Brijesh is one of the best placed in the business to give a perspective on what IFAs need to do to succeed in the changing environment. He is not only one of Kolkata’s most successful advisors, but has – through his numerous training assignments – interacted with over 8,000 IFAs – big and small – across the country. He has rich practical insights into the challenges and opportunities for the IFA fraternity, and shares these with Wealth Forum in his usual blunt and forthright manner. This interview is part of FIFA’s monthly newsletter, which is produced by Wealth Forum jointly with FIFA.

WF : During the course of your numerous IFA training programs, you have now interacted with over 8000 IFAs from different parts of the country. What are the key positives that you have picked up from their state of mind and attitude towards the changing environment?

Brijesh : As we all know, there exists an 80/20 pareto principle. Among IFA’s also, 80% of IFA’s are negative about the changing environment and only 20% IFA’s are positive on the developments happening around the financial services industry. This set of IFA’s ( I will call them Minority ) are showing the following positive attitudes :

1. Giving time to align their business model as per regulatory changes rather than wasting time to blame it on the regulators and circumstances.
2. Understanding the fact that the overall competition will come down which will help them get more business and more importantly – more respect from the clients.
3. Realising the fact that – Client is supreme and they have the last choice. Clients will want more value for money.
4. Realizing that Mutual funds remain one of the most important financial product for clients. Although, times are challenging but they understand that if they do not focus on mutual funds, they may not be able to serve the client’s need and provide the right solutions to them. So, rather than thinking about themselves, these set of advisors are more client centric and believe that if they take care of clients, they will be taken care of.
5. And last but not the least – These select set of advisors have understood the ‘power of trail’ and ‘power of SIP’ in mutual funds. They are thinking medium to long term.

WF : What are the key challenges you see IFAs facing today and how should they try and overcome these?

Brijesh : I see 3 major challenges for IFA’s in the current situation –

Direct Issue – While I think the perceived risk of investors going ‘Direct’ is much more hyped than it actually will be, but there will always be some clients who will move ‘Direct’ . This will result in loss of business and revenue which will reduce profitability and raise questions on sustainability. In my opinion, they should spend a lot of time to explain to their clients beforehand about the implications on cost / service issues / importance of relationship / holistic advising advantage / etc. By hand holding, a lot of clients can be convinced or atleast deferred to move direct. Finally, they must add new clients to make it up. Eventually, this is a risk from the change that has happened and they must come to terms with this.

Compliance Issue – I honestly believe that going forward compliance risk will be the biggest challenge for an IFA. The way Regulators are working towards investor’s protection, it will be a daunting task for an IFA to comply with various requirements. Proper record keeping for advice given, making required disclosures about commissions, certification requirements for selling certain products, etc. will form a bigger threat than any other single risk. This will increase cost of an IFA since all this will require infrastructure, support staffs, etc. Over 80% of IFA’s in India today may be one man army.

Revenue Issue – No doubt, revenues of most IFA’s has gone down. With Insurance / Mutual Funds / Post office reducing commissions in the last 2-3 years and volumes doing no good due to adverse market and economic conditions, IFA’s are under huge pressure. I see this as a culmination of historic activities done by an IFA. Most of them focused on ‘Approach – sell – earn’ centric model. They did not make a business plan and business model for sustaining in future. Having a decent no. of loyal clients with a good product basket can help IFA’s to increase revenue. Most IFA’s sell just 1 or 2 products. I advise them to increase their product basket. Mutual funds , life insurance & General Insurance are great products which offer ‘trail / recurring’ commissions ( General insurance is also like a recurring business ). IFA’s should target higher wallet share of the client.

WF : What are the main attitudinal changes that you would advise IFAs to think about, to succeed in the new environment?

Brijesh : Client is the King – Effectively, It is the client who pays us. Not the manufacturer of the product. As such, IFA’s should focus on giving unbiased solutions and fantastic service to the client. If clients see the value in their advisors, they wouldn’t mind paying a little extra for the advice / service – either by way of fees or commissions. It is very sensitive to write this – but even today, many IFA’s keep their own interest before their client’s. They won’t last long and this is very evident from the developments of the last 2-3 years. During my interaction with thousand’s of advisors across India, I have noticed that most successful IFA’s always talk and act in the interest of their clients. Many IFA’s complain to me that clients are not loyal, clients do not realize their value, etc.etc. I wouldn’t accept that. There will always be exceptions. But most clients understand the value of good advice and service. Again – I have understood one thing very very clearly that – it is the client who decides whether an IFA is providing effective and satisfying advice & services or not. IFA’s do not have the liberty to decide this. So I would better work harder & harder to get noticed by the client rather than being my own judge.

Align with Regulation – I do not mind fighting with the regulation to protect our interest. However, I would spend a small time into fighting. Rather, I would suggest IFA’s to focus on aligning with the regulation.

Think long term – Having a successful and sustainable business model takes time. IFA’s should think long term results (5-10 years). Nothing is achieved in the short term.

WF : What would you list as the biggest opportunities for the IFA fraternity today?

Brijesh : I would consider a) reduction in cost of product and b) Regulatory environment on IFA’s to be the two biggest opportunities for IFA’s today. The importance of this may not be realized soon, but these will have huge positives. Imagine a situation where a client knows that his advisor is regulated. This will give a lot of confidence to the client to deal with the IFA.

WF : If you were to do do some crystal ball gazing, in 5 years from now, how do you see the advisory and distribution businesses developing?

Brijesh : I finally see for sure that fee based advisory will become a reality in India. The beginning may be small, but starting from few IFA’s, the stage is set to see a lot of IFA’s taking the route of pure advisory in the next 5 years. I could see some of the IFA’s becoming very large in this space in the next 5 years. My guess is that most of these fee based advisors will be newcomers in the industry since existing IFA’s may find it difficult to change their model.

India is a large country with low awareness level. As such distribution will always be an integral part of financial services industry. My sense is that even if the current commission structure holds for next 5-10 years, there is enough opportunity to continue and also scale up distribution business. IFA’s should not fear that they will lose out or go out of business if they remain in distribution.

The competition will be more on the distribution side and less on the fee based advisory but both models will have their rewards.