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Tarraki Corner How can you enable your advisory business to outlive you

How can you enable your advisory business to outlive you

What will happen to your business when you retire or die? Let us see how J.K. Nagpal of Ghaziabad resolved this question.
Shreeta Rege May 15, 2018

You work hard to make your clients financially secure and empower them so that they are able to leave behind a corpus for the next generation. However, when it comes to your own business, many of you do not have a plan to ensure that your business outlives you. A succession plan helps ensure continuity of the business while safeguarding your client interest too.

For the last few years, advisor J.K. Nagpal of Ghaziabad has been advising clients to create a will. He understood that a registered will guarantees a smooth transition of a client’s financial assets to the desired beneficiaries. Taking a cue from there he decided to safeguard his own business through a succession plan. 

Let us look at how he formulated and executed the strategy.

As a first step, he encouraged his wife to get an ARN. He knew that even if he named his wife as a nominee for the advisory business, she could not transfer the AUM in her name unless she had a valid ARN. AMFI norms say that nominees of advisors can receive trail commission; however, they can initiate the asset transfer process only if they hold a valid ARN.

Simultaneously, Nagpal was mulling over a more lasting solution. One, which would resolve the succession process permanently that too with business growth. A solution appeared to him in January while talking with the director of Share India Securities, a stock broking and mutual fund distribution firm.

Traditionally, we think of succession planning as transferring assets to another internal advisor. However, Nagpal took an innovative approach. In consultation with Amit Trivedi of Karmayog, he decided to merge his business with Share India Securities in exchange for a stake in the company. Through the merger, he could achieve multiple objectives at one go. First having a stake in the company, he could monitor that his clients receive the same quality service that they expect from him. Second, he could share company profits from his stake. Third, he could couple his financial expertise with Share India Securities’ robust team and wider reach to set the company on a path of accelerated growth. Finally, the most important point. Transferring his AUM to a corporate ARN would ensure that there would be no further need to transfer assets when an advisor retires. It would guarantee AUM continuity as long as the company exists.

To finalise the valuation and legal aspects of the deal both parties decided to consult financial and legal professionals. Based on the advice, Nagpal decided to sell his assets to the company at 4.5% of their equity AUM. Under this arrangement, Nagpal & his wife bought shares of Share India Securities from the amount they got and became partners in the company.

Currently, they are in the process of transferring the AUM. AMFI norms say that before transferring AUM, distributors need to inform their investors and obtain their consent. If distributors do not receive any communication from investors within 15 days, they can proceed with the transfer. Along with the aforementioned requirement, Nagpal also decided to speak to all his clients and assured them that he would be part of the new organisation. He expects to complete the transfer process by the end of May.

Thus, by merging with a corporate entity, Nagpal has ensured long-term viability of his business.


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Devesh Chaturvedi · 10 months ago
How did you value the debt and liquid portfilio of your AUM.? Thanks.
DB DESAI · 10 months ago
IFAs can form a company also. This can be with a wider scope and objectives.
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