMC instead of having the trade through my trading portal,” head of one online brokerage told BR Research in anonymity. That may be a valid concern but not necessarily tenable one.
For one the brokerage house will be getting some kind of commission for every fund that its client transacts through its portal. Second, given the size and the stage of development of Pakistan’s capital market, AMCs are not exactly a competition for brokerage houses. The future growth in investors in Pakistan is likely to be in the AMC segment rather than direct trade segment through brokerage houses. And since brokerage houses would know the exact investment profile of their clients, they would be in a better position to pitch stocks to their clients catering to her specific needs.
Meanwhile, for investors, especially those who lack financial literacy – and there is a big segment of such people out there – the creation of such a platform will gives them an ease of making investments because they will have to run around across AMCs. All they will need is one brokerage account through which they will be able to buy or sell their equities and their mutual funds. Eventually, the platform could help brokerage houses morph their business model into financial advisory as well. But that’s perhaps expecting too much too soon.
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