‘A distributor who makes his investors millionaires, becomes a millionaire himself’

As the direct investment platforms become increasingly popular, the role of MFDs is also coming into question. However, Krishan Sharma Investment Coach and Founder of OSAT Knowledge and Debasish Mohanty, Chief Strategy Officer, The Wealth Company (run by Pantomath Financial Services Group) shared how the increase in investment platforms and options have not decreased the relevance of MFDs but increased their importance while talking to Cafemutual in an interactive webinar hosted by Nishant Patnaik, Associate Editor, Cafemutual. Here are the highlights of the webinar:

How MFDs can tap into opportunities as the industry moves towards Rs. 100 lakh crore AUM?

Debashish praised MFDs for playing a vital role in the financialization of household savings in the recent years. He said that knowledge capital is the biggest asset of an MFD and will continue to remain in the future. He also asks MFDs to be dynamic and adaptable to changes in regulations, products and technology.

What has made prominent MFDs successful?

Debashish describes four qualities of successful MFDs - simplifying complex concepts, making their services tangible in form of goals, demonstrating trust and innovation.

He says that mutual funds are still highly underpenetrated in India. So, there is significant scope for growth for MFDs and the key to a bright future is adapting bright technology, maintaining transparency, continuous learning.

Krishan shares insight into how the biggest MF company in the world, The Vanguard Group believes that alpha is not created by a fund manager but by the advisor. He explains that while investing through direct mode, a lot of times, a scheme generates alpha but investors do not get its benefit as they enter and exit the market at the wrong time. In fact, Vanguard has said that an investor’s return reduces by 3% if he invests without the help of an advisor. So, instead of worrying about direct platforms, MFDs need to focus only on creating wealth for their clients and doing so would ensure that they stay ahead of their competitors.

Krishan Sharma reminds MFDs that they are not born to chase commissions but to fulfill the dreams of their clients. So, their commitment should be to the investor and not the manufacturer. He gives a simple mantra that a distributor who makes his investors millionaires, becomes a millionaire himself.

The scope of growth for MFDs in India

While explaining the tremendous scope for growth in the MF industry and distribution business, Krishan shares the example of the US mutual fund industry, which grew by 20x in the period of 10 years from 1984-1994. This happened due to low levels of inflation combined with continuous expansion in GDP which led to decrease in interest rates. This made people come out of guaranteed schemes due to low returns in search of yields.

According to Krishan, India is controlling its inflation levels in the recent years and with adequate GDP growth, it can see an exponential rise like USA in the next 10 years.

He further explains that India’s mutual fund industry is growing at a faster rate than any other country in the world making this a great time to be an MFD in India. Also, retail investors, the group catered to the most by MFDs, have contributed significantly to this growth which gives the MFDs a chance to participate in the future growth of the industry. He also said that this growth is higher in B30 cities than T30 cities, which means that MFDs in smaller cities can also become successful.

While clarifying the debate on increasing AUM of the direct mode, Krishan said that a significant amount of AUM in direct plans is from institutional investment and even today, a lot of retail and HNI investors are investing through distributors.

He explains that MFDs contribute significantly in an investor staying invested for long periods in the market which is the biggest contributing factor to wealth creation. Hence, distributors are a key to wealth creation for individual investors.

He shares AMFI data which shows that higher number of investors who invest through MFDs stay invested in the market for longer compared to direct mode investors. He believes that this gap is only going to increase in the future.

Further elaborating on the scope for MFDs in the future, Krishan said that the number of salaried people in Indian families have increased in recent years but at the same time, wages have not increased much due to increasing supply of working professionals. Due to this, in order to fulfill their financial goals and create wealth, people will have to invest in mutual funds, thus increasing the demand of MFDs.

He also explained that the increase in life expectancy of Indians will increase the demand of various services like retirement planning, budgeting, loan management and financial planning.

How can MFDs deal with frequent regulatory changes?

Debashish explains that the changes in regulations are inevitable with the evolution of markets. So, instead of regulations, distributors should focus on self-learning, clarifying complex concepts to their clients and focusing on the clients’ financial goals. He also asks distributors to understand things from the regulator’s point of view to understand the intention and logic behind regulations.

Krishnan tells MFDs that they need not remember all regulations and should develop contact with people who can be consulted for clarification regarding regulations.     

What should MFDs do to 2X their AUM?

Krishan gives a three-point plan for MFDs to double their AUM:

• Performance measurement: MFDs should analyze how their AUM grew from the beginning of their distribution journey. They need to measure how much of their AUM was grown by client acquisition and how much was grown by mark-to-market gain
• IAPs: He asks MFDs to increase client engagement. He shares his experience that investors do not disclose a lot of details in the beginning. However, client engagement can help MFDs know more about the client and gain a bigger wallet share with increased trust.
• Referrals: He asks MFDs to not hesitate to ask referrals from their successful clients to get introduced to their connections 

How to acquire new clients besides referrals?

Debashish asks MFDs to maintain a clean and trusted image, use digital technology to reach more people and work on their marketing and communication skills to acquire new clients besides from referrals.

Watch the complete video by clicking here.

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