Are you wondering what is the connection between an IFA, Netflix and Amazon?

Its simple. One company in the world will do to the IFA business what Netflix did to entertainment and Amazon did to the world business at large.

In today’s world there is a growth at all costs model – which many of us oldies did not understand at all. Over the last few years which company earned more? Netflix or Disney? well, Disney earned 30x of Netflix. Yet both have the same market capitalization now, and I am sure who grew fast in the past 5 years in terms of market cap.

The market is funny. It puts a huge premium to the growth potential, and does not pay much respect to what is already achieved. So what your company earned in the past week is of interest ONLY to your accountant – not to the analyst. The analyst wants to know what is the potential. Amazon did not build its business by buying out existing retailers. Netflix found that its cost of proprietary content can be REDUCED per capita by INCREASING the user base. Anybody who thinks Amazon does not make money, needs to get his math right. Look at its cash flow and look at its ability to build scale. Its just a market place, but what a big market place.

Now what does this have to do with the Asset management business?

One player (some player) will build scale – and know that trail makes sense ONLY over a 10 year basis, NEVER on a 3 year basis. In the 1990s, and say leading to 2010/5 many IFA would rebate the first part of the commission. It looked foolish at that time. The banks could not do any rebating, so they got the regulator to ban it. Such bans are of course a joke – it still prevails. Now if a company builds a big online community – pumping in say Rs. 200 crores to build an aum, and also keeps buying off the existing players (remember every player above the age of 40 is a potential retiree!!) that person would build scale. Nice big scale. As a distributor he could threaten the amc in terms of the money he controls. IIFL did it at the top end of the scale. There are NOT ENOUGH people trying to do it at the bottom of the scale. Of course many players are trying – and some of them may succeed too. One of them could then start talking to another big player and get together too.

One of them could launch a low cost ETF model (maybe Benchmark Mutual fund was ahead of its time). Or some existing amc could decide to have to boats – one MD for managed funds and one MD for ETF and index funds – under the same brand name.

Or it could be a group of RIA trying to democratize the investment industry.

Or even better somebody under a big banner creating 10,000 investor clubs around the country – to encourage direct equity participation.

What’s your guess?

I will write about my views from time to time. Leave your thoughts in the comments…