Listen to this article
Part 1
Part 2
What are the key business lessons that the year 2023 taught?
- Existing investors account for 98% industry gross sales. Hence, we should focus on this category to continue to grow business
- The irreversible rise of digital, direct, passives and alternates: Contribution of digital in the growth of MF penetration is remarkable. Roughly 45% of new SIPs are powered by digital platforms and their longevity, contrary to popular belief, is as good if not better than the non-digital platforms. The availability of required info and ease of doing transaction have transformed investor onboarding journey
- While the recent small and midcap segment growth (flows and M2M) have made active assets to grow faster than passive assets in this year – breaking an 8-year trend, growing adoption of passives across institutional and HNI categories is a secular trend and with time will only intensify
- AIF assets have grown at 25% CAGR in the last 3 years, making their mark with over Rs. 8.50 lakh crore assets across equity, credit and real estate asset classes. The growth will multiply with GIFT City platform as the industry can add more NRIs and foreign investors
Is there anything that you feel could have been done differently last year?
While we had a great success in Bond Index Fund category, we could have grown our comprehensive bouquet of equity index funds a lot more aggressively. Also, ABSL is known for its fixed income thought and business leadership. Post withdrawal of LTCG tax benefit, we need to explain to investors the role of fixed income asset class in asset allocation and help them see its relevance as a portfolio stabilizer.
What are the key trends that MFDs/RIAs should watch out for in 2024?
Due to easy access of information, investors in regular plans now have a say on fund selection for their portfolio. It’s very easy and natural for such investors to have a recency bias in terms of asset class and category performance. Therefore, it’s important for the distributors to keep a guard against the chase of returns in small and midcap and create hedges and balances in investor portfolios. In terms of business practice of MFDs, there are two call outs:
- MFDs often sell 3-4 funds of the same category to an investor on the same day. This sets them and investor for product comparison and moves the focus away from progress towards goal to which of the funds have not done as well as others. So, create category diversification while building investor portfolio.
- For business growth, broadly there are two models – either be a one-man army and sell multiple financial products (insurances, loans, investment products) to investor base of ~ 300 families, or if you want to expand investor base to thousands, there is no option but to corporatize and build a team – do seek guidance from other large MFDs and AMCs which have established corporate structure and processes.
For RIAs, there is ND PMS platform which is coming up as a strong business proposition. A successful ND PMS platform requires a strong differentiation of advisory and/or products to be able to charge fees to HNIs.
What are the three must-have business skills for MFDs/RIAs in the coming year? And why?
- Sales & marketing: Studies suggest that about 50% business for financial intermediaries comes from referrals. Having a right and confident pitch for referrals across client segments requires MFDs to have a clarity and articulation for what they offer/stand for – not products & services, but outcome & impact
Second is about optimizing social networks and IAP activities with prospects. While several MFDs offer MF-only services, there are many benefits if they offer distribution services across investment, insurance and loan products. Key benefits include client wallet share, client retention and opportunities for client engagement through the year – they get to know the clients as much as their CA gets to know them. - Communication: Financial products appear complex to majority of investors. To demystify finance and investment requires simple and consistent communication. Key question is communication about what? Products, markets, investor needs or financial plan. We have found that MFDs having their client portfolio reviews of progress towards financial plan rather than product performances in the portfolio are more effective in client retention and business growth. Such MFDs talk about the portfolio NAV rather than MF product NAV. I believe that this could be a very important skill to learn.
- Portfolio construction: Portfolio construction is like team formation. You don’t need similar kind of excellent team players as much as excellent players with complimentary skills. Many MFDs miss that and they end up being fund collectors for their investors. Nick Murray suggests that a sound investor portfolio needs no more than 5 well managed investment products with low correlation.
