Lets get serious about distribution expansion
Ask any of the CEOs among the top 20 fun d houses in the country about what are their key priorities for the next 5 years, and one thing that will be common among all is "distribution expansion". On the one hand, it is heartening to note that all top fund houses recognize the importance of distribution expansion for long term business growth. But equally, it is a little disheartening to note that we are yet to see concrete efforts being made in this direction. The purpose of this article is for us, as members of DFDA and on behalf of all growth focused distributors across the country, to put forth certain proposals for our fund house partners to take up and implement.
As of today, the total number of ARNs issued is around 100,000. I believe the active KYDs is half that number - around 50,000. AMCs tell us that the number of "active" distributors is around 20,000 - which is less than half the active KYDs. Industry statistics suggest that there are around 10,000 IFAs who have an AuM in excess of Rs. 3 crores. Perhaps there will be another 10,000 with similar AuM or more, who are working under some platforms. An AuM of Rs. 3 crores, with an average annual revenue of 0.8% means Rs.240,000 annual income, or a monthly income of Rs.20,000. Any income below this will not sustain any IFA's interest in this business.
Will IFA business grow or shrink in the years ahead?
Our situation today is that there are only 20,000 IFAs (independent + with platforms) who have at least a bare minimum income to keep them interested in MF distribution. This number is a fraction of what we need to meaningfully engage with retail savers across the country. And this number may well reduce and not increase, unless we attempt a radically different approach. Ask these 20,000 active IFAs the following two questions, and you will get a sense of whether this number is likely to organically grow or shrink in the coming years:
Are IFAs investing into expanding their MF distribution business today or are they keener on diversification opportunities?
Is the next generation of these IFAs eager to join this business or do their interests lie elsewhere?
Time to create a talent pool for MF sales & distribution
In order to grow the base of mutual fund distributors, we need to create an ecosystem that creates a vibrant talent pool for this business. The banking industry has got institutions that train graduates as bankers and feed them into the industry. Airline industry has similar arrangements for pilots and air-hostesses. Chartered accountants have a well established system of articled clerks who become the feeder for growing the CA profession. In our business, we have nothing that creates a talent pool for mutual fund distribution. Sure, we have an ecosystem for creating financial planners, but I think we all agree that in addition to the few financial planners that are created each year, the mutual fund industry needs many multiples more of distribution manpower. Without getting into the merits or otherwise of financial planning, let's just say that distribution and planning are perhaps different. The industry needs both - and needs many more of distributors, if it has any hope of achieving meaningful retail penetration.
An idea for AMFI to consider and implement
At DFDA, we have discussed this issue at length, and are now putting forward this proposal for AMCs to take up on a war footing:
Approach all the second rung MBA colleges across India with offers to take on summer trainees in AMC sales offices for a 2 month summer internship.
Ask AMFI to create a standardized induction program for these summer trainees, which will teach them the basics of mutual funds as well as enable them to clear AMFI certification. This training program can be online modules, which go beyond the AMFI MFD curriculum and actually expose trainees to practical aspects of mutual fund sales and distribution. The induction program can be completed within the first 10-15 days of the summer internship.
Attach these summer trainees to the AMC branch or to distributors who are willing to take them on board for a 2 month on-ground assignment.
If the top 20 fund houses put in 2 trainees on average in 50 branches each, that's 100 summer trainees per AMC (on average), totaling to 2000 summer trainees across the top 20 fund houses. Now these 2000 people will graduate a year later, will be familiar with the MF industry, and may be therefore keen to explore career opportunities in MF distribution and sales - whether with AMCs or with distributors. Once the first year's pilot goes off successfully, ramp up the numbers to 5000 summer trainees across the industry each year.
A win-win in all circumstances
What the industry gets is 5,000 trained MF salespersons each year, who can hit the ground running, who are familiar with the business, who have already received a standardized induction training, who are AMFI certified, and who have 2 months of real life experience in MF sales and distribution. That's a talent pool that the MF industry will benefit from in several ways:
AMCs can hire from this trained pool to meet their growth aspirations
Distributors who wish to expand their sales teams will have access to this trained and business-ready talent pool to hire from, and meet their growth aspirations
Some of these trained graduates may decide not to take up a job, but to set up independent practice as IFAs.
If none of this happens and they go away to jobs outside our industry, we would anyway have created brand ambassadors for our products, who can spread awareness about mutual funds among their friends circle and in their place of work.
There is nothing to lose and a lot to gain from this initiative. Within our DFDA members itself, if we add up the total requirement of new salespersons, we need over 100 people right away. And that's just DFDA. Think about how many more people we need at a total industry level.
For this idea to move beyond just a thought, on behalf of DFDA, I request the AMFI Chairman, Vice Chairman and AMFI CEO to set up a task force within AMFI to put together an action plan based on what is outlined above, and roll this initiative out to all AMCs. Just as we had a district adoption plan that was put together through an AMFI initiative, we need a similar effort to mandate participation from every AMC in creating an MF sales and distribution talent pool to support the industry's growth aspirations. Participation can be linked to AMC size, to make it fair and equitable to all. AMCs can be free to expand the scope of their activity beyond the minimum prescribed, but every AMC must be asked to contribute its effort towards this industry initiative.
AMC CEOs, please act now
We at DFDA will keenly follow progress of this idea within the MF industry, and sincerely hope that fund houses will go beyond simply appreciating the idea, and actually implement it, for the sake of all of us in the industry who want to grow, but are being constrained by lack of a talent pool.
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