Broking and Distribution 4.0: Time to differentiate men from boys

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@ Vikas Sharma | Sr Journalist

With Indian broking industry facing unprecedented crisis, Reliance Securities ED &CEO LavChaturvedi says the situation is an opportunity to introspect and build a trustworthy and sustainable financial distribution ecosystem where the responsibility should lie with the seller of the financial product rather than the buyer.

Accident and crash are very painful, but do we stop air travel or shut down the aviation sector if there is a plane crash? The answer is no. We should try to rectify the fault and build a robust system that we minimize future contingencies.

The financial sector also works in the same way. Unfortunately, today we are witnessing such unprecedented crisis in the broking industry. The industry is facing testing times due to unfortunate events which have unfolded in recent past at some leading brokerage houses. While crisis is best to be avoided as far as possible, they do help bring discipline and help get things in order. Especially it helps address fault lines that gets build over time. Large crashes in the financial sector shouldn’t bring existential threat for an industry but provides an opportunity for industry to introspect, redefine and resurrect itself to better serve the real economy and people.

Penetration of financial products in India is very low compared to other large markets, but it’s largely believed that the financial service penetration will provide necessary propeller for our economy and will ensure financial wellness of our 1.3 billon citizens. For this to happen there needs to be trust and confidence built among people in a sector that is currently grappling with trust deficit.

Change is the only constant and players need to change their mindset to shape a new and a strong future for financial distribution system.

The need of the hour is to move away from Caveat Emptor to Caveat Venditor. The basic fabric of financial service industry is going through significant change. From the principal of ‘caveat emptor’ (buyer beware) it’s now more focus on ‘caveat venditor’ (seller beware) which augurs well for building a trustworthy and sustainable financial distribution ecosystem. It simply means that seller needs to be aware of what they are selling or advising to their client rather than the onus lying on the buyer as to what is he buying. If the industry needs to build trust, distributors in all fairness and appropriateness needs to sell products which suits the buyer needs and helps them is attaining their financial goals. It also means seller must check if he isn’t mis-selling a product or inappropriate product to the buyer. This will build confidence towards the industry, after all what is good for the buyer is good for the seller.

Incentive plan plays a key role in an appropriate alignment of sales practices with customer’s interest. This alignment needs to happen beginning from the top all the way to the feet on streets.

Focusing on the last mile connectivity also holds key. Strong digital platform that caters to diverse set of people and connects hinterland of our country would be instrumental in bringing both speed and transparency to overall experience for customers. Technology will be the enabler for the last mile connectivity that could help in cutting cost as well as bring in the much needed transparency.

Meanwhile new data privacy law will determine how data would be shared and customer would be approached for cross selling and upselling. We must remember that India is still evolving in terms of selling of financial products. Here products aren’t bought they have to be sold and therefore it becomes critical as to how they want to be reached. If approached in the right way it will be a key enabler to acquire customers that has the potential where sky is the limit.

Regulatory changes will be the only constant! Evolving landscape of capital markets, changes in regulatory guidelines across board and eliminating any arbitrage among industries would determine new rules of engagement. Going ahead we strongly believe that distribution will be a regulated industry, directly or indirectly (i.e. through Self Regulating Organizations)

The role of cyber security which will be a key pillar especially for online journey. Cyber security needs to be robust enough as it can be the catalyst for growth in an industry where technology is cutting cost and reaching customers. Along with technology, awareness and training at grass root level will be crucial for gaining trust of millennials.

Meanwhile consolidation among players is inevitable, as observed in global markets may also impact the industry. Recent announcement of Charles Schwab buying out Ameritrade’s online brokerage in US market is a case in point. Due care needs to be taken to ensure that any consolidation or movement of people should have no impact on servicing standards for customers. Thus, to attain trust among customers, broking and distribution industry will require to build in a robust framework on risk management that will differentiate men from boys.

Governance, checks & balances and key disclosures would be a differentiator inbuilding long term sustainability in an industry that has no room for mistakes. The only way is to evolve and stay ahead of the curve in term of customer acquisition, technology, governance and risk management, otherwise one will perish.
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