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I had some deep thought’s in 2006 (my year of passing CFP) about my future as a Fee Based Financial Planner in this countr. I was very excited when I read news articles and FPJ (the official magazine on FPSB-India) that we are a new breed of professionals having a bright future .I started out as a Fee + Commission based financial planner .The first year was tough, I thought that business is a long term game so patiently I tried with more vigour for next 3 years .I started to earn but the earning’s were not enough to convince a girl’s father to marry her daughter to me.This made me to do some research about this and that research earned me a Ph.D from Mumbai University. However, I am not here to discuss my thesis. But my research made me to diversify my practice into other areas like Capital Syndication and Management Advisory due to which I was able to convince my father-in-law to get his daughter married to me and now I am also a proud father of two lovely kids.

I still get many calls from some Budding Investment Advisor’s about my thoughts on the future of the profession. Since I am person who thinks more about possible things and not BIG things I do share my thoughts with them. This made me to write this article for a Budding Investment Advisor - Shri.Boodhimaan  about the five year road map with all the new SEBI regulations.

Being a person of finance, let me start with projected cash flow for a new Investment Advisor ( as per SEBI ( Investment Advisers ) Regulation 2013).

Table No 1 - Cash flows for an Investment Advisor

A

Year

1

2

3

4

5

B

Success Rate of the Advisor

50%

50%

60%

70%

80%

C

Number of Client Meets

72

72

80

86

100

D

Old Clients ( retention rate of 80%)

0

29

52

80

112

E=B*C

New Clients

36

36

48

60

80

F = D+E

Number of clients (NET)

36

65

100

140

192

G

Average fees

7500

7500

8500

10500

12500

H = F*G

Total Revenue

270000

486000

848640

1468656

2398720

I

Less - Service Tax @ 15%

0

0

0

220298

359808

J = H-I

Net Revenue

270000

486000

848640

1248358

2038912

K

Less - Business Expenses

L

  - Rent

0

0

180000

198000

217800

M

  - Travel and Communication

60000

69000

79350

91253

104940

N

  - Software fees

10000

10000

12000

14400

17280

O

  - Staff

0

0

78000

85800

216000

P

  - Marketing

30000

33000

36300

39930

43923

Q

  - Compliance Fees

0

0

0

8000

10000

R

  - Printing & Stationary

12600

23814

52416

73433

100746

S

  - Other Office expenses

0

0

24000

26400

29040

T

Total Business Expenses

112600

135814

462066

537215

739730

U = J - T

EBT

157400

350186

386574

711142

1299182

V

Less – Tax (assuming individual tax slabs )

0

0

0

31114

169836

W = U-V

EAT

157400

350186

386574

680028

1129346

I have made many assumptions for the above cash flow projections .Assuming that the new advisor starts with a success ratio ( line B in the table no-1) of  50% in year ONE which moves to 80%  in the year FIVE .He needs to meet many prospective clients to convert them in client’s who starts paying .My marketing and sales friends, will understand and agree that one must have huge data base to be able to zero down on prospective clients list.

Over here let me briefly touch upon the client profile ( we call all our clients as Shri.Doordrasthi ), as my Management friends will agree that business starts from identifying a customer .So our ideal client has to be a person who understands –

  1. that financial markets are getting more and more complex and uncertain
  2. life span is getting longer and there is lack of social security
  3. old family structures are going out etc etc

On the top of this , he values professional advice and is willing to pay for it .Now when I assume that the average yearly fees charged by Shri.Boodhimaan is Rs.7500 in the year one ,it makes us to infer that its only a person with atleast Rs.5,00,000 of investible surplus p.a will be willing to pay such a fee. This is turn means he should be having a after tax income of atleast Rs.12,00,000 p.a. So  in year one I assume that Shri.Boodhimaan has to meet some 72 such Doordrasthi’s to get 36 clients in the first year .Now all these Doordrasthi’s are also tech savvy and also good readers .They have many of those free money management app’s on their hand sets and read many personal finance magazines and websites. So it takes really good selling skills to convince them to hire a financial planner whom they have to pay , but alas ! most of us (financial planners) are not taught how to sell .

Shri.Boodhimaan will work for first 3 years from home and for first 2 years as a one man army i.e without any staff .This will lead to his EAT being Rs.1,52,00 in year one to Rs.3,94,324 in the year three. Now the business is set Shri.Boodhimaan is able to retain 80% of the old clients and his success rate to convert a prospect into client has also gone up. So in the year three itself he has 100 clients and he is able to get about 192 clients in the year five . A remarkable growth of 40% CAGR.

However, comes the year three and he need’s to take a office , which he gets at a rent of  Rs.15000 p.m .I am assuming that there is no need to decorate the office and the landlord has given him a fully furnished office .He has established himself as a good advisor and hence he increases his fees from Rs.7500 in year one to Rs.12000 in the year five. A remarkable growth of 11% CAGR. But than come’s year four when his gross receipts cross Rs.10,00,000 and he is covered in the Service tax net .So he pays Rs.2,20,298 as ST in fourth year and Rs.3,59,808 in the year five.

As the business grows so does the requirement of staff and hence the staff expenses grows from Rs.78000 in the year three to Rs,2,16,000 in the year five .

Now Shri.Boodhimaan would be earning Rs.11,29,346 post tax in the year five with 192 Doordrasthi’s paying him a yearly fee of Rs.12500  .He would be managing the business with max 2 employees who share among them a monthly salary of Rs.18,000 .So let Shri.Boodhimaan take a call whether to be a FEE BASED Investment Advisor or not as it all depends on the doodrasthi of Boodhimaan.

The author can also be reached at jeetrshah@gmail.com


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Category Career, Other Articles by - Jeet R.Shah 



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