Individual MFDs, national distributors, banks, RIAs (Registered Investment Advisors) and direct platforms all form a part of the financial ecosystem. Certainly, competition has increased over the. years but competition also makes MFDs competitive.
In distribution business, it is imperative for MFDs to create a sustainable business model and remain constantly updated. Goutam Karmakar, CFP, who is the MD & CEO of training institute - Skilledge Digi Gurukul Academy, organised a seminar and reiterated the importance of constant learning.
Goutam said, “The current environment is dynamic and highly competitive. MFDs procure RIA certification to gain a deeper understanding of the financial industry. However, post completion of the course, many MFDs remain confused about the way forward and are unsure if they should opt for RIA license.”
In this context, Nishant Patnaik, Associate Editor, Cafemutual explained to the participants about the future of distribution business and shared with them the 5 mantras for creating a future-proof business model.
Future business models in the distribution industry:
In future, there will be only two business models in the distribution business – pure MFDs and non-individual RIAs. Deciding upon the business model is a function of investor-type that MFDs want to cater to.
- Retail clients
Procuring RIA license has certain pre-requisite requirements, for example, a certain level of tangible net worth is mandatory. This model typically results in a higher cost of compliance. Thus, MFDs focusing on retail clients are advised to continue as individual distributors instead of opting for RIA license.
- HNI clients
MFDs wanting to cater to HNIs could opt for the non-individual license. However, they can set up a cost-effective model by tying up with national distributors, other RIAs and MFDs.
The five mantras:
- Offer value added services
Investors seek comfort in dealing with a single advisor for all their financial needs. Further, he said that every financial product is an opportunity for MFDs to explore. MFDs must strive to create a basket of products that can meet varying investor needs. Also, they should include other solutions like tax planning and estate planning through strategic tie-ups.
- Professional set-up
MFDs must have complete control over their business and should focus on offering solutions rather than products.
Having an office address, a team and a mentor are a few tips here. Given the existence of multiple other players in the market, a professional set-up brings MFDs to the same space which is otherwise mainly dominated by bigger players.
- Business succession
MFDs must communicate their succession plans to their clients from the very first day. Ideally, MFDs must involve their family members in the business. However, in case their family is not keen to join, they can plan their succession strategically with other like-minded and trustworthy distributors or employees.
- Make investing experience seamless
With the advent of technology, client expectations have increased further. They seek prompt replies and quicker services. MFDs should leverage technology and create a seamless investing experience. Apart from online transactions, the focus must be on offering easy solutions like single click account summaries, easy to consume content, referrals messages allowing clients to refer an MFD (like other mobile apps) and so on.
- Staying in touch with clients
Newsletters, articles and social media engagement can be time consuming and it is difficult to evaluate if such an engagement yield results. Hence, MFDs should simply stick to physical meetings and phone calls to stay in touch with clients.
People value personal interaction. MFDs can create deep and meaningful bonds with their clients simply by talking to them once every month. This creates a base of loyal and satisfied clients, which in turn attracts more referrals.
