6th January 2012

A total of 173 of India's leading advisors from 30 key Indian cities (all of whom are part of the top 5% of advisors in their respective cities) participated in this study, which was conducted in the last fortnight of December 2011. In terms of the zonal split, 31 advisors from East participated, 46 from the North, 45 from the South and 51 advisors from the West Zone participated in this survey. The summary results of this survey will be published in five parts :

Part I - Business confidence

Part II - Markets confidence

Part III - Product confidence

Part IV - Investor confidence

Part V - AMC confidence

We also asked these advisors to share their business mantras for 2012. In these 5 articles, we will also reproduce mantras of some of these advisors, for you to reflect on. Our sincere gratitude to all the leading advisors who took time off their year end vacations to participate in this survey.

Business confidence - growth in volumes

2011 wasn't a good year from a business volumes perspective for advisors as a lot of money went away from their system into bank deposits, thanks to weak equity markets and high interest rates. What does 2012 have in store from a business volumes perspective? Do the leading advisors believe that 2012 will be better in terms of volume growth? Can the peaking of the interest rate cycle stem the flow into bank deposits? Can a recovery in equity markets boost volumes? Here is the pulse of the leaders on volume growth expectations for 2012 :

The good news is that on a scale of 1 to 10, confidence in business volumes growth comes in at a healthy 7.2. Scores between 1 and 4 would usually denote pessimism, scores between 5 and 7 would denote mildly positive and scores above 7 would denote varying levels of optimism. A score of 7.2 in that context can be taken to denote cautious optimism - to borrow a cliched phrase from equity fund managers.

The percentages alongside the average score denote the percentage of advisors in each zone who had picked a particular score level. For example, 6% of advisors from East Zone are very pessimistic about growth in business volumes and have therefore picked a score of only 1 - the lowest score. On the other hand, as many as 25% of advisors from the same region are very confident of growth in business volumes and have therefore picked a score of 10 - the maximum possible.

On a pan-India basis, 54% of advisors are confident of growth in business volumes in 2012, having opted for a score between 8 and 10. The flip side of the equation is that almost half the leading advisors don't seem to be very confident about a turnaround in business volumes in 2012.

Advisors in the South seem to be the most confident about volume growth, with 65% opting for scores of 8 - 10. In sharp contrast, only 25% of advisors in the East seem to be very confident of volume growth in 2012. On a regional average basis too, this skew comes out clearly, with South Zone averaging 7.7 against East Zone's 6.4.

It does appear that the business environment in the East is perhaps more challenging than other parts of the country. Could that be because investors are a lot more cautious in East relative to other parts of the country?

Business Confidence - revenue growth

Volumes are only part of the story - the real story is outlook on revenue growth. Will margins hold up or will they get further squeezed? Will the expected volume growth translate to an equivalent revenue growth? Here's the pulse of the leaders on revenue growth expectations for 2012 :

Revenue growth expectations - at an all India average of 6.9, are marginally lower than the volume growth expectations of 7.2 - denoting that a further margin squeeze is weighing on the minds of leading advisors. Could this be because of a fear that upfront commissions may be banned on mutual funds sometime during 2012?

As with volumes, South seems to lead the way in terms of confidence on revenue growth, with an average of 7.4 and a total of 54% of advisors opting for 8, 9 or 10 points on this score. But, this 54% is still considerably lower than 65% of the same advisors being very confident of volume growth - again signifying that margin pressure is on the minds of even the most confident advisors.

Not surprisingly, East appears relatively less confident on revenue growth as well - just as with volume growth. It must be noted that advisors from Western India are just a shade less confident than their Southern counterparts on both volumes and revenues, and are ahead of the national average. South and West are above the national average, with North and East coming in below the national average on both counts. What does this reflect? The differing nature of clients in respective zones? The level of sophistication of the advisory propositions in respective zones? Or is it a bit of both?

Business confidence - Fee income

This is one area that has occupied centre stage ever since Aug 2009 - and continues to be a hot favourite with the regulator and perhaps a huge challenge for most advisors. Its been over two years that the regulator asked advisors to start seeking fees from their clients. How material has fee income become for the advisory fraternity? Do advisors believe that by end of 2012, a significant proportion of their income will come in by way of fees from clients, or will their revenue models remain largely commission oriented? Here is the pulse of the leaders on fee income expectations for 2012:

50% of leading advisors across India believe that fee income in 2012 will be a very small proportion of their revenues (either 0 or between 1-10%). In fact, barring South, the number is upwards of 60% in all other zones. Only 8% believe that revenues from fees will be higher than revenues from commissions. While this may sound a little discouraging for a regulator who is keen on eliminating conflict of interest, the fact is that most of the leading advisors seem to have begun the journey towards fee based revenues : 84% of the leading advisors who participated in this survey plan to have at least a small fee component in their revenue streams in 2012. The message from this is clear - many advisors have begun the journey, but they need more time to reorient their businesses in a manner that they can seek more fees from clients. Clients also need perhaps a lot more appreciation of the fact that good advice does not come free. One can only hope that the regulator recognises that earnest efforts are being made, but that sufficient time should be given for any transition. And also that investor awareness needs to be created about the value of good advice.

South is clearly the leader when it comes to adoption of fee based models. As many as 23% of South based advisors believe that fees will constitute a higher proportion of their revenues than commissions by the end of 2012. This is in sharp contrast to all other zones - which range from 0% to 5% only. A further 31% believe fees will be a very material portion of their revenues - accounting for between 26 to 50% of total income in 2012. The question again here is : what makes South so different from the rest of the country? Is it a higher proportion of investors who are themselves professionals and executives - who are more willing to pay for good advice? Or is it a more professional, advisory oriented approach that has been adopted by intermediaries in that part of the country? Or, is this too a case of a bit of both?

Business Confidence - cost control

Margins have been under pressure for 2 years now - and most advisors have taken steps to cut costs to the bare minimum. How relevant is cost management now for advisors? How worried are they about rising costs and their ability to control costs? Does this continue to be a concern or is the focus primarily on the revenue side? Here is the pulse of the leaders on cost management in 2012 :

The tough news is that costs continue to be a significant challenge for most advisors. Only 21% of advisors polled believe costs are not a serious challenge (scores of 1 to 4), while as many as 45% believe that cost control continues to be a very significant challenge (scores of 8 to 10). There is clearly more belt-tightening that will happen in the advisory space in 2012. More ideas to save costs and manage costs intelligently, will be a priority for 2012. Will the much awaited AMFI platform help reduce transaction execution costs? Will advisors be able to migrate more routine client servicing to the online mode? Will common forms and common procedures across the industry help cut down servicing costs? The industry will need to work together to find ways of finding solutions to these issues.

Advisors in the Western region seem to be relatively better off in terms of cost management - but the difference is not really stark. What is however quite glaring is that a large proportion of advisors in North and East are particularly concerned about costs - as is reflected in the percentage that have opted for the score of 10 on this count.

Business confidence - investing for the future

The final piece in the business confidence questions we asked was this : how willing are you to invest in growing your business in 2012? Investing could mean adding more people, opening new branches / offices, investing in technology etc. If you are willing to invest in this challenging environment, you clearly are optimistic about your own long term business prospects. Here is the pulse of the leaders on their willingness to invest in their business in 2012 :

The good news is that notwithstanding the current challenges, leading advisors across India are quite willing to invest in growing their business - clearly a positive sign in terms of their belief in the long term viability of their businesses. About 19% of advisors pan-India seem very reluctant to invest for the future (scores of 1 to 4) and as many as 48% are very willing to invest for the future (scores of 8 and above). For advisors who are plagued with doubts about business viability, here is a clear signal from the leaders of this fraternity. And, this is the one aspect where there is near unanimity across all zones.

What do you think?

Do you agree with the business confidence findings of this survey? Does it help ratify your own business outlook for 2012? What is your outlook on growth in volumes and revenues? What is your outlook on generating a fee income to supplement commissions? How serious an issue is managing rising costs in your business? Will a common platform and common processes help control servicing costs? Is online a solution for reducing servicing costs? Are you willing to invest in growing your business now or would you prefer to wait until more clarity emerges on the regulatory environment before investing further in your business? Share your views and perspectives with fellow advisors across the country - its YOUR forum !