Wealth Forum Advisor Confidence Survey: 2015
Part I : Business Confidence
Direct plans worry even the leading IFAs


The results of the 4th annual Wealth Forum Advisor Confidence Survey are now out, and will be published in 3 parts. The first part, which showcases findings of the Business Confidence section, represents a mixed bag. India's leading IFAs are very confident of business volume growth, a tad less confident on revenue growth, are more willing than ever before to invest in their business for future growth - signifying long term bullishness about the business, but are at the same time increasingly worried about the growing impact of direct plans on their business. They believe that the negative impact of direct plans will only grow with time and not diminish. The MF industry's ambitious MF Utility platform, which has finally been launched, is no longer as exciting to IFAs as the concept was, and alternatives seem to be stealing a march over MFU. There is a little more interest now for applying for an RIA licence than there was a year ago, but perhaps not enough yet to keep SEBI happy.

Wealth Forum conducted its 4th annual Advisor Confidence Survey in June 2015, where we invited 260 of India's leading IFAs from 48 cities across India to share their outlook on markets, products, business and AMCs. These 260 IFAs comprise the top 5% of IFAs in their respective cities: their views therefore represent the pulse of the leaders within IFA fraternity on key business issues.

We received 213 responses in all, from the 260 IFAs who were invited to participate in this survey. We are grateful to all 213 leading IFAs who took out the time to respond to this rather exhaustive survey. The geographic spread of responses received is given below:


Like last year, this year's survey will be published in 3 parts:

Part 1 : Business Confidence

Part 2 : Market and Product Confidence

Part 3 : AMC Confidence

In this part, we bring you the pulse of the leaders on business confidence.

To see the previous years' survey results, Click Here

1. Outlook on volume growth


Last year's survey, done in July 2014, had a strong Modi effect that pretty much electrified our markets and all market participants. Confidence on most parameters jumped substantially from 2013 to 2014. A year later, after all the hype and exuberance has settled down, it is indeed heartening to note that confidence in growth in business volumes is almost at the same levels as last year. Acche din for MFs in terms of business volumes seems clearly here to stay. Investor interest in mutual funds has been aroused, and is likely to remain strong: that's the key message from these numbers. There is very little regional disparity - investor interest seems strong across the country.

2. Outlook on revenue growth


Confidence on growth in revenues, though strong, is somewhat lower than the corresponding number for business volumes. The recent decision on capping commissions may have contributed to this marginal drop in the average score from 8.6 in 2014 to 8.2 this year. The biggest drop in confidence scores over last year are surprisingly in South and West - regions known for strong IFA fraternities who often are a step ahead in anticipating change. Are they reading signals of revenue pressure in the coming months clearer than others?

3. Outlook on fee based income


Our regulator and certain sections of media would have wanted to see the figures here showing a growing trend of fees as a percentage of total income. Reality however is different. Leading IFAs across India are not making too much headway on the fees front. In fact, the percentage of IFAs who have selected 0% (indicating no part of revenues coming from fees) has only been rising year after year. Only 14% of India's leading IFAs believe that fees will be a material part (more than 26%) of their total income this year.

We hear SEBI making itself clear that it wants to see more and more intermediaries register as RIAs and give up a commission based model. The question that needs to be asked is: are we really ready for this now?

4. Outlook on costs


Worries on costs are creeping up. This bull market is clearly pushing up employee costs as hiring by big firms is active again, and talent continues to be scarce. At 5.8, its not alarming at all yet, but one suspects that as the bull market marches ahead - as most of us believe it will - this is one number that will keep climbing in the coming years. Far-sighted IFAs will start thinking now about how they can automate and digitize their businesses quickly enough, if they haven't done so already, to control recurring costs even as they reach for more scale in the coming years.

5. Willingness to invest for the future


Willingness to invest in the business for future growth, at 7.6, is even higher than last year when optimism in the market and indeed the country was at its highest in recent years. This again is a clear sign that leading IFAs are seeing visible signs of growing investor interest - and sustainable interest at that - which gives them the confidence to invest into their businesses rather than take away money from this business and diversify elsewhere.

What is indeed heartening to see is the huge spike in this score in the East over the last two years. Are our IFAs in East now seeing investors finally fed up with chasing chit funds and settling now for alternative products like mutual funds? Going by this score, AMCs ought to be looking seriously at whether they are investing sufficiently into strengthening their Eastern franchises, which was historically the most ignored area.

Equally surprising - in fact puzzling - is the dip in scores in South. South came up strongly in 2014 from a low score in 2013, but that enthusiasm to invest in the business is receding a bit. In fact, when you look at three scores together - outlook on volume growth, outlook on revenue growth and willingness to invest in the business, South has recorded dips in all three, to an extent that is a little more than other regions. What's bothering our Southern champions?

6. Impact of direct plans


Its not just the smaller or weaker players in distribution who are worried about direct plans. The leaders of the IFA fraternity are getting more concerned about the negative impact of direct plans on their business - and quite tellingly, they believe the situation will only aggravate in the coming years. A score of 5 signifies quite a material impact - not something that can be brushed away as just a niggling concern.

If you put this score together with the willingness to invest in the business, the message that seems to be coming is that direct plans are seen as denting their growth plans but not really stalling them all together. It's a competitor that cannot be wished away, and it's a competitor which is widely perceived to have an unfair price advantage. There is a debate that was started on our platform on whether direct plans are priced correctly. While that debate needs to be taken to its logical conclusion, distributors have in the meanwhile, little choice but to strengthen their own customer propositions further, and perhaps more importantly, seek out clients who genuinely value advice rather than any client who has money to invest.

7. MF Utility: distributor interest wanes, worries remain, alternates emerge

To what extent do you believe MF Utility will help you serve your clients better and free up your time for driving business growth in the next 3 years?


How much will MF Utility help in enhancing growth of direct plans in the next 3 years?


How likely are you to use the NSE platform (NFM II) for MF transactions by March 2016?


Scores from this section must indeed come as a big disappointment to all the MF industry executives who put in huge amount of time and effort in conceptualising and bringing to life the much awaited MF Utility.

The utility score of MF Utility has dropped alarmingly in the last one year from 5.6 to 3.9. Perhaps the inordinate delay in its launch has something to do with this. Perhaps the limited range of capabilities of Phase I, coming after such a long wait, has resulted in significant waning of enthusiasm. Perhaps the effective marketing done by NSE of its exchange platform as a distributor friendly platform has resulted in distributors attention going away from MFU. Perhaps the fact the MFU will be available for direct investors and the perception that it will enhance growth of direct plans has something to do with the attraction of the NSE platform, and therefore a corresponding dip in interest in MFU. Perhaps it's a combination of all of these.

Whatever be the causes, the management of MF Utility has its task cut out - to rebuild enthusiasm in and faith in MFU. The fact that MFU today offers the long awaited common application form and common service form - in the physical mode - whether or not you register as an MFU user - is something that needs to be propagated loud and clear. That would be a first step in rebuilding distributor interest in MFU.

8. Distribution vs advice

How likely are you to apply for an investment advisor licence from SEBI by March 2016?

(scale of 1 to 10: 1 represents very low likelihood, 10 represents very high likelihood and NA denotes already applied/received RIA registration)


About 9% of respondents (who ticked NA) have already either applied or received RIA registration. In computing average scores, we have accorded this category a score of 10.

The combined score (intention to apply + already done so), at 3.5 represents a marginal increase from last year's 3.0. That's not nearly good enough, is what SEBI is likely to feel. There is a very strong regulatory desire, spelt out loud and clear by Mr.UK Sinha at the recently held CII Summit, to see more intermediaries signing up as RIAs. There is a clear preference for RIA mode vs distribution mode in SEBI's mind. There is a clear desire that the regulator has to see over time, a shift in intermediary compensation - to see investors paying explicitly for advice rather than product providers paying commissions embedded in product costs. It seems SEBI is giving intermediaries some more time to "fall in line" with its desire, failing which mere desire can translate into some form of regulation.

Its time for the industry to either "see the writing on the wall" to borrow a phrase from Mr. Sinha's address at the CII Summit and act accordingly, or alternatively, put forth a cogent and well-reasoned argument why this writing on the wall is not the most appropriate for this market at this point of time. Merely fretting is not going to get anybody anywhere.

To conclude

Business confidence is high, willingness to invest in the business is high among leading IFAs. There will always be some worries in life - nothing is ever perfect. Direct plans and RIA regulations are issues that IFAs need to find ways of tackling. Its always easier to make adjustments in your business model when you have tailwinds of business volumes to support you. Smart IFAs will use these tailwinds to take necessary steps to deal with these challenges and charge ahead in the coming years. It's not often that investors don't have too many other investment alternatives and must come into capital markets. Such an opportunity presents itself today - when enthusiasm on real estate, gold and fly-by-night schemes are all low. Be sure to capitalise on this opportunity.

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