The relationship between capital markets, individual advisors and investors is unique. As per the report by Boston Consulting Group and Association of Mutual Funds of India (Amfi), Unlocking The Rs 100 Trillion Opportunity, it is crucial to handhold, educate and guide investors. Markets are like the deep sea waters, sometimes calm and sometimes turbulent. Navigating this volatility, and most importantly, taking their first leap, requires handholding.
It is well known that financial literacy is low in our country, and that the majority of all savings is in fixed deposits or savings accounts. Mutual fund penetration in India is less than seven per cent, and there is a very high co-relation between density of distributors and this penetration. This is perhaps not so surprising when we dig to understand more. While venturing into the market, financial distributors train investors by educating them. This is specially so during turbulent times of market volatility. Investors are in a way provided with safety gear when they understand the importance of financial planning, risk profile and having a path to achieve their goals. This important aspect helps investors in two aspects: making savings a habit, and removing emotions from decision making.
A Partnership Of Trust
Given the low financial awareness, the vast majority of people need a person or a brand they can repose their faith in, to help them navigate in unchartered territories. They trust people whom they know and place a lot of faith on referrals they get from friends and family. Data shows that over 90 per cent of all LIC policies sold in India are by individual distributors. The prevalence of LIC across India, way beyond Tier 1 and 2 cities, is an indication of this factor.
Local, independent distributors have high face value and a strong brand name in the area they serve. This is not surprising given that growth in their business is via word-of-mouth endorsements by people they serve. A further boost comes from their understanding of the local factors such as property rates, cost of living, education, and healthcare infrastructure. Data reveals that retail investors prefer approaching them for financial advice than anonymous digital interfaces. Retail investors trust distributors enough to discuss financial goals like buying a new home, children’s education, retirement plan, etc., and receive personalised personal finance management services, which adds significant value. Like a personal trainer at the gym, an independent distributor is often instrumental in making the difference between continued savings versus short-lived New Year resolutions.
The Digital Boon
Fintechs have done a great job of introducing innovative products and providing digital platforms. Their reach has garnered immense attention from various parts of the country. But digital investments are still uncharted waters for many. A large segment of investors requires help in understanding investment products and executing transactions. Independent financial advisors (IFAs) bridge the gap between technology and investors.
Digitisation has been a boon for the independent distributors. The biggest advantage has been improved client servicing, from on-line KYC, financial calculators and tools to paperless execution and online monitoring of client portfolios. The second aspect is access to a wide range of products and services, which means more of clients’ needs can be serviced. Third, and the probably most important, is giving access to not only research, but also robo-advisory tools, which helps design portfolios and track/change them as required.
Given that the majority of investors require help in understanding investment products and in executing transactions, this two-step process of Human + Technology is driving growth.
Independent distributors have adopted digital enhancements in a big way. As entrepreneurs, they understand the importance of efficiency, reducing costs, and serving a much wider base of clients with an enhanced product offering. New-age fintech companies also allow them to evolve to the next level of engagement with their clients using mobile apps, customised recommendations and ease of execution.
Robo advisory is an augmentation rather than a replacement. There is no doubt that artificial intelligence and machine learning allow a lot more data to be analysed and optimal recommendations being made. At the same time, customising and communicating to clients with a human touch is crucial in increasing adoption of these tools.
The Bottom Line
Industry estimates that there will be 100 million new households that will start to make planned investments and savings over the next 10 years. With a vast majority of them being retail, and many being first-time investors, having a vibrant independent agent network is crucial. Digitisation of this ecosystem will truly democratize wealth management in India.
The author is Co-Founder and CEO of Fintso