Your Money: We still need a financial advisor

Wealth-tech should not be seen as something that completely displaces humans. Rather it should be viewed as an enabler that complements existing human capabilities

Your Money: We still need a financial advisor
The number of mutual fund folios (investor accounts) increased from 8.97 crore in March 2020 to 12.95 crore in March 2022 representing a 20.15% annualised growth.

By Varun Fatehpuria

Millions of first-time investors — from an 18-year-old college student to a 50-something living in a small town —got into the stock market during the pandemic. Some to make up for their lost income, some because of too much idle time and yet some because it looked like easy money. It only helped that the market unilaterally travelled in one direction — up and to the right.

The number of mutual fund folios (investor accounts) increased from 8.97 crore in March 2020 to 12.95 crore in March 2022 representing a 20.15% annualised growth. This was also due in part to the rapid proliferation of wealth-tech apps that made the entire experience effortless — from digital KYC to account opening to transaction payment. While any stock/mutual fund that an investor bought two years ago delivered a positive return, we have seen a reversal of that trend in the past 4-5 months. The geo-political uncertainty due to the Russia-Ukraine war, the inflationary environment and other factors have all led to the recent market correction.

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Complexity of financial products

Investors often overestimate their abilities during a bull market, yet run to seek shelter during a bear market. India has a financial literacy rate of only 27% and one advisor for 17,000 people. United States, by comparison, has a financial literacy rate of 57% and one advisor for 1,490 people. This is further evidenced by the fact that out of a population of 1.3 billion, there are only about 30 million unique investors investing in the capital markets via mutual funds. This can also be attributed to the sheer number and complexity of financial products. There are over 1,900 mutual fund schemes across 48 different categories offered by 45 fund houses. How does then one know what combination of investments is right?

Bridging the knowledge gap

It is in times such as these that advisor-assisted wealth-tech platforms thrive. Investing is a disciplined approach that takes into account a multitude of factors like one’s individual risk tolerance, asset allocation decision, diversification, portfolio construction, etc. It requires dedicated time, knowledge, and experience to do it right. A trusted advisor bridges that knowledge gap and guides the investor to take relevant data-driven financial decisions.

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Personalised advice has often been reserved for the ultra-wealthy. It has been argued by established wealth-management firms that the meager commercials make it unfeasible for them to tap retail investors. Add to that the growing legion of apps promoting ‘democratising’ access to financial products by encouraging do-it-yourself investing — and you have got the perfect recipe for making people believe that investing is something that can be done with little effort.

Yes, technology has widely helped in reducing any transactional friction — but what it still has not been able to perfect is how to provide personalised financial advice. Or the guidance of a trusted partner during moments of distress.

It is therefore a bit misplaced to view wealth-tech as something that completely displaces humans. Rather it should be viewed as an enabler that complements existing human capabilities. India has a rapidly expanding middle-class and a young population that is both aspirational and seeks better wealth-creation opportunities. All that they need is the correct guidance. Not comforting mis-truths.

Human touch

* A trusted personal finance advisor bridges the knowledge gap and guides the investor to take relevant data-driven financial decisions

* Technology has reduced transactional friction but is yet to perfect how to provide personalised financial advice suited to an individual’s needs

The writer is founder & CEO, Daulat

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