MFDs’ core strengths which no other distribution channel is offering today are (1) personalized service, (2) independent guidance not influenced by any organizational pressures or priorities and (3) longevity of relationships and thus ability to be part of their clients’ journeys from start to finish.
Sanjaybhai says MFDs need to work more on communicating these core benefits to investors and prospects. When you have unique strengths, you have to learn to market them well, to communicate them effectively.
MFDs have scope to work more on independent fund selection and regular portfolio reviews in order to showcase their core competitive proposition more clearly to investors and prospects.
Biggest risk for most MFDs who have collected 100cr or more of AuM is complacency – which not only prevents you from scaling up to ride this incredible growth wave, but also steadily eats away your competitiveness.
MFDs have to focus a lot more on building their business rather than managing their business. Focus more on establishing processes, building a team, using technology. You have only 2 real options: either build your own institution or become part of one.
World over, MFDs/IFAs have gravitated to one or other type of platform – based on their individual choices. Platforms offer scalability, compliance capabilities, end-to-end digitization, centralized servicing capabilities for your clients and very importantly for individual MFDs – constant support, guidance and encouragement to maintain your growth momentum.
One of the big issues in the MFD fraternity is its “long tail” – large number of MFDs with very low AuM (0-5 crs), for whom MF distribution is not a remunerative full time occupation and thus remains a marginal activity for them.
Building a book through SIPs is the steadiest way to grow your book, but also has a very long gestation period until the business is able to generate sufficient revenue for the MFD to devote full time attention to this activity.
Two things that can be done by smaller MFDs to supplement their SIP drives. First is to take up health insurance distribution – which also builds annuity income streams and complements SIPs very well.
Second, take up retirement planning seriously and target retirees who have sizeable corpuses in FDs – offer them goal based SWPs on a range of products from BAFs/MAAFs to Income+Arbitrage FoFs, depending on risk appetite and circumstances. This will bring in the much needed lumpsums into their AuM even as their SIP book grows gradually.
Many MFDs are expecting lakhs of investors who came into the industry through fintech platforms to sooner or later start looking fo rbetter guidance (especially when market returns dwindle) – and they expect these investors to gravitate towards MFDs as they are best equipped to meet their revised expectations.
Sanjaybhai offers a reality check on this expectation:
(1) - These investors went to fintechs because they created awareness better than MFDs, and then they adopted them for the sheer convenience of onboarding, trxn execution and reporting.
(2) - If you expect them to come to you, ask yourself whether you have put in the effort to build awareness of yourself and your service. How active are you on social media? How relevant is your messaging for this audience?
(3) - These investors will expect a digital proposition that goes hand in hand with your personal guidance. Have you digitized your customer proposition to meet these expectations?
(4) - If you have raised awareness and have invested in digitization, you will eventually be flooded with leads of a volume you never managed before. Have you geared up your business to handle scale at 2x-5x-10x the levels you ever handled before?
The opportunity is real – but only those MFDs who work seriously on these points will make the most of it.
If there’s one place Sanjaybhai says is a good starting point for any MFD with scale ambitions, it is team building. Hire good quality people, learn to delegate, create processes to enable team to have full clarity, inspire and motivate, treat your team as family, pay well but never excessively, and mentally prepare to share ownership of your firm with the best quality talent you have. If you adopt this approach, you are well on your way to scaling up beyond what you think is possible today.