As retail business
increasingly becoming unviable, IFAs are slowly shifting their focus towards HNIs;
however the transition is not smooth
Mumbai: If an investor were to call up
an advisor and tell him that he wants to invest Rs 10,000 in a mutual fund;
chances are there that the advisor may not come to his doorstep to collect the
cheque. The advisor may even ask the investor to invest directly through the
fund house.
With shrinking margins and high costs
in catering to retail investors, many advisors are slowly beginning to tap HNIs
and medium (MHNIs) who have a bigger ticket size to invest compared to retail
investors.
AMFI defines HNIs as investors who
invest Rs 5 lakh or above in mutual funds.
Advisors say that retail market has
gone for a toss ever since SEBI banned entry loads and their problems are
compounded by the recent KYC and KYD norms.
Retail investors usually subscribe to
SIPs with average ticket size of Rs 2,000 per month. Advisors have little money
to make out of such SIPs. Consequently, the service level to such investors has
also taken a hit.
Most equity mutual funds offer 50 – 70
basis point upfront commission. Typically, an advisor gets Rs 100 upfront on a
retail ticket size of Rs 20,000 whereas he gets Rs 2,500 on a ticket size of Rs
5 lakh from an HNI client.
“Many IFAs have abandoned retail
investors. Serving them continuously on the long term basis is not viable
today. We write financial plans for families whose investment corpus is usually
higher,” says Suresh Sadagopan, Principal Financial Planner, Ladder 7 Financial
Advisories.
Even those advisors who believe that
the future of the industry lies in catering to retail investors face
challenges. To succeed in retail, the volumes have to be big which is not easy.
The shift towards HNIs is not a
cakewalk for those who have been mainly catering to retail investors from a
long time. HNIs pose a new set of problems for IFAs. “The practice of offering
passbacks to HNIs is still prevalent,” reveals a Mumbai based financial
planner.
“People are talking about IFAs
focusing on HNIs but it is difficult to change your model so quickly. HNIs
demand personalized services. Retail business is less profitable. It is
difficult to get the first cheque from an HNI client but once the trust is
built they hand over the cheque book to you,” says Ashwin Vajani, a Mumbai
based IFA who caters solely to HNIs.
“IFAs in tier two and tier three
cities are still handling retail applications. In metros, some IFAs want to charge
for services but the client doesn’t pay. We keep hearing about service issues
relating to retail clients because of decreased revenues. We have to sometimes travel
eight to fifteen kilometers to collect a Rs 10,000 application. SEBI’s actions have to be towards creating a
win-win situation for both IFAs and investors,” says Ramesh Bhat of Aniram.
Has your business model changed? Is it
easy to shift focus from retail to HNIs? Share your views with us.
