IFAs need to have their retirement fund and not solely depend on trail income.
Having met more than 1500 IFAs ranging from briefcase agents to new age tech savvy sophisticated ones, I realized a majority of them haven’t made two plans - business plan and retirement plan. For most of them, business plan is corporate jargon which people make to fool themselves; in support, they cite examples of successful financial advisors/distributors who succeeded without having any business plan.
Let’s look at both one by one.
A business plan helps you in drawing a road map over short and long period. It also forces you to work keeping the external factors (read potential regulatory changes etc.) in mind. De risking can be done if one has a proper business plan in place.
A business plan is not cast in stone. In fact, since business is so dynamic, you need to be flexible and open. Which also means that you will revise the plan as and when required to reflect changing circumstances.
Why retirement fund?
Trail income is considered as an option to pension. This at one point in time was right but given the fast changing regulatory environment, it is important to start building a retirement kitty, especially for the newbies.
There is a typical attitude of ‘Abhi tak to nahi hua’ but the fact is ‘Isliye aage ho sakta hai’. Secondly it’s always better to have a second option.
A retirement fund is an alternative to insurance. While most financial advisors depend on the trail income for their retirement need (if at all planned for retirement), one must keep in mind that Pareto’s law of 80:20 holds true for their business as well. If, God forbid 4-5 big clients were to move to direct plan, the whole equation will change dramatically.
Your next generation may not get into your business. The options are either to sell off the business or build a retirement corpus from today. Given that we really have no precedents of advisors selling off their practice in India, getting the valuation which is enough to sustain yourself could be a challenge.
The newcomers should start working on it from the day one. A successful financial planner is the one who plans diligently for himself/herself first and then shows the same conviction in planning for the clients.
The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.
