Zee Business Money Guru 8.9.14 Prakash Ranjan Sinha, Director, Nurture India Consultants Pvt Ltd

Distribution Strategy of Asset Management Company (AMC)

  

Now we are again on the rising curve of “Acche Din“for Mutual Fund (MF) investors. But it is also time for AMCs to strategise their distribution or Channel Management move with all the learnings of last 10 years.

They should know which distributor falls in their primary, secondary and tertiary level of relationship. Each AMC should have criteria for deciding based on their own business goals and objectives. Qualitatively there can be commonality but quantitatively, structurally and practically there will be variation as each AMC may have different considerations and constraints on execution routes. Similarly each distributor can also have their own priority criteria.

Needless to say, all distributors want good brokerage and income and all AMCs also want Asset Under Management (AUM) growth and profitability. The question is how quick , stable , through which clientele and through which products? 

If earning upfront brokerage is the sole criteria then does product performance have any relevance for that distributor? If earning consistent brokerage is an objective then relevance of product performance increases. If earning consistent brokerage due to same client is an objective then relevance of product and its consistency in performance increases even further. If earning brokerage due to same client life-long is an objective then focus on basket of products with diversity but offering solution to client need becomes most relevant. AMCs have to align with the business objective thought process of the distributor.   

AMCs need to assess how many distributors have long term serious business plan and potential. Do they have the desired bandwidth? Can they be a partner of tomorrow? Can the gaps if any be filled in. The solid brick of Business to Business relationship to be put in today only.

Each AMC will like to capitalise on the present opportunity from Equity investment. They will be looking forward for AUM growth and creating a solid base to establish their business credential. The question is who will help meet both their short and long term objectives. Each AMC should work on working on two types of relationships catering to their objectives. First they have to be clear on the hierarchy of objectives – AUM growth, profitability, expanding base and reach etc.  They should see the AMC objective matches with distributor objective and list down the delivering distributors accordingly. The business strategy will vary distributor wise to meet the desired result to make both entities happy and in synergy.

It also needs to be seen which distributor has capability to generate incremental business growth without disturbing the existing AUM level. In other words, the net growth should be given more emphasis rather than gross mobilisation. Trail brokerage gives indication of business retention of the distributor but AMCs should be looking at it more from the face value level and not market value for their own evaluation.

AMC should also evaluate that does it make sense to pay more brokerage to few large ones for more volume or to look toward those who are keen to increase their own market share. They should look at those who are serious in expanding reach, have clear business growth strategy and approach in place. They could be mid-sized distributors today but can be leaders of tomorrow as MF is still having very low share in overall saving and investment pie so every opportunity of growth exists. Though SEBI has differentiated between distributors and advisors but it is more from client interaction perspective and their own earnings perspective. AMC is product provider for both type of intermediary and they should be viewed on the basis of who caters the primary and secondary objective of AMC.   

AMCs should also evaluate the risk of banking on stagnant distributors. They might have good number of captive client base but one needs to evaluate how long they will remain intact if they are not reinventing and restructuring their business model.

80/20 principle – Is the distributor having a clear retention plan, execution process and expected result to keep key customers (20%) who are giving 80% business. The continuation level of key clients and the new client addition through them could be another yardstick to judge that distributor strength. It implies that if key customers are handled well that distributor is bound to grow faster. The more this base is cash rich , faster can be business growth as their circle of influence is also equally cash rich . AMC also need to see the depth and breadth of this key customer base. How narrow or concentrated? If there is wider base of key customers neither the distributor is at an earning risk nor is the AMC dependence risk on that particular distributor.

How much distributor is putting effort on new client acquisition and having actual success. What is the share of his business from new client as percentage of total business OR share of new client business vs. existing client business. If a distributor is losing customer but also able to add and so compensates for any loss, it can be classified a risky one from stable business objective of AMC. There are some distributors who are seasonal, found lying low when business generation not conducive. They get active when situation improves. Should AMC look at them with seriousness? Will this type of distributor attitude will help AMC create long term base. After all money is being put in AMC fund so eventually loss is of AMC if distributor goodwill get damaged or clients ignored in downturn situation .  

Again how many distributors are quality conscious as far as employee base is concerned. How much importance they give on learning skills and knowledge. How much they are sensitive to information. Are they relying more on static information or keep updated with latest ones. These inputs are easily known to AMCs if they have been interacting with them on regular basis. These inputs can give the judgement on quality of client relationship or even the quality of their clients. All this have to be viewed if AMC is keen on creating a stable long term business base?

So it is very important that the value metrics of AMC should have positive correlation with that of Distributor. AMCs should not worry about competition within industry but they should be having strategy based on inter financial services industry competitive landscape. The size of MF Industry at the moment is hardly of any big magnitude vis-a-vis untapped opportunity foreseen in the country. With no real big cost required to expand the market the need of the hour is having synergy among the players on quality effort in terms of sales approach, product positioning and distribution methodology for increase MF market share in overall saving and investment of INDIA.

Distribution Strategy of Asset Management Company (AMC)

  

Now we are again on the rising curve of “Acche Din“for Mutual Fund (MF) investors. But it is also time for AMCs to strategise their distribution or Channel Management move with all the learnings of last 10 years.

They should know which distributor falls in their primary, secondary and tertiary level of relationship. Each AMC should have criteria for deciding based on their own business goals and objectives. Qualitatively there can be commonality but quantitatively, structurally and practically there will be variation as each AMC may have different considerations and constraints on execution routes. Similarly each distributor can also have their own priority criteria.

Needless to say, all distributors want good brokerage and income and all AMCs also want Asset Under Management (AUM) growth and profitability. The question is how quick , stable , through which clientele and through which products? 

If earning upfront brokerage is the sole criteria then does product performance have any relevance for that distributor? If earning consistent brokerage is an objective then relevance of product performance increases. If earning consistent brokerage due to same client is an objective then relevance of product and its consistency in performance increases even further. If earning brokerage due to same client life-long is an objective then focus on basket of products with diversity but offering solution to client need becomes most relevant. AMCs have to align with the business objective thought process of the distributor.  

AMCs need to assess how many distributors have long term serious business plan and potential. Do they have the desired bandwidth? Can they be a partner of tomorrow? Can the gaps if any be filled in. The solid brick of Business to Business relationship to be put in today only.

Each AMC will like to capitalise on the present opportunity from Equity investment. They will be looking forward for AUM growth and creating a solid base to establish their business credential. The question is who will help meet both their short and long term objectives. Each AMC should work on working on two types of relationships catering to their objectives. First they have to be clear on the hierarchy of objectives – AUM growth, profitability, expanding base and reach etc.  They should see the AMC objective matches with distributor objective and list down the delivering distributors accordingly. The business strategy will vary distributor wise to meet the desired result to make both entities happy and in synergy.

It also needs to be seen which distributor has capability to generate incremental business growth without disturbing the existing AUM level. In other words, the net growth should be given more emphasis rather than gross mobilisation. Trail brokerage gives indication of business retention of the distributor but AMCs should be looking at it more from the face value level and not market value for their own evaluation.

AMC should also evaluate that does it make sense to pay more brokerage to few large ones for more volume or to look toward those who are keen to increase their own market share. They should look at those who are serious in expanding reach, have clear business growth strategy and approach in place. They could be mid-sized distributors today but can be leaders of tomorrow as MF is still having very low share in overall saving and investment pie so every opportunity of growth exists. Though SEBI has differentiated between distributors and advisors but it is more from client interaction perspective and their own earnings perspective. AMC is product provider for both type of intermediary and they should be viewed on the basis of who caters the primary and secondary objective of AMC.  

  

AMCs should also evaluate the risk of banking on stagnant distributors. They might have good number of captive client base but one needs to evaluate how long they will remain intact if they are not reinventing and restructuring their business model.

80/20 principle – Is the distributor having a clear retention plan, execution process and expected result to keep key customers (20%) who are giving 80% business. The continuation level of key clients and the new client addition through them could be another yardstick to judge that distributor strength. It implies that if key customers are handled well that distributor is bound to grow faster. The more this base is cash rich , faster can be business growth as their circle of influence is also equally cash rich . AMC also need to see the depth and breadth of this key customer base. How narrow or concentrated? If there is wider base of key customers neither the distributor is at an earning risk nor is the AMC dependence risk on that particular distributor.

How much distributor is putting effort on new client acquisition and having actual success. What is the share of his business from new client as percentage of total business OR share of new client business vs. existing client business. If a distributor is losing customer but also able to add and so compensates for any loss, it can be classified a risky one from stable business objective of AMC. There are some distributors who are seasonal, found lying low when business generation not conducive. They get active when situation improves. Should AMC look at them with seriousness? Will this type of distributor attitude will help AMC create long term base. After all money is being put in AMC fund so eventually loss is of AMC if distributor goodwill get damaged or clients ignored in downturn situation .  

Again how many distributors are quality conscious as far as employee base is concerned. How much importance they give on learning skills and knowledge. How much they are sensitive to information. Are they relying more on static information or keep updated with latest ones. These inputs are easily known to AMCs if they have been interacting with them on regular basis. These inputs can give the judgement on quality of client relationship or even the quality of their clients. All this have to be viewed if AMC is keen on creating a stable long term business base?

So it is very important that the value metrics of AMC should have positive correlation with that of Distributor. AMCs should not worry about competition within industry but they should be having strategy based on inter financial services industry competitive landscape. The size of MF Industry at the moment is hardly of any big magnitude vis-a-vis untapped opportunity foreseen in the country. With no real big cost required to expand the market the need of the hour is having synergy among the players on quality effort in terms of sales approach, product positioning and distribution methodology for increase MF market share in overall saving and investment of INDIA.