21 Dec 2013
Brijesh’s latest dose of Straight Talk deals with 8 myths that many advisors and distributors believe in, which only come in the way of their own growth. In his usual blunt manner, Brijesh discusses why he believes these are myths and what you need to do to get beyond these mindsets and move purposefully towards growth.
Clients invest only for returns
Advisors feel that investors want higher returns on their investments so they have to allocate higher amount in equity oriented funds. There is no merit in this belief. Advisors don’t explain the risk of investing in equity but offer equity products. When the going is good, they are good. When markets don’t support them, they blame AMC’s, fund managers and circumstances. If advisors explain the risk of investing in equity and offer alternatives or a balanced portfolio, most clients will settle for lower risk. Actually, clients are risk averse. Since the reward to sell riskier products were higher, most advisors allocated very high amount to equity products. It requires more effort in selling debt funds ( which offer returns in the range of bank fd ) but this effort is worth it. In smaller cities where tax benefit is not much of a concern for investors, it is more challenging to sell debt funds. However, with continuous effort it is possible.
Clients are not loyal
Advsisors often complain that clients are not loyal and they seek advice and deal with many advisors. Absolutely not. Such cases are exceptions. Mostly, clients want to deal only with one advisor if he/she is happy with the advice and service. In fact, most advisors are not loyal to their clients when it comes to offering the right product. Commissions often drive advisors to sell financial products. How can then they expect clients to be loyal to them? If the advisor provides right product and good service, most clients will stay with them.
Advisors can outperform markets
In my view it is not possible. Some advisors may be able to do it for some years while some may be plain simple lucky. Even trying to outperform is not a good idea. The job of an IFA is not to outperform but to achieve the financial goals of clients. The job of outperforming the market is of the Fund Manager. Advisors are not fund managers, they are multi managers across several asset classes. Further, at an IFA level it is very difficult to monitor performance across asset class and calculate outperformance on an overall basis.
All clients will go ‘direct’ in mutual funds one day
Never. This is a concern among many advisors which is baseless. Yes, there will be a shift and the ratio of ‘Direct’ applications will rise but it will in no way cause a threat to IFA’s business. IFA business is relationship driven. As far as advisors provide good service and advice, investors will not think of moving ‘Direct’. Let me ask – after ‘Direct’ was introduced how many of your clients have moved direct ?
SEBI wants to eliminate small advisors
There is no reason SEBI wants to eliminate small advisors from the business. India needs thousands of more active IFA’s to cater to the huge mass. All SEBI is intending is to ensure that advisors should give good advice to the client and adhere to compliance in order to protect investors. It is simply the pain of some advisors who are finding it difficult to mint money anymore from mutual fund business.
Without fees mutual fund business is not sustainable
There is an over hype in the market place that without charging fees mutual fund business is not viable. This is in-correct. There are very good commissions being paid by mutual fund companies. In B-15 cities commissions are even more. While fees definitely will add to your bottomline ( you need to be SEBI compliant to charge a fee now ), but even without charging mutual fund business is very lucrative.
You need to have 500 clients to be successful
As an Individual, an IFA cannot service more than 100-200 investors on a regular basis. In-fact, that is all is required to be successful in this profession. Advisors don’t need 500 clients to do big business. If you have 100-200 regular clients you will become reasonably big in 5-10 years. Let’s say you have 200 regular mutual fund clients. On an average each client gives you 2-3 sips ( say 500 SIP’s ) with an average amount of Rs.2,000/- ( say 10 lacs per month ). This will alone bring over a crore every year in fresh sales. Add to it lump sum sales. In 5 years, you will have nothing less than 10-20 crores of AUM. The problem is – advisors have not focussed on selling SIP’s to all their clients, advisors have not even sold mutual funds to all their clients. Due to bad markets, some SIP’s are closing. This will always happen. The key is to sell fresh SIP’s to overcome this situation.
There is a lot of competition in mutual funds business
There are not even 10,000 IFA’s across the country who are actively selling mutual funds. In a country of over a billion people and just around 1 crore unique mutual fund investors, where is the competition?
If I take an average of 200 clients per active IFA, it comes to 20 lac investors being serviced by advisors currently. What are we talking about ??? I would say there is no competition in mutual fund industry. In the last 10 years, barring a few, I have hardly met new clients who were already a mutual fund investor. Go out, find new investors who are waiting for you.