Singapore-based advisory platform iFAST established its business in India in 2009. In FY 18-19, it had assets worth over Rs 2,800 crore across its B2C and B2B platform. Erik Hon, Managing Director, iFAST Financial India, chats with Morningstar about the advisory landscape in India.
Many distributors are diversifying their product offerings beyond mutual funds due to shrinking margins. What are your plans to add more products like AIF, PMS and NPS in your offering?
As a global platform, we are aware of the global trend towards transparency and have expected India to follow this trend of regulatory pressure on commissions. We have been talking about it since we came to India in 2009. Advisers on our platform have transformed their practice from distribution to advisory and are successfully charging and recovering fees.
The impact of commission reduction has been minimal for our fee-based advisers. I believe that instead of having a product-driven and commissions-driven business model, it’s time for distributors to embrace transparency and fee-based advisory to be in control of their future. In the fee-based model, the best product that suits the client’s needs, at a reasonable cost, wins. The investor’s interest comes first, not the commissions. We will therefore only add new products that make sense for the investors and are aligned with the advisory model.
Given that there are other B2B platforms like yours, what are the benefits of joining the iFAST platform for advisers/distributors?
With the kind of regulatory and technology disruption advisers are facing today, independent practices have no option but to transform their business to be future ready. By that, I mean they have to adopt the business model that is transparent and uphold the fiduciary standard. They will have to compete on value by providing unbiased advice and become the CFO of their clients. To be able to do this, advisers need to digitalise their practices so they can execute asset allocation strategies seamlessly across different products and fund managers, comply with changing regulations, and most importantly, be able to charge and recover their fees successfully, in both bull and bear markets.
In that context, the iFAST platform is the only one in India that offers them a full-service solution with seamless advisory, administration and execution functions across multiple asset classes and products (MFs, equities, ETFs and bonds) – all in one place. Advisers do not need to worry about managing their trade, customer and business data on different applications, and so they actually experience the efficiency gains that most other platforms can only promise. No other platform can help advisers charge and recover fees successfully. Distributors can join our platform and transition seamlessly to advisory. Compliance is inbuilt in the systems and processes and SEBI RIA audit support can be provided easily.
But iFAST platform is more than a fintech solution. Through the platform and support services around it, like research, training programmes, RIA incubator, the iFAST Global Investment offering, and access to our international network of advisers, we have created an ecosystem that can truly help an adviser scale their practice and develop sustainable competitive differentiation.
What are the similarities and differences in India and the Singapore market when it comes to financial advisory landscape?
India is leading the way in Asia in driving transparency with direct plans and the RIA regulations. There is no share class like the direct plan anywhere else in Asia. The recent reforms in the TER, rationalisation of fund categorisation, ban of upfront commissions are all positive developments for the investors. In this respect, Singapore is lagging behind India. The financial advisory landscape is therefore more developed in India because there is no RIA regulation with the fiduciary standard in Singapore. However, it is difficult to get a license to provide financial advice in Singapore as there are stringent criteria and capital requirements to distribute financial products.
In terms of range of products, being an open economy with no capital controls and no capital gains tax, there are many local and foreign AMCs offering global products in Singapore. I believe India will open up soon as the case for global diversification is too strong to be ignored.
From the regulatory governance perspective, Singapore has a more mature structure where the onus of compliance lies with the financial intermediary company and the directors are held accountable for the advice of their sub-brokers or representatives. The training and adequate competency of the representatives are also therefore the responsibility of the firms. This stringent governance policy is one of the reasons why advisers depend extensively on platforms like iFAST that offer holistic compliance support, including in-built trade level compliance.
B2B market is dominated by NJ India and Prudent. How are you recalibrating your strategy to attract RIAs and distributors towards your platform?
I think our target adviser is different from that of NJ India and Prudent. The advisers who join our platform have a strong inclination towards advisory. In commissions, we are fully transparent with our advisers and they know exactly what we are getting from the AMCs. We believe that transparency and the fiduciary standard of advisory is the future. Trust and professionalism are implicit in this model and this will resonate strongly with investors who are sophisticated enough to understand that advice is never free, and would prefer that their advisers are remunerated only by them and not incentivised by product commissions.
Our strategy has always been to focus on advisory and advisers who believe in this model. Once, advisory and distribution are clearly differentiated in terms of the services that can be provided, and at that point we will be ready for the large spike in the number of RIAs.
Established advisers are generally not keen on moving their assets to platforms and the industry is not adding significant new IFAs/RIAs who could be your potential target base to join the platform. In such a scenario, what is your regulatory wish list to attract more IFAs/RIAs in the industry?
Our target base includes all MFDs who want to become RIAs, and RIAs looking for a full service one stop solution with effective fee recovery mechanism. With regulatory clarity on MFDs and RIAs, our target base will only increase with more MFDs choosing to become RIAs.
One wish in terms of regulations would be to eliminate regulatory arbitrage and regulate the activities in similar manner across the financial services industry instead of the market players in different sectors of the industry. Insurance agents, IFAs, RIAs and bank relationship managers all seek to manage the investor’s money. For the desired outcome of fair dealing to investors, it does not make sense that when commissions come down on MFs, products with much higher commissions like insurance products, PMS and AIFs then become the products of choice. Investors and consumers are not aware of the differentiation and the different regulations governing the different financial intermediaries.
Part of our investor awareness initiative is to start a new portal to educate investors on financial planning and the difference a licensed adviser like an RIA can make. The Licensed Adviser (www.licensedadviser.in) portal aims to connect investors to RIAs in the city that they live in. With this initiative, we hope to grow the RIA community and at the same time, attract talent to join this profession with increased awareness of the general public.
Many advisers have not given serious thought to business succession. How does iFAST help in business succession for IFAs?
We talk about retirement planning being a blind spot for investors universally, and succession planning in advisers is like that. There are also challenges on the ground; it is never easy to find an adviser whose business model and value system is the same as yours. Besides, we don’t yet have standard approaches to valuing an IFA’s business, and negotiating for the optimal price for your business may feel like a stab in the dark at most times.
Another important shift is that now we are seeing advisory practices coming together for growth as well. So, merging or collaborating of practices is no longer only about succession planning. The modalities are the same – you need to find a partner with the same value alignment, work out a fair valuation of both businesses, and ensure smooth customer transition. This is a growing trend in India, and we will see greater consolidation as advisers seek efficiencies of scale to survive.
Advisers on our platform can do succession planning easily as the transfer of assets and revenue is quicker when all the information is readily available and digitised. Valuation of the business is also easy when the fee or commissions revenues are clear and visible. Monetising the business becomes much more attainable. Our other offering, the IFA Marketplace, is an exchange for buying, selling or merging advisory practices. We help advisers identify growth or succession strategies for their business, network with and identify other advisers to collaborate with, and negotiate the best prices for their business.