Rekha Chand is a successful entrepreneur who owns a small boutique in the city of Kolkata. Rekha has been working very hard for the last 5 years and has recently paid off the last installment of her business loan. Business is booming and she has started accumulating her hard-earned savings in the bank. Her best friend Suresh keeps telling her to invest in a stock that he thinks is hot. Suresh is a bank accountant who frequently invests in the stock market. He frequently makes a lot of money by speculating about various stocks. He feels bullish about the market and recommends that Rekha invest all her money in this stock. Feeling excited about the prospect of compounding her savings, Rekha invests all her savings in the stock market as recommended by her friend. Unfortunately, the asset tanked and Rekha lost all her life savings in no time.
Does this story sound familiar to you? Does this mean that one should avoid the stock market?
Suresh and many others like him would strongly disagree, but what about Rekha? Given that investing in itself is a complex affair with difficult-to-understand technical jargon and exhaustive processes, Rekha should invest in the stock market, but she must do so with the help of a financial advisor.
Financial advisors help investors in making critical financial decisions by guiding them through the intricate realm of investing. They use their knowledge and expertise to strategically curate personalised financial plans and help each client in their financial journey. With the Indian economy booming and stock markets rising, the wealth of the middle class has drastically increased and so has the demand for wealth managers. Many hard-working Indian professionals, who are just like Rekha, are increasingly looking for the help and support of wealth managers to grow their hard-earned money. The increasing prominence of alternate investment assets and strategies has further stoked the demand for wealth managers and wealth management. This increased demand stands in stark contrast to the limitation of the industry - quality wealth management services are available only for investors with big-ticket sizes.
The Indian asset management industry has grown steadily to amass over INR 24 trillion AuM and has the potential to cross INR 100 trillion AuM in the near future. However, there are several barriers that are standing in the way of the 100 trillion goal. Interestingly, the problem does not lie with the current pandemic. Despite the disruptive effects of COVID, the Indian stock markets have performed exceptionally well compared to their global counterparts and are expected to remain bullish. The challenge instead is due to a considerable lack of awareness in investments and penetration of asset management in tier 2+ cities.
They serve the essential purpose of bridging the gap between individuals such as Rekha and the stock market. More importantly, they can help the industry realise its 100 trillion vision by facilitating the growth of the industry and helping individual investors realise their financial goals.
While many Indians are moving away from physical savings to financial savings, the Indian market remains highly underpenetrated with only 2% of Indians investing in stocks, compared to developed countries such as the US, where 55% of the population invests in stocks. The key to narrowing this gap will depend on increasing outreach to Tier 2 cities, where nearly 90% of Indian households are located. Wealthtech companies are narrowing this gap by providing high-quality financial services to investors of all ticket sizes and demographics. With the support of technology, they can leverage their low-cost offerings and superior user experience to penetrate a larger Indian audience and increase their presence in rural India.
The industry’s complex jargon coupled with extensive onboarding processes and a wide range of products often discourages first-time investors from following through. Nielsen survey data shows that 56% of investors felt that transactions often took too long to complete and 48% had to follow up multiple times to ensure that the transaction was processed. While many steps have already been taken by Wealthtech platforms to simplify the KYC processes and enhance the user experience, there remains significant scope to re-invent the complete customer experience. As the industry grows, companies in coordination with the regulators, will continue to simplify the current processes and provide an effortless investing experience for the investors, which will facilitate the growth of the industry.
Companies are constantly transforming traditional investing by integrating cutting-edge technologies such as Artificial Intelligence and Predictive data analytics to make intelligent investment decisions. By deploying technological innovations, such as the automated back-end processes, across the asset management value chain, platforms are efficiently managing risk and lowering costs. Furthermore, by taking decisions backed entirely by realistic data and objectivity, they can remove any emotional bias from investing and thus maximise returns.
Tech-savvy millennials, who account for 70% of the working population, generally have a strong preference for transacting online. Furthermore, the pandemic has acted as a catalyst in the digitisation process by fostering habit formations among investors of all ages. Wealthtech companies specialise in providing digital solutions and therefore form a better fit for individual investors who feel more comfortable using digital platforms. Therefore, this digital push is increasing organic onboardings across various platforms and reaching wider audiences.
Wealthtech is transforming how advisors and investors approach wealth management. The growing digital presence of Indian investors, the emergence of alternative investment assets, and the increased demand for wealth managers have set the stage for the industry to revolutionise asset management and play a vital role in wealth creation. But, with every new opportunity comes new challenges. Wealthtech’s heavy dependence on automated processes can be a double-edged sword. Today’s investor not only wants a seamless digital experience but also wants a personalised one. Companies need to build trust with the investor by integrating collaborative engagement tools such as video conferencing, in-person consultations, etc. to understand their needs and bolster confidence. Initially, going with a Hybrid model, where the client has access to both digital tools and human advice may be ideal to develop a strong relationship with the customer.
By providing new opportunities to investors of all demographics and ticket sizes, Wealthtech can substantially improve the lives of hard-working Indians such as Rekha. However, with the entry of various sub-groups of investors who may have their unique style and preferences, Wealthtech must constantly adapt to facilitate their integration into the wealth management space. For example, creating personalised financial plans for women who are a growing segment of investors is the need of the hour. The ultimate goal should be to provide quality wealth management services for all and aid investors across sub-categories to achieve their financial goals.
Author: Team dezerv.
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