Shawn Brayman, President and CEO, PlanPlus Inc says that India requires good advisors and not necessarily more advisors who may not act in client’s interests. This is the final and concluding part of the interview.
Can advisors scale up their businesses given the fact that
most practices in India are run by individuals?
If you are looking at a smaller and independent advisor group, you have to ask yourself why are you expanding and who your ideal client is. Are you trying to cover more geographical territory or are you trying to appeal to a certain part of the population where you can add more value? Advice has to be bespoke or customised each time which makes scalability a challenge. The issue of scalability comes down to having good consistent processes through which you can work with other advisors and add more staff.
The number of active distributors has come down after the entry load ban. Despite low entry barriers to becoming an advisor, we have not seen many taking up financial advisory as a profession. Your comments.
I would say it is good. You need more distributors but you need good distributors more. It is better for India to have a higher level of entry barrier so that the degree of professionalism is higher. It (lower entry barriers) shouldn’t be to just attract more distributors.
Very often we hear that advisors need to build trust with their clients like the kind of trust people have with their family doctors. How do advisors win the trust of their clients?
Creating trust happens with being trustworthy. There is no technique for clients to get to trust you. If clients are in your first interest then trust comes naturally. That’s how you build a profession. Clients understand it and then tell their friends.
You talked about expenses of funds. Should advisors look at the TER or invest in a star fund manager?
I am not a believer in picking star fund manager, star ratings or past performance. There is little or no academic research that any of these things work. Financial planner can make a phenomenal difference in client’s life. They are changing client behaviour and getting them established with a good portfolio by sticking by their guns. Jumping in and out of funds can do ten times more harm than getting the right fund manager.
Is there a scientific method to acquire clients through referrals?
I don’t know if there is a scientific method but there are a number of techniques. You need to differentiate yourself from the rest of the market. Financial planners should be able to do that if they are genuinely doing stuff that financial planners are supposed to be doing. There is a study in US and Canada which show that financial advisors receive higher number of referrals than anyone else in the industry. If people refer an insurance agent then one may become apprehensive. Clients recommend financial planners who help them solve their problems and get clients financial life in order. Good financial planning generates more referrals and trust.
Indian regulators are increasing TER to expand the market. You said that higher expenses hurt investors? Will increasing TER help according to you?
I have never heard that and that’s an interesting concept. The objective may be good. At the end of the day it is not the government’s money it is investor’s money. If equity markets are performing well and your management expense ratios are reasonable then client is getting good value. If you look at some of the developed markets like America, the fund managers have made more money than investors have in the last decade. Now that gets a little frustrating when you increase TER. It will not be well received in my country.
Advisors and fund managers need to be paid but one needs to realise that it is client’s money. If you pay higher money to fund managers then sometimes client’s goals may not be achieved. So a reasonable balance is required. The average TER in US is 1.25%. It is more than 2% in India which is much higher. Clients could ask why their fund managers are going on a vacation in the Caribbean and they are not. So many investors overseas are buying ETFs to cut costs.
