Jigneshbhai's motivational presentations in Surat are by now quite famous and much sought after. When IFAs were losing heart about their business models in the first half of 2012, he made an impactful presentation on the long term viability of the IFA business model, which he then shared with the entire fraternity in an earlier Wealth Forum article (Sell 140 SIPs and become a crorepati). Now, when his association's members again stare at an uncertain future with the advent of direct plans, he made another presentation to them on practical ways to deal with direct plans and emerge stronger. Here is the gist of what Jigneshbhai shared with his association members, which he has kindly agreed to share with IFAs across the country.

Competition is a way of life

Competition for managing investors' money has always been there and has only been increasing over the years. We have many channels who vie for a chance to manage investors' savings - IFAs, national and regional distributors, banks, private wealth firms, stock brokers, insurance agents etc. If that wasn't enough, investors have more and more choices of investment avenues available - which is another form of competition for us IFAs. Real estate, bank deposits, Government savings schemes, physical gold - there are many ways in which investors save up for their future, which does not provide us a chance to intermediate on these and earn any commissions. Competition will only increase in future - both in terms of channels for the products we offer as well as competing products that we don't or can't offer.

Direct plans are our latest competitor

From Jan 2013, there is a new - and as yet unknown competitor : our clients themselves! With the introduction of direct plans in mutual funds at a lower cost, investors now have an option to bypass their distributor or advisor and invest directly with an AMC, and avail of a lower cost option. AMCs are thus becoming our competitors now - as they can market a lower cost version of the same product to investors directly.

How do we deal with this new competitor? The last 3-4 months, a lot of shouting, petitioning, sloganing and all of that has happened from our side against the imposition of direct plans. Now, direct plans are a reality. The only sensible way for us going forward is to recognise direct plans as another competitor and compete effectively against this new competitor. Running away from the field is not what winners do - finding ways to fight and win is what makes winners.

Dealing with the new competitor

So, what must we do to fight and win in the market place? Lets look at what some management gurus teach us :

Winners don't do different things, they do things differently - Shiv Khera

To win, you have to create differentiation for yourself. Differentiation is the process of distinguishing a product / service / offering from others, to make it more attractive to a target market - Philip Kotler

Management gurus give us broad guidelines - but it is really up to us to understand this and apply their wisdom to our own practical circumstances. What I am going to discuss now is really an attempt to apply what the greats like Shiv Khera and Philip Kotler said, to the business of an IFA, when trying to compete and win against this new competitor called direct plans in mutual funds.

We need to differentiate ourselves in all 4 stages of a client's MF experience

The key to win against this new competitor is to differentiate the experience that an investor will have when investing in mutual funds through us, as opposed to going directly to the AMC. As I see it, there are four components to mutual fund investing that an investor experiences :

(1) Advice - how the decision is made on buying the right product

(2) Product - what is the product that he is buying

(3) Transaction execution - how does he actually buy the product

(4) Service - how is his experience during buying as well as while remaining invested

Lets look at how we can differentiate ourselves in all four stages.

(1) Advice

In our business, for far too long, products have been sold on a seasonal flavour basis, mostly on the basis of recent good performance of an asset class. AMCs have been incentivising us to sell products that have shown performance, and a large section of us distributors have pushed them on this basis. This product push approach has two major pitfalls - (1) an asset class that has already done well in the recent past may not be the best for the future, and (2) whether this asset class is relevant for the customer is often forgotten in a product push approach.

Rather than pushing products that are flavour of the season, we must advice clients on the basis of what they really need in order to achieve their financial goals. This advice is not available to an investor when he goes direct - product push will readily be available, past performance will be readily available. It is for us to differentiate ourselves based on our advice rather than pushing whatever we are incentivised to push.

Even these days, when debt funds are the flavour of the season, we find in so many instances, debt funds being sold to clients who clearly have money available for even 10 year + periods. We all know that over a 10 year period, debt funds will certainly underperform equity, and may not be able to fight inflation effectively. If clients have limited risk appetite, do we do our best to at least convince them about hybrids like MIPs that can help them stay ahead of inflation in the long run? Rather than go for an easy sale of a debt fund based on recent performance, we must think and do what is right for the client. This value add is not available to the investor when he goes direct.

The other dimension in advice is to be able to offer advice on all personal financial aspects that our clients are looking for advice in. This may mean broadening our product portfolio where we feel comfortable, and building alliances with other professionals who offer other services that we do not. Ensuring that the client feels confident about turning to us for all their needs will automatically make them more comfortable about routing all transactions through us.

(2) Product

A very important point that we must reflect on is about what is the product that we are selling. Are we selling a mutual fund alone? Or do we try to create a unique offering that is relevant to the customer? Here are some simple examples of how we can add value to the product that we are selling :

1. Flex STPs and Value STPs for equity investments, based on our understanding of what the client is looking for

2. Set up triggers at the time of purchase itself, based on discussions with clients who are keen on systematic booking of profits

3. Dividend transfer plans as a means to introduce equity to cautious investors

4. Systematic withdrawal plans to meet regular cash flow requirements

5. Packaged solutions - where we ourselves create a package of mutual funds, term plans and health policies to suit the financial goals of our clients

6. Alternate Investment Funds (AIFs) - with AIFs now getting SEBI regulated, they become a viable option for us to consider for our HNI clients who may have different investment needs

The more we make an effort to customise the solution for our clients to suit their needs, the more differentiated our product becomes. The more differentiated our solution becomes, the less it will get compared solely on price vis-à-vis direct plans. It is time for us to add value to the product we sell, which justifies why the client should buy this value added offering from us rather than the cheaper vanilla option directly from the AMC.

(3) Transaction execution

We need to upgrade our online capabilities to offer online transaction execution to clients who desire such a service. When we offer an online capability, clients will be able to buy products of different MFs from a single portal. If they go to the AMC's website, they will only be able to buy a single MF's products. We are in a position to offer a much more comprehensive transaction execution capability, which gives clients more convenience.

For clients who are not net savvy, there are simple solutions that we can offer which gives them superior transaction execution. For example, if we promote more of NEFT payments for investment amounts above Rs. 2 lakhs, clients can get same day NAV. The point is we must keep looking at how we can add value at each stage.

(4) Service delivery

This is perhaps one of the biggest and yet simplest areas where we can build differentiation vs our new competitor - the direct plans. We know that documentation is a big challenge that comes along with the mutual fund experience. What can we do to smoothen this process for our clients? Can we proactively update their bank mandates on all existing investments, such that they face no problems whenever they redeem? Can we proactively update nominations to smoothen transmission cases, well ahead of the eventuality? Can we proactively send our clients intimations of purchase, redemption, dividend declaration? Can we proactively keep customers informed about status of their service queries? Can we proactively liaise with fund houses to resolve their queries and service issues? Most of the services we offer proactively will not be available from our competitor - the do-it-yourself direct plan.

We have to move from a frame of mind of "customer service" to "customer delight". This can be done by always staying one step ahead of expectations. Our service must be so quick and efficient that clients start feeling handicapped without us. Good service always has a premium value attached to it, mainly because we are offering superior convenience - and customers understand that convenience has a value.

To conclude

What I have tried to do is to break down an investor's entire MF experience into four different stages and see how we can differentiate ourselves against this new competitor, at each stage. The suggestions I have given to differentiate are only some examples - I am sure if we apply our minds, we will be able to collectively come up with many more ways in which we can differentiate ourselves, add value to our clients and win against our new competitor. Lets all put our heads together, come up with more such ideas and win collectively !