Millennials make up about 47 per cent of the Indian workforce and are the primary target group when it comes to investment products and financial advisory services. Across the age bandwidth, whether in their early 20s or late 30s, millennials are digital natives and prefer actionable financial advice through mediums that resonate with them.
Gone are the days when the friendly neighbourhood advisor sweet-talked investors into buying products based on incentives and commissions. The investor today has direct access to online platforms, expert knowledge, analysis and tools. To keep up with the needs of the urban and mobile consumer, wealth advisors are making significant investments towards FinTech innovations that help build their digital capabilities, and offer efficient and smarter services to remain competitive.
Some of the digital wealth platforms have realised that this audience is looking beyond transactional capabilities. Digital wealth management is not just limited to offering online channels for transacting, but rather using technology to offer greater value, professional service and reshaping one’s investment journey while avoiding traditional biases that have earlier had a negative impact on investors. Here are some digital changes that are transforming the wealth value chain.
Better understanding of investors
Traditional advisory models conduct a cursory KYC that is designed to fulfil regulatory requirements. They may ask clients to fill out questionnaires or sit through offline interviews with a Relationship Manager (RM) to understand risk appetite and investment goals. However, the assessment is limited by the quality of questions, the ability of the investor to understand and respond, and the RM’s capacity to comprehend the information.
Digital advisors now have the ability to use technology to better understand what their clients really need. Data can tell us how and where investors are fulfilling their financial goals.
Planning and investment allocation
Digital advisory does not just rely on the expertise and experience of an investment advisor. Robo-advisory services include algorithm-driven financial planning that eliminate any human inefficiency/bias and reduce the cost of rendering the service. We can now construct personalised and dynamic portfolios that can focus on different investment and life-stage goals.
In addition to advisory services, these systems can also design personalised budgets and financial plans, conduct automated transactions for investing, portfolio rebalancing and tax-loss harvesting.
Robust portfolio management
Thanks to technology, portfolio tracking and on-going management is not limited by time and place anymore. This benefit especially comes to the fore, considering the volatility in the present investment market and the risk of physical interaction during the COVID-19 pandemic. With the help of Application Programming Interfaces (APIs), wealth management companies can serve platforms that give clients absolute control over their portfolio from the comfort of their handheld device.
Some advisory firms/apps may even be able to integrate multiple investments of a client through an open platform, and provide a comprehensive view for better decision-making. These APIs can help manage financial information across investments, liabilities, insurance, expenses, etc. in one place, provide alerts against risks and offer relevant recommendations for financial prudence.
Technology allows investors to be on top of their investments at all times. Digital tools can help with portfolio management and portfolio scans, which help in reviewing funds and propose corrective actions, if any.
Why digitisation is the future of wealth management
Accessibility: Digital services help cut operational costs by a significant margin, making wealth management solutions affordable and accessible to a larger demographic. Investor education modules via apps and gamification will help bring in greater financial literacy and inclusivity.
Personalisation: Everyone’s financial needs change with age, assets and perception. Digitisation can offer a much higher level of customisation of wealth management services, as compared to a traditional service provider. This not only enhances the investment experience, but also helps maximise returns while minimising undue risks.
Risk management: Digitisation can draw an effective 360-degree risk management framework for all stakeholders – clients, service providers and regulators. While clients can manage risk and reward, systems can identify abnormal financial activity, money laundering risks, credit risks and non-compliance making for a safer financial ecosystem.
Evolved financial products: India’s wealth management market still pretty much revolves around traditional, tried-and-tested investment products. In future, with access to digital resources, a larger number of people will become receptive to better investment products.
In closing
The wealth management industry in India has enormous untapped potential. If you have a smartphone, internet connectivity, and investible resources, there is no reason why you cannot get the best of financial assistance.
Automation at each level of the financial value chain is customisable. The level of digitisation is at the discretion of the client. You can either use the services as a DIY investment platform, opt for a fully automated process that can invest on your behalf or go for a hybrid robo-advisory service where an investment manager leverages digital tools to improve performance and service quality.
The future of investments is digital.
This article originally appeared on moneycontrol.
