Takeover of ET Money by 360 ONE – should you be worried or happy?

While there is potential for synergies, it is unclear where 360 ​​ONE (formerly IIFL Wealth) sees ET Money in the bigger picture.

For example, a client of Genius, ET Money’s fee-based advisory service under a Registered Investment Advisor (RIA) license, cannot also be a 360 ONE distribution client.

The Securities and Exchange Board of India prohibits advisory and distribution services to the same client.

In addition, ET Money may be encouraged to prioritize 360 ​​ONE products, such as mutual fund and brokerage, over those of competitors.

ET Money CEO Mukesh Kalra and COO Santosh Navlani reject the concept, saying Sebi rules prohibit cross-selling products or giving preferential treatment to group companies.

The platform’s vision and team will remain the same, they said, pointing to potential synergies. They claim that ET Money retail users will have access to 360 ONE’s expertise in products tailored to the needs of ultra-high net worth investors. ET Money may also utilize businesses associated with 360 ONE, such as brokerage.

A brief history of ET Money

ET Money was established in 2015 and initially offered regular commission-based investment funds. After Sebi enabled direct mutual fund platforms to secure RIA licenses and Paytm Money was launched as a direct platform in 2017, ET Money moved to direct mutual fund plans.

In early 2022, ET Money launched its Genius service, which now has 76,000 paying subscribers ₹249 every month. The rest of the platform remains free for transactions.

In 2023, Sebi introduced a circular asking RIA platforms with trading-only clients to switch to the so-called execution-only platform (EOP) status. This was intended to preserve the spirit of the RIA license, which is to provide advice, not to conduct transactions. In this way, ET Money received an EOP 1 license for its non-Genius clients, a user base of approximately 900,000.

Moreover, when the youth in India started looking for investment advice on YouTube and Instagram, ET Money created its own content, which became a huge success. ET Money’s YouTube channel has 440,000 followers and his videos often receive hundreds of thousands of views.

“We are fully committed to organic growth through diverse content across platforms (X, YouTube, Instagram). Our view-to-follower ratios are probably the best in the industry, which translates into millions of views on our content,” said Navlani.

“Today, we are able to attribute two out of three new investor acquisitions to organic channels, with approximately equal shares of content and word-of-mouth referrals.”

Loss-making but expensive

However, there were some teething problems. Mutual funds are reluctant to adopt EOP because EOP fees have to be paid by themselves, not the end customer. These fees must be covered from the profits of the asset management company and not from the program account – in other words, from the investor’s pocket.

Quant Mutual Fund, one of India’s largest mutual funds, objected to the admission and ET Money stopped accepting new inflows into Quant Mutual Fund.

The Association of Mutual Funds in India (Amfi) has capped transaction costs for EOPs at ₹2 per transaction. However, some AMCs considered even this amount too high.

Despite the development of Genius and the transition to EOP, ET Money is not yet profitable, almost a decade after its launch.

According to CEO Kalra and COO Navlani, this is due to the long development of financial services companies that earn regular or annuity-like income. Kalra said it typically takes 15 to 16 years for such businesses to reach profitability.

Even though ET Money is a loss-making company, ₹According to Kotak Institutional Equities, the deal price of Rs 366 crore that 360 ONE WAM is paying for the platform is pegged at 13 times its sales.

This is more expensive than other listed investment platforms such as Prudent Corporate Advisory (9 times sales) or global platforms such as Hargreaves Landsdown (7 times sales).

A second chance for 360 ONE

In 2023, the split in Times Group (Bennet Coleman and Co. Ltd) meant fewer resources for ET Money.

Karan Bhagat, founder and CEO of 360 ONE, had been considering acquiring ET Money since 2019. Given Genius’ initial success, he became even more convinced by the ET Money concept and made an offer.

His previous attempt to launch an investment advisory firm – IIFL One – failed and had to be closed down. The person in charge, Sandeep Jethwani, founded Dezerv, a competitive wealth management platform focused on HNI (ticket size ₹50 million and more).

The acquisition of ET Money gives Bhagat a second chance at investment advice, this time focused on retail rather than high-net-worth individuals.

What’s in store for the future?

ET Money’s founding team of Mukesh Kalra and Santosh Navlani has apparently solved the Indian financial sector’s toughest problem – how to sell advisory services in a market dependent on distributors and commissions.

They have not yet achieved profitability, but with a relatively slim team (190 members) and low fixed costs, there is a clear path to profitability. They have leveraged technology and content to build a significant user base for their consulting services – 76,000 paid Genius members.

The future depends on what 360 ONE plans. Will it allocate capital to this platform and allow it to remain independent, or will it try to steer customers towards more lucrative and higher-margin distribution businesses? Only time will tell. For now, customers should stay put.