Financial Advisor and Direct Investing - Next Level Education
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Financial Advisor and Direct Investing

Financial Advisor and Direct Investing

As per from CAMs data, in a six months period from Jan to June 2017, about  24% of equity sales is attributed to the “Direct Channel” as against 20% from the “IFA Channel”.

This is a significant indicator and cannot be simply brush under the carpet. It is important to delve deeper and figure out the course of action that IFAs should take to stay relevant and vital for investors.

Like it or not, one has to acknowledge the potential of the direct channel. While a lot of business through the direct channel may be attribute to institutional money and RIA action, one cannot underestimate this channel.

To figure out the approach that an IFA can take,  I asked some eminent industry people to reflect on the numbers and suggest suitable remedy.

Let us see what these leaders have to say.

1) Kanak Jain -CEO Suskan Consultants Pvt Ltd; Founder The Volatility Game; Mentor – Ask Circle MFRT

According to Mr. Kanak Jain, “the investor cannot have a fulfilling investment journey without guidance because :-

1) An Advisor’s approach to goal based investing will be a lot different as compared to a robot/algorithm. While the Robot will provide a theoretical solution, the Advisor will use a more practical approach and look for opportunities to  help the investor create  requisite corpus for his goals well in advance.
2) Advisors manage greed and fear of client
3) They manage discipline of investing
4) They do re- balancing of assets in consultation
5) They help articulate client goals and help the clients to focus on them
6) Last but not the lease a machine, an algorithm, a software, an App etc do not have the emotions that a human being more often than not need.
2) Suresh Parthasarathy – Founder, Myassets consolidation.com,
 According to Mr. Suresh Parthasarathy  “Unfortunately we have no data to say that how much retail clients moved to direct mode. Anyone investing in direct is captured in the system. If AMFI is able to capture those investing less than Rs 5 lakh and how much  has come  through direct we can understand the pulse of the investors.
Having said that, buying direct should not disturb us in a big way.We need to find why an investor is moving to direct when in the town at least 200-500 IFA’s are active?
One could be he his financial savvy or he never understood the importance of having an advisor.
We also need to improve our standards and ensure that we leave an impact with the client in the areas of knowledge, transparency, need based investing and simple easy to understand advice. This will ensure that client will not bother much about 0.8 -1.0 per cent fee.
Instead of wasting productive time worrying about the problem of ‘direct’ we should focus on client management and business growth.
It is time to move from just product selling to a one stop financial solution for our client.
3) Gaurav Suri -EVP and Head Marketing UTI Mutual Fund
When I asked Mr. Gaurav Suri, this is what he had to say.
“How is it a challenge?  World over even in the US Direct is still 28-30% after a century of market development . The market is pretty big for everyone to exist and create value . Direct is for DIY or people looking for convenience. We should be focussed on creating value for the clients and what we stand for. The IFA is evolving into a financial architects.”
Gaurav, very beautifully describes a Financial architect as one who draws out a plan with the rooms representing the goals and the furniture the products.
According to him, “such thoughts about “direct” is distracting and unnecessarily makes one readjust the furniture.”
Instead he says, “one should focus on the barren land because so many houses can be built and so many dreams fulfilled. With only 7-9% penetration the market is too big and Advisors have plenty of scope to farm in this market and grow their business.”
He goes on to emphasise that “direct” is not a threat. He says, “When you build wealth, say with a Rs 10 lac to 15 lac investment, you cannot decide the choices without the help of a trusted advisor.”
According to Gaurav, “direct plans have three broad categories – direct retail, direct institutional and direct RIA. A lot of action has been happening in direct institutional and direct RIA. Besides the arbitrage funds that appear in the analysis should largely consist of institutional money.
He concludes by saying, “Therefore, one need not get hassled by the numbers. IFA’s are a force to reckon with as there is indication of larger trust for IFAs.”
In Conclusion
So clearly, what emerges is the fact that the role of an IFA is indispensable but to stay relevant one has to enhance skill sets and temperament.  One needs to look at the following areas :-
  • Focus on market development and creation of new customers.
  • Enhancement of skill sets such as communication and presentation skills
  • Understanding behavioural finance and managing investor behaviour
  • Focusing on goal based financial planning instead of product selling
  • Building one’s personal brand
  • Investing time and effort in conducting Investor Awareness Programmes and educating the investor
  • Joining Associations like Rotary etc for networking and business development

In a world which is changing faster than one had ever imagined, there will be challenges but along with the challenges will emerge opportunities like new technology to manage back office and transaction. These will help in scaling up the business and make up for the pressure on margins.

What is left to be seen is whether we are willing to take up the challenge? Because those who step up and leverage the opportunity will end up in gaining more than they had ever imagined.

5 Comments
  • Anita KANBARGI
    Posted at 14:43h, 28 September Reply

    Precisely, what each one of you say is true. There is huge potential for us to grow in all respect. Thank you:)

  • Ramamoorthy.G
    Posted at 15:01h, 28 September Reply

    Direct investment is not at all a threat to IFAs. The legends also confirm the same. Any robot advising will never replace the personal touch of IFAs.

  • Kunal Somani
    Posted at 18:41h, 28 September Reply

    Very Good article and top notch sharing views.
    Person who can change and adapt to the new set of skills will survive ..
    Now this business is not for hardworker .. u have to act smartly with techno savvy.
    Direct,Robi, online marketers and many more are to come..
    Doing Business traditionally will be out of trade.

  • PRIYANKA WANI
    Posted at 19:32h, 28 September Reply

    Thanks for sharing this article. We need to improve our style of serving clients and searching new clients.Need to be very technosavvy.

  • P K JAIN
    Posted at 23:21h, 28 September Reply

    Direct investment will never be the threat to the IFAs, because robot selling can never give the customised advise to the investors……
    P K JAIN, MEERUT

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