Fee-only advisory is today viable and a great place to get into for new talent coming into the financial services space. There is a clear felt need for such advisers, says Suresh Sadagopan, Founder of Ladder7 Financial Advisories in an interview with Morningstar’s Ravi Samalad.
Tell us about your early career. What inspired you to become a financial adviser?
Before becoming a financial adviser, I was in a completely different field. The changing dynamics there prompted me to look around for good alternatives. In 2002, financial services seemed like a good sunrise area. Insurance was opening up and I made my foray as an Insurance Advisor with ICICI Prudential.
How did you acquire clients in your initial days? What kind of challenges did you face and how did you overcome them?
Compared to my prior area of operation, insurance looked like a walk in the park. My stint at insurance was easy and I did quite well there from day one. I used a different approach as compared to most others at that time. I used the client profiler which allowed us to gather some information about the clients, analyzed the data and prepared a concise report for the client. My exposure was only to insurance at that time. I used to match the client goals with appropriate insurance products and used to give my rationale for my recommendations. This gave me tremendous amount of success and client conversions were phenomenal.
How has your business model evolved?
While offering such reports to clients, I realized that this was a useful service to them which they appreciated and hence my excellent conversion rates. In Dec 2003, I attended a session by International College of Financial Planning, or, ICOFP, on financial planning. It hooked me. I knew that what I was doing in a very crude sense was financial planning and I wanted to get into this completely & do it professionally. I joined the course immediately and went into practice as a financial planner by July 2004.
Again, getting clients for financial planning was not really difficult after I had explained the concept. My fee was quite modest at that time and faced no real resistance. I was on a fee and commission model at that time. Clients did not mind me implementing the recommendations as they knew that I will be getting commissions from products that they were sourcing from me.
I had three models initially for financial planning: concise, compact and comprehensive models of the financial plan. I allowed the client to choose the model in which they wanted to engage. Almost everyone chose the comprehensive model. Once I understood the client preference, I jettisoned the other two and stayed with the comprehensive model alone.
You have been practicing fee based financial advisory since long. How has been your experience? Are clients willing to pay fee?
Clients look for value. They don’t necessarily look for the lowest fee. Having said that, clients want good quality advice, which is in their best interest. They want their adviser to navigate through this complex area of finances and smoothen the wrinkles on their path. They were looking for value. When they see that, fee payment is not a problem.
We as advisers need to communicate clearly what is that we will deliver and what we will not. Set clear expectations. This in my opinion ensures that the client knows what to expect and what he would need to pay for that. We have found this to be extremely important.
What was the genesis of forming The Financial Planners Guild (FPG) India?
A group of financial planners were trying to put together a Financial Planning week. I also got into this and ended up spearheading the initiative. We were interfacing with Financial Planning Standards Board of India, or, FPSB India, as they were the logical partners for such an initiative. Though there were several discussions and they appeared interested, nothing came of it. We were all very disappointed. We did a couple of ground events on our own in corporates.
We then went ahead and formed The Financial Planners’ Guild, India in 2010 to disseminate financial planning awareness and knowledge among the public and to create high quality advisers who will be the best in business. I was the founding President of this body and the President for the first four years.
You are also part of a team which is forming a Registered Investment Adviser, or, RIA Association. Can you update us on this?
I’m in the core committee of the proposed RIA body. It was felt that we needed an association to represent the interests of RIAs and represent and interface with various stakeholders like Securities and Exchange Board of India, or, SEBI, product providers, other relevant government bodies, online platforms, registrar and transfer agents, public etc. This body may also take up activities to assist RIAs to tailor their practices in the true letter and spirit of the regulation and benefit the public at large through client centric and fiduciary advice.
How has your practice changed since SEBI came out with RIA Regulations?
To start with, I had set up two separate entities (whose ownership/office/staff etc. Were different) and started operating as completely separate firms. All clients were told about this and we had even given this in writing in our letter of engagement. They were clearly given the option to go outside for execution and many of them did go too.
In early 2016, SEBI had come out with a circular that suggested that the direct plan data should be shared with RIAs. The other important development was that MF Utility started offering direct plans on their platforms. These two were important enablers for RIAs. We started offering direct plans to clients that we were newly acquiring. We had lots of problems with the data we were getting from R&Ts and this slowed down the complete adoption of direct plans for all clients, including existing clients and their portfolios.
In Jan 2018, the data problems were sorted out to an extent and we wanted to migrate to direct plans. We informed all our clients that we will have to migrate all their assets to direct plans. We undertook an email campaign and telephone contact exercise to ensure that clients understood what we were doing. We came up with a set of service offerings and charge structure to work in the new avatar. Clients understood where we were coming from and the migration of legacy portfolios to direct plans are on.
We also now offer a direct version of products like Portfolio Management Service, Alternative Investment Fund , Bonds etc. to clients, after discussing with product originators. This lowers the costs to clients who have appreciated our efforts and our client friendly approach. We are now fee-only advisers.
How have you been tackling the competition from online wealth management firms/robo adviser firms?
Our service offerings are comprehensive and different and are in no way comparable to what wealth management firms are offering. These firms are mostly product promotion outlets with little true advisory component. In our case, we are pure advisers and that is sufficient differentiation in itself.
Robo advisory firms currently operate at the lower end of the spectrum. Their algo advice would be suited for those at the early stages. The Robo advisers would target clients in millions at the lower end of the wealth scale. When someone has serious wealth, they would want the comfort of a true human adviser to look into their specific situation and offer tailor-made advice.
What major trends do you foresee in the advisory/wealth management space in India?
Clients are becoming discerning and are looking for world class advice and service. Advisers will need to offer more sophisticated service offerings and advisories. Going forward, there will be advisers at various levels of sophistication. More specialization will be the result. Clients will have a far wider choice than available today.
We all need to embrace technology to provide top-notch service and to drive down costs. All kinds of advisers and models will coexist in a complex market like India. The market is so big that everyone will be able to thrive.
In the light of removal of upfront commission and shrinking margins, what would be your advice to new distributor joining the industry?
This is the new normal. While the commission percentage is coming down, the volumes are going up. That will compensate well. We all need to learn to operate with lower margins by focusing on costs, efficient delivery of services using technology & also going beyond the basic services and offering advisory services that would add value to them. Only that will ensure clients stay with us.
We are offering Financial planning, plan review/ recreation, Will creation and estate planning services, Life transition & Life Planning services. We also offer financial consultations on specific matters, special educational content to engage clients with, quarterly discussions to ensure client alignment with the plan and as a tool to deepen our understanding of the client. All these together deliver great value to clients. All financial services participants need to upgrade themselves and the services they offer clients so that the clients see value in engaging with them.
Clients are willing to pay fees if they see good value. Fee-only advisory is today viable and a great place to get into for new talent coming into the financial services space. There is a clear felt need for such advisers.
What are your future plans? Are you looking to expand your operations?
More than expansion, we are looking at consolidation and are looking to ensure even better stickiness with existing clients.
We would be deepening our offerings by looking at the investment universe far and wide and would offer international products to reduce home country bias, reduce risk and improve their chances of good outcomes.
We would be looking more to cater to clients whose families are distributed across the globe and who have complex financial requirements.
We would also be advising clients regarding education abroad for their children in a comprehensive manner, with deep domain knowledge and insights. These are growing areas which require knowledge of education landscape, financial arrangements and job prospects in various countries.
The other growth area is the market for investment-based immigration to various countries, which many people seem to be actively considering.
We will also align with advisers in various international jurisdictions to coordinate and offer advice to clients in a seamless manner.
