Gujarat IFAs want to bid for Fidelity's business

 
Gujarat IFAs want to bid for Fidelity's business !



Ever since the news headlines announced Fidelity's decision to consider exiting India as one of its strategic review options, there has been a lot of buzz and a lot of backroom work going on. Prospective bidders have been discussing finer aspects of the deal. Big international names have been doing the rounds as prospective buyers / bidders. While all of this action has been going on in Mumbai and overseas, an IFA from Gujarat has come up with an idea that most would consider audacious - he wants IFAs from across the country to come together and jointly bid for Fidelity's business ! And he has got a number of IFAs from Gujarat who seem to be enthusiastic about this. Read on to understand his dream - and decide for yourself whether this is a dream that you might want to support - or dismiss....


Gujarat has a rich tradition of producing entrepreneurs who dare to think beyond what others think is possible. Whether it is the Reliance story or the Nirma story or the Adani story - they all have one thing in common - an entrepreneur who dreamt of something most others regarded as foolish and impractical. Sure, for each such success story, there must be numerous more that failed - stories of entrepreneurs who dreamt big but could not really execute big.

Is this a dream that most will regard as foolish and impractical? Which way will this dream go - only time will tell. But then "dare to dream" is a success mantra that most management gurus preach, don't they?

Nitin Patel is a man on a mission



Ahmedabad's Nitin Patel is a man on a mission. Ever since the news of Fidelity's possible exit from India hit the headlines, Nitinbhai has become a man possessed by a big idea. When I met him last week at the ICICI Prudential i-mentor session that I was conducting for select advisors from Gujarat, he shared with me his proposal to create a consortium to bid for Fidelity's India business. Many of the advisors at the session seemed to be enthusiastic supporters of his idea. And, he believes that he can easily rustle up another 50 distributors from Gujarat who will come on board. Here is his proposal and his rationale :

1. Good quality asset book 

Fidelity, he believes, is one of the few AMCs which has a robust product portfolio - no misadventures of ill-timed product launches that have created ill-will among investors

Performance of their equity schemes is quite satisfactory, in his view

Brand loyalty from investors is visible - he has seen clients of his who are very comfortable continuing their SIPs in Fidelity Equity Fund, which they started at the launch of this fund - even when they contemplate switching out of some other schemes of some other AMCs

2. Ill-timed exit is an opportunity

If Fidelity does exit now - at a time when markets are low and business volumes are low, it presents a good buying opportunity, in his view. In the next 3 to 5 years, markets and volumes are bound to grow and the same business will have a much better valuation than what it can fetch today. Fidelity's India business is a great value buy today, in his view.

3. Why should IFAs not come together and bid?

Nitinbhai wants IFAs from across the country to come together and bid for this business. The outline of his proposal goes something like this :

Find a strong corporate group which will pick up a 51% stake and which can satisfy all of SEBI's qualifications for the promoter

Distributors come together to pick up the balance 49% stake. This will automatically give the business the much needed distribution strength, which any AMC needs for growth.

Distributors will be happy to put the funds of this AMC high up on their recommendation lists, he says. A combination of a good product portfolio and a personal stake in the success of the AMC will motivate distributors to recommend this AMC's products much more vigourously.

Over the next 5 years, as markets and business volumes improve, there is likely to be a significant upside available to distributors who come together today to bid for this business, at today's valuation.

4. Give us DSOPs, like you give your employees ESOPs !

Nitinbhai in fact says that should he be a shareholder in the AMC, he would happily settle for much lower commissions. Companies give their star performers ESOPs - employee stock options - to align their personal interests with those of the company's. In a similar way, if IFAs are given DSOPs - Distributor Stock Options, they should agree to lower commissions and look for a much bigger longer term upside from their relationship. Lower commissions will automatically translate into higher profits for the AMC. Higher profits mean higher business valuation - which means a bigger upside on the DSOPs. Nitinbhai says that this kind of a hybrid compensation structure - is a win-win for all.

DSOP - an idea whose time has come?

The talk about DSOPs got me thinking - is this an idea that should be explored by the MF industry? Of course, the one hitch in this DSOP proposal is that none of the AMCs are listed yet. Lack of listing denies any DSOP or ESOP holder of any exit - which is a pre-requisite for the success of any such incentive plans. But, instead of dismissing the idea completely, is it worth a thought? If an AMC were to get listed, and were to reward its key employees and key distributors with ESOPs and DSOPs and lower the salary and commission payouts respectively, would this not boost profitability and therefore valuation and thus result in a win-win for all? After all, in an AMC's business, salary costs and distributor costs are the two biggest expenses. What if an AMC were to reward its key distributors with DSOPs instead of trips to exotic locales for example? Would that not be a better idea for all? Of course the flip side to this entire argument could be that it actually deepens conflict of interest for distributors rather than eliminate it. Should a distributor or an advisor's earnings be more aligned to the satisfaction levels of his investors or to the fortunes of his AMC partners?

What do you think?

What do you think of Nitinbhai's idea of getting together to bid for Fidelity's business? Too fanciful? Too bizzare ? Or is it a daring move that should be supported? And what do you think of the DSOP proposal - which can actually be independent of any idea of bidding for any AMC? Should AMCs look to get listed and reward their key stakeholders - employees and distributors with stock options? Will that be a win-win situation? Would you settle for lower commissions in lieu of DSOPs? And, how serious is the conflict of interest situation, if something like DSOPs were to be introduced? Share your thoughts with fellow advisors across the country by posting your comments in the box below - its YOUR forum
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