Challenges in scaling up IFA business: Importance of Vision

Nov 25, 2016 / Dwaipayan Bose | 55 Downloaded | 9042 Viewed | |
Challenges in scaling up IFA business: Importance of Vision
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Most financial advisors will agree with me that getting the first set of clients usually, is quite a big challenge; it takes a huge amount of effort, perseverance and many a times, a dollop of luck also. But once the initial hurdle is overcome, building a successful financial advisory practice is a relatively easier journey. The definition of a successful practice differs from advisor to advisor, because success is defined by individual ambition. For some IFAs 10 crores of Assets under Management (AUM) may be a measure of success, for others, it may be 100 crores; some IFAs may define success in terms of client roster or run-rate revenues. But irrespective of the definition of success, once you have setup a “successful” practice, the bigger challenge lies ahead. Based on my interaction with IFAs over the past 10 years or so, the biggest challenge which many experienced IFAs face is how to scale-up their business.

Why is scaling up a challenge?

Let us first understand what scaling-up means. Scaling-up does not mean adding a few extra clients or getting few additional crores of incremental AUM; I think most experienced IFAs will be able to achieve that simply by putting a few hours or days additional effort. We refer to scaling up, usually in terms of multiples, like doubling or tripling your customer base or your AUM. Why is it so challenging? Most IFA practices are started as individual endeavours; in other words, most IFAs are individual contributors in their respective practices, like doctors, chartered accountants, lawyers etc. As their practices expand, IFAs hire staff to do transaction processing work like filling / checking application forms, submitting it to registrars / AMCs for fulfilment, following up with clients, providing account statements to etc; but the bulk of the sales or business building work is done by the advisor himself / herself. At some point of time, the capacity utilization of the advisor is bound to reach 100% and then it becomes very challenging for the advisor to achieve any substantial growth from that point.

IFAs have to invest if they want to grow

The only way IFAs can scale up is by building capabilities which can augment their own capabilities. This can be achieved by recruiting sales resources and by building technological capabilities. In my role as consultant to a number of small financial services firms, 8 – 9 years back, I gave the same advice to entrepreneurs looking to scale up their business. The entrepreneurs were ready to invest money, but instead of having a discussion on business growth strategy and where they need to invest, they were more interested in getting an assurance that they would get investment payback in 12 months or less. I was a little amused because the same people were telling their clients on the phone that, equity investors need to have at least 3 to 4 year horizon. Whether a stock-broker invests money to grow his own business or his clients invest money in shares of companies, the nature of the two investments is fundamentally the same. IFAs should know better than most other people that, equity investment involves risk and requires patience.

Vision is important

Business investment also requires well thought out strategy and careful planning. The starting point of a business planning process is to clearly define goals. Management text books will tell you that, even before your define goals, you need to have a vision for your organization and the goals are simply milestones on the road to achieving your vision. Let me spend some time explaining what vision is and its importance in achieving long term success.

What is Vision? Vision is essentially the ambition you have for your business; it is very long term in nature and usually defined in non quantitative terms. For example, the vision of an IFA can be to become the largest mutual fund distributor in the city or state or region or even the country; vision is limited only by the ambition of the entrepreneur. However, based on my interactions with a number of young entrepreneurs over the past few years, I do not think, many young entrepreneurs understand the concept of vision. A few months back, I was speaking with a young Certified Financial Planner (CFP) in New Delhi, who just started his own financial advisory practice after spending a few years as a private banker. I asked him what his vision was and he said that, his vision was to “make the dreams of his clients / investors come true”.

His statement was very noble indeed, but in my opinion, it did not qualify as a vision statement. Your vision should be about your own dreams (for your organization) and not your client’s dream. In financial advisory, helping clients to make their dreams come true will in the long run, enable IFAs achieve their own dreams, but IFAs should understand the difference between the two.

I have spent most of my 18 year career working in some of the largest financial institutions in the world. All the large organizations that I worked for, had well defined vision statements, which served as guides for business strategy and the employees for decades. I have seen companies recruiting management professors and consultants in formulating vision statement. Academicians and management consultants can help you sharpen your vision statement, but the essence of your vision has to come from within.

At times, I have also wondered, whether an entrepreneur needs to spend time and effort, to develop a vision. A very experienced and successful stock broker from Delhi told me once that, the industry is like a dynamic eco-system and an organization is like a living organism. An organism adapts to the ecosystem, evolves with the changes and ultimately becomes stronger; so why bother about vision, as per my stock broker friend? Unfortunately, for my stock broker friend and many others in the industry, 2008 brought a rude shock; I am sure, you will agree that, it is not easy to adapt and evolve when the market falls 60 – 70%. Vision not only serves as a guide for business strategy, it provides motivation to the team members of your organization in stressful times and helps them stay focused towards the long term goal.

Your organization has to buy in your vision

You should realize that, the team members in your organization are ultimately responsible in meeting your scaling-up objective. If your team members are simply employees, who work to get a salary credit every month, they can be diligent workers, but not a stakeholder in the success of your business. The problem with many start ups is that, many promoters want the employees to share the pain, but not share in a meaningful way, the gains of the business. Some entrepreneurs have told me that, most employees that they have come across want high percentage of fixed compensation and low percentage of commissions or variable pay. To these entrepreneurs I want to ask, is not cash the preferred mechanism in a variety of businesses and yet the Government has taken steps to curtail the cash economy. The Government is striving for a cultural change and obviously there are risks involved. Is there any sure shot formula of success in business; to effect a big change, obviously, there are challenges. There are cultural and economic reasons why people in your organization want a large part of their compensation as assured income, but if you can get your team members to buy in your vision, you have a much better chances of achieving success.

How to make your employees stakeholders in your business?

This has to begin with the recruitment process. This is where most start-ups / businesses who want to scale-up go wrong. Hiring the right talent for your organization requires experience and considerable thought. Some entrepreneurs focus on the educational qualifications or experience of their recruits, without paying sufficient attention to the cultural values of the recruit and how he / she will gel with the rest of your organization. Unfortunately, the ambition of these recruits can be bigger than what the organization can accommodate / satisfy and will eventually result in falling out with you.

Many entrepreneurs prefer low profile recruits, who will be loyal to you and not pose any kind of threat to your authority in our organization. However, as a businessman, you should ask yourself, how much value do these people add? I have seen many entrepreneurs persisting with such people in their teams for years, but unless these people are able to add value to the top-line or bottom-line of the business, they will be a drag on the business, their loyalty to the promoter notwithstanding.

Successful entrepreneurs hire people who share the same passion of the promoters. Building passion towards the organization’s vision and goals cannot be ensured through recruitment only; it is an ongoing process that involves continual engagement with your employees, their compensation structure and describing a career path for the employees. Some entrepreneurs try to incentivize employees through sales commissions. Employers should try to ensure that such incentives do not lead to mis-selling, because it will destroy your business in the long term. In the financial advisory business, your employees and your organization should build a strong foundation for long term success, by forming long term customer relationships, which in turn will enable your organization develop long term sustainable revenue streams. At the most basic level, you should be willing to share profits with your employees and make them stakeholders in your vision for your business. Your employees will have to buy in to your vision, if you want to take your business to the next level. If your employees are not aligned with your vision, then you need to consider whether you have the right team in your organization.


A number of regulations that have been introduced in India in the last few years are directed towards financial advisors building longer term relationships with their clients and having a stake in the financial success of the investors. IFAs should understand the industry trend and formulate business strategies accordingly. Scaling up your financial advisory practice is not easy; you need to develop a vision, you need to define goals and you need to set up organizational capabilities that will enable you meet your long term goals. We will continue this discussion in the next part of our blog. Please stay tuned.

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