Wealth Forum conducted its 3rd annual Advisor Confidence Survey in July 2014, where we invited 240 leading IFAs from 42 cities across the country to share their outlook on markets, products, business and AMCs. These 240 IFAs form part of the top 5% of IFAs in their respective cities. Their views therefore represent the pulse of the leaders - the business leaders and opinion makers of the IFA fraternity across the country.
We received 198 responses in all, from the 240 IFAs who were invited to participate in this survey. We are grateful to all 198 leading IFAs who took out the time to respond to this rather exhaustive survey. The geographic spread of responses received is given below :
Like last year, this year's survey will be published in 3 parts :
Part 1 : Business Confidence
Part 2 : Market and Product Confidence
Part 3 : AMC Confidence
In this part, we bring you the pulse of the leaders on business confidence.
To see the previous years' survey results, Click Here
1. Outlook on volume growth
Mr. Modi, it appears, has not just boosted the confidence of big industrialists, but has succeeded in boosting the confidence of our IFA fraternity across the country. But, before we rush into the analysis, a brief explanation of the table is perhaps in order.
While the average score column is self-explanatoty, the subsequent columns perhaps need some explanation. In the columns 1 to 10, we have given the percentage of responses for each score. This means for example, that out of total responses received from East, nobody ticked 1, 2 or 3, while as many as 44% of respondents ticked 10 - which is the highest confidence level. The average of all their responses for this question came in at 8.3.
Here's a quick comparison of this year's numbers vs last year :
The increase in overall confidence score from 7.5 to 8.7 is very significant and an overall score of 8.7 on 10 is indeed an eloquent statement of soaring confidence on volume growth in the coming 12 months. There is clearly widespread belief that investors will invest a lot more into mutual funds in the next 12 months, than they did in recent times.
Almost half (47%) of all respondents have given a perfect 10 score for confidence in volume growth - that should indeed be music for every ear in the industry. West has taken the lead on this score with an aggregate score coming in at 9.1.
2. Outlook on revenue growth
It is reassuring to note that leaders of the IFA fraternity are clearly not expecting any pressures that may result in revenues not keeping pace with volume growth. Confidence on revenue growth almost mirrors volume growth - which means a stable commission outlook. Fears of upheavals in commission structures seem now in the distant past, and our IFA fraternity is gearing up for significant revenue growth over the next 12 months, according this parameter a very healthy score of 8.6. West again takes the lead in terms of revenue growth confidence, mirroring its confidence on volume growth. Like with the volume growth table, what is indeed most reassuring is that almost no respondent has a pessimistic outlook on business growth and a majority of all respondents are clearly very bullish, with scores of 8, 9 and 10.
3. Outlook on fee based income
By March 2015, what percentage of your revenues do you expect to earn from fees from clients?
There seem to be two different trends playing out here. About two-thirds of respondents don't expect fees to contribute meaningfully to their income (less than 10%), and that number hasn't changed much since last year. But, the balance one-third of respondents, for whom fees is a meaningful proportion of income, seem to be more optimistic of fees becoming a larger proportion of total income. The shift from the 11-25% bracket towards to 26-50% bracket is quite a sharp one. To get a clearer picture of emerging trends, lets compare the regional tables of 2013 and 2014. For this purpose, we are only highlighting responses from the IFAs who expect fees to be a material source of income (upwards of 10%).
In East, South and West, there is a clear shift upwards from the 11-25% bracket to the 26-50% bracket, with the trend being most pronounced in the South. North, in stark contrast has seen a sharp dip in percentage of respondents who expect fees to be meaningful, with an overwhelming 82% expecting fees to be 0-10% of income (see previous table of 2014 results).
Those who have begun their journey towards a fee based model are clearly seeing higher proportions of income coming from this source, which lends tremendous stability and independence to their business models. However, for over 65% of India's leading IFAs from 42 cities, collecting fees from clients continues to be a serious challenge. There are clearly two different tracks being played out here, and it will be very useful to delve deeper into this to understand the reasons for two diverse tracks. Is it about client segments being served? Or is it about the customer proposition offered by the IFA? Or are there social factors across geographies that explain this?
4. Outlook on costs
Cost pressures are not a major issue, at least for now, among leading IFAs. In fact, concerns over costs have abated somewhat since last year. This is perhaps explained by the prolonged slowdown that the financial services sector has been experiencing in recent years. That said, one would expect that if this bull market continues marching ahead, we may find employee costs once again become a challenge as they were in the last bull market. For now though, not too much to worry on this score.
5. Willingness to invest for the future
If Mr. Modi has succeeded in getting industrialists to get more optimistic and invest in expansion and thus hopefully drive up the corporate capex cycle, he seems to have had a similar impact on leading entrepreneurs in the financial distribution space. Willingness to invest in distribution expansion is much higher than last year, and now stands at a very healthy overall score of 7.5, with West again taking the lead over other regions. Only 17% of all respondents gave a score of 1 to 5, signifying poor intent to invest in business expansion. A vast majority of IFA leaders are ready to put their money where their mouth is, and invest in business expansion over the coming 12 months. For a fund industry that has been worried about shrinking distribution, this augurs very well indeed.
6. Impact of direct plans
Worries about negative impact of direct plans have marginally reduced over the last year. At an average score of 3.8, clearly there is some impact that India's leading IFAs are feeling from direct plans. The only reassuring note is that these concerns are not escalating with the passage of time - nor on the other hand are they diminishing visibly. Its perhaps an issue that IFAs are learning to live with, unwillingly for sure.
7. MF Utility : a double edged sword?
To what extent do you believe MF Utility will help you serve clients better and free up your time to drive business growth over the next 3 years?
There seems to be reasonable optimism that MF Utility will help IFAs serve clients better and free up time currently spent in operational matters, to drive business growth. Given that it is yet in a nascent stage, a 5.6 score is indeed encouraging. Very few respondents have given it a poor score of 1-4, and most have understandably preferred middle range scores, given that they are yet to fully experience it.
However, the flip side of MF Utility seems to have them a little worried. A score of 4.9 does indicate a fair degree of concern that MF Utility will help in enhancing growth of direct plans over the next 3 years. A single account, single order and single payment through which investors can transact with all fund houses, is a convenience that is wonderful for an investor, but also a feature that puts added pressure on distributors, given that they have been asked to sell higher cost versions of the same products, with no flexibility in pricing.
MF Utility is clearly one of the most ambitious infrastructure projects of the fund industry, and one that is being touted as a potential game changer for the business. The message from leading IFAs seems to be one of cautious optimism on this initiative. It would be great for the industry if it can take all stakeholders along this journey and find ways that make MF Utility a big growth driver for all.
8. Eagerness to take up Registered Investment Advisor (RIA) license
SEBI may not like this, but enthusiasm to take up SEBI's RIA license seems to be waning among India's leading IFAs. There is a perceptible drop in willingness to go this route across all regions. And, the most telling fact is that the region that is most optimistic about fees - South - is also the least enthusiastic about taking up an RIA license. Clearly, our leading practitioners don't yet see a compelling case to take up an RIA license. If SEBI is really keen to promote the growth of RIAs in the country, it would do well to engage with these IFAs, understand their concerns, and find ways in which it can make this a more commercially viable option, while at the same time spending more effort and resources on popularizing the benefits of RIAs in the eyes of investors.
What do you think?
Do the opinions of these IFA leaders on these 8 business parameters mirror your own views? Do you have a different point of view that needs to be heard by the industry? Are you as confident of business prospects as our respondents in this survey? Do you think MF Utility is indeed a double edged sword? Are we indeed seeing two different tracks in existence on adoption of a fee based model? What explains why some advisors are making progress on fee based models while a larger majority continues to see this as a significant challenge? Share your opinions by posting your comments in the box below - its YOUR forum!
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