India is a country so diverse and so large no service can have a one size fits all model that will suit every need. There are about 62 million households in India with an annual income above 5 lakhs. Many of these households could use an investment advisor to hand hold them through their investments. Sadly, there are only about 2500 certified financial planners in the country. Yes, you heard that right - about 25000 household per financial advisor.
An investor by nature is susceptible to be lured by short term gains. The constant uncertainty and speculation on what will happen next weighs on the mind of a retail investor. So in both upward and downward turns, the investor is susceptible to exiting the market. The power of compound interest and rupee cost averaging dictates that investors need to look at more long term decisions.
This is where a mutual fund advisor comes in. An advisor’s job entails him to select the right funds for his client. But helping him resist the temptation of a quick buck is a highly underrated aspect of his job.
A good financial advisor manages client expectations by not over promising. The advisor must keep an investor's expectations realistic at all times. Each mutual fund investment vehicle comes with its own risks and rewards and this should be spelled out properly by the investment advisor.
There are more than 5,000 companies listed on BSE alone. It is not easy to find the good prospect worth investing from that number. And this is not just with the companies alone. Constant bombardment of news, information and rumours don’t make it easy for retail investors. Not all information is useful. An investor on his own doesn’t know which piece of information to consider and which to ignore.
In today's internet times, a new phenomenon called robo-advisors has emerged. A robo-advisor or online investment advisor solves the too many potential investors and too few advisors problems we discussed earlier.
There are some differences between a human investment advisor and an online investment advisor. Firstly, robo-advisors are unbiased. A human advisor may have biases towards the investment vehicles he/she recommends. He/she earns a hidden commission from each funds, so will always have a conflict of interest in advising the most cost efficient portfolio for the investor vs one that maximizes his/her earning.
The one factor that robo-advisors may not able to function as well as their human counterparts is reassurance. The ability to restore confidence in an investors during a downturn and convincing him/her to ride through the volatility is something a robo-advisor has not been able to do yet.
The shift towards robo advisory has already begun. The fact that human advisors have not been transparent about the duration and amount of fee they charge and how biased their advice may be hasn’t helped investor confidence.
In the near future, a common ground needs to be established where both human and robo advisors can co-exist peacefully and have a symbiotic relationship. This will be in favour of all three parties - the investor and both the kinds of advisors.