21 Jul 2014
Imagine this. A one day international cricket match is going on. The team batting 2nd has to chase 280 runs. They are 20 for 2 after 6 overs. The no. 5 batsman who came to crease was making his debut. Big challenge for him. He must perform. But… he is caught on the first ball. As he walks towards the pavilion, he hears a roar from the home crowd. He turns around to see the umpires calling him back as the ball is called a ‘No ball’. He goes back to his crease. But he is so nervous that he is playing tentative and takes a long time to score 20 runs. If it goes like this, he is surely gonna get eliminated from the team in future and his career may end. Worse still, his nervousness got him out again. As he walked back again to the pavilion, he could not believe his ears when umpires called him back again. Lady luck was on his side. It was a ‘No ball’ again. Now he thought, it’s a do and die for him and he must give all he has. He went on to score a century and win the match for his country. He was lucky that he got 3 opportunities. Not many do.
The 3rd lifeline for IFAs. May well be the last.
Life may not give 2nd chance to many to correct their mistakes or to change their direction. Similarly, many businesses do not offer multiple opportunities to start all over again, having missed out on previous opportunities. So true for IFAs.
The first real opportunity came in late 99 and early 2000 when open ended mutual funds started making their mark. Those who jumped early are in a very strong position today. Those who missed, got another opportunity in the middle of the last decade ( 2005-2007) when sensex rallied and touched 20000. AUM’s made and income earned during this period helped IFAs pass the storm that followed and strengthen their hold on the business.
Now is the third opportunity for those who missed the first two. There are enough learnings in the past for IFAs that mutual fund still remains the best option for their clients as well as their own revenue stream. It is time to correct their mistake of not marketing mutual fund aggressively in the past. They should make a fresh beginning to pursue this fantastic business on a serious note.
Age is catching up for IFAs who have been in business for 15-20 years. So, I would say this may be the last real opportunity to make it big in mutual fund distribution business for existing IFAs who missed the first two opportunities.
The 3X Multiplier
Structurally, it seems that this is one of the best times for IFAs to garner assets in mutual funds. The current environment may give a 3X multiplier to the effort done by IFA’s.
Firstly, the efforts made to sell mutual funds in current environment will pay off. Secondly, the improved confidence of investors will double the business as they will themselves be willing to invest more. Thirdly, this is the first time there is a stable government ( full majority on its own ) in over 40 years. It is expected that reforms pushed by this government and positive intent overall will spike the markets over the next few years. This might give added push to AUM’s going up due to better market performance. This is what I call 3x multiplier.
Shun the fear
Each time a new fear comes in the mind of IFAs and they get demotivated to sell mutual funds. Few years ago It was the fear of trail commissions going away. It did not go. Currently, they have a fear that ‘direct business’ will kill their business. It has hardly made an impact on IFA’s till now. Each time their fear is turning out to be baseless but they are losing precious time. It’s time they shun their fear and start focussing on mutual funds aggressively. After all, they need to ask themselves – If not mutual funds, which other financial product distribution will make their own financial dream come true (along with their clients).