Here’s how Independent Financial Distributors are embracing regulatory changes and technology to drive inclusion
In the last few months, we have heard and read plenty of times that the world is going through an unprecedented time. The term ‘unprecedented times’ is often associated with the ongoing pandemic and its cascading effects upon human lives, businesses, and culture. However, there are much more unprecedented things (read: positive) that have taken place of late. As we know, there is a persistent focus of the Government and financial regulators to foster productive savings – into regulated investments, like Mutual Funds.
One such reform was brought about by the recent circular by the Association of Mutual Funds in India (AMFI) that permits distributors working under the sub-broking model with national distributors to transfer assets to their own AMFI Registration Number (ARN) allotted by AMFI. This is an extremely positive move – allowing the un-organized distributor segment, to unleash the entrepreneurial spirit.
As per the BCG report that was submitted to the Mutual Fund Industry – “Unlocking the next INR 100 Trillion Opportunity”, nearly 90% of the Indian households are located in Tier 2 cities and beyond. To add 8 crs new investors, distribution outreach would be key.
This rapid expansion cannot happen through the organized sector alone nor by new entrants. Motivating existing Distributors to do more would be a crucial step in increasing this outreach – being incentivized through creating their own brand as well as having a higher revenue to be able to expand.
An analysis by the digital wealth management platform, Fintso, suggests that with the structural change, a distributor with Rs 25 Crs AUM can enhance its revenue by over Rs 10 lakhs per annum. Considering the tangible potential impact, the move will democratize the mutual fund distribution and encourage more independent financial distributors to test waters in new ways.
The wallet size of Indians is estimated to be ~$5.5 trillion but is extremely fragmented - both geographically and in terms of the needs of the different segments – retail, affluent, HNI s, and UHNIs. The high cost and low availability of talent have proven to be a challenge for established “traditional” wealth management players and low financial awareness has been a hindrance to the adoption of DIY models of Digital B2C entrants.
This move will personify David-Goliath theory in the wealth management industry, i.e., enable stand-alone players to go head-to-head with organized players and help them win, using their innate strengths. David, i.e., independent financial advisors can target small ticket investors and grow by volumes, tap potential clients from tier 2, 3, and 4 towns, introduce technology interventions to optimize their operations, and much more. Thus, there will be a spike in the entrepreneurial spirit of independent financial advisors (yet another feat towards Atmanirbhar Bharat) and we can expect several business innovations by them.
Fast forward, over a long term, a new generation of financial professionals will be inspired to join the wealth management industry as independent financial advisors, taking ahead the Government's agenda of a self-reliant nation and its people. The advisors will also simplify investment for millions of new investors across the country, adding prosperity at the micro-level and GDP numbers at the macro level.
With the aforementioned regulatory development, the large broker-sub-broker centered mutual fund distribution business will undergo a significant change. Long and short- Independent distributors will no longer need to merely be a sub-broker. They can leverage their relationship with their clientele to establish their own brand and identity, conduct business in a hassle-free manner, and have better control over operations, regulatory compliance, and revenue.
As more consumers look for different investment avenues, especially since the Covid-19 outbreak, they need simple yet credible advice. Also with the emergence of the best wealth management software, which is just a click away from them, they are in luck.
AMFI’s move unlocks a huge opportunity for the Independent financial advisors to build upon their existing ‘bridge of trust’ and tap both, neo-investors as well as the experienced ones.
Technology-driven solutions, simplified communication, and trust seeded by independent financial advisors can bring a large part of India into the financial mainstream and make the complicated sub-broker model of mutual fund distribution redundant.