WF: You've come a full circle - from a job in distribution to leading sales teams in AMCs and then setting up a platform before finally taking an entrepreneurial plunge with your financial planning firm. What led you to make these career moves ?

Sumeet Vaid: Thanks Vijay, for giving this opportunity for sharing our story. At the outset I'd like to say that Wealth Forum Ezine is doing a fantastic job of sharing best practices, giving a perspective on current business challenges and helping develop the industry in an institutionalized manner. I think we needed somebody to take up that lead role in the wealth industry - continue the good work !

WF: Thanks Sumeet - we derive our strength from the encouragement and support we get from advisors like you.

Sumeet Vaid: Great ! Now, about my story : I started my 15 years career with a job in Bajaj Capital. Sanjeev Bajaj and I were batch mates in the same management school. Sanjeev prompted me to meet up and take an interview at Bajaj Capital - we were the first set of MBA's joining Bajaj at that time. From 1995 to 1998 I got the best training in distribution of financial products from Rajiv Bajaj. I worked very closely with him. At that time, fixed deposits were really the core product, and then came retailing of bond issues of ICICI and IDBI and then mutual funds distribution.

From there I moved on to ICICI Prudential - where I worked for 8 years, eventually leading the retail sales team. I then moved to ING where I set up the Optimix platform. By the time I was in the middle of my ING assignment, I figured out that I was in the wrong side of the value chain !

I realized that if I see myself as a sales and marketing expert, I must be closer to the customer. The MF industry will increasingly become a wholesaling business - further away from the client, because cost structures won't permit connecting with end clients.

The second aspect was a realization that I am a part of the mess that we created due to our product push approach, as an industry. I realized that I should not be representing a manufacturer to clients but the other way around - represent the client's interests to the manufacturers. It's the client who ultimately pays us - its best to represent his interests and get paid by him directly.

Based on these insights, I had a three point agenda when I decided to set up my firm :

(1) I wanted to be happy in life - and my profession obviously plays a big part in achieving this - being happy doing what I am doing is very important

(2) Whatever I do must be independent and scalable

(3) I should be able to create wealth creation opportunities for all stakeholders

I figured out that in any corporate job, the equation ultimately is not an equitable one - as you land up doing far more to create wealth for the company than for yourself. I wanted to create a genuine win-win proposition for all stakeholders - clients, employees and the promoter.

We chose the word "freedom" - as that was what I was really after when I decided to set up the firm. The name "Ffreedom" is my little 'tadka' - which signifies financial freedom for our clients.

I quit my job in Jan 2009, set up the firm in Feb 2009, moved into our first tiny 300 sq ft office in April 2009 and slowly started building our team. Our motto - which is what we promise all our clients is what we call the 3D approach - Dream, Decide, Do. We say our objective is to help you live your dreams and convert them into actionable goal and we will make sure that happens - by making you stick to those plans and not acting on emotions. We don't claim to be the best in picking winning funds - that is frankly less important than ensuring that you stay on course.

We decided right from the outset that we will be client centric and will charge for our financial planning services.

WF: How has the journey been in the last one and half years ?

Sumeet Vaid: I think this is the best phase of my life - and I am saying this although I am making hardly any money at all at the moment. When I started off, I went to a reputed investment bank to help me put together a business plan. By the time we completed the plan, the person who worked with me on the plan from the firm, was so convinced about it that he joined me in Ffreedom as our Chief Operating Officer ! I am fortunate that I have a highly motivated, experienced team that is helping me shape and grow Ffreedom Financial Planners.

Today, we have around 200 client families and our team size is up to 24. Each one of our 200 client families has a financial plan written up for them and each one has paid us for this. Our MF AuM is around Rs. 35 crores at present. Our target audience is families with a total income of Rs. 10 lakhs plus, and in the 30-45 age group.

WF: What do you charge for writing up a plan ?

Sumeet Vaid: We provide a comprehensive financial planning service which includes writing up a will, creating trust structures where required etc. We charge between Rs. 15,000 - Rs. 25,000 depending on the comprehensiveness of services offered.

We take pride in one thing : that there is not a single transaction which we have done without a plan. If anybody walks into our office and says here is Rs. 50 lakhs - where should I invest it? Without writing a plan, we don't take that money. Even for some of our SME clients, we write up a plan on their treasury management needs and then suggest investments accordingly.

We don't charge on an AuM basis or a transaction basis. The trail commissions are what we earn on an ongoing basis. Maybe if trails reduce, we need to consider transaction based fees - on the way in as well as out. We are building our capability to charge a transaction based fee - that's the best way forward.

WF: How difficult has it been to convince clients to pay you a fee? What are some of the things you think are helping you achieve a 100% success rate in getting clients to pay you a fee?

Sumeet Vaid: It was difficult initially. Our team was a little skeptical at first about a fee based model. We got off to a slow start, but invested in creating appropriate technology that would help us deliver on our promise. We built our own platform - which not only provides clients with a one account view and helps us write up plans and reviews, but it also helps us with our client acquisition efforts. Once we were comfortable that we had the right technology platform in place to service clients, we started cranking up our campaigns. Our platform helped us track leads and conversions. From there, we go to data gathering from new clients, then to plan preparation, then to plan execution and then to plan reviews. All of this is done with the help of our platform.

When you are able to show this kind of value add to clients, it's a lot easier to charge fees for the financial planning service. Now, our client acquisition efforts are paying off - we are now signing up 20-25 new clients each month. Our conversion ratios in the campaigns we run is between 5% to 8%.

The challenge is to break existing mindsets. In our industry, when an advisor meets a client, he is looking for how quickly he can get his first sale - client acquisition is looked at from the perspective of the first application form that is picked up. But, when you are writing up a plan, it takes 20-21 days for completing your data gathering and preparation of a plan. It will be 40-45 days before the plan starts getting executed - and the first application form for an investment is signed. But, if you go through that process, you have a client for life - he's not going to go shopping for his next investment tranche if he and you own the plan that you've written up for him. The plan is his biggest exit barrier.

WF: The mutual fund industry is witnessing unprecedented redemptions even as FIIs keep reaffirming their conviction in the India story. Advisors talk about the India story but are not able to get investors to buy equity funds or stop them from redeeming existing holdings. Why is this happening and what can be done to build back sales momentum in equity funds?

Sumeet Vaid: The sluggishness in the fund industry that we see here is exactly what the US saw in the early 1990s and what Australia saw in the mid 1990s. Huge changes happened - and the industry took time to absorb them and then move ahead - but both moved ahead well after those changes. We are seeing big changes in the way our business is conducted - but we will need to make some big changes if we are to move ahead in the years to come.

The first critical change we need to make is in the quality of manpower that represents this business - both on the manufacturing as well as the advisory sides. Lets take the last mile connect first - the advisors. Advisors can be divided into two groups - the salaried advisors and the IFAs. Look at salaried financial advisors today : 90% of them are fresh out of their colleges and MBAs. The first job he does is the one that is closest to the customers. As he becomes good, he goes away from the client - to become area manager, cluster manger etc. That cycle never stops. So, you effectively have the weakest set of salaried people actually connecting with the clients - this has to change. We need more experienced, good quality advisors interfacing with clients, if they have to win the trust and confidence of their clients.

Lets look at the IFA segment. In most cases, becoming an IFA is not really the first career choice of most young graduates and MBAs. If they don't get a good job, they venture out to become insurance agents. Some of the insurance agents then also take on mutual fund distribution. How many fresh graduates, how many bright youngsters today opt for an independent financial advisor career as their first choice?

Until we get good quality advisors - salaried as well as independent - interfacing with clients, we are not going to make much headway.

Lets look at AMCs. Many of them have built up huge sales teams and big branch networks to engage with distributors. This just drives up costs and dilutes quality. How many of these sales team people can really add value to an advisor and give inputs like the fund managers do?

I am a fan of the broker-dealer structure that we see in US. Even large AMCs have lean sales teams, lean branch networks - where each sales person is of the highest quality in terms of ability to engage with distribution meaningfully. They then rely on these large broker-dealer networks to engage with individual financial advisors spread across the country. That's the best way to keep costs low and maintain quality.

And finally, I would tell all the good sales guys in AMCs - leave your jobs and become IFAs - that's where your future is !

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