The covid 19 has changed the dynamics of business and among all the sectors the Independent Financial Advisor segment is very much impacted. The industry of Financial Distributors has been battling with falling margins revenue and now the sudden impact of Covid 19 is a major setback. I find that in the coming days the POST covid 19 impacts on this sector will massive and beyond any words.
I find that many players-IFA will be out of the business during this time and major setback will come up for the industry. Those who are thinking that post Covid after 6 months the business will back to where it was Pre Covid then the perception needs a massive change. Understanding the reality of the business in Today’s era is important.
It is not going to be so easy to get back clients who suffered massive loss or pulled out money due to emergency. Being business strategy personnel I find that we need some radical change in the business model of Independent Financial Advisor. In this article, I have tried to lay down the strategy for business development Post-Covid 19. At the same time, it is important to estimate the depth of the impact and also why one should adopt the strategy.
- Markets have fallen significantly and hence investor wealth is wiped out.
- SIPs are going to be closed since investor need money in these emergency times.
- Falling market and loss of AUM leads to significant loss of revenue earned in the Trail mode.
- The recent dramatic fall of the interest rates will wipe out the business opportunity of corporate FD being sold by the IFA. Low-interest rates will not attract the investor now.
- Hence Corporate Fixed Deposit business model is not going to be a revenue generating model as it used to be.
- Those who survived on selling PMS –well they will run away from clients now. Rather you lost them. This is another major blow to the business model of an IFA.
- Falling prices off stock at a lucrative mouth-watering level will reduce the attraction towards MF. The major investor will look for quality large caps stocks rather parking in MF.
- Weak economic prospect created through a lockdown and covid 19 impacts mean hardly any chance for salary hike, bonuses, or any incentive. Rather job cuts are being perceived.
- Hence existing investments and corpus will witness outflow rather inflow.
- This also speaks that now the competition is between direct equity and MF where the former has a clear chance to win.
- Hence it is well clear that revenue streams from investments products will be a challenging story.
- Most of the IFA who has left the job and started the business are under the biggest nightmare. For them, this blow is a major blow since 10 years before we did not have direct plans and so many online platforms to facilitate the business.
- In short, your IFA model is now scary model to any newcomer.
- Many players will be out and is also an opportunity for existing players provided you have strategy in hand.
Before we come to the strategy we need to know that every business needs makeover and disruptive times bring the changeover. As human beings we are always reluctant to change hence we need to come out of our traditional model of the business process.
- If your current business revenue is around 70% from MF and rests into FD and Insurance, you need a major change over.
- Reduce MF to 40% and make General Insurance to the level of 50%. Well surprised. Yes, I am very correct that you need to bring down the MF as sole bread and butter contributor.
- You need your product basket to be increased. But the same should be linked with economic requirement and your revenue.
- General Insurance is a segment where you need to get that 50% revenue of Insurance. Life insurance is a push product and GI is demanding product. Hence I prefer to stay with GI.
- Among the GI segment focus on Non-Motor products. Yes, this is a big segment to look forward.
- This segment is still now untouched and needs your massive attention since you are losing the business where as the client has recurring requirement every year.
- The point is that you need to change your revenue model and ultimately your business model. Investment is a product to be given for growing AUM and attracting clients. The bread and butter or rather the Dal , Chawal and Biryani will come from Insurance. Only MF will lead to either Dal or Chawal, not even both.
- I might sound harsh but the fact remains that too many online app-based models make it difficult.
- Coming to fee-based Advisory mode. I have question-How many of the IFA advised their clients to book profit and shift the AUM in Liquid before the fall down began.
- Advisory and Dal , Chawal cannot go hand in hand.
- Further now at these mouth-watering levels that will pay the fee. Every investor is now an own financial advisor.
You need to build a business model wherewith the change of time the business remains balanced in terms of revenue. Its 2020 and we have miles to go to 2030. Who can guarantee that another major blow in some year within this decade will not come? Hence GI business model needs prime attention to balance your business revenue.