How did you conceive the idea of Bharosa Club?
I had put a post on Linkedin in early 2015, which talked about the need for a shared last mile company providing trusted advice. In that I had said that financial services companies could learn a lot from FMCG companies, who serve everyone.
Our co-founder Prakash Pai, saw this article, and we connected to exchange thoughts. Several discussions later, the idea of Bharosa was born. Prakash felt that we should put our money where our mouth is, and actually create a company which took great financial products to millions.
There is a significant cost of acquiring a client through an online channel. Given that you are likely to attract relatively younger clients with smaller ticket sizes, how can it be a viable for you?
Acquisition costs can be lowered by using innovative techniques. And they can be covered by attracting capital or by using financial literacy money that is available with manufacturers and the industry. Also, as our target customer spans age & income bands; online is not the only channel we will employ for acquisition.
The greater challenge is to service our customers profitably. Given that we are a commission free platform, we will charge a flat fee from our customers. And as we want to democratize advice and take great financial products to millions, our average revenue per customer will be small. With PayPal I had helped solve a similar problem and I hope I can do that with Bharosa.
Globally, robo advisers control a measly 19 billion of AUM, inspite of being around from many years, why is this so?
Despite the hype, even e-commerce contributes to less than 10% of global retail sales. Robo Advisory came in much later and it will take time for it to play catch up with the offline market.
Lack of awareness and fear of the unknown are the most obvious reasons. More importantly, most people have a tendency to look at their financial plans with the ‘lens of complexity’. The more they do so, the more they find comfort in a face to face advisory model. Which is why, Robo advisors have to adopt hybrid business models to achieve scale.
The key takeaway though is that if we were to consciously work at averting a repeat of the great Indian mutual fund tragedy that took place between 1999-2016 – where just about 1% of India participated in the Indian growth story. And make market expansion a business priority, then there is enough room for online, offline, direct and regular advisors to work together.
Almost all robo advisers are reportedly making losses not even covering their operating expenses. What do you think will be the things that robo advisers will need to do to turn profitable?
Much like in any other business, to break into a strong market dominated by large players, you need to invest heavily in (a) creating innovation to provide a better value proposition (b) acquiring customers & (c) offering a reason to shift – which is typically ‘cheaper’.
Robo Advisory is in its nascent stages, and hence losses are expected.
Robo Advisors will turn profitable once they stop investing in technology and get enough customers who pay them fees. This will take time. Advisors like us will continue to invest and make losses till they achieve critical mass.
PayPal, Google, Facebook - all lost a lot of money before breaking even and are ultimately making a lot of money. In India, e-commerce and digital payment companies are following similar models.
Unlike most product categories, there has been no significant shift in the consumer towards online investing. What do you think will be the turning point for the industry where there will be major shift towards online advisory?
We have got 10,000 members and Rs. 350 crores in AUA in around 8 months since we got our RIA licence. I do not know of any company offline or online that has grown so fast. And this has happened with minimal marketing spends. It’s difficult to say but a simple thing like our "Free Portfolio Check" could be the turning point.
All it may take is one innovation which makes trial or adoption a no-brainer. The microwave flopped at launch. The catalyst for its success was the introduction of microwavable pop-corn.
So it’s difficult to put a finger on one specific turning point which may create a shift in the industry.
You have developed a model portfolio for investors based on their risk assessment. Practically, many investors have moderate risk appetite but aggressive financial goals. How do you plan to deal with such a situation?
Yes. That is a very common problem; which is why we have half a dozen calculators on our platform that attempt to eliminate this conflict. The calculators help people mathematically correlate their goals & risk profile and find the right balance.
Investors have to understand that you can’t have your cake and eat it too. We see our job as providing data based advice and then letting investors decide.
You are also looking to co-opt advisors. Tell us more about it.
We want advisors who share our philosophy of simple, honest, unbiased, transparent advise, to work with us.
They can add tremendous value to their existing customers by making them use Bharosa Club optimally. And they can grow their revenues by using the Bharosa platform to attract new customers, and sell other products like tax, insurance etc. that Bharosa does not cover as yet.
Bharosa gives advisors who work with us a one-time member acquisition fee and an ongoing trail if their customers pay for advice.