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Bold new IFA model from North-East

Pallav Bagaria, Brand New Day, Guwahati

In a nutshell

Three successful young IFAs from Guwahati - Pallav Bagaria, Shyam Singhania and Divya Khemka - have decided to join hands and merge their IFA practices into a single company. Is it a defensive reaction to regulatory action around distribution models? Or is it aimed at harnessing the tremendous growth opportunities that each would not have been able to do individually? How will they share profits in the new entity? What if things don't work out as planned? Pallav speaks candidly about the rationale behind this bold new IFA model, the opportunities, the challenges and the road ahead for their exciting new venture, which is likely to become the torch-bearer for many more such mergers in the coming years.


Big drivers

First things first: Shyam, Divya and I have been very close friends for years. We trust each other, and that is the fundamental basis on which we decided to join hands in business. Nilesh Shah's inspirational talks on Amulization of IFAs left a deep impression on all three of us. For each of us, the key drivers behind this merger move are a little different, but the big picture is the same. There is a huge market opportunity out there, which we are simply not able to harness effectively enough on our own. Together, we can achieve a lot more than we will do individually.

Talking of big drivers that influenced the decision, there are a couple that resonate equally strongly for all three of us, and then some that resonate more than the others for each of us.

There is also a clear recognition among all three of us that regulations are increasingly forcing a clear demarcation between distribution and advice. One individual IFA cannot realistically hope to continue doing both businesses 5 years down the line. They will become separate businesses. The best way forward in this scenario is to join hands and set up a company that can legitimately carry out both businesses independently.

The other factor that all of us strongly believe is that the biggest issue today that is an impediment to an IFA's growth is operations. Having our operations on a platform is the only way forward. Now, the options are to either go individually and join a platform, or to join hands, build our platform, and have others join in. We chose the latter.

Beyond these, there are some individual drivers as well. For Shyam, a big concern is succession planning - which I guess is equally true for most IFAs. Clients need comfort that there is an organisation, a team that is backing the individual who is entrusted with advising them on their money - and which will be there even if the individual isn't.

For Divya, the key issue is about building scale. He has developed a strong retail franchise, whose growth can get limited due to lack of adequate infrastructure and a quality team to drive scale.

For me, the issue is about missing out huge growth opportunities I see, but cannot leverage on my own. I have a substantial HNI client base, and managing them ties me down to Guwahati, whereas I see many growth opportunities across the North East and beyond. I started working with CAs as our sub-brokers/channel partners - this business has huge potential which I haven't leveraged sufficiently due to lack of personal bandwidth.

Dividing responsibilities

We are actually four of us, and not three - my partner in Brand New Day - Mudit Bansal, will be a key player in the new combined venture that we will call BND Investments. Each of us will continue to have key client facing roles and at the same time will assume responsibility for support functions that help drive scale. We agreed on the division of responsibilities based on a clear understanding of each other's strengths and weaknesses.

Divya will assume responsibility for the combined operations team, apart from leading his retail effort. Our technology initiative will also be driven by him. Shyam will focus on driving retail expansion and will also take on responsibility for product research and fund recommendations. Mudit will oversee accounts, finance and compliance for the merged entity. My job will be to drive the HNI business and drive business development initiatives like alliances, sub broker network and so on. North East is geographically a vast area, our ambitions are well beyond Guwahati, we know people in different parts of the region - its all about putting one's mind and energy to building a network around the region.


(L-R): Mudit Bansal, Shyam Singhania and Pallav Bagaria.

Profit sharing

This is the trickiest part of any merger. It is the most sensitive aspect, and we spent a lot of time having very frank discussions on the best way forward. This is where it really helps that we are good friends who understand each other very well. Our books of account were opened up for each other to take a look at. We know exactly who is making how much money. After a lot of discussions, we agreed to freeze the profit sharing arrangement at the same ratio of last year's profits.

What can go wrong?

Lots. Some people thought we are crazy. Friendship and business sometimes don't go well together. We know this, we discussed this at length. One thing that we identified as a key roadblock is our own personal egos. As an entrepreneur, one is used to taking all the decisions by oneself. It is now an entirely different dynamic where one needs to be a team player. To succeed, we need to kill our own egos, which we all resolved to do.

We have come together with good intentions, with honest intentions. I believe this will see us through any unforeseen challenges we may face. Yet, we spent a lot of time - two full months actually - in discussing and clearly documenting a comprehensive exit strategy, should things not pan out the way we envisage.

The other factor that can go wrong is operations - the synergies kick in only if we have truly combined processes and operations - else it will be three units under one roof. There is a lot of work underway to ensure common processes as a precursor to moving to our own platform.

Immediate upsides

Growth is what all of us are really after. And the best way for us to know we are on the right track is to focus our energies on growth opportunities that a combined unit can now leverage. The first one was cross selling opportunities across our client bases. Shyam wasn't active in the general insurance side - we cross-sold health and fire insurance to a large part of his retail client base.

SIPs are a common goal and have been a common focus area. Together, we had a SIP book of Rs. 2 crore. We took on an aspirational target of doubling it to Rs. 4 crores in 1 year. It looked like a huge challenge, but within the first 3 months of a combined effort, we have added more than Rs. 50 lakhs to our SIP book. We know we are on track to achieve the growth aspirations we share, as together, we are a lot stronger than alone.

As word got around in Guwahati, we have already started getting enquiries from IFAs and other financial sector professionals on whether they can partner with us in some form. Once we get our platform going, we intend to rope in sub-brokers/channel partners very selectively. We need to ensure a meeting of minds. But what we can see is that as a combined entity, there is a lot of interest among professionals as well as clients to engage more with us. Together, we are a lot stronger than alone.


Content is created by Wealth Forum and must not be construed as an opinion by DSP Blackrock MF.

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