The financial advisory landscape is undergoing a tectonic shift. Cost pressure, increasing compliance, fierce competition, digitalization, and changing customer preferences are rewriting the rules of the game. The recent Registered Investment Adviser regulations has necessitated advisers to focus on minimizing cost and define their business goals sharper. To help intermediaries scale up their practice, Mercury Platform Services and Vijya iPrism Infotech have launched a shared services firm where RIAs and distributors can come together on a common platform as shareholders. Aakash Bansal, chief executive officer, Mercury Financial, talks about this first-of-its-kind initiative in the Indian financial advisory space.
Tell us about the genesis of this firm?
The RIA regulation amendments announced on July 3, 2020, impacted both mutual fund distributors and RIAs. For RIAs, it is essential to get the license to continue advising clients. Further, there are stiff regulatory and compliance requirements to acquire, retain and manage the license and the practice.
For individuals, the minimum net-worth is Rs 5 lakh and the license cost is 15,000. Non-individuals need to have a net worth of Rs 50 lakh plus a license fee of Rs 5.25 lakh.
The RIA needs to have a professional qualification/post-graduate diploma, experience of at least five years & certification on the subject related to the advice being offered. An IA term sheet has to be signed before advising, risk profiling, recording rationale for advice, suitability checks etc. to be recorded. An RIA is also supposed to maintain client level segregation within the RIA structure for non-individuals and also within the family of RIA where a client can only be either an advisory client or a distribution client. Those with more than 150 clients, need to re-register themselves as non-individual RIAs and ensure compliance with non-individual RIA norms.
Mercury Platform Services and Vijya iPrism Infotech together decided to build and execute a solution to the challenges faced by existing MFDs and RIAs in the form of a shared services and infrastructure company with MFDs & RIAs as shareholders. This entity will approach SEBI for an RIA corporate license, meet the net-worth requirement, manage compliances, audits, and technology and have qualified, certified, and experienced advisors to form the advisory division offering multi-asset advice, execution, and reporting technology platform to their clients using the pooled sources of these shareholders. The company will also pool services for managing operations, customer service, and marketing in times to come.
Many advisers/distributors have merged their companies. How will this firm be different?
The scale. More than 60+ MFDs and RIAs have already joined this company as shareholders and we continue to add new members. This firm will be collectively far bigger, better and stronger in building solutions and scaling the company together with the collective wisdom of so many members with varied skill sets. Varied professionals like former fund managers, wealth relationship managers, existing RIAs, young financial planners, senior MFDs have joined the company. We have got members from the domestic market as well as international markets like Dubai, Canada and Singapore. You continue to maintain your independence both in the advisory and distribution business.
Why should RIAs join this firm as opposed to running their own firm or becoming a sub-adviser at a platform? What are the advantages?
Running an own RIA firm comes with high cost, compliance and audits. Shared services allow the spreading of cost over many different MFDs and RIAs in setting up a practice and building solutions thereby achieving economies of scale. As a shareholder and an advisor in the advisory division, he/she is not becoming a sub-adviser but an owner and maintaining their independence as well. The member continues to be the Hero with the clients. They are also able to naturally institutionalize and corporatize their brands and practice.
What will be the percentage share of profit which will be distributed among members as each shareholder will have a different quantity of shares?
Around 90% to 98% of the revenues generated by the member partner will be shared back and hence there will not be any conflict of interest between different sizes of practice. Whether you are at Rs 10 crore, Rs 100 crore or Rs 1,000 crore the same percentage of revenue generated is shared back with you.
What percentage of revenue will be retained by the firm?
Single-digit revenue generated will be retained in the company to take care of licenses, compliances, audits, technology etc.
Can existing RIAs transfer their AUA to the firm? How many RIAs have joined the firm so far?
Yes, an existing RIA can transfer his AUA to the shared company. Eight existing RIAs have decided to join this company, transfer their existing AUM and surrender their existing RIA license. By doing this, they can now focus on client acquisition, management and the rest all is taken care of by this company where they are a part of the advisory division as well as a shareholder. Around 52 MFDs have joined who either wanted to transition to RIA or wanted to do goal planning or financial planning for their clients but were finding it difficult due to new regulatory requirements both for MFDs and RIAs.
How much stake will Mercury be holding in the firm?
Promoters of Mercury Platform and Vijya iPrism Infotech will be holding shares with higher voting rights to make sure that the company operates and progresses well in the right direction. To start with, we are holding 51% of this company, and 49% is owned by MFDs and RIAs at par or face value of 10 per share. As we progress and get more shareholding partners, our 51% stake will keep going down to as low as 10%. Around 90% will be owned by MFDs and RIAs going ahead. We shall also provide liquidity to existing shareholders at prevailing book value.
How will the firm tackle the issue of succession planning?
Shared services actually make succession planning even easier with an efficient process. Imagine a passenger driving through OLA or Uber and suddenly the driver or the car broke down, the service provider can send you another car or driver and the passenger easily steps out from the broken car to a new car. Similarly, in this shared services company an existing member can decide the successor and the company can easily switch investors from an existing adviser to a new adviser. There will also be possibilities for existing members to buy and sell practices within the same environment.
Are there any plans to make this firm public?
Yes, we plan and aim to get this company listed in three to four years. We may also provide buying and selling of shares on a continuous basis at a price that is linked to book value even before listing.
