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Last Updated : Feb 15, 2020 09:04 AM IST | Source:

'Broking industry going through tough times due to events in recent past'

Change is the only constant and players need to change their mindset to shape a new and strong future for the financial distribution system.

Moneycontrol Contributor @moneycontrolcom

Lav Chaturvedi

Accidents and crashes are very painful, but do we stop air travel or shut down the aviation sector if there is a plane crash? The answer is ‘no’. We should try to rectify the fault and build a robust system that we minimize future contingencies.


The financial sector also works in the same way. Unfortunately, today we are witnessing such an unprecedented crisis in the broking industry.

The industry is facing testing times due to unfortunate events that have unfolded in recent past at some leading brokerage houses. While the crisis is best to be avoided as far as possible, they do help bring discipline and help get things in order.

Especially it helps to address fault lines that get built over time. Large crashes in the financial sector shouldn’t bring the existential threat to the industry but provide an opportunity for the industry to introspect, redefine and resurrect itself to better serve the real economy and people.

The penetration of financial products in India is very low compared to other large markets, but it’s largely believed that the financial service penetration will provide necessary propeller for our economy and will ensure the financial wellness of our 1.3 billion citizens.

For this to happen there needs to be trust and confidence built among people in a sector that is currently grappling with a trust deficit.

Change is the only constant and players need to change their mindset to shape a new and strong future for the financial distribution system.

The need of the hour is to move away from Caveat Emptor to Caveat Venditor. The basic fabric of the financial service industry is going through significant change. From the principal of ‘caveat emptor’ (buyer beware), it’s now more focused on ‘caveat venditor’ (seller beware) which augurs well for building a trustworthy and sustainable financial distribution ecosystem.

It simply means that the seller needs to be aware of what they are selling or advising their client rather than the onus being on the buyer as to what is he buying.

If the industry needs to build trust, distributors in all fairness and appropriateness need to sell products that suits the buyer's needs and helps them in attaining their financial goals.

It also means the seller must check if he isn’t mis-selling a product or inappropriate product to the buyer. This will build confidence towards the industry, after all, what is good for the buyer is good for the seller.

An incentive plan plays a key role in an appropriate alignment of sales practices with the customer’s interest. This alignment needs to happen beginning from the top all the way to the feet on the streets.

Focusing on the last mile connectivity also holds the key. A strong digital platform that caters to a diverse set of people and connects the hinterland of our country would be instrumental in bringing both speed and transparency to the overall experience for customers.Technology will be the enabler for the last mile connectivity that could help in cutting costs as well as bring in the much-needed transparency.

Meanwhile, new data privacy law will determine how data would be shared and the customer would be approached for cross-selling and upselling. We must remember that India is still evolving in terms of selling of financial products.

Here, the products aren’t bought they have to be sold and therefore it becomes critical as to how they want to be reached. If approached in the right way it will be a key enabler to acquire customers that have the potential where the sky is the limit.

Regulatory changes will be the only constant! The evolving landscape of capital markets, changes in regulatory guidelines across the board and eliminating any arbitrage among industries would determine new rules of engagement.

Going ahead we strongly believe that distribution will be a regulated industry, directly or indirectly (i.e. through Self Regulating Organizations)

The role of cybersecurity will be a key pillar, especially for an online journey. Cybersecurity needs to be robust enough as it can be the catalyst for growth in an industry where technology is cutting costs and reaching customers.

Along with technology, awareness and training at the grass-root level will be crucial for gaining the trust of millennials.

Meanwhile, consolidation among players is inevitable, as observed in global markets may also impact the industry. The recent announcement of Charles Schwab buying out Ameritrade’s online brokerage in the US market is a case in point.

Due care needs to be taken to ensure that any consolidation or movement of people should have no impact on servicing standards for customers.

Thus, to attain trust among customers, the broking and distribution industry will require to build in a robust framework on risk management that will differentiate men from boys.

Governance, checks & balances and key disclosures would be a differentiator in building long term sustainability in an industry that has no room for mistakes.

The only way is to evolve and stay ahead of the curve in terms of customer acquisition, technology, governance, and risk management, otherwise one will perish.

(The author is ED & CEO, Reliance Securities)

Disclaimer: The views and investment tips expressed by investment experts on are their own and not those of the website or its management. advises users to check with certified experts before taking any investment decisions.

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First Published on Feb 15, 2020 07:56 am
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