Robos would move from investment planning to full financial planning2 min read . Updated: 06 Apr 2017, 05:42 PM IST
Sharad Singh, founder and chief executive officer, Invezta.com spoke to Mint about the growth of robo-advisories in India
Robo-advisors have arrived in India but they have not yet attracted investors in masses. Do you think investors will be able to trust them?
Mutual funds themselves haven’t attracted the masses yet! Robo-advisory is a new concept and it would grow with industry penetration and marketing by respective firms.
However, in a short time, since the robos have existed, the response has been promising. All of us have been trusting machines in our daily life. At Invezta, we see investors equally comfortable with algorithm-driven advice. People love value. They find our revenue model (direct plans with a flat fee) aligned to their interests and this gives them a lot of trust. Even the high net worth individuals have started using it, which shows growing comfort and adoption.
Do you think robo-advisors would be able to do holistic financial planning or would they be restricted to platforms where you can buy and sell products?
It’s not a question of capability but of time. When do they do it? As the penetration of mutual funds increases, the need for financial planning shall also emerge. The robos would crossover from investment planning to other financial products and offer comprehensive financial planning.
Most of the platforms today are just ‘online transaction platforms’ and not even robo-advisors. Only a few offer features like algorithm-driven portfolios and automated rebalancing and optimizations, which make a true robo-advisor. I believe we are witnessing the morning twilight, in terms of technology’s impact on personal finance.
Will human intervention need to be brought in by robo-advisors too at some point?
Customer segments would emerge with time and for the segment that needs a human interface, robos would need to go hybrid. Wealth managers are already adopting hybrid models, where algorithms at the back-end deliver consistent scientific advice, and relationship managers interact with the clients.
Robo-advisors have been slow to take off. Abroad, they are now slowly gaining traction. What are the biggest challenges to growth in India?
In the US, the robo-advisors have created a buzz around automated low-cost advice. Existing entities like Charles Schwab (an investment service company) quickly launched their own version of low-cost platforms, giving competition to pure robos. In India, the challenge is investment penetration. Once more investors come into the arena, themes around online investing, low-cost investing with direct plans, exchange traded funds and robo-advisories would start playing out and relevant segments shall emerge. In our experience, investor on-boarding and mutual fund operations are the biggest challenges to increasing the investor base and giving them a great experience.
First, from an on-boarding perspective, one can purchase electronics, grocery, movie tickets, air tickets, or a house lease in a few seconds online but ironically, saving in mutual funds, for a new investor, still takes (more) time and effort. There were a lot of expectations with cKYC (central Know Your Customer Registry) but that has been a dampener till now.
Second, mutual fund transaction processing still requires manual effort and hence is costly and error prone. The average cost of mutual fund transactions is higher than the cost of stock transactions on exchanges.
The industry processes must be immediately standardized, automated and the technology infrastructure of transaction processing must undergo a major overhaul.