Financial Advisory Awards 2016-17: A Note on Methodology

Introduction:

The UTI MF & CNBC TV 18's Financial Advisor Awards 2016-17 are now into its seventh year with growing popularity strongly exhibited by nearly 30,000 applications received last year. The scope of analysis followed by ICRA covers both the quantitative and qualitative parameters.

Category of Awards:

The awards are broadly classified into:

National Level Awards :

National Level Banks - Foreign Bank, Private Bank and PSU Bank
National Level Brokers
National Level Retail Financial Advisors
National Level Institutional Financial Advisor
National Level Financial Advisor – Wealth Distributor
National Level Financial Advisor - NRI

Regional Level Awards :

Regional Level Financial Advisor ( North, East, West, South )

Individual Financial Advisor Level :

Mega Cities : These are cities which are classified as the top business centers of each zone.
These cities have typically seen the highest investment levels in their respective zones.
4 Awards are given in this Category.
( Mega City North, Mega City East, Mega City West, Mega City South ) 1 award each.

Cities :

These are the Tier 2 cities.
They are in the growth stage and are second level cities of their respective zones.
4 Awards are given in this Category.
( City North, City East, City West, City South ) 1 award each.

Up Country :

These are small towns where the investment levels are relatively lower to that in cities.
4 Awards are given in this category.
( Up Country North, Up Country East, Up Country West, Up Country South ) 1 award each.

National Individual Financial Advisor :

The Top Individual Financial advisor of the country will be picked from the winners in the Mega Cities representing four zones of the country.

National Individual Financial Advisor (Woman):

The Top Woman Individual Financial advisor of the country.

National Individual Financial Advisor (Special Jury):

The Top Individual Financial advisor of the country with an AUM of less than Rs. 1 crore.

Grand Jury Award :

For work done towards financial education and inclusion .

Grand Jury Award :

For the work done online by a National Financial Advisor.

Classification of Awards:

• • National Level Awards:

  • National Level Banks.
  • Banks which are governed by RBI and Banking Regulation Act 1949.
  • National Level Brokers.
  • Brokers which are members of one or more stock exchange.
  • National Level Retail Financial Advisors.
  • Derive more than 60% of their revenue from retail business.
  • National Level Institutional Financial Advisors.
  • Derive more than 60% of their revenue from Institutional business.
  • National Level Financial Advisors (Wealth Distributors).
  • Derive more than 70% of their Assets Under Management (AUM) from High Networth Individuals (with minimum Rs. 100 lakhs AUM).
  • National Level Financial Advisors (NRI).
  • Source Mutual Funds from NRI clients.

• • Regional Level Awards.

  • Regional Level Financial Advisors are defined as those who derive more than 75% of their revenue from a particular region i.e. North/South/East/West.
  • Employ more than 15 employees (excluding clerical).
  • No of offices are more than 3.
  • Please note that those who do not meet the above criteria will be defined as National Financial Advisors.

• • Individual Level Awards.

  • Conduct financial advisory business on an individual basis.
  • Employ less than or equal to 15 employees (excluding clerical).
  • No of offices are less than or equal to 3.

Definitions of IFA categories:

Town / Mega Cities	North West East South	Delhi NCR Region Mumbai, Ahmedabad Kolkata Chennai, Bangalore, Hyderabad
Tier 2 / Cities	North West East South	Chandigarh, Jaipur, Indore, Lucknow, Bhopal Pune, Nashik, Nagpur, Baroda, Surat, Panjim Raipur, Patna, Guwahati, Cuttack, Bhubhaneswar Cochin, Mangalore, Mysore, Visakhapatnam, Coimbatore, Trivandrum
District / Up Country	North West East South	All other locations other than the above will constitute district All other locations other than the above will constitute district All other locations other than the above will constitute district All other locations other than the above will constitute district
Zonal	North West East South	The best performing women advisors belong to their particular zones The best performing women advisors belong to their particular zones The best performing women advisors belong to their particular zones The best performing women advisors belong to their particular zones
Special Jury	National	The best performing individual financial advisor with an AUM of less than Rs. 1 crore as on 31st March, 2014

Methodology:

The methodology followed by ICRA has multiple layers of filtering suitably designed for the respective categories keeping in mind the uniqueness in nature, size and ownership/constitution of the advisory firm.

Analytical Framework:

The analysis covers certain key parameters which bring out the effectiveness and competitive position of the financial advisor.

Infrastructure
Business Performance
Financial Performance and Scale
Diversification
Compliance
Investor Education

Infrastructure:

The analysis begins with an evaluation of the infrastructure facilities of the financial advisor. Some of the factors assessed are as follows:

Computer and Software:

Infrastructure availability by way of Computers and Software for tracking of client’s investment performance. Higher the number of computers better will be the advisor’s effectiveness.

Employees:

Number of Employees involved in direct Financial Advisory (FA) gives an indication of its scale of operations and future potential to acquire more clients.

Office Space and Numbers: Higher number of Offices indicates the geographic presence of the advisor. Larger office space indicates the advisor’s ability to service his clients effectively.

Qualification:

A well-qualified financial advisor with and able team is better equipped to give advice of better quality. Advisors are assessed whether they are Graduates, Post Graduates and possess additional relevant certifications.

Business Performance:

This area of analysis covers the financial advisor’s performance in scaling up his business in previous years and his ability to retain clients with strong relationship management. Following are the parameters:
Number of Clients: Larger the number of clients, more will be the potential for earning financial advisory income and lesser the concentration risk. Growth in Clients: A consistent growth in acquiring new clients will portray the effectiveness in reducing the dependence on few high value clients. Retention of Clients: An important parameter to assess the effectiveness of the advisor.
Number of Years of Operation: A consistent, stable and long track record gives the advisor the experience to face market downturn and volatile periods.

Financial Performance & Scale:

Income from financial advisory business and assets under management are the important parameters on which the effectiveness of the financial advisor is based. This brings out the scale of the advisor’s business and his prospects of growth. This is a key parameter for initial short-listing.
Amount of Financial Advisory (FA) Income: Higher the financial advisory income better will be advisor’s ability to invest in additional infrastructure. Higher and consistent FA income indicates that the advisor is able to manage the operations of the company better than others.
Proportion of Financial Advisory Income: While a higher proportion signifies a greater thrust on advisory activity, an equitable distribution of advisory income with a good product mix indicates the advisor’s ability to rely less on a single product. This results in lower product concentration risk.
Assets Under Management: This is an important parameter for short-listing a applicant. High AUM’s indicate that the financial advisor has been consistent in increasing the scale of his operations and manages large size of portfolios too. Incremental AUM’s indicate the growth of business of the financial advisor.
Asset Profile: This indicates the risk content of the assets under management. A high concentration towards equity indicates higher risk. Equilibrium of risk and return is an important parameter for the advisor’s long term sustainability.

Diversification:

Services offered by the financial advisors can be in the area of Stock, Mutual Funds, Insurance and advisory services. The parameters are:
Income from Product Category-%: This indicates the various products from which the financial advisor earns advisory income. Dependence on one particular product, eg. Insurance, indicates the advisor’s inability to provide diversified investment solutions.

Compliance:

Whether the financial advisor has been penalized by the regulator in the past for non compliance of rules and regulations.

Investor Education:

This indicates the number and quality of investor education initiatives undertaken.

Process for Short-listing of Nominees/Applicants

Nomination Forms:

Forms are to be duly filled by the applicants. All applicable questions have to be answered. Incomplete Forms: Incomplete forms will be rejected. Classification of Applicants: Applicants as per the eligible category have to be segregated and collated. Short-listing Process: First Level of filtering will be undertaken where non eligible nominees (as per the classification of awards) will be removed. Nominees penalized by the regulator are also disqualified. Ranking of nominees will be undertaken on the basis of Assets Under Management, Income from FA (Financial Advisory), Incremental Growth in AUM’s and FA, Asset, Product, and Income mix. Arrive at Top 10 ranked nominees. Qualitative Analysis: Top 10 Nominees subjected to customer feedback (Only for IFA’s). Qualitative information like actual numbers, portfolio performance and other key information is called for. Declaration of Winners: For City & Up country Level IFA- After assessing the Qualitative information nominees are re-ranked and the top entity is declared as the winner.
Jury Round (For National Level, Regional Level and IFA Zonal Level): Top 3 Re-ranked nominees will make a presentation to an elite panel of jury. The presentation is to cover the following areas based on which the Jury will judge the nominees and declare the winners:

Sr. No.	Attribute
1	Background / experience of key professionals / philosophy to business(Company profile, No. of years of experience, Management profile, Reason for being in the business and outlook for the category and market)
2	Maturity of business(No. of years, no. of customers, no. of folios, no. of SIP)
3	Organisation Knowledge Systems(Knowledge management systems, operating procedures (are the systems and procedures backed by IT)
4	Customer retention / loyalty / turnover(Avg. length of relationship with the customers, Initiative undertaken for retention, customer attrition, cross sell, upsell, avg. age of folio)
5	Advisory Model(Kind of advisory model followed and USP of the same vis-à-vis other models prevalent in the financial advisory industry)
6	Support(Review process for investors, software/portal created to educate the investor, office space, number and quality of employees; are the employees CFP or AMFI certified)
7	Growth (Growth in Business - Folios, AUM and SIP, Customers, Profitability in the last financial year)
8	Market Position / Reputation(No. of investors coming through referrals, Fee charged (on advisory, upfront, transaction based), USP vis-à-vis competition, achievements, accolades)
9	Investor Education(No. of investor camps conducted, No. of investors touched during these camps, No. of cities covered during these camps, No. of cities tagged under T15* and B15* during these camps, Other Initiatives) * T15 stands for top 15 cities, while B15 means beyond (top) 15 cities as classified by AMFI