The market uncertainty that COVID-19 has introduced-with businesses across industries facing tremendous pressure-has naturally caused issues for both financial products manufacturers (eg mutual funds) and (mutual fund) investors. For the funds themselves, a sudden devaluation of businesses and premature existence have created a liquidity crisis.
COVID-19 has created unprecedented challenges for the Indian financial market. According to the International Monetary Fund, India’s growth estimate for FY21 to 1.9 per cent from 5.8 per cent. The length and severity of the economic downturn is the main question – not whether it will happen or not. In this situation, where ‘low-touch’ is the norm, and volatility and unprecedented events are taking place (the closure of the 6 schemes of Franklin Templeton, with Rs 30,000 crores stuck of investors is an example), understanding the new needs, and risk, of investors, becomes all the more difficult.
Independent Financial Advisors (IFA), and Mutual Fund Distributors, will become key to this process as they are the ‘bridge-of-trust’ that individual investors will look to as they navigate these difficult times.
Reach and access: IFAs go where larger players cannot
In the fragmented Indian markets, where person-to-person interactions are of critical importance, Independent financial advisors (IFAs) and Mutual Fund Distributors (MFD s) have long had a key role in this respect.
Personal rapport and relationship-building have always been important advantages that these independent financial entrepreneurs have had. It’s that trust matters in the Indian financial market.
Market uncertainty: Why trust matters now more than ever
The market uncertainty that COVID-19 has introduced-with businesses across industries facing tremendous pressure-has naturally caused issues for both financial products manufacturers (eg mutual funds) and (mutual fund) investors. For the funds themselves, a sudden devaluation of businesses and premature existence have created a liquidity crisis. Franklin Templeton, a major Mumbai player recently wound up six of its credit funds, citing illiquidity as a key pressure.
Investors, especially those tied to market-linked funds are experiencing a substantial erosion of confidence. Short to medium-term outlooks are not positive and this has led to large numbers of investors trying to pull out early or considering doing so, greatly exacerbating the situation.
Connectivity: The IFA advantage
In the present situation, the priority for all players in the financial ecosystem is to bring in a modicum of stability. This will mitigate long-term damage, assuage the fears of investors and help funds and businesses weather the lockdown.
In the pre-lockdown period, IFA / MFD s leveraged face to face meetings and excellent connectivity to build rapport and long-term relationships with their clientele, As value-added partners to mutual funds, IFA / MFD s were able to increase the breadth of their client offerings by presenting clients with options and by interfacing between funds and end clients, marrying needs to solutions.
This same role has to be taken by them, but with a low-touch model. Adapting to Digital outreach – through phones, and other forms of communication, including WhatsApp/telegram, as well as an increase in the frequency of communication, given that there is a major disruption with low / no face-to-face interactions will remain for a fairly long time.
Digital platforms: minimizing pain wherever possible
A low-touch model of business means that every aspect of the client journey – from communication, execution, monitoring, and informing, has to be through a Digital footprint. Such comprehensive platforms would be hard (and very expensive and time-consuming) to be done independently. Digital platforms that enable plug-and-play solutions will be invaluable going forward: times are tough but the aim here is to make the client experience as seamless, and as comfortable as possible.
The market today is in tumult and it almost certainly will be for months to come. However, IFA / MFD s, especially those leveraging digital platforms, have the opportunity today to serve as a bulwark against emotion led decisions. By leveraging long-term relationships, they can ensure that investor capital stays in funds, which is not only good for investors but also the financial markets, allowing it to remain functional.
by, George Mitra, CEO, and Co-founder, Fintso