Which model is more lucrative for an MFD wanting to start advisory business – individual RIA model or non-individual RIA model?
In the long term, the non-individual RIA model is more lucrative because it is more scalable. There is also the network multiplier effect, helping the business grow at a much faster pace than an individual model. Non-individual RIAs have no restriction on the number of clients, can have both advisory and distribution clients and have a corporate governance structure that provides long term sustainability. A company can operate in many locations, tapping opportunities in different cities, acquire different licenses to start new businesses and revenue streams and with a good profit margin, can eventually get listed. The possibilities are endless.
What services does iFAST Financial offer to RIAs? Why should RIAs look at tying up with platforms like iFAST?
iFAST as a group started in Singapore back in 2000 and the Financial Adviser Act (similar to the RIA regulations) was implemented in 2003. We are listed on SGX since 2014 and are probably one of the few profitable fintech companies in Asia. We are now in 5 markets, Singapore, Hong Kong, Malaysia, India and China and after shaping the independent advisory business for two decades in all these markets, we understand the model very well.
We came to India in 2008 with an online platform digitising account opening, reporting, transaction and fee recovery. In addition, we provide research on Indian and global markets (over 40+ regional analysts), compliance and audit support, which has become more important as the regulations become increasingly more stringent. In a single login, advisers and clients can access 7 exchanges (BSE, NYSE, NASDAQ, AMEX, BATS, SGX and HKEX).
Our fee recovery and transaction process is unique and utilises the power of the cash account, with a high fee recovery success rate. The platform supports asset allocation and rebalancing, which is one of the key value additions of RIA. Advisers can execute multiple one-to-many or many-to-one inter AMC switches with single client approval. There is no assets leakage as the entire switch process is fully automated through the cash account.
One of the biggest challenges for RIAs is recovering fees from clients. How can iFAST Financial ensure that RIAs get their fees on time?
Fee recovery is the lifeblood of the RIAs. For your business to sustain, fee income has to come in on time, be calculated accurately and the recovery process has to be fully automated without chasing clients for it.
When markets bleed and the client’s portfolio is in the red, RIAs add the most value by handholding their clients to stay the course and look long term. This is also the most difficult time to recover fees if clients have to cut a second cheque to pay for the fees. This is the shared experience of advisers across the world.
The iFAST platform allows clients to pay the adviser’s fees from their holdings (for example liquid or overnight funds) or cash account. Our average fee recovery success rate across all advisers on the platform has been consistently over 92% quarter on quarter. For advisers using both methods of recovery - cash account balance and holdings - the recovery rate will be close to 99%.
Outstanding fees due to partial payment or insufficient balance are tracked until full payment. Fees are calculated based on daily average AUM so that the volatility of the markets does not inflate or deflate the fee unfairly.
There are several advisory fee structures such as AUM slab-based % mode, one % and fixed fee mode, and can be applied at different rates for different clients. For example, mutual funds and direct equities and ETFs can be charged at a different rate. Adviser can also select the scrips to be included in the direct equity AUM for fee charging. Direct PMS and global equities can also be added for fees recovery at different rates.
Our new advance fee feature (currently in development) will help advisers to grow their revenue as they can now charge planning fee upfront and still be compliant.
While non-individuals RIAs can charge both fees and commission from different clients, the cost of compliance goes up substantially. How can these RIAs reduce their cost of business efficiently?
As the regulatory requirements become more stringent and complex, it is important to have a platform that incorporates the end-to-end advisory process with in-built controls and compliant processes. This is the only way to ensure that the cost of compliance does not go up substantially.
On the iFAST platform, the tools that help RIAs to be compliant are:
- Mandatory annual risk profiling update and suitability of products
- Online client agreement to be e-signed as part of the account opening process and before advice and transaction can be executed
- Client-level segregation where advisory client can only access commission-free products
- 3-level team structure with transaction and approval rights for adviser, admin, manager and director
- Rationale and advice on every trade to be approved by client before execution
- CRM for client communication record keeping
- Fee mechanism that adheres to the SEBI guidelines; for example, the fee mode cannot be changed in 12 months and only executed after online client approval
- Audit trail and support where the data is easily provided to meet the compliance audit requirements
RIAs will have to appoint principal officer and compliance officer. Will there be requirement to appoint them if they tie up with your platform?
Yes, as they are their own license holders. We are their technology partner and execution platform. They will be responsible for their own compliance and audit but we help them make the audit a breeze when they utilise fully our solutions.
However, individual RIAs or RIA-aspirants can also become Persons Associated with Investment Advice (PAIA) under our corporate RIA license to enjoy the benefits of corporate RIAs without the worry of compliance and operational costs. They can build teams as PAIA, growing the team AUM while earning a cut from the total team revenue generated.
This way, instead of investing in compliance related structures, advisers can instead focus on adding new revenue streams around a global basket of products.
What are the other key benefits of working with iFAST for RIAs?
I’d say the key benefit lies in the way the Wrap account (our advisory solution) is structured because it allows the RIAs to scale their business without having to worry about additional infrastructure or overheads. Be it advising on a new product, onboarding a client with unique fee requirements, or operationalising best practices like goal-based planning or asset allocation and rebalancing, the structures to enable this in an efficient manner are already there on the platform.
We truly believe that the bigger your ambition, the more you stand to gain with iFAST.
RIAs have to enter into an agreement at the time of starting a business relationship with clients. How does iFAST help RIAs in complying with these norms?
RIAs can upload their client agreement and get clients to e-sign as part of the account opening process. No fee or transaction can be executed if the client agreement has not been signed.
RIAs will have to recommend direct plans of mutual funds to their clients. Can an advisor execute transaction in direct plans through your platform?
Yes, they can. Close to 50 percent of the AUM on iFAST is in MF direct plans. Other than direct MFs, RIAs can also offer advice and execution on direct equities and ETFs on BSE, US exchanges, HKEX and SGX in a single login.
What is the kind of cost savings can RIAs expect if they work with you?
It is a common mistake to think short term when it comes to finding the right platform partner. The real costs are the opportunity costs of not growing sustainably and capturing new market segments. For example, we have seen our advisers transition from 80% commissions revenue to 80% fee revenue of their total income. Some are now able to cater to HNWIs with the multi-product and global investments advisory model. They are in total control of their future and growth. They decide the fees and choose the clients that fit their business model.
There are many solutions positioned as ‘platforms’ these days but the reality is that none have all the solutions in one place for RIAs. The devil is in the details. Depending on the long term growth strategy of the RIA, I believe our solutions are the most comprehensive on a single platform in terms of addressing challenges in compliance, administration, products, research, team management and fee recovery seamlessly.
