Shawn Brayman, President and CEO, PlanPlus Inc believes that a direct share class structure is a win-win situation for both advisors and investors.
What would be your advice to
advisors who are worried over the introduction of a direct share class
structure in India?
How has been the overseas experience on direct class structure?
In North America, clients can directly buy ETFs, index funds or any funds for that matter and pay a lower fee. It is a good opportunity for financial planners. Most of the time clients do not have the knowledge of what they are buying. They (clients) need advice. Planners can advice clients to opt for direct plans and charge a separate fee for giving a good advice. The approach of Indian regulators is quite innovative and it is good for both - clients and advisors.
Advisors in India are yet to shift to a pure fee based model. How has been the overseas experience? How should they overcome this challenge?
There are differences in every country but at the end of the day financial services is not a charitable sector. All investors are paying a fee in some or the other form whether they know it or not, be it through an annual expense ratio or front end loads. These expenses are structured in the products and clients do not necessarily see them. So investors are paying all the time for the advice that they are receiving. Financial planners need to help clients understand that. This is not something new where all of a sudden investors are paying fees that they have never paid before. It’s just a different way of paying which is more transparent and fair to the client. Planners have tried to do this and they are doing it in a number of countries. The regulators in UK, Netherlands and Australia are banning certain types of commissions because they are tired of waiting for that transparency to come about.
How do advisors narrow down on a fee structure for their clients? Your presentation showed that 37% investors prefer to pay a fixed fee while 29% like to pay a percentage fee…
There has to be clear values to the client on the services that are being delivered and the fees that goes with that. A good financial planner will deliver a higher level of service than the client will find anywhere else. If the advisor understands the costs for him to deliver the service then it allows him/her to charge a fixed fee. A lot of advisors in North America charge a fee based on the size of assets under advisory. The charges get lower if the assets under advisory increase. Both models can have a place as long as the clients know the value of what they are getting for a fee.
You have been associated with many researches on financial planners. What are your observations?
Financial planners in pretty much every part of the world are trying to create financial plans in a different way. The ability of these advisors to transition is very difficult, be it Canada, U.S or U.K. Planners aspire to put their clients interests first. They are motivated quite often by looking at an industry that they are frustrated with and feeling that clients should get a more honest and straightforward approach on things.
Could you share with us the importance of technology for distributors?
The role of technology is same for financial advisors as it is for any other professionals in other industries. If you went to your doctor and if he didn’t have certain medical equipment then there’ll be a problem. Financial planning in some cases is very complex, numerical and there’s no way you can do it on the back of a napkin. You can’t make it up as you go. We try to bring world-class solutions to financial advisors. Advisors need to have certain consistent approaches in terms of practice standards and processes for their business to be successful. It’s important to have a piece of technology which supports that.
Can you take us through the financial planning software which you are planning to launch in India?
We have one package which is available in ten languages. We have users in more than 30 countries and it is the same package all over the world which is customised to local needs. We have tied up with Morningstar India for providing us the data on Indian markets for our software.
