My income will drop 40% due to upfront ban


Yogesh Ladhwa and Preeti Kalburgi, Benchmark Financial Consultants, Belgaum

Yogesh and his sister Preeti have grown their IFA practice rapidly in the last 18 months to reach an AuM of Rs. 90 crores. Yogesh believes the ban on upfront commissions will reduce their monthly income by as much as 40% immediately. Read on to understand his plan to bridge this shortfall and his advice to fellow IFAs who now need to make the transition from upfront to full trail commission model. The simplicity of his plan and his attitude towards adversity is what is likely to see him overcome this challenge and build a much stronger and bigger business in the years ahead.

WF: How has your journey as an IFA been in the last 18 months since you became an entrepreneur?

Yogesh: I became an IFA in April 2017, after several years of experience in the distribution business working for leading firms. We have grown substantially in the last 18 months with an AuM now of around Rs. 90 crores. My experience through bull and bear phases has taught me the importance of educating investors upfront. We try to bring in a strong goal orientation in our clients, which promotes long term thinking and helps clients navigate market volatility better.

WF: Is this education focus paying off in the current bout of market volatility – especially with new clients whose experience may not be good?

Yogesh: Clients consult us before taking any decisions – which gives us an opportunity to provide them with reassurance if they are concerned. New investors are nervous but we help them understand the advantage of buying a good product at a discount price. Most customers see this logic and are willing to invest in the correction, but not all. Some are skeptical about how much more the market may fall and how much more damage this may do to their portfolios. But we are not seeing any significant redemptions and we are not seeing any SIP stoppages. As long as we proactively communicate with our clients, we see that their anxieties can be settled.

WF: Have you witnessed a drop in your new client acquisition rate in recent months once the correction set in?

Yogesh: We were adding 15-20 clients per month in 2017 and the same run rate is being maintained in 2018 as well. What we find is that investors are actually more composed than the experts in media. The belief that this is a short term upheaval is strong among most investors – new and old.

WF: You had opted for upfront commissions rather than a full trail model. By what percentage do you see your monthly income falling now that upfronts have been banned and how do you propose to make this up?

Yogesh: Our monthly income will drop by 40% now, as a result of ban on upfront commissions. There is no immediate solution on how to make up this loss. The only long term solution is to focus on more client acquisition, garner more AuM and gradually make up the shortfall by building our trail income. We will need to move our monthly new client acquisition run rate from 15-20 to 25-30. If we do this, my estimate is that it will take upto 18 months for us to get our income back to where it was until last month.

Distribution business has seen so many challenges in the last 10 years. Those who saw opportunities in these challenges have grown, those who saw only challenges, struggled. We want to be part of the first set and therefore will focus our attention not on how much income we have lost, but on how much we can gain to recoup what we have lost. There is now a bigger motivation to go out more aggressively and win new clients, do more activities, market ourselves better.

I also believe there is a big opportunity to reach out to investors who went direct and are now grappling with market volatility, and sign them up as customers through proper education and a goal based long term investment approach.

If we execute this plan well of 25-30 new clients per month over the next 18 months, we will not only have made up the shortfall in monthly income, but will also be creating a much bigger trail income base for ourselves. So by focusing on a near term target of making good the immediate loss, we will actually be building a much bigger and better business for ourselves for the long term.

WF: What are you advising other IFAs in and around Belgaum – especially small IFAs – who are trying to cope with the challenge of a sudden and steep drop in monthly income?

Yogesh: There are lot of discussions on options to substitute loss of income. In my opinion, IFAs must actively look at loans as a vertical to complement investment products. If you have a good range of investment avenues as well as a good range of loan products, you can offer your clients many more solutions for their needs and enhance revenue from your clients. There is significant scope in my view in adding loans to your product portfolio.

WF: Would you have considered becoming an IFA today – in a no-upfront commission environment? Do you think we will see a drop in the number of active IFAs? Do you think new IFA registrations will drop considerably now?

Yogesh: This is a very tough situation to set up a distribution business. You don’t have upfront commissions to help you in your initial stages and you don’t have market tailwinds to ride on. So it is very possible that new IFA registrations will slow down.

But one thing I have learnt is that if you take the plunge in challenging times, you become tough, you become capable of handling whatever challenges the future has in store for you. You can’t run away from challenges – there will always be some in any profession. We have to learn to face them, overcome them, learn from them and grow as a result. So yes, I would have opted to become an IFA today if I wasn’t one already – but the reality is that it will appear very daunting for many.

One of the things that did happen in last 2 years is that we saw a number of new people becoming IFAs due to the pull created by the product – thanks to the education campaigns and a strong market momentum. Many of them used to sell purely long term products like insurance where market fluctuations was never a concern. Their ability to sustain client relationships through higher engagement in turbulent times will be tested now. Those who manage to do this, will emerge much stronger. Others may drop their interest in mutual funds.

I believe it is time for IFAs to be on front foot. Our clients need to see us as proactive guides who transmit conviction in staying invested for the long term to all customers. If we go on the back foot now – whether due to our internal challenges on commissions or external challenges on markets – we will always remain on back foot in our business. The only way forward for our customers and for us is to play on the front foot – with full confidence in the future.

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