There are many categories of distributors of financial products in the industry today. We can broadly classify them in four categories:

• Banks and NBFCs
• Large and Regional Distributors
• Websites
• Independent Financial Advisors (IFAs)

 

Categories of Financial Distributors

Each has their own strengths and client value proposition. The table below tries to capture the essence of the proposition from each segment:

Category	Training & Operations Excellence	Customer Relationship Management	Cross Selling & Marketing	Product Spread	Technology investment
Banks and NBFCs	High	High	High	High	High
Large & Regional  Dist	High	High	High	High	High
Online Platform & Websites	Medium	High	Medium	Focused	High
Independent Fin Advisors	Medium	High	Limited	Limited	Low

As per a study conducted by the National Skill Development Council (NSDC), the following is the incremental requirement of personnel in the 5 broad areas they studied:

Future Growth in Employment (In ‘000’s)

Industry segments	Total employment	% of total	Projected 2022	Incremental
Banking*	1100 – 1200	25 – 30%	1400 – 1500	350
Insurance*	200 – 300	4 – 5%	350 – 400	150
NBFC*	25 – 30	0 – 1%	40 – 45	10
Mutual Funds*	15 – 20	0 – 1%	20 – 25	15
IFAs	2500 – 3000	65 – 70%	6000 – 7500	3700
Total	4000 – 4500	100%	8000-9000	4225

Source: RBI, IRDA, Capital line, IMaCS analysis; *On-rolls employee

It is very clear from the above data that the biggest push in the distribution space will come from the Financial Intermediaries or IFAs. It is a great challenge and an opportunity.

The Challenge

The challenge is on two counts. One is to activate the current set of IFAs. With only 25,000 of the 1,00,000 ARN holders active and probably 30% of the 2.5 million insurance agents really active, the challenge facing us is to activate the existing numbers as much as possible. We all know the revenue model of most IFAs is under severe stress due to which we are witnessing a major transition with many exiting the profession. It is difficult times but all is not lost, those who can adapt their business models will surely survive and see an upswing in the coming years. (Refer earlier issue article titled “Shed Your Current Practice Model to be a truly Successful IFA ”).

The second biggest challenge is to attract new players to join this profession. Fresh graduate/post graduate/ entry level sales personnel do not see this as an aspirational career to strive for.  It is not a career of 1^st choice for many. To meet the huge numbers, there needs to be a concentrated effort by all stakeholders to bring in quality and quantity in this channel, if we need to see it grow as fast as the market will require it to.

Creating Entrepreneurs

As we saw in Table 1, the share of intermediaries is 65-70% and it almost doubles in the next 10 years.  This will see a huge surge in the new age intermediaries who are entrepreneurs by choice. The journey to create such large number in the next 10 years will need a concentrated effort by all stakeholders.

One of the key stakeholders is the Manufacturer who will need to take a long term view on the channel and believe that there is merit in investing behind this channel. They will need to look at out-of-box options to create the numbers from ground up. They could look at starting an IFA incubation school wherein support is provided with stipend, training, platforms/technology, and certification. The team so set up will have to look at solutions rather than single product focus, hence be client representatives rather than manufacturer representative. This way they can also charge the clients a fee for their services.

Distribution companies could also look at nurturing their sales force/Relationship Managers as entrepreneurs or recruiting people as advisors providing them similar support as manufacturers. There are successful overseas models one can learn from like Ameriprise Financials and Genworth from USA.

Regulatory changes could fuel growth as well. Client centric regulations articulating who are authorized to provide such advice, like we saw in the framework released in Australia, could give a fillip to the profession as it would bring the profession under focus and categorize who can charge and how.

In addition, the industry will need to introduce comprehensive structured programs for training IFAs who are certified and licensed to deliver products/advice. We have many individual certifications like AMFI, IRDA, Capital Markets and multi asset certifications like Certified Financial Planner (CFP). Are these sufficient to manage a client’s wealth cycle of creation, enhancement and preservation or take care of the life cycle needs of the client.  Industry bodies should guide and facilitate IFAs to obtain the right certification.

Platforms are a great way to enhance reach and lower cost of servicing. Manufacturers/Distributors should strongly propagate platforms to bring in a larger number of IFAs into the fraternity. The only two key differentiators will be Knowledge and Technology and no regulations will ever curb these activities.  

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Authored by,

Raj Mahadev

MD

Moneytouch Retail Financial Services (P) Ltd

Mumbai

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