CEO Speak

Will IFAs take this idea forward?

Nilesh Shah, MD, Kotak MF

11th March 2016

In a nutshell

Nilesh is a passionate believer in the idea of "Amulization" of Indian IFAs, to help the fraternity scale up and unlock significant value through a collective effort, rather than trying to achieve this individually.

The timing is right - IIFL Wealth's huge PE transaction followed by Wealth First's listing initiative are pointers towards significant value that exists in the financial advisory space, which needs to be unlocked imaginatively

Nilesh makes a cogent case for a collective effort - for IFAs to bring their businesses together on a common platform, corporatize and induct professional talent where required to scale up meaningfully. As he says, this will call for egos to be set aside, and a collective mindset to take shape rather than individual thinking. But the upsides are tremendous, as Amul has shown.

Will IFAs take Nilesh's idea forward? He and his team are willing to help you in this effort, if you have the inclination. Ball is now in your court.

There is a Panchtantra tale - a very famous one. The one where a father teaches his four sons the value of unity by making them break sticks separately and then making them try breaking it as a bundle.

We don't appreciate this ancient wisdom much, but it's applicable at points and place where it can create wonders. Bear with me through this article and the point might come across.

Very recently IIFL Wealth sold its 21% stake for Rs 1220 crs to General Atlantic (a PE firm). While many deals happen in a year, this deal underscored a particular thing - the value of the financial intermediation and distribution business. And the fact that a PE has paid for it, means that they see the business and its valuation growing far more rapidly than it is currently visible.

What I am arriving at is that IFAs are sitting on a large gold mine, but are mining individually and therefore in small quantity. Some are good at finding a location, some at keeping the tools optimal, some at digging, some at refining, some at processing and some at selling.

Likewise, in our IFA community, many are good at identifying potential investor communities, many at reaching out to them; many are good at understanding their needs; many at communicating with them, and many at selling and retaining them. Due to these unique skills developed over a period of time, we have IFAs who have created individual islands of excellence. But they are operating in isolation. They are utilising only one or two of their unique selling points; and still these IFAs have managed to do wonders.

The time has come that these islands of excellence come together. Only when these different operating efficiencies merge - will a more robust, a more enriching and a more fulfilling business enterprise rise. The point is that IFAs need to come together and corporatize their individual businesses into a corporate structure to create and sustain value. A Corporate entity of IFAs coming together will create significant value for all the contributors.

Such a merged and corporatized IFA setup would have reach and access to towns, cities, villages and settlements - which no single entity can imagine doing on its own. It would be able to assimilate, learn and distribute best practises of individual IFAs and distributors. Such a setup would have best of managerial practises, selling skills and communication ability at its hold.

Such a corporatized entity would help India mobilize and allocate her savings more effectively. It will give more depth to the domestic capital markets, accelerate financial integration and boost entrepreneurship.

Many may see this as a dream of a perpetual dreamer. But these dreams have been made true earlier as well. In milk deficient and milk importing India - it took the spark and initiative of Dr Verghese Kurien to change the situation. It was the joint enterprise of Dr Kurien and thousands of village farmers that became AMUL. This initiative made India not only a milk surplus nation but also the world's largest milk producer. The success of AMUL was because of the unity of purpose of villagers, a win-win model, the enterprising spirit even at the grassroot level and willing to come together and Corporatise - the willingness to be merged, organised and led by professionals.

This fact and its benefits need to be now understood by IFAs. Unification and corporatisation is not a loss of freedom. It is gaining of reach, access, brand, organisation, and size. And with this comes strength, and opportunity and access to doors which otherwise don't open.

To achieve this goal, many individual egos would need to be put aside. IFAs will have to take joint ownership and pride in the new entity. IFAs would have to show the willingness to become shareholding employees rather than be a self-employed person. Some would have to show their enterprise as salespeople, some as operations people, some as managerial people, some as communications people.

It's not that it's an easy job. But it's not an impossible dream either. 'Manthan' - the film depicting the events in formation of Amul is a lead story to show the difficulties involved. But it is also an inspiration of what can be done and what is possible.

I sincerely hope and pray that IFAs of our country come together to create a corporate entity that professionalises their business and creates significant value for everyone.

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