'Advisory and self service models would coexist’

By Shifali Satsangee

The year 2019 witnessed a disruption and huge transformation in the mutual fund space: technology (omni-channel advisory), regulatory changes (transition from Mutual Fund Distributor to Registered Investment Advisor), introduction of direct plans, commission capping, commission disclosure in CAS), among others.

Post the advent of the digitized-advisors and the tech advancements in the domain of investment management, financial advisory and intermediation, the DIY or self-serve model offered started the trend of the direct mode of investments in mutual funds.

Many DIY investors focus on the central theme of goal-oriented investing and investing in funds best suited for them. However, most of them do not think about some of these important points: for example, the role and importance of being disciplined, or keeping inherent biases away, or managing expectations and behavior (the omnipresent fear and greed factor)... All of these factors are key to optimize gains and minimize losses or reach the earmarked goals.

The role of behavioral finance and personalised advisory cannot be undermined. Advisory is prescriptive in nature. It is personalized and customized. It is not an over the counter (OTC) service. It is aligned to each investor’s financial personality, risk orientation, age, liquidity requirements, time horizon, and requirements.

The advisory role is not only restricted to managing finances and acting as an enabler in an investor's journey to their financial destination, but extends to managing investor behavior as well.

The advisor dons many hats while performing these tasks. She takes up the onus of creating and managing wealth through advisory. She integrates and weave the goals of clients into financial plans, and configures products to the investor’s needs. She also performs the tasks of reviewing, monitoring, rebalancing, and maintaining the asset allocation in the portfolio. She also synchronize portfolios favorably with the markets. She also acts as a counsellor: managing the expectations when the markets are witnessing euphoria or scaling up, and hand-holding the investor when there is excessive pessimism by setting realistic market expectations.

While much has been talked about mis-selling in the financial industry, little focus has been given to mis-buying (if there is such a word). Many a time, investors chase returns and not their pre-fixed goals; get clairvoyant on where markets are headed or get into crystal ball gazing. As economic woes make headlines, time and again, the need to tune out of the macro noise, to focus energies on getting ‘future ready” financially and also to get their asset allocation right, instead of chasing the best performing scheme becomes extremely important.

Having said that, the self serve models offering direct plans and advisory model (either fee based or commission based) would coexist in the ecosystem, each catering to their own target segments of investors - the former who know what they are getting into and the latter who need advice and hand holding.

The bigger question is: are these set of investors opting for the appropriate model that suits them?

Along those lines, as we shift gears, 2020 would see the evolution of the Phygital advisor who blends human interaction with online interface by creating a synergy between man and machine and give a hi-tech and hi-touch approach to money management.

(Shifali Satsangee is the founder of Funds Ve’daa)