Are you looking forward to selling your advisory business but don’t know to whom to reach out to and how much is your business worth. Don’t worry!
In a first-of-its kind move, iFAST India has launched a marketplace for IFAs which allows them to sell their business to other IFAs. Simply put, this marketplace will act as an exchange to buy and sell IFA business.
In India, most advisers start off their practice solo and it is only after they reach a certain stage in their life when they think about their retirement. This is perhaps the most overlooked aspect in most advisors’ life. Typically, majority of advisors in India get their family member to take charge of their business. But what if you don’t have anyone within your family to take over the reins?
Unfortunately, there were no organized method to help you find the worth of your business in India. In developed countries like USA and UK, IFAs transfer their assets through marketplace route. (A marketplace works like Amazon and Flipkart where users buy and sell goods and services.)
The iFAST’s new marketplace platform is expected to address these issues by providing a contingency plan so that your clients will not suffer in your absence. Also, it will help you find the enterprise value of the business that you have built over the years.
In fact, IFAs can get healthy upfront payment of 20%-50% of the total valuation. However, the intrinsic value of an advisory business will depend on the tenure of the client, asset mix, demographics of the clients, number of clients and so on. In the developed markets like US and UK, IFAs business get valued between 2 to 3 times of their annual recurring revenue.
Sharing the rationale behind launching this marketplace, Rajesh Krishnamoorthy, Managing Director, iFast India, said in a press release, “There have been untimely deaths of mutual fund distributors, which have caused clients to look for someone else to help them. The lack of a smooth transition often means that clients end up under serviced and sooner or later, succumb to other intermediaries who sell products like insurance or get carried away to invest in fixed deposits or real estate by selling off their mutual fund or stock investments. Such distributors need to seriously think about who could be their contingency practitioner so that clients are taken care of. There have also been situations where mutual fund distributors had met with critical illness which took them away from day to day client management. In many IFA practices, somebody in the family is expected to succeed them. However, such succession planning is also thrown out of gear when the young family member ends up with some unfortunate accident or illness. In the event of such unforeseen circumstances, even the family suffers a huge financial discomfort in an already emotionally disturbing situation. All these have triggered the creation of the marketplace.”
“On the other hand, if all goes well, there will also come a time when the IFA would like to retire peacefully after handing over his client relationships to another IFA. In such cases, there is a need to have proper handholding of clients, a fair value to the decades of business one has been running and thereby ensure that the goodwill created can be monetized,” he said.
Krishnamoorthy shared that there have been many mutual fund distributors who have now got together to form companies or limited liability partnership firms so that the question of “after me, who will take care of my customer?” gets answered. He mentioned that over 20 such mergers have taken place in the last eighteen months and more are expected to happen in the near future. Coming together to form a company, segregating distribution and advice and taking up SEBI Investment Advisor registration is what these companies and firms do, over and above answering the key question on customer continuity.
He urged IFAs to seriously think about their own financial planning and clearly define what would be their contingency plan and their exit/succession plan.
Interestingly, the company has found that majority of IFAs in the mutual fund industry are over 30 years of age. In a random sample survey of over 21,000 mutual fund distribution, the company has found that nearly 40% of IFAs are over 50 years of age. These IFAs may require proper handholding to exit their advisory business.
Krishnamoorthy clarified that the company will not charge any fee to facilitate this service.
