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 attempt to break it as a bundle.
We don’t appreciate this ancient wisdom much, but it’s applicable at points and places where it can create wonders. Bear with me through this article as I try to put this point across.
Very recently IIFL Wealth sold its 21% stake for Rs 1,220 crores to General Atlantic, a private equity firm. While many deals happen in a year, this deal underscored a particular aspect - the value of the financial intermediation and distribution business. And the fact that a PE firm paid for it indicates that they see the business and its valuation growing far more rapidly than is currently visible.
What I am arriving at is that independent financial advisers, or IFAs, are sitting on a large gold mine, but are mining individually and, therefore, in small quantity.
In mining, 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. Though they are utilising only one or two of their unique selling points; yet they still have managed to do wonders.
The time has come for these islands of excellence to 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 mobilise 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 lay in the unity of purpose of villagers, a win-win model, the enterprising spirit even at the grassroot level and willing to come together and corporatize – the willingness to be merged, organised and led by professionals.
This fact and its benefits need to be now understood by IFAs. Unification and corporatization 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 self-employed persons. 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.
This column appeared in the online publication of India Markets Observer. The outlook for various asset classes, perspectives on the industry, investing insights, interviews of fund managers, and the entire list of contributors, can be accessed here.
