Opportunities are here again. Where are the IFA’s?

20 May 2014

Resilience and conviction pays – not just for investors, but also for distributors. Brijesh says distributors who stuck to MF distribution as an all weather business are set to reap the benefits of their patience, as investor sentiment perks up. What about IFAs who treated this as a seasonal business? Have they lost out? No, says Brijesh – you can still get back into MF distribution, but you will do well to imbibe his 6 pieces of advice to make the most of the opportunity that is coming knocking on your doors.

Richard Branson is known for his diversified business interests and making most of them successful. He is one man who is always in good shape because some of his business is always flourishing.

Inspired by him, one of my friends left his job and dived into the world of business 10 years ago. Today, he owns a couple of restaurants, runs a successful real estate business, established a travel agency, built a nursing home and is in the process of creating many more businesses. In every sense, he has been successful in his endeavours.

When I look upon him, I feel inspired and wish to do the same. However, I realised it is not as easy as it sounds. When I asked him how he justifies all the business he is into, he said – “I am fully focussed on all my businesses. I don’t start a new venture just because one of my ventures is not doing well. Instead, during bad times I work harder and make it successful and then only move to the next”.

Is MF distribution just a seasonal business for you?

My mind immediately moved towards our own business of mutual fund distribution. I notice most IFA’s market different products as if they are seasonal fruits. When the going is not good in mutual fund, they shift to alternative products not making enough effort in growing the mutual fund business. This way they never settle and grow the mutual fund business to a self sustainable level.

Last five years vs last one year

The following things happened in the last 5 years or so which dampened the spirits of IFA’s :-

  • Entry load was abolished resulting in lower upfront commission
  • Service tax was imposed on commissions reducing the yield
  • Markets were subdued
  • Portfolio of clients were in red
  • Tighter sales process regulations on mis-selling, EUIN etc got distributors nervous
  • Clawback of upfront commissions became a bone of contention

These events left thousands of IFA’s de-motivated many of whom left the industry. Many moved to alternative products. This is not the right way to move ahead in our business. This resulted in loss of opportunities which is now created.

The following things happened in the last 1 year or so :-

  • Trail has increased
  • B15 cities getting high upfronts
  • Service tax withdrawn resulting in extra commissions
  • Markets went up for over 20% in 3 months
  • Client’s portfolio back in gains with good returns
  • There is a stable government at the centre
  • The mood of the investor is buoyant.

Resilience is now being rewarded

Those IFA’s who stuck on to mutual fund distribution as their main activity are now being rewarded and the future looks very promising. However, those who continued hopping to different products during the last 5 years may now find it difficult to hold ground and take full advantage of the opportunity created.

It’s still not too late – if you focus on these 6 aspects

There still exists a lot of opportunity for IFA’s who did not focus on mutual funds before. They need to consider the following :-

Conviction

It is important to have conviction on the product. It’s time IFA’s should decide if mutual funds are good products or not. Will they exist after 2 decades or not. Whether there will be enough scope for IFA’s to earn their bread from mutual fund distribution or not. Changing views very often won’t help.

Focus

Once the conviction is established, it will require a very strong focus every single day to go out and sell mutual funds. Things will not always be rosy and in difficult times, if the focus shifts somewhere else, it is not going to help. Nobody stops an IFA to sell alternative products. The questions is – what product is he focussing on ?

Future corrections

The markets for now look promising but it will not be free from turbulence. Going ahead markets may see big corrections resulting in pain. This does not mean IFA’s should start focussing on other products and abandon mutual funds again. There are products within the mutual fund category to serve clients under various market conditions.

Holding is the Key. Selling is not

When markets recover, investors tend to sell. IFA’s are also in the rush to book profits or cut losses and see the uptrend as an opportunity to exit and save face. I have observed clients and IFA’s wait for 5 years of bear market but do not have the patience to wait for 2 years of bull run. Selling is easy. The key is to hold on. It adds to gains, confidence, relationship and higher income.

Asset allocations

With rising markets come higher expectations and the greed to make more money. Historically IFA’s have focussed on selling risk to clients. This time they must buck the trend. They must do proper asset allocation to client’s portfolio and recommend debt and gold funds also, even if they eventually offer lower returns in next few years. The point is – the portfolio must be properly balanced and not skewed only towards equity. No one knows when the markets will take a turn and then debt and gold may become the lifeline.

Save money

Most IFA’s do not have enough financial backing and resources to withstand a bad patch. This forces them to look for alternative products to keep going when mutual funds do not do good. Going forward, IFA’s should start doing their own financial planning. They should save more money for their own future so that they can work with continued focus even in bad times without looking for instant income to run their household.

As a lay man Indian like most others, I have high hopes from the new government and going forward expect the financial markets to do well. It may be a little bumpy at times, but I will take that as an exciting ride rather than a disturbing one. It may so happen that things may not go that well as anticipated but it can’t let my conviction die. It can’t let my focus subside. The markets may not have a bull run as per my expectation but I will always be bullish on mutual funds. After all,

“I would prefer to be laughed as an optimist rather than die as a pessimist”.

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