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Guest Column ‘Why hybrid model is the future of financial advisory’

‘Why hybrid model is the future of financial advisory’

Many people think robo advisors will replace humans. They are wrong. Computers definitely function at a much faster pace than humans; but humans too are skilled at certain things that computers cannot do.
Amar Pandit Aug 5, 2017

Today technology has become an inescapable part of our everyday lives. From grocery shopping to banking or even buying a car insurance or rent a house, people seek online solutions. Smart phones and the internet have only added to the digitization of daily activities. The financial planning industry has also joined the digital bandwagon.

To make the right kind of financial plan, getting professional advice is the best bet. However, getting personalized financial advice needs sufficient amount of research and time that is not a cup of tea for everyone. A potential solution to this is a robo advisor.

Robo Advisors are essentially digital platforms that provide financial planning and investment services. They usually automate their processes by using mathematical rules and algorithms. Such processes lower labour costs and benefit investors.

They also offer personalized financial planning based on time horizon, risk profile and goals of the customer. Additional benefits include auto-rebalancing of portfolio accessibility from multiple devices (smart phones, laptops, tablets, etc.) and investors can start with a minimum investment.

For today’s generation, robo advisors are crucial. This is mainly due to people’s tendency of living a lavish lifestyle on a working-class income. Saving for the future has unfortunately taken the second place.

Robo Advisors come in different flavors, ranging from a pure transaction oriented platform to ones with a goal-oriented process driven approach. The key for consumers is the personalization and client experience that a robo advisor could potentially offer. However, there is a need to be sceptical of platforms that just boast of their super product skills. The focus should be on the ones that think long term and make you think long term.

Robo advisors democratize wealth management services previously reserved for the wealthy. They are thus considered to be the future of the financial services industry.

As compared to the size of the asset management and investment space in developed countries, India is still a miniscule market. There is immense opportunity in the coming 20-25 years. But at the same time, the world is changing at a rapid pace due to exponential changes in technology. Thus, it is very important for advisors to keep a pace with such headwinds.

Most wealth managers resist change and think that they must fight the technological advancement. Many also think robo advisors will replace humans. Both are wrong. Computers definitely function at a much faster pace than humans but humans too are skilled at certain things that computers cannot do. Technology can never replace human beings. No technology can understand the feelings of clients and tell them that they should not panic during volatile times. In fact, Karvy data shows that 90% investors who invest directly (many of them by using online platforms) redeem their investment within a year.

This is where brick and mortar advisors come into play. They handhold clients and help them avoid irrational financial decisions.

In addition, people trust people (advisors) more than a computer. When it comes to their hard earned money, they need a person who can reassure them that they are on the right track. Technology should be looked at by both – the investor and the advisor – as a tool for efficient implementation and tracking of the plan and the financial goals.

The point is that humans and computers have to work together to deliver an excellent client experience. The choice is not either or. It is both.

Amar Pandit is Founder and Chief happiness officer of Happynessfactory.in.

The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.

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