This pandemic has already changed and shown the path of the radical change in the way the business of BFSI space used to be conducted. Online has now replaced the human intervention and hence long term challenges for the professionals are now huge. In the upcoming strategic meets, BFSI leaders will be thinking about hiring people and increasing branches. Revenue per distribution channel is falling but the Industry size of capital market (MF and Direct Equities). Zerodha, up stock and then the various online platforms and app-based platforms of Mutual Fund platforms have created margin and profitability pressure. Over and above of this the lockdown of 100 days showed the industry cut down manpower as sales happen online.
The functioning of the capital market has changed dramatically. The Industry margin are not the same as it used to even 10 years before. Private Equity are going to bleed. Those thinking that advisory is big business well client hardly pay and we need the mindset. Advise your next generation not to be part of the BFSI industry and pursue any goddam industry. Wealth Advisory is now a game of volumes and not of counting numbers. Only Volume will survive the margins and scale-up of the business at a faster rate will survive. Before You read further and criticize just answer do you need a large team or small expert team, do you need a large office or just meeting rooms?
The functioning of the capital market has changed dramatically. The Industry margin are not the same as it used to even 10 years before. Private Equity are going to bleed. Those thinking that advisory is big business well client hardly pay and we need the mindset. Advise your next generation not to be part of the BFSI industry and pursue any goddam industry. Wealth Advisory is now a game of volumes and not of counting numbers. Only Volume will survive the margins and scale-up of the business at a faster rate will survive. Before You read further and criticize just answer do you need a large team or small expert team, do you need a large office or just meeting rooms?
Well before we get into those we have something else to cover also in this insight. When the lockdown was announced the Indian stock market was under correction mode. The Yes bank fiasco and the sudden lockdown lead to a blood bath on the Indian stock market. Investors lost wealth and the fear of correction created a panic situation in the market. Then the Indian economy went for lockdown and people thought that they should open Trading accounts and start trading.
Work from Home got converted into trading timing and investing in the stock market. Online account juts simply surged and the value aspect of the manpower recruited for trading account opening and client acquisition tradition got radically changed. The story does not end here. This investor came up for making quick money and the industry is happy that they got some significant numbers for client acquisition. Well, these investors are now on the path of slowing down as their own jobs are at risk and household balance sheet management has now become an issue.
In the Mutual Fund Industry, a similar growth in the number of sips was found between 2016-18 phases and after that, as of today most of them are now closed. After the peak was achieved in 2017 when the stock market zoomed up the numbers have been coming down. Recent AMFI data shows that the MF industry has witnessed discontinuation of 5.40 lakh SIP accounts in April 2020 compared to 6.02 lakh in March, 5.74 in February, 5.95 lakh in January and 5.91 lakh in December. Hence the number of trading account opened might be eye-catching but in real terms margins are low and survival is at stake at every step.
Online sales have replaced the jobs of the Industry. Various platforms and most importantly the BSE platform alone have changed the dynamics of the game. Every AMC has grown its AUM since the money at the end comes to them channelizing through the Distributors. The problem is for those distributors and those Fin-tech and Wealth tech companies who are now going to face struggle as competition is fierce. The Private Equity standing at the back of these fin-tech companies will not be getting so much alpha since in the last 100 days of lockdown whatever business came to the AMC came from reputed channels and the newcomers managed to wiggle out. AMC kitty will grow, the size of the Industry of Capital market will grow, the MF industry size will grow but that does not mean all distribution channel was capable to be part of the growth. This is a natural economic theory where the share of the market gets split and revenue per distribution keeps falling.
The future of more distributors coming into the market is only going to bleed capital and more revenue sharing. Those who are going to discuss the statistics of market penetration and a number of distributors well the gap will never be filled. Hence that is a hoax of calculation. Most of the small and mid-size distributors are thinking to sell off their AUM and business, give up franchises and exit the model. That has also increased the demand for buyouts of this business. In simple terms consolidation. In simple words, the Industry has lost the sheen which it used to have a post 20 years before.
The investor will buy from any AMC directly since direct business and free advisory services are many. So many self-education the material makes the clients more educated and learned. Those private equity who invested in this industry for the hope of making x times of alpha-the margins are falling and the good days of Alpha lies with the larger ones and not with small or new entrants. Well, the next hiring will be only to reactivate the old clients and pull the business share from others. This will be the key for justification of salary. Since the fresh business will be counted on volume and large numbers and not counting single ones. In our next article, we will be coming up with the courses and the industry demands for the BFSI space and how the students are clogging up the prospect's expectation from the Industry.
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