A couple of months back when I was in Kolkata for a business tour, I came to know that within a week period 4 top-level MFDs lost their clients AUM worth of 5Cr to 10Cr each to Direct Plans. Out of 4, 3 were CFPs. One of the clients was a close relative of one CFP-MFD.
Now one question arises about how many other cases might have happened earlier. Un/Fortunately this comes to my knowledge so I am putting this as the alarming tune to MFD lobby otherwise top layer ifa will never say that such things happen with them.
As per AMFI’s latest report in the month of March 20 No of SIP started in Direct Plan was more than started in Regular Plan.
After going through the cases you can understand that only your Financial Planning skills are not sufficient to protect you from a Dragon like Direct Plan.
This is for your knowledge that nowadays
75℅ of Liquid Fund AUM
44% of Total Industry AUM
22% of Total Equity AUM
is managed under the Direct Plan.
Then what is to be done?
First of all, find out what things attract Investors?
Here comes the level of advisors thinking.
Majority of MFDs are thinking that Investors are shifting because of ‘0%’ commission and dropping their weapons by saying we can’t beat direct plan
Some of the MFDs are thinking that with the help of ‘0’ commission Higher Returns generated by Direct Plans are attracting the investors to Direct Plans and dropping the weapon by saying we cannot generate higher returns than Direct Plans.
In both cases MFD’s thinking is narrow. Just like Racing Horse wearing Blinkers that prevent the horse from seeing to the rear and, in some cases, to the side
They are not thinking beyond the boundaries. This is 100% sure that they cannot generate higher returns than Direct Plans by using traditional tools like SIP STP because it is available for Direct Plans also.
I have already highlighted this issue 2 year back on this blog in 2 parts.
HOW TO COMPETE WITH MANUFACTURERS ON THEIR OWN PRODUCT? Part – 1
And
HOW TO COMPETE WITH DIRECT PLANS?? Part – 2
To overcome this fear, first of all, we need to know in what circumstances and situation investors will think for moving to a direct plan.
If I am not wrong there is only one difference in Direct Plans and Regular Plans that is the lower expanse ratio of Direct Plans which is the main cause for generating higher returns than Regular Plans. Direct Plan cannot perform more than that so we need to generate little more than that.
Ultimately your investor needs returns which cannot be replaced by just providing good looking reports and analytics without any output or keeping relationship with them.
If you can’t generate more returns then you have failed to satisfy your client’s needs so S/he will think about shifting to Direct Plans. Your investor needs Returns and Safety not reports, relation or analytics without any output.
Now, what is to be done?
If anyone wants to beat Direct Plans they need to generate little more returns in Regular Plans by just actively managing the investor’s portfolio, which is not possible while investing in Direct Plans without any assistance.
Always provide Solution Based Investment Services instead of Product Base Investment Advisory which is not possible in Direct Plans focus on financial planning.
Don’t think about being SIP king because all the kings are at higher risk of Direct Plans because SIPs can be started or switched into Direct Plans without much efforts. (I have so many reasons for not suggesting SIPs that will be covered in the coming time on this blog.)
Always educate your investor about the portfolio’s margin of safety and downfall protecting approach, never be focused on Returns only because Returns are the only term where Direct Plans are leading.
Once you achieve a higher margin of safety your returns will automatically increase.
Why am not worried about Direct Plans?
I am following some set of rules
- I am not doing SIPs where direct plans can beat regular plans in teams of Returns. If required I suggest sip in the debt plan and then I manage the portfolio as per market conditions.
- I am doing active management for my client’s portfolio and generating higher returns with higher margin of safety than passive SIPs/STPs in Direct Plans.
- I am always educating my investors on the safety of portfolio, downside protection, market volatility and how to encash it and how to avoid risk.
After all Managing the risk should be the prime focus of a distributor. For that, only the investor has appointed him.
Financial literacy is not a side effect of wealth. Wealth is a side effect of financial literacy.
In the next 3 blogs we are going to say three variants of a well known story to understand the marketing strategy of MF Industry.
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