June 13, 2019

4 Ways to Deal with Direct Plans

Sadique Neelgund

4 Ways to Deal with Direct Plans

With the new campaign under Mutual Fund Sahi Hai promoting investing through direct plans and saving on commissions earned by distributors, it may be prudent for financial advisors depending majorly on MF commissions to take a few proactive steps and evolve their business models.

Here are four strategies to deal with increased awareness of direct plans amongst consumers/investors. Please evaluate each strategy and check if it is suitable for your circumstances. 

1) Proactive Communication – Instead of clients coming to know about direct plans/commissions through advertisements, it might be prudent to talk about it and share it through a message with the value proposition of working with a financial advisor like you. Clients don’t like unpleasant surprises and do expect transparency. They will ignore the direct plan message from mass media if they have already heard about it from you. Plus you have an opportunity set the context right by being proactive. 

2) Voluntarily Disclosure – Instead of clients wondering what money you might be making, it might make sense to share approximate commissions you make from them either in percentage or absolutes. In majority of cases, I feel MFDs make very meager income compared to the value they offer & costs they incur. Especially those dealing with retail investors. In fact, there is scope for charging additional fees to such clients by being transparent. Clients should also be made aware of the efforts and costs you incur to serve them.

Refer to this article for sample draft on value proposition.

3) Create Value – Financial Advisors dealing with mass affluent and high net-worth category and are unable to justify commissions earned (in absolute numbers) may have step up their efforts to create more value through value-added services, positioning, a niche practice, better research capabilities, technology interface, etc. Along with creating value, equally important is communicating the value and impact of your handholding, coaching, guidance. Many are good at creating value but poor at communicating the same.   

4) Charge Fees – I do feel the informed and high net worth clients will eventually evaluate direct plans and try to figure out if it suitable or economical for them. Financial Advisors should try to evolve their model in such a way that they are able to charge fees and offer direct plans for such clients. While continuing to offer regular plans to retail clients. Currently, there is some regulatory confusion around this hybrid structure, but I think that is the way forward. 

In the coming years, investors are bound to be aware of direct plans and commissions associated with regular plans. It’s upto financial advisors how they will minimize the impact of this and make this new reality work in their favour.

The four strategies shared above may help. Do evaluate the possibilities of adopting them by tweaking them to your circumstances. 

Mutual Fund Investors, Inflows into Mutual Funds & Markets will keep growing… just that the rules of game may change. 

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