Our thoughts on the IFA industry and some predictions
A lot has been written about the flurry of regulatory changes the MF industry has witnessed of late. It all started back in 2009 when I joined the industry. SEBI did the unthinkable back then. Later, it was the introduction of direct plans, RIA regulations, emergence of robo advisors (some will make it big and quite a few are bound to shut down) to name a few. There has been a lot of hue and cry, of course. But if you look back now it all feels like connecting the dots. While some dots are yet to be connected, read — reduction of TER, which is imminent. The picture is clear. Regulator wants the distributor to become advisor. He wants you to stop focusing on commission and start focusing on fees.
Now this has some repercussions. I see the following shift happening in the near future.
Distributors coming together
At the ground level there are already serious discussions happening between distributors looking at joining forces. It may not be easy. How do the costs get divided? How does the work get divided? But it’s a step in the right direction.
Shift to platforms
Distributors, big and small, will move to platforms. The current incumbent platforms are largely “distribution” oriented. They will have to reorient themselves to the growing advisory needs and thus become “advisory” oriented. New age platforms with an “advisory” DNA could pose a challenge to the incumbents. Make no mistake; “distribution” will be a key factor. But the advisors will need new age tools to attract and retain clients. Over period, distributors will become RIAs and let the distribution be handled by the platforms.
The AUM may stop mattering!
Take the case of a distributor “A” having an MF AUM of Rs.100 crores. He manages 100 client families. His 90% income is from MF trail. Now look at another distributor “B” who has an MF AUM of Rs.50 crores. He manages 200 client families. His 60% fee is through MF trail and rest is divided between general insurance, life insurance, stock broking and FDs. Now what if the 100 clients of Mr.A insist on a flat fee and shift to direct plans? This poses a serious threat to the overall topline. But Mr.B is better off because of the larger number of client base and a diversified offering. I feel, the shift will be from — big ticket low volume transactions to small ticket high volume transactions. Distributor will have to make money off a lot of smaller services.
Productizing your services
A good idea to mitigate the trail fee would be to productize your service. Some options could be having a flat fee services like comprehensive financial planning, investment planning, consolidation & tracking of multi asset portfolio. This will require some processes to be set in place. Fee charging, something most distributors have never done, will have to be done, ideally via online payment gateways. The launch of the UPI platform has opened up newer and easier ways to transfer money in a frictionless manner.
Move to fee based
Distributors should start acclimatizing clients to fee based services. The move won’t happen overnight. You will have to start small, may be with a smaller client base and then spread out. There will be friction early on. Some clients may move out. That’s where productizing of service may help. Define the scope of work clearly, have a transparent price and just make sure you focus on your deliverables.
Big ticket clients move to direct
Come October, the CAS (consolidated account statement) may raise eyebrows for some of your clients. Especially the big ticket clients. A high commission amount may not augur well with some of them. Most of the big ticket clients are surely aware about the direct plans but the absolute number printed in the statement may just provoke them to discuss direct plans with you.
Multi product strategy will be imperative
Moving to multi product selling may be a good strategy. Product here does not just mean general insurance or FD. Think about will writing, return filing, PMS, financial planning and so on. If you aren’t good at it, partner with someone. Your clients/prospect should get a feeling that you are not just a MF distributor but rather a one stop boutique that offers complete personal finance solutions.
RIAs will be omnipresent
If charging fees is the way forward, then becoming an RIA is something that will have to be considered. While distribution + advisory may seem like a lot to deal with, believe me, the earlier you adopt, the better off you are.
Technology will be the key
A lot of what has been said above will need a robust technology platform that is built to address these very needs. The need for a strong billing and invoicing system that is able to calculate % of AUM on a quarterly basis and auto debit the customer’s bank account via an NACH mandate is just one of the critical things the platform will have to do. Then there is need for a strong CRM, multi asset reporting tool, financial planning and so on. Figure out your strengths and look out for the right platform to align with. Think about how you can productize your service through one of these platforms.
What are your thoughts on the IFA landscape? Do share in the comments section below.
