What are robos?
Robo is something that simply follows instructions like a machine in a manufacturing plant. It is incapable of making decisions by itself.
Benefit
Ravinath points out that one of the biggest benefits of using robos is that they lower costs and improve efficiency. “Apps like Uber and Ola have shown us that by replacing a human with a robo, you can not only cut down on costs but also competitively price your products based on demand and supply,” he says.
The threat
Robos, however, pose a threat to brick and motor advisors who refuse to use technology. “Ultimately, they will replace humans. Of the 56 lakh jobs lost in the US from 2000 to 2010, 47.6 lakh jobs i.e. 85% were lost to bots. The manufacturing industry too witnessed similar job cuts due to robots. Do you think the same will not happen to financial servicing?” asks Ravinath.
He points out that robos are already running our lives. “All of us use bots in one aspect of our life or the other. Every time you use google, Facebook or Zomato, you are using a bot. The same will come to financial advisory too,” he says.
Robos in investment advisory
The current investment food chain consists of a research analyst, fund manager and distributor. The distributor primarily takes care of collecting payments, documentation, fund selection and giving advice.
According to Ravinath, robos are already doing 75% of the distributor’s job. The only trump card a distributor still holds is that of advice. “The reason the first generation robos have not been able to really take off is because they cannot give advice. However, this will soon change. Because unlike an advisor who gets to know what the client wants only when he is told by the client, robos can anticipate the needs of the client even before he tells them. For example, when you are running late for an appointment, you will keep looking at your watch, you might not tell the driver or your client immediately. A robo will be able to guess that you are worried about your appointment by simply monitoring the frequency with which you are looking at your watch. This is an edge an advisor cannot give,” he says.
The future
Ravinath feels that the future looks grim for advisors who are not ready to adopt technology, “In one year the industry AUM will cross Rs.20 lakh crore, paperless investing will be possible and most robos will start transitioning to the franchise model. In another three years, the industry AUM will be close to Rs.30 lakh crore, alpha will become very rare, all transactions will be paperless, IFAs will tie up with robos and see significant rise in income. At this stage IFAs that resist will perish.”
That is not all, according to Ravinath, in 5 years industry AUM will be close to Rs.40 lakh crore, 90% active funds will fail to beat benchmarks, expense ratios of active funds will fall to 1% and all the large institutions like banks and NDs will own the biggest robos advisory platforms. “At this stage the second generation robos will take off and IFA incomes will start falling, “he says.
Conclusion
Robos are definitely going to be a part of the future, if IFAs too want to be a part of the future, the only option they have is to adopt robos, says Ravinath.
