The Mutual Fund distribution industry is changing at a rapid pace. The model of doing business in the last 15 years has changed dramatically. The rules of the game have changed and also the new players. Margins are falling where assets have doubled in the last few years. This change in the industry has affected many families and the IFA community also.  No one thinks how the family of an IFA will survive when margins of revenue are falling. Diverse product selling is not an easy cakewalk.  Clients may not be interested or they have already someone else to provide the same. Being an IFA and running the family has now become a nightmare.  PMS/AIF all have also gone through a reshuffle in minimum ticket size. It is easy to say that procure clients of higher ticket size. Many IFA is not up to the mark of that level of quality where they can get HNI and Ultra HNI. In many places direct channels have replaced the IFA kitty. Well, these changes will keep coming and transformation will happen in future.

When the revenues are falling the rules are bound to change. The marginal revenue of the business is narrowing down whereas cost is still the same. Resource allocation Resource utilization, and developing the Total Quality Management within the organization is the key survival strategy. The traditional business model is obsolete. AMC has already stopped expansion plans of Branches. Fixed cost is the burden.

What is the change and from where they came?

Well, Technology is the name of the mother who gave birth to the new players of the Industry. Over the time new revolution throws away traditional business rules and players unless they become new players.

Currently, in 2019 we are witnessing fall of revenue from Traditional Old assets due to the impact of TER and also new business revenues are no longer matching with traditional revenue pattern. When an industry grows, new customer size grows revenues grow but these are traditional rules of revenue. Technology is making the revenues to reduce and hence number play becomes more important. Even if I am not a part of the race sooner than later I have to become a member of the new club of revenue-generating process.

Society of Cost Cautiousness
Today SmartPhone has changed the rules of the business. Big-ticket size business partners are no longer loyal. Cost-saving has become a smell in the air for every customer. We have built up a society of cost cautiousness for the better utilization of resources. Yes, resources need to be utilized properly keeping the new rules of the game.

The Distribution Industry is now one of the most cost cautious industries flooded with Technology-driven baby boomers. Well, a merger of these baby boomers will happen but before that, the race of low-cost servicing and ease of doing investments will be modified. Reaching to masses or building a crowd of investor is no longer a tough task. Well, can anyone tell me where the office of ET Money? Well, I don’t need to know as the small app keeps working proficiently.   

Further Mutual Fund Industry has Direct Schemes which are the child of Low expense ratio. Now Free Business is the new Business for this world. It has now become a practice that core business is being converted into a free business model and ancillary industries or business grows to get the revenue from the free business model.

Did any person come for the marketing of ET money? The rules of marketing have changed. People prefer reference in technology and no longer human reference. Those who think old relationships have potential well the next generation is already in the customer bandwagon and they don’t need a human relationship but a CHATBOT or a technology-driven relationship.

What will happen in 2020 or 2025?

We need to know what is stored for 2020 to 2025 down the line. Revenues will fall. Now those who challenge me I have something ready for you to show.

In the year 2011 around 6 lakh agents used to sell Post OFFICE SMALL Savings schemes. Much larger form the current mutual fund agents number. They used to get a brokerage of 4% at that time. Data from the government show that all small savings schemes put together collected Rs 2.51 lakh crore on a gross basis in 2009-10. The post-office savings account was the biggest contributor bringing in Rs 68,000 crore on a gross basis, followed by the Monthly Income Account (Rs 54,300 crore) and the recurring deposit (Rs 30,353 crore). Distributors estimate that a typical agent selling post-office schemes earns about Rs 10,000 a month in the big cities, Rs 5,000 in towns and about Rs 2,000 a month in rural areas.

Today these agents earn 1% only.

 Do we think about these agents? Many of them have left the industry of Small savings. The same pattern of brokerage is coming down for the MF Industry. Revenues from MF will decline and particularly the major impact will be on those grey areas where one buys the business. Buying business model is going to be one of the biggest reasons for the collapse.

Cost management in Distribution Industry 2.0.
If you have fixed cost then better make it variable since the industry revenues are variable. The rules have changed. Affording fixed cost in this industry is no longer feasible. With diminishing revenues resource allocation and utilization to get the maximum benefit is the prime part of Total Quality Management (TQM). Applicability of TQM is now necessary. One cannot have fixed cost either large ticket size humans.

Remember large ticket size humans ruled the Mutual Fund Planet when the industry revenues were high and technology was nowhere and the whole of the game depended on the human-based relationship. In this industry, there is a word called Book Size. That Book size created the fat paycheques. Now technology has replaced human relationship, followed with a new generation, the customer is more cost cautious and the biggest reason LOW CUSTOMER LOYALTY. It just takes a fraction of time to change the loyalty of the customer in today’s era. For example, if I don’t get a TAXI through OLA CABS I get into Meru or Uber. This is loyalty and that is business model.

The Book size game is over.20, 25-year-old exp. The CV is redundant. These fat paycheque fellows cannot dream to make a new start. The days of ESOP, fat salary and bonuses are over. For them, business is still under the old rules. When the revenue of the industry is falling how they will get their fat pay cheques? These people are known affordable category segment under the new rules.