'When You Build A Long Term SIP Book, Your Focus Has To Be On Persistency'

It’s no secret that in recent times, distributors and asset management companies alike have intensified their focus on increasing retail participation into mutual funds, primarily using SIP’s (Systematic Investment Plans) as an affordable, low ticket entry point to draw new investors into the fold. It’s estimated that the industry is adding over 100,000 new SIP’s a month at this stage.

On paper, an SIP based business may represent the proverbial ‘promised land’ of automatic AUM growth and a low risk book, but a multitude of challenge abound when it comes to building out a distribution platform focused on SIP’s.
An experienced panel comprising of Rahul Parikh (Head, Aditya Birla Money MyUniverse), Priya Sunder (Director, PeakAlpha) and Dhruv Mehta (Chairman, FIFA) got together at the Businessworld Mutual Fund India Summit 2016 to discuss ways and means for IFA’s to scale their distribution businesses using SIP’s.

Priya Sunder of PeakAlpha kicked off proceedings by discussing how at the early stages of their venture, their sole aim was to ‘source clients by the busload’, rather than build their business one customer at a time. At the same time, their core value proposition was meant to be Financial Planning, rather than a ‘product led’ approach. SIP’s fitted in perfectly with their strategic objectives. According to Priya, it was a very deliberate plan on their part to build out their SIP book of nearly 2 crores per month over the years, and not something that they just chanced upon ’by accident’.

Sunder mentioned that goal linkage, quarterly reviews and close monitoring of transactions (such as renewals and stoppages) have helped them maintain a high quality SIP book over an extended period of time. They have a dedicated team of 30 people who engage with their SIP clients on various fronts, and periodic financial plan reviews usually result in new SIP’s getting started.

“I am happy till the time the people in this room continue to believe that a SIP based model isn’t profitable, because for us, it’s immensely profitable”, said Parikh of Aditya Birla Money. “We are funded by shareholders and investors, and the first question they would ask us is whether or not our unit economics are in place”.

Parikh believes that SIP based businesses should focus on younger, digitally native clients and keep an eye on CLTV (Customer Lifetime Value) as a key metric. In addition, he stated that the lion’s share of his company’s SIP book is long term (10 years plus) in nature and that 2/3rd of their customers are first time clients.
Parikh also focused on the merits of goal based investing when it comes to SIP’s, mentioning that his company has recently forayed into the same. MyUniverse uses a variety of tools to track these goals and ensure continued engagement with their customers.

“When you build a long term SIP book, your focus has to be on persistency”, said Parikh, mentioning that they have a team of 15 people working on big data analytics to derive insights into their SIP client base. He also stated the merits of closely monitoring the CTS (“Cost to Serve”) for each client.

Sunder of PeakAlpha raised a valid point on how the act of ‘regularly sourcing clients without paying immediate attention to profitability metrics’ has helped them build a robust SIP book over the years. According to her, SIP’s represent the most efficient ‘stepping stone’ to starting an investment relationship with clients.

“Customer Acquisition is a big focus area for us”, Sunder said, while adding that they do not focus on the revenues earned from the customer acquisition.

“The SIP model is a hockey stick approach”, said Dhruv Mehta of FIFA, referring to the long gestation period inherent to a SIP based model, followed by an extended period of long term payoffs. He raised questions on the feasibility of a SIP based business model for IFA’s whose family is dependent upon them as breadwinners.

Mehta expressed his view that an SIP based business needs a lot of patience to build out, and a time horizon of five years is a must. He opined that only those who can afford to commit significant capital, or those IFA’s who already have a sizeable AUM to piggyback upon can really afford to create a SIP based business. In conclusion, Mehta stated his belief that higher upfront commissions for SIP’s will not necessarily be to the detriment of the investor, as it would lead to the wider proliferation of an excellent wealth creation instrument.

At the end of the panel discussion, the floor was opened to a few interesting and highly relevant questions from the audience.