imgbd Gamechangers: Dealing with direct

Command your remuneration, don't demand it

K. Vardhan, CEO, Ultimate Investments, Bangalore

4th January 2016

In a nutshell

  1. Ultimate Investments, promoted by L.Sridharan in 2003, has grown to become one of Bangalore's most successful financial advisory firms, with a 30 member team serving over 1200 clients, handling a mutual fund AuM in excess of Rs. 250 crores and overall assets under advice in excess of Rs.500 crores.

  2. If you believe your remuneration is getting threatened by direct plans, K Vardhan, an industry veteran and CEO of Ultimate, says the best way to deal with the situation is to put yourself in a position where you command your remuneration, instead of demanding it.

  3. Two ways Ultimate made this happen is a sharp focus on knowledge and an equally sharp focus on "advisor alpha". Knowledge = higher conviction = better quality advice = stronger relationships. Advisor alpha answers a direct question: what are you doing for your client that he cannot do himself?

  4. Vardhan says the biggest competitive advantage for an IFA is his/her independence - which puts you in a much stronger position than any RM of any large firm. Leverage your independence and raise your bar - you can overcome any challenge, whether posed by direct plans or any other form of competition.


In today's scenario, the distribution business has undergone phenomenal changes and has brought in many challenges, which have led many distributors to introspect whether to remain in this business or to seriously look for options elsewhere. Dealing with these challenges, we have come a long way. Ever since the advent of no entry load regime, there was a clear message that the remuneration from the product providers will get depleted and to add fuel to the fire, is the killer game changing idea called "Direct plans".

Hitting below the belt

Yes it is a big challenge, and does impact the business model for many distributors. Ups and downs are quiet inevitable in any business. Competition in any form as far as finance industry is concerned is always good, for, it opens up the door and the chances of increasing the cake size is more obvious. But this threat posed by the "direct plans" authored by our market regulator does amount to beating someone below his belt.

Actions should speak louder than words

"What cannot be cured should be endured and what is endured should not be spoken about". Having ended the phrase in such a fashion, now the question is what should I do. Should I simply remain mute to exhibit my endurance levels or activate my thought processes in such a way that I come out with a big bang so that the other side get a tremor in their respective spines. If so, what should be my action plan?

Action is more eloquent than words. It is better to show case the actions we have taken in the recent past to remain upbeat despite the challenges of today's market conditions:

Knowledge = conviction = superior advice = stronger relationships

Knowledge is the one which none can steal away from us and hence there are phrases like "knowledge is power, and knowledge is bliss". If we sit back and try to glance over the paths we have travelled in the last couple of years, we will have enough answers for our today's challenges. In these recent years, we have focused a lot more on enhancing our knowledge. As we learnt more, our conviction levels increased, and as our conviction levels increased, our ability to advice clients obviously increased. Are we today able to advice clients better than a couple of years ago? The answer is Yes. Does that put our firm in a stronger position to deal with challenges? Yes. So, while the regulator pushed us into an unfair competition with direct plans, we fought initially with our back to the walls, but have emerged stronger as a consequence.

Command your remuneration, don't demand it

We have to command our remuneration, not to demand it. This can happen only when clients respect us for the professional service we render, for the value we add in their financial lives. We are all familiar with the term "alpha" and we actively seek out fund managers who deliver alpha consistently - who deliver returns better than the benchmark. There is another alpha that is now a material part of our lives - "advisor alpha". What value are we adding to our client, which he cannot do himself? Advisor alpha can be generated in many ways: are you able to bring in discipline into your client's investments, and thus put them on to a road to success? Are you able to help them with a sound asset allocation and periodic re-balancing? Are you able to give them comfort during times of market volatility? Are you able to serve them well, to make investing a pleasure for them instead of a pain? As you can see, its not about additional returns over market - advisor alpha is about helping investors invest successfully, which they may not be able to do on their own as effectively. If we focus on adding advisor alpha, and ensure we demonstrate it, we earn respect. When we earn respect, we command our remuneration.

Be genuinely independent - that is an IFA's biggest competitive advantage

One important aspect necessary for earning respect is to be genuinely independent in your advice. As an IFA, you have no baggage to carry - you have no directives from the top, which RMs of large firms have - on which products to push and what targets to achieve. Their targets are always about what needs to be done for their own company or for a product provider. Your targets should only be about what you will do for your clients. You operate under no compulsions - this is a huge competitive advantage for every IFA. Make the best of this advantage, by building client relationships on trust, honest advice, transparency and excellent service. You will gain respect; your value will be seen.

Raise your bar

As I mentioned, your actions will speak louder than words. We acted on both these points - strengthening our knowledge and focusing on "advisor alpha" - and we have emerged stronger today than where we were three years ago, when direct plans were first introduced. The best way to deal with this challenge - however fair or unfair we perceive it - is to raise our bar.

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