RIA & LARGE DISTRIBUTORS -Future is Different

 

The new RIA guidelines have shown clearly that business for distribution or advisory is going to be tough in the coming days. Well we might have been wrong in addressing with the word “Tough” it would rather be prolonged difficulty post covid -19. We have seen in the past 10 years, particularly that many people leave their job and join to become start their own business and become financial advisors. Well under the current circumstances if any plans to make life hell you have many other options apart from becoming an RIA or as an MF distributor.

Indian wealth tech is flooded with companies who have come up with RIA platforms and asset allocation and financial planning etc. Clients not only have investments diversified but they have diversification in platforms and fools are those Private Equity players who park money still now. The markets of RIA and financial advisory are saturated and automated multiple options and free advisory models have flooded the streets.

The individual RIA who was having more than 150 clients is under the compliance of corporate rules which makes the business more cumbersome. Clients will pay the top 10 IFA of India but not the remaining 9990 IFA who are into RIA model. We already know that few reputed companies have shut their shops of RIA as no one will pay them.

The evolution or revolution of the MF industry particularly for the distribution end has changed dramatically in the coming few years. December 2012 Direct Shops were opened and then SEBI hammered in 2018 with scheme classification and expense ratio reduction and many such things. The pay package of the distribution has narrowed down and round the table pass back mechanisms came to an end. Foreign Trips, Gold coins and sponsorships etc are now just memories to be remembered.

The Industry will face lots of shut down and clients will behave like rats now. Distribution companies  which are mid-size have now turned into small due to blessing of covid-19. The crisis has spilt over from here more where jobs and pay cuts have been shopped FOREVER.

Hiring is not going to be so easy and survival of jobs is difficult selling MF only. Insurance has gained huge traction in between the business model. The distribution business models have taken a significant shift where Insurance is getting a big pie of the wealth management target. Small IFA is selling the business and exiting and the size will be coming down day by day.

Coming days many Large Distribution houses will convert into AMC since for them survival is no longer selling third party products. Just being a distributor will not give enough space for the Industry to breathe. Innovation now needs to be turned from SEBI to distribution business model. Big Distribution houses have to become innovators of products so that they create the next Business of the Decade. This is the best way to save and turn the business into a new direction. Many large distribution houses will press the button of M&A.

Financial Advisory Industry is going to face M&A in the coming days. The wealth-tech model attracted many Private Equity but they forgot that no software or platform is unique and copy-paste models are enough to throw out any large or mid player by a small ant size player in this game.

A number of players count increases since this industry has found stupendous growth riding on pay-check in the initial days of 2015 when RIA was launched in India. But in current times it the juice is out and now you have fibres left only. This business is of immense patience and short term money making is over. This will result in many people to leave their licenses and become Distributors. But Direct channel platform has destroyed that path also hence the future is dark.for these RIA players.

RIA might be highlighted with lots of jargons of a financial advisory but the end of the day the Kitchen of an RIA runs on profit and revenue. RIA will grow and will make revenue only for those who are real advisors and can wait for the next 5 years. Will Your Private Equity who has invested in your glamourous Fintecg/Weathtec platform wait for those 5 years?

RIA is a long term business model which needs patience and efficient servicing with advice. These things are no longer easy hanging fruits and neither AUM game. The industry is becoming smart but without much manpower. Large distribution companies will soon be coming with a beeline for AMC and AIF platforms. To finish up you cannot survive just being an MF distributor alone. Either you shift revenue mix to Insurance or Become a Product Designer.