When Ikea was setting up shop in India, they realised that one of the trickier things they would have to deal with was to help Indians get a taste of its DIY experience, because let’s face it, furniture assembly on our own isn’t really our cup of tea.
What about financial services? With the wealth of automated products and wealth advisories available online, do you need a financial advisor, or will a DIY approach suffice?
Until recently, the investment and finance industry was a murky world of jargon, dark suits and voices whispering, “You don’t know what you’re doing with your own money.”
Financial services have generally been push products and shamelessly so. I’ve lost track of the number of times insurance agents, banks and other financial product distributors have asked my father to at least invest a little of his money with them. Many sales pitches are outright pity pitches: “Please do it for me, I need it to meet my targets or save my job.”
These pitches are never about how the product will help the investor, and only end up destroying trust.
Now regulatory changes like the promotion of direct plans in mutual funds, evolution of technology such as hassle free KYC, onboarding and investing, and the spread of cheap mobile data, has resulted in a dramatic shift in the personal finance industry.
One such shift is the rise of robo-advisors — essentially tech platforms that offer investment advice without human intervention. Rather than a human making suggestions, these robo-advisors rely on algorithms to guide your investment decisions.
Many of these new products and services are targeted at millennials. Unlike the US, where many millennials are likely to be worse off than their parents, India’s young millennials are looking to live better and are betting on technology to make their lives simpler, which would make it one of the world’s youngest countries by demographic segmentation. What this also means is that the success of companies, large or small, is likely to be influenced by the millennials.
Indian robo-advisors have latched on to this opportunity to promote mutual funds to meet everyone’s financial goals — be it a vacation or a retirement plan. The Association of Mutual Funds in India (AMFI) has also taken up the mantle to promote mutual funds and has used every medium they can – TV, print and digital media.
We’ve had dozens of robo-advisors popping up with each new one trying to improve upon the flaws of the older one. Some of them have been successful, maybe not at making money as a business themselves but at gathering assets by either showing how their fund selection algorithm is better than the others, or by offering a slew of features including a life time free (no commissions and no charge for the platform) model.
Along with this ease of investing, for investors who make their own money decisions, direct plans in mutual funds (which did away with the commissions to middlemen) have come as a life saver. The combination of lower cost and ease in transacting is great for the industry which is still in its very nascent stages and has shallow market participation. As Jeff Bezos of Amazon said, everyone always wants things for cheaper and faster and that’s something that won’t change.
With so many tools available, do millennials need financial advisors?
While robo-advisors give the impression of providing better service for cheaper, we forget that for high quality service or advice we still need to pay. In the long run, if we don’t use the help of a professional for financial behavioural guidance, we may actually end up losing out on more.
Investing isn’t just about products, and low pricing alone cannot cut it. One of the creators of the robo-advisory segment, Betterment in the US, started with a simple robo advisory platform but changed track once they realised that people didn’t just want a platform to invest, they actually did want to converse with other human beings.
Am I on track to meet my goals? What do I do if my income circumstances have changed? Should I actually buy a house or rent one? these are questions which robo-advisors are not yet equipped to handle.
So, while they may work as a starter pack for investors, sometimes we need a little hand holding like what Ikea did by putting together their assembly team for DIY furniture. There is one concern that I have though — if investors are investing their money without some guidance, the fear created by the recent mutual fund debt debacle or the price erosion seen in small cap funds in 2018 could mean that the benefits of the platforms in drawing in people vanish and leave another generation of scarred investors.
At the end of it all, good financial advice is about empathy, counselling and numbers. It’s not just one thing. You can DIY if you have the inclination and mental framework for it or you can opt for guidance to ensure that you avoid mistakes. Now, you choose.
Nithin Sasikumar is the co-founder of Investography, a financial wellness company based in Bengaluru. He can be reached at firstname.lastname@example.org or on Twitter @NithinSasikumar