Advantage customers: providers shift focus7 min read . Updated: 12 Apr 2013, 07:33 PM IST
Here are some examples that reflect the shift in the industry mindset.
The market environment for financial services has changed significantly post the 2008 global financial crisis. While regulators have realized that services and products need to have a greater focus on customers, service providers themselves have acknowledged that the endgame is in the benefit that customers derive. Besides, a severe equity market environment and rising competition is pushing companies to develop unique propositions. A number of organizations across the spectrum of financial services—be it product providers or advisers, for retail clients or high net worth investors (HNIs)—are now adopting distinctive ways to showcase customer benefit.
Here are some examples that reflect the shift—towards making financial services and products more transparent and accessible to customers—in the industry mindset.
Zerodha: It is a purely online broking company that works on a model it calls “Zero Brokerage". Though as the name suggests, the brokerage is not zero, the uniqueness is in low fees—they charge a flat 20 per trade regardless of the amount involved. This is valid across the cash and derivatives segments. Says Nithin Kamath, founder and CEO, Zerodha, “Gone are the days when traders just worked out of physical offices, so we put together a service which is completely online."
You can create your account online and start trading. You can also input a view on the market or a stock, say an index level you expect, and get strategies for trading accordingly. Sample this: the average brokering rate per Nifty futures contract is around 0.03%. So for a trade value of say 3 lakh, you will have to pay 90, but if you trade with Zerodha, you will pay 20. If the trade value increases to say 20 lakh, you will still pay 20.
Kamath says, “Our greatest challenge was to make people believe that it works at such a low rate as most associate high price with high quality."
Zerodha is able to charge a low rate because it minimizes costs by relying on technology completely; they don’t have physical offices and all queries are resolved online. With an average daily turnover of around 3,000-4,000 crore, they now have 23,000-plus customers and social networking sites are an automatic marketing route for them.
Recently, Standard Chartered Securities (India) Ltd has also been advertising a broking account where the trade cost per buy transaction is a flat 1.
While it’s too soon to say whether others will follow suit and how big this market may become, there is definitely a cost advantage here.
What’s good: It’s inexpensive
What’s not: No tips on buying and selling
When it comes to services such as portfolio management and wealth advisory, often the performance reporting varies with the provider. Given that portfolio management is really ongoing and asset allocation may be subject to change, depending on the market environment, it’s hard to gauge the result of dynamic shifts in the original asset allocation and the impact of cash movement on portfolio returns.
Advisory Index: Motilal Oswal Private Wealth Management, which primarily offers services to HNIs, has developed an Advisory Index by which clients can judge value additions at various level up to the last transaction. The index, a graphical representation, seeks to show the difference in portfolio performance in terms of value addition by advisers’ tactical calls compared with static asset allocation.
Ashish Shanker, head (investment advisory), Motilal Oswal Private Wealth Management, says, “When we built our proposition we found there was a trust deficit between the client and the adviser and mostly it is about positioning products. Moreover, performance measurement at the portfolio level is a bit fuzzy."
The index doesn’t work in isolation; rather it is in the context of pre-determined risk profiling and goal setting done with the client.
This tool is accessible online as well as on iPads and iPhones. Shanker says, “Clients have responded well. They appreciate the transparency." This kind of a process also makes the adviser more responsible as the consistency of advice is tracked and any divergence from the firm’s view can be spotted.
What’s good: Adviser accountability
What’s not: Developed and audited in-house
Another attempt at transparency can be seen in the way Avendus PE Investment Advisors Pvt. Ltd, has engaged Morningstar Inc., a US-based mutual fund tracking firm, to do an independent performance evaluation every quarter for its funds that invest in listed stocks. These funds are referred to as PIPE (private investment in public enterprise) funds. Morningstar rates funds on performance against similar funds after adjusting for risk and taking into account sales charges. Says Manoj Thakur, chief executive officer, Avendus PE Investment Advisors, “We needed to show our performance relative to our peer group in a transparent manner. Also, it was essential to bring credibility to such an evaluation and therefore the exercise had to be conducted by a reputed third-party such as Morningstar."
So far, Avendus has two PIPE Funds—Avendus India Fund I and II. Both are subject to this evaluation; it launched a third PIPE fund last month.
Such an independent evaluation is not mandatory for private equity (PE) funds. When asked whether this trend can follow through to PE funds with unlisted assets, Thakur said, “It depends on where the PE funds are raising money. Typically, global institutional investors (LPs) have access to the return data of many PE funds through direct interaction. Additionally, there are agencies that compile such data. In India, the PE industry is young and the domestic investor base is still developing. The lack of credible comparative data could create a hindrance in the development of the local market."
What’s good: Open comparison against benchmark and a basket of similar small-cap funds
What’s not: No comparison against similar PE funds investing in unlisted firms
While online broking has been around for at least a decade, the newcomers in the online space are comprehensive personal finance platforms. Earlier, most online sites were only complementary to the service, providing portfolio aggregation and monitoring, and for advise someone had to be contacted physically. The new platforms provide end-to-end services, where you don’t even need to meet the advisers personally.
According to Nitin Vyakaranam, chief executive officer, Artha Yantra, a personal finance solutions provider catering to middle income professionals, there are a few simple reasons why online personal financial management is the future of the industry: financial dis-intermediation, standardized advice and ease of use.
Arthos Beta: Three years ago, Artha Yantra started a premium personal financial management service, Arthos Plus; they have now launched the online version of this service, Arthos Beta.
Arthos Beta aims at consolidating the planning, execution and management of your financial plan completely online. It offers services such as goal setting, risk profiling, a basket of services including things such as loan refinance (if it is needed as part of the plan) and products including mutual funds and insurance. For you, having this service online reduces the dependence on a number of intermediaries.
It also gives control over your money. Vykaranam says, “Customers have the option to execute with us or to execute on their own. Now around 60% choose to execute with us, but we feel that the option has to be given as our job is primarily to provide them solutions."
Arthos Beta was launched in November 2012 and already has 8,000 clients from 341 cities, out of which 41 are overseas cities. The geographical spread of the customers shows the effective flow of standardized advice across the client base.
What’s good: user control and free online access (as of now)
What’s not: Optional execution makes tracking performance less accurate
MyUniverse: Recently, MyUniverse, an online money management portal by Aditya Birla Money, got into a tie-up with Moneycontrol.com to offer an expanded personal finance platform. The unique feature that MyUniverse offers, other than giving personal finance advice and transaction platform, is the aggregation of bank account details and credit card and loan details with other financial information at one source and the ability for the user to manage this on one online space.
Moneycontrol.com, which is more of a portfolio management site will now offer the aggregation service that MyUniverse offers to its users. So basically you can access your investment break-up, your bank account balance, credit card and other loan dues in one comprehensive format.
What’s good: All important financial information at one place
What’s not: You have to share your online bank account details
Regulatory change is also nudging such business models. We expect this space to grow and would track it as it evolves, so keep reading.