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.
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