Aggregation model

Many distributors sell financial products to investors: mutual funds, insurance, bonds and more. Building the research team, the technology and the compliance systems to do this well is expensive for a small distributor working alone.

An aggregation model solves this. A large company does the heavy lifting once, for many distributors at the same time. It picks which products to offer, after its own research. Smaller distributors then join this company and offer only the shortlisted products to their clients.

In return, the smaller distributor gets training, a customer relationship management system, and a platform to place orders. All of this would be costly to build alone. The smaller distributor pays the aggregating company a share of the revenue it earns for these benefits.

The workbook places the aggregation model inside execution-only services — the business where an adviser earns commission from selling products, not fees from the client.

An aggregating entity does two things. First, it runs a central advisory or research team that studies products and shortlists the ones its network may sell. Second, it builds shared infrastructure: training programmes, customer relationship management (CRM) software, and execution platforms. A single distributor could not afford to build all of this alone.

Distributors who join the aggregator agree to sell only from its shortlist, and pay the aggregator a share of their revenue in exchange for the research and the platform. This lets a small distributor scale up its business without the cost of building the infrastructure itself.

Rekha runs a two-person financial products distribution shop in Nashik. She sells mutual funds and insurance to about 150 clients, but she has no research team and her back-office system is a spreadsheet.

She joins an aggregator platform that has already shortlisted 40 mutual fund schemes after its own research, and gives her a CRM system and an order-execution screen. Rekha now offers only those 40 schemes to her clients. In return, she pays the aggregator 20% of the commission she earns on every sale routed through its platform — a revenue-share rate the workbook does not fix, since aggregators set their own terms.

Rekha's business grows faster than it would alone, because she spends her time meeting clients instead of researching funds or building software.

Chapter 1 (Introduction to Personal Financial Planning), section 1.6 'Financial advisory and execution', describes the aggregation model as one of the business models used in execution-only distribution, alongside wraps and platforms. Expect a question that asks you to match a description of pooled research, shared CRM and revenue-sharing to the term 'aggregation model', and to distinguish it from a fee-only adviser, who does not take commission at all.

• An aggregator is not an Investment Adviser. It shortlists products for distribution and earns commission; it does not give SEBI-registered investment advice for a fee.
• Do not confuse the aggregation model with a wrap or platform. A platform executes standardised model portfolios; an aggregator's core job is picking and shortlisting the products its distributor network sells.
• The revenue the aggregator earns is a share of the distributor's commission, not a fee paid directly by the investor.