Aptly titled "Winning in Turbulent Times", the first Businessworld Mutual Fund India Summit kicked off with a packed audience. Aashish P. Sommaiyaa, Managing Director, MotilalOswal AMC started the day's proceedings with a highly pertinent talk on the challenges being faced by Independent Financial Advisors (IFA's) today.
In recent times, the IFA community has had a rough ride of sorts. Starting from 2009, SEBI has been tightening the so called regulatory noose; choking smaller IFA's in terms of reduced commissions, the passing on of the service tax burden, and the well-publicized and controversial disclosure norms that are due to take flight from October this years.
It is estimated that only one in five ARN (AMFI Registration Number) holders are actually actively selling Mutual Funds today.
Sommaiyaa drew upon his 16+ years of experience to deliver a succinct and hard hitting talk on the challenges being faced by IFA's, launching the summit with panache. He mentioned that IFA's exist at any point in time, in an environment with four key stakeholders - the regulator, the investor, the asset management companies, and intra channel and inter channel competition.
Sommaiyaa proposed that it is a mistake to adopt a 'stopping and starting' mind set when it comes to dealing with regulatory, market, client attitude or technological shifts. Instead, he offered that the mind-set in itself needs to morph into one of 'evolution' if IFA's are to continue succeeding in these times of change.
"There is no point in evaluating or judging what the regulators are doing, as it's beyond your control", said Sommaiyaa. He also stated that regulators have a larger goal and whatever steps are being taken, are being done keeping the bigger picture in mind. Regulators will continue pushing technology, right selling and other practices that benefit the end user and lead to financial inclusion.
On the client management front, he observed that the key challenge for IFA's arise from the 'absolute return oriented'mind-set exhibited by the Indian Investment Community at large. He borrowed from a recent popular television advertisement promoting automobiles, stating that the same 'KitnaDegi?' way of thinking is what makes the process of pitching equity funds with variable returns extremely challenging and difficult for IFA's.
Having said that, the scenario is quite different from the late 1990's, when risk free bonds were available at 11% returns - and so clients were extremely non conducive to the prospect of taking on additional risk for returns ranging from 12-15%. The picture has changed now, as investors need to take on additional risk in order to generate adequate, inflation countering returns.
Sommaiyaa advised IFA's to segment their client and prospect bases carefully to customize their client acquisition pitches, because different generations of clientele possess altogether different mind-sets when it comes to investing. He also advised IFA's to build trust with clients in two ways - first, by consciously developing their own competence, and second, by tailoring their business models to align their interests with client interests.
"When the outcome is out of your control, the only thing you can control is the consistency of your inputs", said Sommaiyaa. He mentioned that the only way that IFA's can build trust with investors is through their ability to demonstrate consistent processes.
On the subject of differentiation from competition, Sommaiyaa's observation was that 99% of IFA's, when quizzed on their USP, stated 'service' to be their differentiator. He humbly requested the IFA's present to move away from trying to differentiate on service, and aim instead to differentiate on consistency, processes and systems. He also advised IFA's to increase their width of products, and focus on customer ownership rather than transactional relationships.
In closing, Sommaiyaa once again advised IFA's to shift their thought processes to one of 'evolution' - embracing tectonic shifts in the industry and flowing with them, rather than resisting them.
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