Robo advisory industry in India may be far behind those in developed nations but that may not remain the same in years to come. Tech solutions are disrupting every industry and they are likely to do the same in the wealth management space.
In fact, database firm Statista sees AUM in the Indian robo advisory segment crossing Rs 4-lakh-crore mark by 2025 with a 43.8% CAGR during 2020-2025.
According to Anand Rathi Wealth's draft IPO document, there are three trends that are driving the emergence of robo advisors:
Focus on mass market
The mass market offers tremendous potential for wealth managers worldwide but it's not possible for the traditional human-driven approach to cater to this market at an affordable price. Robo-advisors have the ability to make wealth advice economically feasible to the mass market.
In US, the mass affluent segment offers a market potential of $10 trillion.
Demographic shift
The wealth management industry is witnessing a phase of significant demographic change. Assets are getting transferred to the Gen-Y generation/millennials from the previous generation investors.
The simple technology platforms offered by new-age digital wealth managers resonate well with the needs of millennials. Digital entrants have also benefited from the fact that many millennials do not have a trusted advisor relationship and feel comfortable using technology to manage their finances. Hence, digital firms are well positioned to capitalize on the generational shift.
Advanced digital capabilities
Robo-advisors have the capability to offer newer services in the wealth management space which can entice the newer generation investors to get into the advisory fold.
Robo-advisory firms have been able to create direct-to-consumer models to provide the basic elements of wealth management advice and minimise the traditional reliance on human advisors.
Bumps in the road to growth
The path ahead for robo-advisory firms may be shiny but it's definitely not free of potholes. SEBI's insistence on a physical agreement between financial advisors and investors is one of them. In an informal guidance to Paytm Money, SEBI had opined that digital consent between an investment advisor and an investor cannot be considered valid.
According to a report, some large firms have scrapped their plans to enter the business as they see the physical agreement rule increasing the cost of customer acquisition.
Beyond the regulatory issues, robo-advisory has some structural weaknesses. Top among them is the fact that they aren't 100% personalised. Robo-advisors can allow you to set and edit your goals using their financial planning software but can't assuage investors' fear and resolve complicated money matters.
They are not always the cheapest
Financial advice is not that expensive in India. There are many advisors with proven track record who provide financial advice only for a small fee that they get as commission from AMCs and insurance firms for selling their products.
