2010.Docx Write Up

8/7/2019 2010.Docx Write Up

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2010iFAST Financial India Pvt LimitedA Project Report on

Challenges faced by IFAs in Bangalore Cityas a part of Final internshipSubmitted By

MANISH SARAWAGI

Dayananda Sagar Business School

[IFA BUSINESS REPORT]This report contains the data analysis of survey conducted in Bangalore city in order to study theIFAs Business related to investment products


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Report on IFA Business in Bangalore City

Table of ContentsList of Figures: ......................................................................................................................................... 2

cknowledgements................................................................................................................................. 4EXECUTIVE SUMMARY ............................................................................................................................ 5PROBLEM DEFINITION:..................................................................................................................... 6

PPROACH TO THE PROBLEM:....................................................................................................... 7RESEARCH DESIGN:........................................................................................................................... 8DATA ANALYSIS:

................................................................................................................................ 8IFAs Demography:.............................................................................................................................. 8

sset under Management:................................................................................................................. 10IFAs business.................................................................................................................................... 11Challenges to IFAs:........................................................................................................................... 12

sset allocation:................................................................................................................................ 12CRM services:................................................................................................................................... 13Factors considered in IFA decision making: ...................................................................................... 14Learnings ....................................................................................................................................... 16Impact of 0% entry loads on the business of the IFA: ...................................................................... 16Learning......................................................................................................................................... 16Category wise breakup: ................................................................................................................ 17Identifying the impact of variable pricing and how it will change the investment patterns in themarket. .............................................................................................................................................. 17Method and cost of acquiring, maintaining and developing clientele: ............................................ 18Use of MIS Tools ............................................................................................................................... 19Scope of expansion of IF business by aligning his interest with the clients interests. .................. 20Back Office Expense Structure: ......................................................................................................... 21ppendix .......................................................................................................................................... 23Questionnaire Used in Survey........................................................................................................... 23

List of Figures:Figure 1: Age Profile of IFAs .................................................................................................................... 8Figure 2: Education Profile of IFAs .......................................................................................................... 9Figure 3: Number of years in Current Business ...................................................................................... 9Figure 4: Number of Employees with IFAs .............................................................................................. 9Figure 5: Number of Clients with portfolio worth less than 10 lakh rupees ........................................ 10Figure 6: ................................................................................................................................................ 102


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Report on IFA Business in Bangalore City3

Figure 20: Satisfaction level of IFAs about their back office business model ....................................... 22Figure 19: Back Office Expenses ........................................................................................................... 21Figure 18: MIS Systems used by IFAs .................................................................................................... 19Figure 17: Client Acquisition Method ................................................................................................... 19Figure 16: Opinion on variable pricing option ...................................................................................... 18Figure 15: Impact of 0% entry load on IFAs business ........................................................................... 17Figure 14 : Important parameters which picking a fund ...................................................................... 15Figure 13: Various CRM Services provided by IFAs ............................................................................... 14Figure 12: Investment in Liquid fund in terms of % of total asset ........................................................ 13

Figure 11: Investment in Debt fund in terms of % of total asset .......................................................... 13Figure 10: Investment in Equity Fund in terms of % of total asset under management by IFAs ......... 12Figure 9: Business of IFAs ...................................................................................................................... 11Figure 8: Clients worth more than 2 crores rupees .............................................................................. 11Figure 7: Clients worth 50-200 Lakh Rupees .................................................................................. 11


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AcknowledgementsWe would like to thank Mr Faizal Baig, BDH, Southern Region, iFASTFinancial India Pvt Ltd , our project guide for mentoring us with his constantsupport and guidance. This project would not have been possible without hisunflinching encouragement and supervision. We would like to record ourgratitude to Faizal for his supervision, advice, and guidance from the very earlystage of this project as well as giving us extraordinary experiences throughoutthe work.We would also like thank to Mr. Joe in Bangalore office and Ms. Sheeba Satish,HR Manager from Mumbai office for their time to time help and support.

Above all, we would like to wish iFAST as an organization to grow ahead andreach its p innacle in facilitating the IFA business.4


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EXECUTIVE SUMMARYThis report gives an insight into the IFA business in the city of Bangalore. It contains adetailed analysis based on the survey conducted on the IFAs all over the city. The reportincludes analysis on various parameters like the challenges faced by an IFA and the scope forexpansion of IFA business by aligning his interest with the clients interests . It also containsthe classification of IFAs in the city of Bangalore on the basis of demographical factors likeage, educational qualifications and the number of years into their current business. Thereactions and the impact of IFA business due to regulations enforced by SEBI and zeropercent entry load has been studied to depth.A detailed study on methods and cost of acquiring, maintaining and developing clientele for

IFA business is crucial to get an in-depth insight into the IFA business. The analysis based onthe survey conducted also includes research support, back office support, technology and thelogistics model of the IFA.The various factors considered in IFA decision making have beenanalysed to give the right perspective of the IFA business.This report shows that there is a tremendous scope in an IFA business as it remains a highlyuntapped and an unorganised business. The growth in this business will be fuelled by therising Indian economy and a rise of disposable income of the clients.5


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PROBLEM DEFINITION:The iFAST is the leading provider of transaction and administration platform for MutualFunds in Singapore, Hong Kong & Malaysia and is about to start its operations in India.There are basically four kinds of channels in mutual fund distribution in India1.Domestic & foreign banks2.

ational distributors3.Regional distributors

4.Independent Financial advisors(IFA)It is the IFAs which the company is targeting in India for starting its operation by providingthem with an integrated front and backend support. It will help them to get the real value

hich they deserve in terms of fee they charge from customer which presently is almost nill.By doing this they will be creating a win-win situation for all the stakeholders.iFAST wants to bring together all the IFAs providing PMS services in India and to empowerthem with in-house research so that they can help in product selection, financial planning andasset allocation for their respective clients.Summer interns are required to do the study of the business model of IFAs in Bangalore inorder to launch their product in Bangalore, to tap the IFA market. Study will focus on severalaspects of IFAs business and thus will help iFAST to make its marketing strategy to launchtheir services like:1.A completely new platform to deal with all the AMCs at a single window.2.Flexibility in product selection, redemption and switching between funds as per needsof client.3.Facility to track the clients portfolio in order to suggest the best available fund forinvestment.4.To get away with hassles of multiple form filling and unnecessary paper work.

6


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APPROACH TO THE PROBLEM:IFA business was categorized in eight dimensions as follows:To understand the various challenges faced by IFAs and to facilitate them withnecessary solutions by providing them with best offerings available.To facilitate better understanding of the revenue model of the various IFAs this willhelp in differentiating between the various types of IFAs. For example whatpercentages of revenues come from upfront income or recurring level.To understand the various implications (both positive and negative) due to variousSEBI policies.To understand the relationship between the investor and the IFAs at a broader level

and suggest ways to improve the relationship through the new platform.To understand the means through which IFAs attract customers and to facilitate theIFAs in acquiring more customers.To compare the use of technologies among the various types of IFAs and to help them

ith better use and more judicious technology which supports their businessTo compare the various advantages and disadvantages of the IFA business comparedto the bankers businessTo understand the various back-hand operations of the IFAs and devise means toimprove their back office.Each IFA will be studied on above mentioned parameters. A questionnaire will be prepared

hich will be used to collect secondary data through field work. Based on collected data,Analysis will be done which will include various analytical, graphical models.7


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RESEARCH DESIGN:Objective of this project is to study the IFAs business to get insights and understanding oftheir business. In order to achieve this objective an exploratory research was conducted.Based on eight parameters, a questionnaire was developed which contains a total no. of 23

questions (Appendix A) . Various scaling and measurements techniques were used inquestionnaire. These scaling were essential to understand the deep insight of a parameter.

DATA ANALYSIS:IFAs Demography:2/3of IFAs are in 40+ year age category. It shows that in Bangalore most of the playersd

have relative good experience in the business. Most of IFAs are graduate except some bigIFAs those are having some kind of professional degree. Mostly individual IFAs ar e graduatebecause their business is based on their relation. Around half of IFAs are having exposure incurrent business for 6-10 years, they started their business when stock market starting risingfrom 5000 level as it was ideal time to enter in the business. A majority of respondents were

individual IFAs so they didnt have any employees working with them to save the cost. Thoseho are big enough to have employees have employees in the range of 4-5. There were few

IFAs those have more than 10 employees. What we understood that majority of employeesare not in directly related to clients they support back office system rather than as a salesrepresentative of their business.Figure 1: AgeProfile of IFAs8


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Report on IFA Business in Bangalore CityFigure 2: Education Profile of IFAsFigure 3:Number ofears in Current

BusinessFigure 4:Number ofEmployees withIFAs9


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.Fi

10


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Report on IFA Business in Bangalore CityF

11


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Challenges to IFAs:Due to economy slowdown, Mutual fund business was hardest hit. Thats why IFAs have tosuffer huge losses in their business. So almost all IFAs told that volatile market is biggest

problem. Another important factor which we came across while studying IFAs is that theyfind it difficult to acquire clients and their services. This is the area where IFAST can pitchtheir product as it is service oriented products.Asset allocation:A majority of IFAs admitted that though they suggest some kind of fund to investor but in theend it is investors decision. Earlier they were banking on equity funds but due to this slowdown they have parked some of their assets in debt and liquid funds also.Figure 10: Investment in Equity Fund in terms of % of total asset under management by IFAs12


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Report on IFA Business in Bangalore CityFigure 11: Investment in Debt fund in terms of % of total assetFigure 12: Investment in Liquid fund in terms of % of total asset

CRM services:66% of IFAs send e-statements to their client but they are not in other kind of IT services asmost of individual IFAs find these services costly. 63% of IFAs dont use any MIS software.Rest of IFAs uses datacom, optimix, ICRA software. iFAST should promote their product inthis category as this is the area where IFAs are weak. It can also been seen that e-statementsand other reports they just forward the report given by the AMC. So the IFA is a bit reluctantin the use of technology to facilitate its IFA business. Such a low figure in online access to13


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fund transfer shows huge scope of opportunity for the IFA business if facilitated bytechnology.The larger IFAs are however using the technology more to facilitate the IFA businesscompared to the smaller IFAs. This is due to the large capital to invest in technology. Evenstill the larger IFAs have not fully tapped the judicious use of technology to facilitate theirbusiness.Figure 13: Various CRM Services provided by IFAs

Factors considered in IFA decision making:Major Parameters on which the IFA decision to choose wereParameters(Rank) 1 2 3 4 5 6 Average Rank

from 1 to 6( 1eing highest)

from all theresponsesrecieved1Past return of the41 24 22 18 10 11 2.7fund14


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Report on IFA Business in Bangalore City2External Side33 29 18 16 31 1 2.9research3Rating agencies 6 30 50 22 16 4 3.24Choice of the31 22 6 28 22 17 3.3investor5Fund Manager 11 14 20 24 30 28 4.0

6MC Report /

5 8 12 20 18 64 4.8Sales Pitch***Figures in boxes contain the respective rank given by that number of IFA for the particularparameter .

Based on the above responses we cannot differentiate a single factor which the IFAsconsider while suggesting a fund to a client. But clearly the first three factorsdefinitely have an edge over the last three. Past return of the fund is definitelyfollowed while suggesting a fund which is already in the market.Major parameterswhile choosing afund

Figure 14 : Important parameters which picking a fundThe second important parameter is the external side research conducted by an IFA about thefund in the market. External side research is closely followed by the rating given by various15


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rating agencies about the fund. The choice of the investor and the fund manage are alsostudied while suggesting a fund.Learnings

External side research is the most important criteria while suggesting a fund.Fund manager plays an important part in the selection.AMC report / Sales Pitch report is given the least preference.16


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Report on IFA Business in Bangalore CityCategory wise breakup:


).Method and cost of acquiring, maintaining and developing clientele:From the survey we can conclude that nearly all the IFAs use referrals as a means to acquireclients. The use of technology has been very less when it comes to client acquisition18


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Report on IFA Business in Bangalore CityFigure 17: Client Acquisition Method

Use of MIS ToolsFigure 18: MIS Systems used by IFAs19


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50% of the IFAs dont use any MIS for their business and rely on simple tools as Excel,calculator for their support tools. They use simple hand tools to generate their reports andidentify customer segments.Among the 50% of the IFA who use MIS tools, a major chunk uses Datacom software tools

hile few even have their in-house developed software to facilitate the business.Among larger players, mostly use some sort of softwarebut they are not aware of the judicious use of MI S to facilitate their business. Among smallerplayers most of them are reluctant to use any MIS tools majorly because of the cost factor ortheir avoidance of technology.

Scope of expansion of IFA business by aligning his interest with the

clients interests.Challenges faced by an IFAAverage rank (asRelative rank

er analysis)olatile Markets & Irrational client behaviour 2.0 1st

Limited access to special or exclusive products 5.5 7thccess to quality research on products 5.3 6th

Client Acquisition & Service 2.9 2ndMaintenance of Efficient & cost effective back office4.1 4thsupport20


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Report on IFA Business in Bangalore CityOver dependence on transaction based income 3.2 3rdGeographical constraints 5.2 5th

olatile market and irrational client behavior is the biggest challenge an IFA faces today. Howeverolatile markets are hard factors to deal with. Client acquisition and service if facilitated will lead to

better scope of expansion for an IFA business. Even over dependence on transaction based income isone of the major challenges to an IFA today.Larger IFAs majorly faced volatile markets and irrational client behaviour as major challenge. But forthem limited access to special or exclusive products is never a challenge. Even geographicalconstraint is not a major challenge to a large IFA.So, in order to facilitate an IFA business by aligning his interest with the clients interest majorlyclient acquisition should be the key focus.

Back Office Expense Structure:

Figure 19: Back Office Expenses21


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Report on IFA Business in Bangalore CityRent is a major component for an average IFA but employee compensation is a biggercomponent among the bigger IFAs. Employee compensation is not an issue with individualIFAs as they are working for themselves. So their cost structure is entirely different thanbigger IFAs.Figure 20: Satisfaction level of IFAs about their back office business model

Most of the clients are satisfied with their back office. But those who are neutral anddissatisfied would like to expand their back office22


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ppendix Questionnaire Used in Survey**This questionnaire is designed as a project work in order to study the IFA business.

lease respond to each of the questions freely and to the best of your knowledge. Yourresponse via this questionnaire will be strictly confidential. There will not be anyolicitation or misuse of the response in any kind whatsoever

.1.

ame ( as per ARN )

________________________________________________________________ame of the respondent _________________________________________

2.Your age group(tick one) Qualification(tick one)20-30 years Undergraduate30-35 years Graduate35-40 years Post-Graduate40-50 years ProfessionalAbove 50 years3.

umber of years in the current businessa.0-5 yearsb.6-10 yearsc.11-15 yearsd.15 years and above4.

umber of employeesa.< 10

b.10-20c.21-30d.>305.

umber of clients in terms of assets under advisorya.below 10 Lakhb.

Rs. 10-50 Lakhc.Rs. 50-200 Lakhd.Above 2 Crore6.Please mention the AUM (assets under management) for each of the following (inpercentages).Percentagea.Mutual Fund _______b.

Insurance _______23


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c.Small Savings Schemes _______d.Fixed Deposits _______e.Others _______7.What percentage of your monthly business income is being generated from the followingassetsAssets Gross Income(as a

UpfrontRecurring income (as a % of% of total income)income(as a %gross income)of grossincome)Mutual FundsInsuranceSmall SavingsFixed DepositsOthers8.Which of the following helps you form an investment perspective for your clients?

leaserank the following according to your perception.a.AMC Report / Sales Pitchb.External /Sell side researchc.Past return of the fundd.

Rating agenciese.Fund Managerf.Choice of the investorg.Others , if any9.What, according to you are the important challenges faced by an IFA today? Please rankthe following according to your perception.

Challenges Rank (1 to 7)Limited access to special or exclusive products _____Geographical constraints _____Over dependence on transaction based income _____Maintenance of Efficient & cost effective back office support _____Client Acquisition & Service _____Volatile Markets & Irrational client behaviour _____Access to quality research on products _____24


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Others, if any______________________________________10.How much business is driven through NRI Clients? _____________ (in % of total sales)11.What are the problems faced by you while dealing with an NRI client? (multi choice)a.Geographical constraintsb.Documentation

c.Servicing the clientsd.Less marketing exposure to NRI segment12.Please tick the services you provide to the customer s and rank them all as per your needsin order to service the clients.Rank(1 to 5)a.Financial Advisoryb.Updates on the portfolioc. Tax planningd. Financial Simulators (tools of advisory)e. Others ,...............................What are the difficulties faced while realigning your clients portfolio in terms of13.switching inter AMCs funds?a.Transaction periodb.Paper workc.

Load Structuresd.Clients Behavioure.Others please specify..................................14.What has been the impact of 0% entry load on your business?

lease tick as relevant.HNI Upper Middle class Retail

o impactModerate impact

Considerable impactHuge impactHow do you see the SEBIs pr oposal on variable pricing?15.a.Strongly Welcomeb.Welcome25


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c.eutral

d.Somewhat Opposee.Strongly Oppose Please specify the key reason for your opinion______________________________16.Do you use any tools which generates business MIS & helps you identify productopportunities / customer segments?

a.o

b.Yes , please specify __________________________________________17.What kind of technology initiative are you using for your business?

lease tick themultiple optionsa.Online Access for clients to their accountb.Online Access to fund transferc.Portfolio tracking and managementd.E-Statement and other reports on clients portfolioe.Other technology support, please specify _____________________18.What is the category asset allocation followed by your investors? Please answer inpercentages.

sset Category PercentageEquity Funds

Debt FundsLiquid FundsOthers19.How do you acquire your clients? Please rank the followinga.Through referrals _____b.Through telephone _____c.Through e-mails _____

d.Through web-sites _____e.Through advertising _____20.How much time do you spend to fill in one client transaction for m?a.5-10 minutesb.10-30 minutesc.More than 30 minutes

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21.What percentage of your income goes into the back office expenses? ______

lease specify in percentage of total expensesa.Employee compensationb.Courier services, stationaryc.Rent (office, electricity and other fixed monthly charges)d.

Telephone and internet expensese.Others22.Are you satisfied with your existing back office, logistics model and Expense Structure?a.Highly Satisfiedb.Satisfiedc.

eutrald.Dissatisfiede.Highly Dissatisfied27

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2010.Docx Write Up