The RBI committee headed by Dr. Tarun Ramadorai, Professor of Financial Economics, Imperial College London, believes that robo-advisory is the way forward. The committee feels that that robo-advisory is the cost-effective way to increase the penetration of mutual funds.
In its recommendation, the committee says, “Technology can play an important role in cost effective expansion of financial advisory services. To quickly scale up the availability of advice across the country, automated advice is a good strategy subject to the right checks and balances, and the committee supports the continuing development of robo-advisory services. The committee notes here that different regulatory agencies have not been clear about the legality of providing robo-advice, and so we currently see that the maximum number of such firms are operating in the context of mutual funds. We therefore propose that all four regulators clarify that robo-advice is permitted, once again subject to the right checks and balances,” says the committee.
Further, the committee has recommended uniform guidelines for the robo advisory firms. It says that all the financial regulators – SEBI, IRDAI, PFRDA and RBI should come out with guidelines for robo advisors in India.
The committee has proposed that the regulators should consider appointing a firm or an individual who will be held responsible for the activities of robo advisory firm. “If particular financial advisors are responsible for advice given out in automated advice services, each transaction based on such advice must identify the particular advisor involved in each recommendation as well,” the committee states.
The committee has suggested that the regulators should allow robo advisors to act as account aggregators. Account aggregators enable users to take a consolidated view of all their savings and investments to help people monitor investment portfolio and manage cash flows in a single window. Simply put, investors can track all their financial assets such as mutual funds, stocks, NPS, bank FD and savings account and insurance policies at a single place.
In addition, the committee has recommended that the regulators should give authority to robo advisors working as account aggregators to get access financial information of the clients. “Even though a customer may have given an account aggregator access to their own digital information, financial institutions currently have the right to choose whether or not to share the information with the aggregator. This inhibits scalability at present, since it requires a series of bilateral negotiations with individual financial firms. The committee notes that the payment services directive (PSD2) in Europe allows for a solution that better allows households to benefit from account aggregation, and we recommend that this be amended to facilitate customers having better access to their own financial information,” says the committee.