When it comes to investing your hard-earned money, why should you be limited by geography? By the narrow circle of those you know, such as the mutual fund agent near your office or your bank relationship manager? Or by the amount you have to invest? Don't you deserve the best possible financial advice? Don't we all?
What was once wishful thinking is now readily available. India now has 40-odd web-based online advisors, also called robo advisors, which are meeting a growing demand for professional investment-management services, not just from the rich, old and seasoned investors but also from young novices who have drawn their first pay check and want to invest it wisely. Robo advisors represent such a big change in terms of delivering expert investment advice in the country that the Securities and Exchange Board of India, or Sebi, has become one of the first regulators to recognise their potential.
Simply put, robo advisors are online advisors that deliver automated, personalised investment plans at a low cost. A robo advisor does everything a traditional human advisor does - understanding your risk profile, rebalancing your portfolio, and delivering transparent, real-time reports on demand.
The best part is that robo advisors are much faster, cheaper, even fairer. Faster, as they use automation. Cheaper, as they save on the expenses of traditional advisors - the posh office space, the fancy lunches and the overpaid staff. And fairer, as their fee structure is transparent and they sell you investment products that are in your interest, not theirs. For instance, many robo advisors only sell zero-commission direct plans of mutual funds; the commission saved is added to the funds net asset value and plumps up your savings. On the other hand, traditional advisors are known to push regular plans that earn them a lifetime of hidden commissions and leave you poorer.
Not surprisingly, young investors have been adopting robo advisors at a dizzying pace, especially in developed markets like the US. This is not only because the young are more tech-savvy and prefer interacting with a screen over a human being. It's also because young investors can't afford the expensive services of investment advisors, and even in cases where they can, competent advisors are hard to come by. For instance, India has only 2,500 certified financial planners for the 62 million households that earn more than Rs 5,00,000 a year.
While millennials have been at the forefront of this new trend, their parents are not far behind. In the US, for example, about one-third assets that leading robo advisors manage are from customers over the age of 50. Interestingly, the investment goals of older investors - lower fee, good advice and transparent reporting - are not very different from that of their children. According to a 2015 E&Y report, 73 per cent of high net worth individuals in India look for transparency in fee and correct risk-assessment - areas that robo advisors excel in.
The spurt in online investment advice in the past few years has got a lot to do with the ease of account opening. The process, particularly for KYC-compliant customers, takes only a few minutes and can be completed from the convenience of your desktop without meeting the advisor in person. With the introduction of Central KYC (cKYC) and eAadhaar in a few months, it is set to become even simpler. You will soon be able to open an investment account and start transacting just by entering your Aadhaar number on a website or an app.
The robo advisor of tomorrow will look quite different from the robo advisor of today as technology gallops forward. Some will offer hybrid human-tech platforms, teaming automated features with on-call video access to a human advisor for questions and support. Others will integrate big data and machine learning to deliver customised advice to each customer.
But all true robo advisors, present and future, must share one defining characteristic - lower fees. This means more money for investors, instead of their brokers, agents or advisors. After all, and this is something no traditional advisor will tell you because it's his bread-and-butter to make you believe otherwise, why should investing cost you an arm and a leg? It's stupid-proof enough if you follow four simple tenets:
- Spend less than you earn
- Invest your savings in a long-term diversified portfolio
- Keep investing cost as low as possible
- Sit and wait!
It's no secret that the investment advisory business has fattened itself by mainly serving affluent clients and avoiding smaller, unprofitable ones. Which is why despite 1.17 billion savings bank accounts and 330 million insurance policies, only roughly 1 per cent of the Indian population, or around 13 million individuals, owns mutual funds. The rest still relies on traditional savings such as bank deposits and gold, which barely beat inflation and are guaranteed to leave them worse off over time.
The dark ages of investment advice are drawing to an end. For the first time in history, access to quality investment advice has been democratised and brought online so that everyone can get it. A new renaissance is under way. Don't you want to be a part of it? ~