The ability to create and maintain a mutual fund book that stands the test of time and doesn't crumble in bearish markets, is quite possibly the key differentiator that sets a successful IFA apart from the others in the long run.
An experienced panel consisting of Nilesh Shah (MD, Kotak Mutual Fund), Sunil Jhaveri (Chairman, MSJ Capital), Asit Bhansali (Director, FIFA) and Shyam Sunder (MD, PeakAlpha Investment Services) got together to answer the million-dollar question: "How can an IFA maintain a high quality book?"
Brijesh Dalmia of Dalmia Advisory returned to moderate this critical panel discussion. "How do you define a high quality book?", he began by asking.
Nilesh Shah of Kotak offered his thoughts on the definition of a high quality book. "From the AMC perspective, a book that stays with you for a long period of time and one that is spread across multiple family members within the household is a good quality book", he offered. Shah also indicated that a good quality book is one that consists of multiple products sold to every customer.
Sunder of PeakAlpha used an interesting Bollywood analogy to drive the point home that 'the book is incidental to the business'. Sunder expressed his view that rather than focusing on AUM, one needs to shift focus to the client as the primary asset. "It's important not to put the cart in front of the horse", said Sunder, while stressing upon providing the right advice and service to clients.
Interestingly, he offered that redemptions are not necessarily a 'bad thing' as they are often indicative of goal achievement - and it is the clients who achieve their goals who will in the long run become your most important brand ambassadors.
Dalmia agreed with Sunder, stating that if clients believe in your value proposition and stay with an IFA for a long time, it will automatically translate into a high quality book regardless of periodic portfolio outflows.
Next up, Jhaveri of MSJ Capital shared some very interesting thoughts on how he went from 'hero to zero, back to hero'. "We, as advisors, have taught wrong things to our investors", he proposed, offering the example of many Advisors advising clients to redeem their debt fund monies within one year, before that change in taxation norms forced their hand to stop such unnecessary churn. He advised the IFA's present in the audience to encourage their clients to take a long term view and avoid churning their portfolios without reason.
Coming to the topic of SIP's, Jhaveri questioned: "How many SIP's have really stayed running for five, seven, or ten years?". He offered a disruptive solution related to having an 'exit strategy' for SIP's as a means to actually maintaining SIP book quality.
Asit Bhansali offered his view that understanding the objectives of a client and tailoring recommendations are a critical aspect of creating a high quality, all-weather book. He also stressed upon a multi asset class portfolio being one of the keys to success for an IFA. "If an IFA only sticks to one product, it'll be very difficult to maintain a long term book", he said. He advised IFA's to diversify their books and look beyond obvious solutions.
Questioned on whether he was concerned about the impact of direct plans and commission disclosures on the quality of their AUM, Sunder of PeakAlpha offered some valuable insights. Sunder expressed his belief that if an IFA were to strengthen their own service and value proposition, the additional 0.5 to 1 per cent returns wouldn't be worth going direct for, and would therefore not have a significant impact on one's book.
On the topic of commission disclosures, Sunder admitted that there was a limited amount of clarity on the real impact that it was likely to have going forward.
"For 80-85 per cent of our customers, it'll probably be a non-issue", said Sunder, while stating his view that there would probably be a small cross section of clients who may in fact choose to migrate their investments directly to AMC's as a result of disclosures, which needs to be taken in one's stride.
The discussion was brought to a close with some interesting and pertinent questions from the IFA's present in the audience.
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