Past experience: Fidelity Fund Management; ICICI Bank
Interests: Philanthropy, playing drums
Q. iFast has been a leader in Singapore and Hong Kong when it comes to providing solutions for financial advisors. But even five years after its launch in India, why is it yet to see growth?
I would say the positioning defines growth. We positioned the iFast platform as that for financial advisors who are willing to look at a fee-based engagement with clients. When you enter a market where financial advisory services are still nascent, where the bulk of intermediaries are focussed on distribution, it takes some time for things to change. So far, you have seen distribution as a cash cow. But after Sebi’s 2013 guidelines for financial advisors, distributors will now have to become advisors and ask for fees. That is taking time but there is progress. The other big change is that clients today are willing to pay fees for investment advice. On an average, investment advisors charge 1 percent per annum. We have 1,000 IFAs (independent financial advisors), who manage Rs 500 crore of assets under advisory, signing up for our services. We expect this number to grow at a very rapid pace.
Q. Does moving to a fee-based model mean that compliance has become centrestage?
When we started this business, compliance was a good thing to have. Now, it has become a must-have. The distributor is realising that managing compliances on your own needs a lot of effort and also leads to increased costs. iFast takes care of this aspect and helps keep costs down. We ensure that the distributor is following the right process; it assures the end-user too. Now that mutual fund distributors can be hauled up for fraudulent practices, he needs to have proper documentation and rationale for having given that advice; otherwise he will be questioned for having sold the consumer that particular financial product.
Q. How is paying fees better than commission?
In a fee-based model, both the client and the advisor are in complete control over how the relationship should work. In a commission-based model, there are cases when the customer’s needs are undermined. The incentives are aligned to the distributor. Wherever you see a lopsided alignment of incentive, there is a potential to sell what is not right to the customer. In a fee-based model, the customers can always ask what you are bringing to the table for them to pay you fees. The quality of intermediaries has to improve as they have to show value on paper; the customer is in charge of deciding whether he is willing to pay for the service. This leads to perfect alignment.