Talking to Rahul Oberoi on the sidelines of ETMarkets Global Summit 2018, Uttam Bagri, Chairman, BSE Brokers' Forum, says technology is getting things together like never before and that is creating a lot of pressure on the brokers.
What is the future of SME brokers?
Broking as a service per se has become almost non-viable because of almost zero brokerages floating in the market. But many brokers are not sticking only for pure execution services, there are additional services that come in. For example, you could be selling mutual funds, you could be giving some investment advice, some may go for portfolio management in some way or the other. So, by giving a bouquet of services to a client, the brokers will survive. But yes, it is difficult for the SMEs but then they always survive.
What are the major challenges brokers are facing?
There are two; one is an economic challenge because throughout the world, there is dis-intermediation. Technology is getting things together like never before and that is creating a lot of pressure on the brokers.
The second issue is regulatory expectations. If you are a small or a large broker, the regulator says since you are handling clients money, you have to meet those minimum requirements. The regulator is not choosing to differentiate between different size and business models. That is the regulatory cost and meeting the regulatory expectation is the biggest challenge we are facing right now. Profit, loss to hum sambhal lenge (we will manage) but regulatory non-compliance has very serious reputational risk to us.
Over the years, how has the broking industry changed? What is the level of competition right now?
Competition is cut-throat but Indians are very particular about who they deal financially with. So, the relationships are sticky. If I am giving a better service or a higher customized service to my clients, my clients are ready to pay me a premium brokerage. This is not very high but they are ready to give me that additional premium which allows me to be profitable.
When the markets are moving anyway. everything is alright because the cake size is increasing. The real challenge will be if the cake starts reducing. Luckily, we do not see it on the horizon so far.
Do you think Indian investors are ready to pay for research reports?
Culturally, no because as Indians we do not like to pay for advice. I do not think the indian investors are ready to pay for good advice or research so far. You see some green shoots, some very educated and large-hearted guys are there, but even today, advice is deemed to be a part of a bundle of services along with execution and transaction.
What is the future of broking industry in India?
All brokers will need to increase the number of services they give and deal with not only execution. As long as you are adding value to your client, your clients will stick to you. It will give you business.