How Prudent became the second largest mutual fund B2B platform

By Ravi Samalad |  31-05-19 | 
 
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About the Author
Ravi Samalad is Assistant Manager - Editoral for Morningstar.in.

Founded by Sanjay Shah in 2000, Prudent Corporate started with humble beginnings in Ahmedabad. Today, it is among the top ten mutual fund distribution houses in India with assets under advisory of over Rs 22,000 crore and 14,600 channel partners. Morningstar’s Ravi Samalad caught up with Shirish Patel, chief executive officer at Prudent Corporate to understand how the company clocked this spectacular growth.

Take us through the early days of Prudent.

Prudent was started in 2000 by Mr Sanjay Shah. Before starting Prudent, he used to work as a chief financial officer in Jindal Group in Ahmedabad. Mr. Shah sensed a huge opportunity in mutual fund distribution at that time due to the under penetration and the superiority of products. He surrendered his CA Practicing license to start his advisory practice. Initially, he started advising mutual fund products to corporate clients and that is how Prudent Corporate emerged. In 2003-04, Prudent opened a few branches in Gujarat and in the nearby cities. I joined in 2005 as a CEO.

Prudent’s assets under advisory has crossed from Rs 3,517 crore in FY12-13 to Rs 22000+ crore now. What has helped you achieve this growth?

The growth has come on the back of multiple factors. We have grown our partner network, streamlined our processes and adopted technology. One of the major growth drivers has been adoption of technology.  We started investing in technology from 2004 onwards. Earlier, technology was only used to track portfolio valuation and other post transactions MIS. We did not have our own platform for mutual fund transactions till 2015. To fill this gap, we launched an online transaction platform called Fundsbazaar in 2016. It is our in-house transactional cum research platform. Demat account is not required for clients to transact in mutual funds through this platform. It offers facilities like goal tracker, pause SIP, any day SIP, change SIP amount, trigger, etc. It completed three years and has 2.4 lakh investors. Since it is built in-house, we can customize and add more features which helps our partners. We also offer NPS through FundsBazaar.

Currently, we manage Rs 22,000 crore, of which Rs 18,500 crore is in equity and the remaining in debt. We have Rs 250 crore SIP book. By March 2020, our goal is to reach Rs 30,000 crore assets under advisory.  

How do you go about adding your network of IFAs?

We have around 14,000 partners empanelled with us.  We bring new distributors in the industry. Huge portion of new ARNs registered in the industry are through Prudent and other platforms. These are mainly insurance advisers, tax consultants and other professionals who are keen to join this industry. We approach them and talk about the future prospects of this industry and how they can make a business in this field. We also train them to get NISM certified. Besides, existing partners refer other professionals to join our network. But the bigger challenge for distributors is growing their business.

What kind of support system and value add to do you provide to your partners?

Our growth depends on our partners’ growth. To facilitate this, we provide various tools to acquire clients. We create videos, images, presentations on products and concepts which can be used by partners to acquire clients. At the click of a button, the images are generated with partners logo, name and mobile number. It’s a co-branded marketing material which is free of cost. We also provide them email campaign content. At the click of a button, this emailer can go to all the partners clients. They can even execute transactions from these mails. They can also filter how many leads they have generated through this campaign. Apart from this, we offer Partner Desk login, where our partners have complete control of their back-office work, MIS and business tools.

What is your revenue sharing model with partners?

The commission structure offered by us is competitive. The commission structure differs according to the AUM of the partner. Ideally the percentage of commission should not matter, take home commission should matter. Hypothetically even if we offer few bps less than AMCs, we help our partners increase their productivity and in turn their business growth. If the productivity grows, business grows; eventually the commissions grow.

How has the rationalization of expense ratios impacted your business? How can distributors overcome the challenge of shrinking margins?

We are yet to gauge the actual impact because many fund houses have not announced their commission structures yet. But the impact is huge. On a weighted average basis, the impact could be a reduction of 16 basis point. The shrinking margins could dampen the interest level of new distributors. But we believe these changes are short term. Mutual funds are the best products and the industry will continue to grow.

Will the reduced margins help platforms like you to attract more partners?

It will always help distributors if they partner with a platform irrespective of whether commissions are dropping or not. Partners’ day-to-day expenses, admin costs, operational and infrastructure expense comes down drastically by working with us. So nothing has changed. But the major difference is now revenue has shrunk. So IFAs would be more cost conscious going forward. So new distributors would find joining a platform more attractive.

How do you compete with other sub-broker platforms like NJ India, FundsIndia, iFAST, etc.?

Our differentiating factor is technology. Besides technology, we offer physical presence as well. The other value-added facilities provided by us also give us an edge. NJ India started much before us and their presence is wider. We are now almost at par with NJ India when it comes to physical presence. We have 87 branches. By end of the year, we will cross 100.

Isn’t expanding physically a costly affair given that the margins are shrinking?

We offer technology and physical presence and that is our unique selling proposition. Having branch offices adds to the trust factor. In financial services, trust is paramount. For a client dealing with both technology and human interface, the comfort is higher. Our partners also get confidence when we are physically presence and offer best technology tools. It is not that technology will solve all problems. Handholding is also very important. New distributors entering the business also need to be trained. Local presence makes a big difference in training new distributors.

How long does it take to break even at a branch level and how do you identify cities for expansion?

The break-even of a branch office takes three-four years depending on the market. We open branches based on internal accruals. We identify the cities based on the potential of the city. Now, AMFI publishes city wise AUM data. This becomes easier for us to expand where penetration is low. Instead of opening branch in a new state, we prefer to open a new branch in an existing city or in nearby cities. Break even depends on market sentiment too.

How many sub-brokers do you have currently? With the advancement of stock exchange platforms like BSE StAR MF, NSE MF II and MFU, do you think it will be tougher for players like you to add new sub-brokers as new IFAs could use these platforms to do business directly with AMCs?

Stock exchange platforms are not our competitors. These platforms have created awareness about technology.  Indirectly, it has helped us promote our technology among our partners. Today, the benefit of any platform is not merely transaction facilitation. We support IFAs in growing their business. Even after empanelling with stock exchange platforms, IFAs have to still deal with ten different AMCs. If there are with us, they have to deal with only one entity. Mutual funds are still not 100% digital.

In terms of support, we have a toll-free call centre to resolve IFAs queries. If the call centre is busy, IFAs need not wait. They will get a call back from us.  They can track the status of their query through a code with their mobile. They don’t need to follow up. Everything has a turnaround time.

Recently, we started offering personalized websites to our loyal and bigger partners. Today, mot more than 2% of advisers have their own website. Even if they build a website, it is difficult for them to upgrade and maintain it. We create the website and manage it free of cost. We also offer them their own white labelled mobile application. Their clients don’t need to come to Prudent website or app. They can download the distributors app to track their portfolios.

How have direct plans impacted your business?

Client attrition happens in any business. Direct plans have had a limited impact. Mutual funds are still underpenetrated. 1% of our clients may go direct. Today, the comparison is only in terms of cost. It may happen that the fund recommended by a distributor generates higher alpha. If the distributor generates 2% alpha, it still makes sense to work with a distributor. After sales service for a direct client is always a nightmare. Client have the habit of calling their adviser. They understand the value of adviser when they face some service issues.

Many platforms offering direct plans have sprung up. Many of them do not charge any fee. How do you see this space evolving?

Most of them will either consolidate or exit. When only a few platforms sustain, they will try to find out a revenue model. They are mostly harping on saving cost. Nobody is saying they offer the best advice. Direct plus advisory will work so that clients have someone to speak to.

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