19th November 2011

The business of distribution of financial products is going through tumultuous change. Rules are being re-written, business models are being questioned, revenue models are changing dramatically. Many distributors are getting increasingly despondent about their future in this business.

Ashish Goel, who along with his brother Manish, run one of Northern India's largest and most successful retail distribution businesses, has a very different take on what's happening around him. Ashish takes us through the fascinating story of how his business has evolved and grown from 1993 to today - overcoming numerous obstacles, and changing course many a time in response to regulatory action and market circumstances. The key as Ashish says is how you perceive change : do you think and act like a cockroach or like a dinosaur ?

WF: The business landscape for distributors is caught in the clutches of uncertainty and rapid change. How are you coping with this rapid pace of change and the uncertainty surrounding the business model?

AshishGoel: My brother Manish and I have been in this business since 1993. Our business model has constantly changed from time to time ever since we began in 1993. Products have changed, business models have changed. For us, change is something that we have been living with ever since we began business in 1993 - and not just changes that have happened since Aug 2009.

When we started in 1993, our business model focused on multiple products, but considerable revenue came in from the new issues market. At that time if you remember, after the Harshad Mehta scam, the new issue market started to pick up. Lot of new issues was coming in and lot of clients wereinterested. But that model did not last long - by 1994, the new issues market dried up after a series of bad issues that did not work out well for investors. After 1994, share trading - secondary market trading - was in the forefront and we made lot of revenues from the share trading activity.

By 1995, bearish market conditions took a toll on equity trading activity. Fixed deposits began becoming popular as interest rates were quite high. We did very well in FDs and in fact were one of the lead mobilizers of FDs in our market in 1995.

Just when we thought that we now have a stable business and can focus on FD renewals and further growth, the markets turned sour in 1996 - when some big companies defaulted on their ICD and FD maturities. The economy, if you recall, unexpectedly went into a major slowdown phase - and that took a toll on many corporate balance sheets. Public confidence in corporate FDs was considerably shaken and that spelt the end of that business.

In 1996, UTI started offering an attractive assured return on its MIPs. We started focusing on that product. For three years, we had perhaps one of the most stable periods of our business, where we grew our client base and business volumes on the back of UTI's assured returns MIPs.

Then in 1999, SEBI pulled the plug on all assured returns schemes - and that was the end of that period of a stable business model. In 1999, we took up a stock broking terminal and built business volumes on secondary market trading in a booming stock market. Then came 2000 - the tech crash coupled with the Ketan Parekh scam caused havoc in the markets and secondary market trading activity dwindled considerably.

Interest rates started rising from 2001 onwards and at that time, LIC came up with 3 path-breaking products - BimaNivesh with a high tax free return, Jeevan Shree and JeevanSuraksha. With these three products, we commenced insurance distribution and very quickly, we became toppers for LIC in our branch initially and then in the region. As luck would have it, LIC soon after withdrew all its assured return products - and that business also came down substantially.

Around that time, we started selling debt funds in a big way. Debt fund sales also lasted for a small period. We also branched out into ULIPs in 2002, when the private sector players came in. My brother Manish became ICICI Prudential's all India topper in 2003. But thereafter, we ourselves reduced our focus as we began to get increasingly uncomfortable with the kind of charges that investors were being asked to bear.

From 2003 to 2007, equity funds became the big focus area, with markets being very supportive. We also focused a lot on MIPs during that phase. In 2004, along with a few other friends from DFDA, we started an entity that offered real estate investment alternatives to our clients. That business also did very well till 2007. Post 2007, we experienced a lot of project delays in the real estate business, which was not a comfortable situation for us or our clients. We became a lot more cautious and selective on the real estate intermediation business since then.

From 2007 onwards, we changed our business model to focus on financial planning and the main product focus became long term SIPs for meeting financial goals. When equity markets picked up in the end of 2009 and early 2010, we were very cautious about going heavily into equity funds - we maintained our focus on financial planning, asset allocation and long term SIPs.

So, when we talk about all the change that distributors are witnessing from Aug 2009 to the latest SEBI concept paper on advisor regulations, I look back at the rear view mirror - and what I see is a period of constant change and evolution - right from the time we started our business, till today. Some of the changes were caused by regulators, some by markets, some by product manufacturers, some by circumstances. But, we have moved ahead through all of this, and continued to focus on growing our business by adapting quickly to ever changing circumstances.

WF: Despite the whirlpool of changes, what are some of the things that remained constant - which have allowed you to retain business focus and continue on your growth path?

AshishGoel: First of all, all these periods of change were very difficult for us - change is never easy. Each time, my brother and I would discuss among ourselves and among other friends in DFDA and try to figure out how to tackle the latest obstacle and how to cope with the latest change. But, three things remained unchanged through all the upheavals :

1. Our belief in ourselves

2. Our understanding and accepting that change is inevitable - better to learn quickly to adapt rather than fight change, and most importantly,

3. The belief of our customers through all of these changes that we always worked in their best interests. Some products may not have delivered, markets may have let us down - but our clients always knew that we are always sincere and act in their best interests - they never doubted our intentions. Their trust in us is what helped us bounce back after every setback.

I must add that the intensive discussions we have as core members of DFDA has helped all of us accept and in fact welcome change. None of us in DFDA wants to exit our business - we are all looking forward to growing in the years ahead.

WF: Client preferences have changed quiet considerably in the last couple of years. The demand for mutual funds seems to have come down substantially. Where are clients investing their savings these days ?

AshishGoel: Bank FDs are a major attraction these days, in the current high interest rate environment. Real estate has also been a major investment avenue for clients over the last 5 years. I would say these are the two avenues that take up most of their savings.

WF: How should an IFA look at intermediating in real estate? How did you actually build this business stream from 2004 without really losing too much focus on your base business of financial instruments?

AshishGoel: When we started real estate we were very clear that this is just an additional product to offer to our clients - the base was and continues to be financial instruments. Our initial research showed that this is not an easy business to get into. Real estate developers are not straight - to put it mildly ! I would say they are more difficult to handle than even the smartest AMC CEO !

Transparency is a big problem in this business. What we did is that some of us came together so that we could negotiate better deals for our clients. Being in a group also helps when recovering commissions etc - which sometimes can be a problem if you are alone. Also, if the project is likely to get into some delays etc, its always better to deal with the developer as a group rather than as an individual, to try and get the best deal for your clients.

We have been active only in helping clients buy into promising new projects. We are not in the secondary market - except where one of our clients wants to dispose off something that he bought through us initially.

WF: What is your experience in terms of selling SIPs - is the sales momentum dropping due to weak markets or are you able to continue convincing clients to commit to SIPs irrespective of current weakness in markets ?

Ashish Goel: First of all I don't agree that SIP sales are dropping. Our SIPs are growing - and largely due to referrals from existing clients. A wise man once said - don't judge each day by the harvest you reap - judge it by the seeds you plant. It's the seeds that you plant which will make your future. We are constantly planting seeds in our farm - each time we get a client to start a long term SIP. The more SIPs we give our clients, the more we are securing our future.

We never give a SIP to a client until we give him a solution and show him where the SIP can help in meeting his goals. We never get into this mode of saying start a 12 month SIP to tackle market volatility. It is always goal based - and therefore our SIPs tend to be for 10 to 15 years, normally. Once a client has started a 15 year SIP for a particular goal, he doesn't track SIP performance every 3-6 months. If you have genuinely sold a long term solution, clients are willing to commit to the long term and worry less about short term fluctuations. A lot depends on your own convictions in the solution that you have offered.

WF: What would you advice fellow advisors to do at this time of significant change and upheaval?

AshishGoel: People tell us that many advisors are losing confidence in this business - but I can tell you that all of us members of DFDA remain bullish about our business. We recently conducted our semi-annual 3 day workshop for all DFDA members, which we called DFDA Josh Zest. The theme of this workshop was to prepare all our members to get ready to tap the huge business opportunity that is going to unfold for us in the coming years. The four key messages that all of us DFDA members have taken to heart are the following :

1. Think long term

We keep telling our clients to think long term, but are guilty of thinking short term for our own businesses. That is the first thing we should correct. As Warren Buffet says, short term thinking is the enemy of long term success. That is equally applicable to way we look at our businesses. Distributors who did all the hard work during the 2000-2003 period are the ones who got the maximum fruits for their efforts between 2004 and 2007. We are very sure that markets will turn around - those who put in the hard work now will be the ones who benefit in the next up cycle. Business volumes will grow 5 to 10 fold in the next up cycle - position yourself for that now. Think long term.

2. Believe in yourself

As I have personally seen in my own business, change is constant. Believe in yourself. Back yourself. Believe that you are capable of overcoming all obstacles. Believe that you will come out of a downcycle stronger than before, to enable you to grow more in the next up cycle.

Believe in the power of the mind - 90% of success comes from the power of your mind - the balance 10% comes from other factors. Sharpen your mind, sharpen your intellect, broaden your knowledge. Good books are great friends - make it a habit to read good books that help you grow as a person, as a professional.

3. Learn to adapt to change

Always remember that it not about who is the biggest or the strongest - survival is all about who is the most adaptive to change. In the bygone era, dinosaurs were the most powerful creatures on earth - the biggest, the most feared. Yet, today they are extinct, because they could not adapt to change. The humble cockroach was there from those times, and still exists even today. Cockroaches survived through all these millions of years only because they are the species that best adapted to change. If you adopt the attitude of a cockroach, you will survive all hurdles that come your way. Be open-minded, be flexible, adapt to change - don't fight it. Assess the changes happening around you, and adapt to change.

4. Focus on the three Ts for success

The first T represents teams. When markets are down, that's the best time to build your team. Invest in creating and training your team - they are the ones who will help you grow manifold in the next up cycle. This is the time to build your team - not in the midst of a big bull market.

The second T is technology. Use technology as a growth driver. The Wealth Planner software that you have launched for example, will certainly help us drive our business growth forward in a process oriented manner.

The final T is turnover. Find ways to increase your turnover - profits will eventually come if you focus on boosting turnover - especially when you know that margins are going down. Increase your SIPs. Start focusing on liquid funds for MNI and HNI clients - they are a great way to increase your wallet share in their portfolios. Short term funds are giving good returns - focus on them. Don't limit yourself only to equity funds and get frustrated with markets. Keep finding ways of increasing your turnover, increasing your customer engagement.

If you have the right attitude and maintain your focus on the three T's, you will always bounce back stronger after every setback. There will always be setbacks, there will always be obstacles. Our own journey from 1993 has been full of setbacks - just when we thought that our business model had stabilized - something happened and we had to go back to our drawing board once again. Each time, we adapted quickly and we bounced back - and came out stronger and wiser. Remember - the cockroaches are still around while the dinosaurs became history many millions of years ago !