How can MFDs/RIAs build future ready business?
Our vision of a future ready adviser is someone who is:
- Empowered with fintech
- Running a cross-border personal wealth management hub
- Has the right level of trust from clients
- Has the right revenue model
- Has a sizeable AUA to be monetised
Why do you think that MFDs should transform their business to advisory model? What are the benefits of such a transition?
We envision the financial intermediary of the future to be capital light and efficient and running his/her business with fintech platforms that enable them to offer cross-border wealth management services. This is because clients will get more sophisticated and expect access to a wide range of global products and services. They want a trustworthy and qualified financial adviser with a transparent remuneration structure that is conflict-free. Being able to offer cross-border wealth management services opens up the global market for the advisers. They can have clients based anywhere in the world. That is a huge opportunity.
Tell us about your newly launched initiative for MFDs titled – iFAST Pathway to RIA. What are the key benefits of this program?
The latest qualification, net-worth and compliance requirements have made it much more difficult to become an RIA. MFDs who want to transition to RIA are not confident of succeeding in the fee-based model with these onerous requirements. With our iFAST Global Markets (iGM) and Pathway to RIA offerings, we help to bridge the gap for MFDs or anyone who is keen on wealth management, by offering complete support to achieve an advisory business.
Instead of going it alone, aspiring RIAs can join iGM as our licensed representative, i.e., as ‘persons associated with investment advice (PAIA)’ in regulatory terms. The experience requirements for a PAIA are lesser than those for an individual RIA; a PAIA only needs 2 years of experience compared to 5 years for an individual RIA license. Our iGM vertical is backed by the iFAST Corporate RIA license and this takes care of the net-worth and licensing requirements for the entire iGM network. In effect, we take over the complete operational and capital risk for our network of PAIAs.
End-to-end compliance coverage is any way a core feature of our platform, and our systems and processes ensure that our PAIA partners are always audit-ready.
The Pathway to RIA program is the gateway to iGM – for MFDs and other aspirants who don’t even meet the qualification and experience requirements for PAIA. For someone who is new to the industry and lacks the necessary 2-year experience, we will help them become an MFD to gain the experience.
For those who lack qualifications, we offer guidance on the correct post-graduation courses and offer education fee support of up to Rs. 1 lakh, subject to certain criteria. Importantly, we have developed our own training curriculum covering Processes, Products and Practice to ensure that partners in the Pathway to RIA program imbibe best practices in advisory right from the start.
If partners in the Pathway to RIA program have clients who want advisory service, they can refer the clients to iGM for advisory services and earn a referral fee. Once they qualify and meet all criteria to join iGM as PAIAs, the advisory clients will be passed back to them. This way, they can start earning the full advisory fee as soon as they qualify.
Many MFDs do not want to surrender their ARN as the cost of acquiring and compliance in corporate RIA license is very high. Also, they do not want to let go their trail income. In such a scenario, how will this incubation program help MFDs overcome these challenges?
If they meet the criteria to be our PAIA under iGM, they do not need to surrender their ARN and can continue to earn their trail income as legacy assets. However, they cannot do any new business in regular plans and the existing clients can only switch to direct plans and have to transition to advisory service over time. All new business will have to be fee-based on commission-free products.
Since iGM takes on the full licensing and operational risk, MFDs who join as our PAIAs will have to transfer in their full AUM and only represent iFAST. They cannot offer any wealth management service outside the platform or represent any other MFD or RIA.
How will this business transformation benefit their existing clients?
Existing clients immediately gain access to a wider range of global products and services such as direct equities and ETFs in India and US exchanges (through LRS), direct PMS, stock baskets and direct MFs. They can choose the services required and discuss the fee structure with the advisers.
Clients also gain peace of mind from having their investment accounts on a world-class platform with built-in data security and standards. Our proprietary technology platform today manages and secures over Rs.1.20 lakh crore in AUM across 5 international markets and 14,000 investment products.
Importantly, in an advisory model, advisers can focus on asset allocation instead of product commissions, since their income is based on the total AUM regardless of the product category. When it’s time to rebalance their portfolios, clients can trust that their advisers will do the right thing, since there is no conflict. Advisers gain clients’ trust with this transparency and as I mentioned earlier, we believe client trust is going to be critical for advisory businesses to scale and survive.
Everybody talks about leveraging technology. However, apart from transaction and business management, what are the aspects that MFDs should look at automating to add value to their digital services?
If you look at the five pillars of our vision of the adviser of the future, you will realise that each has an element of digital transformation to it. Fintech enablement across multi-product advisory, transactions, administration, compliance, research, CRM and client reporting is a must, and is usually the most easily understood. The others may not be so obvious.
Enabling cross-border wealth management today requires extensive digital and regulatory infrastructure that spans client bank accounts, currency exchange and actual investment management. As an Asia-wide platform, we continue to invest in such infrastructure and have recently acquired a UK-based digital bank to make this a reality for our partners.
As the business grows, building trust with clients requires systemic transparency at every step. The client should feel informed and in control. While the fee-based model ensures that there is no conflict in the relationship, systemic trust can be enabled by features like client risk-profile based checks on transactions and asset allocation, recorded rationale for every trade and transparent and automated fee agreements and calculation.
Essentially, when MFDs think of scaling their business, they need to look for ways to retain their high-touch services and personalised client experience even at that size.
Why do you believe that MFDs should look at introducing multiple products and services? What products and services they should look at offering?
Every client is unique with different sets of needs and goals. Being equipped with a wide range of products and services widen the MFDs’ reach to different market segments and geography.
If the MFD has an NRI client who is based in the Middle East earning USD, they can offer the client a well-diversified global portfolio of direct equities and ETFs denominated in USD and earn a referral fee. If a client is interested in PMS, the MFD can introduce the client to a regular PMS and earn commissions as well. To have multiple products and services means being able to meet diverse clients’ needs and earn multiple income streams.
In fact, multi-product investment strategies for retail investors is the theme of our upcoming 2-day investment seminar, Invest Globally & Profitably 2022, to be held virtually on Feb 10th & 11th. Featuring leaders in domestic and international investing, our event will delve into the current trends in investments across mutual funds, stocks, ETFs, and PMS & AIF strategies. I strongly encourage everyone to attend and make the most of the insights being shared.
