The Wealth Forum New Blood Report 2015
Every profession needs new blood, fresh blood, new faces to come in. New blood brings in new thoughts, expands market reach, challenges status-quo, forces existing players to shed complacency, and thus not only expands the profession, but also contributes meaningfully to raising the bar in the profession. And for desperately underpenetrated professions in India like financial advice, new blood helps spread awareness and promote the concept of advice and the product called mutual funds among Indian savers. There are thus several reasons why induction of new blood is vital in the mutual fund distribution and financial advisory professions in India.
Wealth Forum is happy to introduce its inaugural WF New Blood Report, which provides a comprehensive analysis of new blood that has come into this business over the last 12 months. The analysis is across multiple parameters, which we hope will help the industry get a clearer picture of what's really happening on this vital growth driver called distribution expansion. We will present the WF New Blood Report each year, around the same time - which we hope will serve as a useful progress report that not only reports on achievements over the last 12 months, but hopefully throws up some action points that can be taken on board to strengthen the momentum of new blood infusion. We will be very happy to take on board any suggestions you have, which you think will make the WF New Blood Report more meaningful for all industry participants.
The ratios and percentages are in the right direction.....
There's some good news, and a whole lot of not-so-good news. Lets look at the headline numbers first. First the good news.
In the 12 month period Oct 14 - Sep 15, a total of 7,813 new ARNs were issued by AMFI. Now, some of these may be existing ARN holders who have reorganised their business and are now applying for a fresh ARN. But that number being small, lets take a working assumption that new ARNs = new blood into the industry.
This number of 7,813 new ARNs is 49% higher than the corresponding previous 12 months - which means we are clearly moving in the right direction. Also, for an industry where B-15 assets from individual investors as of Sep15 was only 22.9% of total assets from individual investors, it is heartening to note that over 57% of new blood came in from B-15 towns. What is even more heartening to note is that towns below the top 50 contributed a very healthy 37% to new blood that came in. These proportions are broadly the same for the previous year as well. New blood is not top heavy, smaller towns are attracting new IFAs, which augurs well for retail penetration in the long run.
....But the absolute numbers continue to be woefully small
Now the not-so-good news. While the percentages and proportions are in the right direction, the absolute numbers continue to be pitifully small. If all the collective efforts of the industry have succeeded in only enthusing less than 8000 people across the country to take up MF distribution as a profession, there is something seriously wrong with what we are doing. To put this number in perspective, LIC alone in 2013-14, signed up 340,000 new agents. The combined number for private sector life insurers for the same period was 380,000 agents (Source: IRDAI annual report). The insurance industry brought in new blood to the tune of 720,000 agents while our industry managed 7,813. For every 92 people the life insurance industry signs up, our industry manages to sign up 1. Of course the insurance industry also terminated nearly as many agents in the year as it signed up - but that's a reflection of productivity, not a reflection of its ability to draw in new blood.
City wise analysis for top 50 cities
In the table below, we have attempted to look at a city-wise break up of new blood over the last two years for the top 50 cities (by population), and have tried to showcase penetration using population as a metric. In a country with a population of 121 crores, 780,000 new insurance agents in a year means that one individual out of every 1681 Indians opted to become an insurance agent in 2013-14. The corresponding number for the MF industry stands at 1 individual out of 154,895 Indians for the latest 12 months, and even worse for the previous 12 months.
A look at the aggregates for the top 15 cities and the next 35 cities throws up an interesting observation. The relative attractiveness of MF distribution doesn't really diminish very meaningfully in cities ranked 16-50, as compared to the top 15 cities. In the top 15 cities, 1 out of 23,512 individuals signed up for an ARN in the last 12 months, the corresponding figure for cities ranked 16-50, at 1 out of 27,140 individuals was not very far behind. This is indeed an encouraging trend and does suggest that the industry's efforts in pushing beyond T-15 cities, is not only yielding business results, but is also helping bring in the same proportion of new blood into the industry as the top 15 cities are pulling in. The corresponding number for Rest of India is understandably way below, because it includes not just the next 250 towns, but also the entire rural population across over 638,000 villages, who probably will not be an addressable audience for mutual funds for at least another generation.
4 out our top 5 metros lag behind
Among the top 15 cities, the 3 big Southern cities - Bangalore, Hyderabad and Chennai stand out in terms of their relative inability to attract new blood. Their proportions are significantly worse than the T-15 average, with Chennai coming in at more than twice the T-15 average. While the overall opportunity across the country to bring in new blood is undoubtedly large, the lowest hanging fruits are perhaps to be found in these 3 metros.
Delhi is another big relative underperformer in terms of ability to bring in new blood. It pulled in less than half the new blood that Mumbai brought in, though its population is only a touch smaller than Mumbai, and on most parameters of affluence, it perhaps matches or exceeds Mumbai. Lot of low hanging fruit in India's capital city as well, it appears. If 4 out our top 5 metros are lagging behind the T-15 average, it paints quite a sorry picture for the industry.
The dark horse is Thane
The star of the show across the top 50 cities is Thane - a growing satellite city of Mumbai. It is the only city with a 4-digit number against its name on the proportion column. Thane is growing with the influx of young middle class salary earners migrating from Mumbai, in search of more affordable housing - a target audience that is just right for the MF industry. Little wonder that Thane is producing more entrepreneurs in the MF distribution space than cities that are much larger like Jaipur, Kanpur, Lucknow and Nagpur.
State wise analysis, based on assets in bank deposits
We looked at new blood from another dimension - which is the closest proxy to retail wealth that is readily available in India - and that is bank deposits and number of bank accounts. Given below is RBI's statistics on state-wise distribution of bank accounts and total deposits (states are arranged in terms of RBI's classifications of zones), and against each state, we have provided new ARNs signed up in the 12 month period Oct14 - Sep15.
The way you could read this table is that at an all India level, for every 157,009 bank accounts that exist, one new MF distributor set up shop, to try and get some of these account holders into our industry. For every Rs.102 crores of bank deposits available in the system, one new MF distributor stepped in to take on the task of converting savers into investors. When you compare states against the national average, you get a reasonably good picture of which states are making better headway than others, in bringing in new blood to address the wealth that is lying sub-optimally invested in bank deposits.
And the winner is.....Gujarat!
It perhaps comes as no surprise that the western region - the centre of India's capital markets - leads the way on this parameter. Again, no surprise at all that Gujarat - which is known for its affinity to markets as well as its strong entrepreneurial culture - is way ahead of all other states. Here's one more angle of the famous "Gujarat model" that ought to be replicated across the country!
While the culture is certainly more entrepreneurial, the numbers may also be aided by the fact that some of the largest distributor platforms - NJ India in particular as also Prudent Corporate - who focus a lot on infusing new blood into the industry - are headquartered in this state and are very active in Gujarat and surrounding states. But more on the "Gujarat model" later.
At the bottom of the league table is the Southern region - traditionally known to be very conservative with investments. Surprisingly, North comes in closer to the bottom than the top, and North-East too finds itself in the bottom half. If you take a big picture view of a secular downtrend in interest rates aided by a "new-normal" low inflation scenario in India, the pressure for erstwhile conservative investors to find higher yielding assets is going to be immense. Regions at the bottom of this league table are perhaps where the biggest opportunities lie, for MF distributors who take a 5 year view. What we need to showcase to young entrepreneurs is really the potential that exists in getting in, when a fundamental change in investor behaviour is almost inevitable.
Spare a thought for the North-East
I do want to draw attention to the North-East region. The 7 states that collectively constitute the North-East, have produced only 104 new MF distributors in the last 12 months. The previous year's number was 102. Think about this: one satellite city of Mumbai - Thane - produced almost twice the total number of new MF distributors as the combined effort of 7 states! And, its not as if there isn't money there: on the metric of deposits as a proportion to new ARNs, North-East tops the table - which means there is sufficient money lying in bank accounts, but simply very little new blood coming in to address this opportunity. Wouldn't it be great if one of the leaders of our MF industry commits to developing new blood in the North-East? Will any AMC take up a target of creating say 250 new distributors in the North East in the next 12 months? I sincerely hope someone will.
The MF industry's version of the "Gujarat model"
PM Modi showcased the now-famous "Gujarat model" of economic development in the run up to the national elections. He showed how, with similar challenges that many other parts of the country had, his government was able to nevertheless deliver great results on a number of developmental parameters.
Many readers of this New Blood Report will be quick to point out that new IFAs are not coming into the system due to shrinking margins, uncertainty on regulations and a hundred other reasons. But, amidst all this gloom and doom on why new blood is so pathetically low, we have our own version of a "Gujarat model" that shows us exactly what it takes to bring in new blood into the industry.
In the last 2 years, 1 out of every 3 new ARNs that came into the system across the country, are attributable to one company: Surat based NJ India Invest.
There's another Gujarat based company that's pulling in good numbers: Ahmedabad based Prudent Corporate. Prudent's run rate of distributor acquisition over the last 12 months has been around 175 on average, of which at least 50% are new ARNs, says Sanjay Shah of Prudent Corporate. That means around 1000 new ARNs in a year attributable to efforts of Prudent Corporate. How is it that these Gujarat based distributor platforms which operate almost pan-India now, are able to bring new blood while most others are not? After all, the challenging regulatory and commercial conditions are equally applicable to new entrepreneurs who sign up for MF distribution under these platforms.
The key, says Jignesh Desai of NJ India Invest is the proposition that these new ARN holders buy into, when they sign up with NJ India Invest and acquire ARNs. NJ India does not invite sub-brokers for MF distribution - they offer partners careers in becoming successful wealth creators - catalysts who create wealth for clients and thus for themselves. There is a highly structured process through which prospects are introduced to the idea of becoming wealth creators, another very structured process through which they are inducted and trained into the NJ way, and then of course comprehensive support in the form of an online platform and extensive offline support, which gets them to sharply focus on client acquisition and servicing, leaving the rest to the platform. It is this 360 degree support that encourages new ARN holders to take the plunge, notwithstanding the same challenging environment that seems to be deterring so many.
The "Gujarat model" for distribution development then is all about a strong 360 degree proposition, executed flawlessly. The proposition offers the individual a promise to grow professionally, a promise to deliver superior client outcomes and thus a promise to become a successful entrepreneur.
The question that really begs an answer is this: if NJ India can execute this "Gujarat model" of distributor development so well, what is stopping others from doing so? Why can't this industry have 10 NJ India's across the country, each bringing in 2000-2500 new ARN holders into the system? The industry has so many national and regional distributors and so many highly successful IFAs who are embarking on a growth path. Many of them have systems and processes that are sound and scalable. What is stopping them from replicating this "Gujarat model"?
What our industry needs perhaps is not for random individuals to suddenly discover a passion for this profession, all on their own. That's not going to happen. It needs the leading entrepreneurs in the current distribution framework to help create, nurture and support many more entrepreneurs across the country, and thus catalyse wealth creation across the chain, starting with the investors, who continue to remain invested in bank deposits because no one has yet reached them and explained and offered a better alternative.
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