Is Paytm a threat to IFAs?
SLA Financial Solutions,
9 May 2018
In April, Paytm announced that it will launch a dedicated mobile application for investing in mutual funds. The free app will allow users to not only buy mutual funds (direct plans) but also view their investment portfolio. This news has caused a rumble among the IFA community and spread some fear that it will make business difficult for the IFAs. After all, an e-commerce giant with huge reach and millions of customers, comes in with direct plans and value adds totally free – how can IFAs face such competition? I too got initially rattled when I saw the headline grabbing news report. But then I thought a little calmly and as objectively as I could – and here is the gist of my reflections.
Lessons from Baba Ramdev
15-20 years ago, yoga was primarily something we learned about in our history textbook. Different kinds of asanas had no meaning or relevance to many of us in our daily lives. Then, with the advent of yoga gurus like Baba Ramdev, yoga has grown tremendously. There are yoga programs every morning on Aastha channel as well as many videos on the internet. With so much free yoga teaching available, one would assume that there would be no need for yoga teachers. Yet, demand for yoga teachers has never been stronger than today.
I have been hunting for a yoga teacher and came across one who charges Rs. 10,000 for 3 hours per week. Despite the expensive tag, the classes for this teacher are filled with students. How is that possible? The yoga teacher is not necessarily charging for knowledge as much of that is already widely available. Instead, the teacher is there to ensure a physical discipline and to correct our mistakes.
Similarly, Paytm is going to open up a new audience to the mutual fund industry and many of these new entrants will learn about what mutual funds are. They will invest in an ELSS fund, they will start a SIP. Over time, their investments in mutual funds will grow to 5 lakhs and 10 lakhs. That’s when they will realize that they have outgrown an app and now need more meaningful conversations about managing their money.
Paytm vs IFA : strengths and weaknesses
This is where the IFA comes into the picture. They will look for their personal financial trainer. Advisors worried about losing clients to Paytm and other e-wallets and payment banks need to understand that it is simply not possible to compete with Paytm. They have scale, they have reach – we have neither. But, when the likes of Paytm create the next 1 crore mutual fund investors, you can be sure that at least 20% of these investors will over time want to graduate to a more hi-touch proposition. The next 20 lakhs of investors for IFAs will therefore come to us thanks to the market that Paytm will create for us.
Paytm may be great at acquiring lakhs of investors with simple propositions – our strength however is in engaging closely with the hundreds that we cater to. What we need to focus on is not whether Paytm will eat into our business, but whether we are equipped to handle 1000 more clients in the next 3 years that will come our way, thanks to Paytm opening up the market. The answer to that in most cases is NO. And that’s where we need to focus our attention on. We need to focus on how we can cater to larger scale without losing our hi-touch edge, rather than worrying about whether Paytm means extinction of the IFA model.
Casual vs emotional shopping
Lets look at another example. With the advent of online shopping, it seems that many have no interest in visiting the local shopping district. Rather than walking through crowded streets, there are some who prefer surfing online for their goods. However, even with the most avid online shoppers, there are some purchases that cannot be done online. When it came to the to a major decision of her life - buying clothing for her wedding – this avid online shopper that I know chose to go to a brick and mortar store. Why? She was aghast when I asked her – do you think I will go online to buy my wedding dress, she asked. When it comes to dreams and big milestones in our life, we want that personal touch.
Lessons for us IFAs
Similarly, when investors are just starting their investment journeys with their first SIP or their first ELSS investment, they will probably go online – that’s when they value ease of transaction execution and basic information available at their fingertips. But the moment it gets into saving up for their bigger goals, their dreams and aspirations, they want to talk to an expert, they want a roadmap and they want to know that they are on the right track.
As IFAs, there are some important lessons for us to take away:
So is Paytm a threat to IFAs? The answer is yes and no. Yes for those who continue to focus on fund selection, transaction execution and reporting as their core proposition. No for those who focus on goal based engagement to help clients achieve their goals and aspirations. For the former, Paytm is bad news, for the latter, Paytm is great news.
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