The one business and I can say the only business in the world that adds revenue by others’ performance is that of Wealth Management/Advisory or Financial Distribution. How?

1. Customer’s Performance

2. Fund Manager’s Performance

3. Your Performance

The ideal age to start investments is 25 years onwards and one can invest till his/her retirement. Average employee (in this case your customer) in any industry, gets 10% to 15% increment YoY. Hence his investment surplus, due to his performance in his workplace, increases easily by 10% and it will reflect in your business as well and resulted in your revenue.

Experience and expertise in the advisory business helps to select the right products at the right time for your customer. It will be added in your customer’s capital YoY and translate to extra revenue in your kitty.

For example: the mutual fund difference in top quartile performance and bottom quartile performance is as wide as 12-15% CAGR. Your capability to identify and select the right scheme for your customer can increase your customer’s return and your revenue by 12-15%. So, the right Fund Manager will add additional trailer income in your revenue. Besides, with the emergence of the wealth management software, the journey of an investor is easier than ever.

An advisor’s skill helps him design robust Asset Allocation for his customer as per the customer’s risk profile or financial objective and goal. The purpose of Asset Allocation is always to minimize risk in adverse market conditions. For example, in the current scenario equity market falls at an average of 35% to 40%, but in lots of advisors’ portfolios which one properly designed (Asset Allocation), it fell by around 25% and that indirectly means the advisor’s revenue also fell less compared to others. So, your performance added additional return and minimum risk in a down market. You have added 15-20% additional revenue in one market cycle for yourself.

To appreciate the above points, two more professionals are working for you to add to your revenue YoY for a long term, that great business you want to develop under your name or you want to borrow others’ name as a sub broker and build.

I conducted a survey with a very close group of persons, those who have 3 to 20 years of experience in financial distribution. Some of them are running insurance and mutual fund distribution business under their own license/code, but routing FDs and Bonds business through other national distributors because FD & Bond are no brain product as per them and there is no trailer income. A good mass of distributors is working as sub-brokers under national distributor with platform facilities. When they joined these national distributors with platform capabilities, their experience in this industry was very low or average, brokerage differential was very high and other related operation activities were manual.

Now, the entire financial ecosystem has evolved; AMCs and Exchanges are available for online transactions easily, differential of trailer brokerage is very narrow or can say difference, in a lot of cases trailer is better what national distributors are paying after services charges. As lots of ‘Transaction & Reporting’ systems are available, these systems can solve their problems to some extent. The survey result is evident that any sub-broker who has Rs. 10 Crs plus corpus, wants to move out of ‘Borrowing’ game business and wants to ‘Emerge’ his own brand.

Their hesitation is that they will lose the revenue if they move their clients from one ARN to their own ARN. As per AMFI best practices, there are some restrictions to avoid any unethical business models. The Industry has the following methods to move client portfolios:

· Change of Broker: Customer can initiate the process, but existing and new, both ARN holders, are not eligible for trail/broker on current corpus

· Transfer In/Out: No Brokerage to either ARN Holder on the existing corpus

· Merging of ARN: One ARN holder can merge his business with another ARN holder with consent from all customers with proof. Accepting ARN holder will be eligible for brokerage on existing corpus but whichever is less.

Another option is ‘Switch in/Out’ with new ARN. In this case, the new ARN holder will be eligible for brokerage/trail as per current structure on existing AUM.

Current massive market fall due to Covid-19 is like ‘A Blessing in Disguise’. This fall will impact the performances of each customer for short to long term need to make strategic Asset Allocation, Market Cap Allocation and Change of schemes. This is the opportunity to move the customers from one ARN to other ARN through switches from one Market Cap Allocation related scheme to recommended scheme for the long term. It is a win-win situation for your customer and you. Corpus will realign with market conditions and his finance goal and you will also not lose revenue in these actions.

Through this, you can move Borrowing Name to Emerging Brand. And it will give you an opportunity to add more financial products, services, new and updated technology, increase in revenue etc.

By Rajan Pathak, Co-Founder & MD, Fintso

Rajan is known for his in-depth insight into the financial entrepreneur’s venture with 25+ years of establishing various B2B businesses, which gives him the edge and adeptness to scale the advisory business.

As the CEO of IFAN Finserv (formerly ING), Rajan managed a team of 40+ people, created a wide network serving 1300+ Independent Financial Advisors managing assets over $500 million.

Find out more on our website or Rajan's LinkedIn