We all know about the sophisticated wealth management services provided to HNIs (High Net-Worth Individuals) by big banks. Advertisements for these services can be seen at places like airports, swanky hotels, galleries, golf courses etc. Have you ever wondered how it works and what services are provided to these wealthy people?
This business has 3 elements
a. Products (read exotic financial products designed by investment banks)
b. Relationship Managers and
A relationship manager (typically a guy in a suit from a premier B-school) solicits the client and explains how he can multiply his wealth by entrusting the responsibilities to his particular bank which essentially means investing in a plethora of financial products. For doing this the bank takes a substantial management fee (x% of wealth managed) out of which a hefty commission is paid to the RM.
This model makes Wealth Management and financial advisory expensive. So what do the middle class and upper middle class do if we want to invest effectively and grow our investments while ensuring that the downside is limited. There is an ever increasing list of asset classes like gold, commodities, Mutual Funds, Insurance, Real Estate, Pension Funds, Equity and debt etc. Add to this the increasing number of insurance policies, Mutual Funds, and debt products. This is making an average consumer confused and vulnerable to wrong/ sub-optimal decisions.
In India we are not used to looking at investments along with goal based financial planning and retirement planning. We rely on friends, colleagues, words of wisdom from parents, uncles and random websites/blogs.
The solution lies in technology. How about building a sophisticated online self-service platform where users can manage their financial portfolio themselves for little and no cost. Technology can provide advisory to a user based on his financial profile about how much to invest and where. Add web 2.0 to this and you can create a social network where people can share feedback and help each other avoid making mistakes. There can be a limited offline support if someone wants additional help. How does it sound? This, I believe, is the future of Personal Finance. An internet based technology can create an integrated financial solution with a strong advisory component.
Last 1-2 years have seen a number of ventures coming up and notable among them are investmentyogi, Rupeetimes, personalfn, Apnaloan (only for loans), Arthamoney, iTrust, various finance journals and personal finance sections in Business portals. Each of them is trying a different model to cater to the market.
The new generation platforms have following key capabilities:
• 360 view of assets and liabilities
• Transaction initiation capabilities
• Custom reporting
For example investmentyogi provides a complete financial dashboard to an individual. You can get your customized Financial Planning done and track all your investments and liabilities at the click of a button. It also tells you how to invest, where to invest and how to plan your taxes in advance apart from online tax filing features. There is a vibrant community which helps in sharing of information. The focus here is on sound unbiased advisory delivered through the internet.
Arthamoney is trying to build a superstore where all kinds of products in different asset classes can be compared and bought.
Apnaloan provides a platform to compare different loans from different banks and apply. You don’t have to spend valuable time getting quotations from different banks.
Even large Wealth Management companies are waking up to this reality and realizing the business potential in “mass affluent” class which is defined as a class having lower asset size than HNIs and UHNIs (Ultra High Net worth Individuals) but having much larger volumes. Many companies are trying to build self service platforms to cater to this class using internet as the delivery channel. One of the biggest advantages of this medium is the potential to acquire the most relevant information for decision making.
Where will this industry be 5 years down the line?
It’s always a very difficult question especially in these fluid and volatile times. But at this point of time it’s easy to draw an analogy with retail industry. Till about 4-5 years back we had mom and pop stores selling FMCG and other stuff while the FMCG companies were directly reaching out to the customers through advertisements in different media channels. An average customer would go to a store and ask for his favorite product or brand. But enter organized retail and the balance of power seems to be changing (except for this blip due to recession). A large retail chain can literally dictate prices to a FMCG company and it can influence customers to buy a particular brand, such is the power of organized retail.
Now think about how Mutual Funds, Insurance, Loans and Credit Cards (all personal Finance products) are sold as of today. Typically a MF is launched and huge hoardings come up overnight. A 15-20 day campaign is done on TV, Radio and Print. Consumers go to the distributor they know and buy it. But as the number of MFs , insurance policies, Banks providing different kind of loans and kind of cards is increasing the consumers are getting confused and taken for a ride by making wrong decisions. There is too much of information asymmetry in this distribution model.
Solution to this problem is organized retail but this time it’s going to be online as the products are not tangible. The industry is going to move away from mom and pop distributors and FMCG model to online super stores where you can compare every product, get advisory, manage all investments and have complete peace of mind. Investmentyogi and many others are trying to do just that. Providing seamless and rich customer experience with a focus on quality and reliability will be the key differentiator among the new age personal finance companies. It will be interesting to see the action unfold.
The author, Suryadeep Agarwal is a management graduate from IIM Calcutta from the batch of 2008 and is currently involved in a startup called InvestmentYogi. If you want to feature your startup on strat.in, please write to us on contribute at strat.in .
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