Value Matrix for Distributor /IFAs / IFA

Value Matrix for Distributor /IFAs / IFA

Everyone knows Mutual Fund is a risky product . Simply put returns are not assured and so at times there can be mismatch between expectation and realisation . Distributor /IFA is the first layer of risk management and Fund Manager is the 2^nd layer in risk management of investor’s money . You face the risk from product after you have invested but the entity who makes you understand the risk and guides you to invest is managing the first layer of risk management . Someone not investing or investing totally in traditional products that is also a risk if looked from opportunity cost aspect . Distributors/IFAs are the most important link in the product communication, product positioning , risk communication .

The industry needs to value Distributors /IFAs and have a structured Value Matrix of Distributor /IFAs.  

In application form we have “ I have read the terms and condition……” which many sign without reading  . In addition to it why not have “ I have been apprised / conveyed by Distributor /IFA on risk -return aspect of the fund ……… “ . This will bring more accountability on Distributor /IFA. They will focus on knowledge upgradation and wise relevant communication to clients . This will also make clients more accountable and can not put all blame squarely on Distributor /IFA if their expectation are not met. After all its their money and they also need to be a bit responsible not only in asset choice , product choice but also in Distributor /IFA choice . Now time is to have a structured accountability and evaluation system right from filling an application to on going basis both for client and Distributor /IFA .

I have seen clients suddenly changing Distributor /IFA or going direct after being served by a Distributor /IFA last 5 or 10 years . How can someone become bad overnight and if he was not serving well how come client continued for such long time ?. Its point to ponder . We need to have a transparent system where everyone ( both client and his Distributor /IFA ) are constantly evaluated will all fairness .

Every 6 months or 12 months ( on semi annual/annual) basis every investor has to compulsorily do due diligence of his Distributor /IFA through a structured format. 

To make this whole process totally objective and no subjectivity a value matrix has to be made on many  parameters ( product knowledge , market understanding , operational knowledge , service quality ………) . Now the Distributor /IFA also knows where he stands , where he need to improve , what his clients expect etc . The weightage of each parameters should be decided to get a holistic balanced view of distribution or advisory services . All parameters are important but may be in not same proportion for different clients or might not every Distributor /IFA be equally competent on every parameter . This gives an opportunity of matching on specific parameter ( client – Distributor /IFA ) if that parameter is key for any client . Distributor /IFA need not spend their time , money and energy only on running after clients to get business ( short term approach ) but position themselves as Value driver and get business on merit ( long term and stable approach ) .

Based on composite inputs Distributors /IFAs need to be ranked as  A,B ,C , unrated category . This will help to differentiate between them . Further once differentiation happens most  Distributors /IFAs will strive to upscale their competence level . The biggest motivator for change is ones own experience or feedback. Some Distributors /IFAs if feel embarrassed at low rating if they request their rank need not be disclosed .  The choice of display or disclosure of rating will rest on that particular Distributor /IFA. Simultaneously any investor will have a complete visibility and assessment on the choice of Distributor /IFA.  Tomorrow they can not blame the Distributor /IFA .

If the MF industry has to grow exponentially then objective value drivers have to be in place where all stake holders have to be given importance . In my view this industry has grown to approx. 25 lakh crore majorly due to continuous hard work of Distributors /IFAs . I can say this thing based on my own experience since 1989 when I entered this industry . As industry owes to them its time to have a structure methodological approach in place where Distributor /IFA grows on his transparent merit and not on someones favour . Its high time Distributor /IFA should also realise their worth and competence and create a space of themselves .

If a fund can be rated , AMC can be rated , Fund Manager can be rated why a Distributor /IFA can not be rated ? It will lead for qualitative improvement and quantitative growth beneficial to all stake holders in Mutual Fund .