December 1

Riding the change


Times have changed, we keep hearing…times have indeed changed unrecognisably, in the past few years.

Virtually every business has been touched and a transformation is underway in many sectors.

Technology and the internet are at the heart of this renaissance. The other development is that the regulations are becoming tighter & posing new challenges to the incumbents.

There are surprising disruptions- the auto/ taxi wallahs would have never thought that an aggregator app would upend them. The drivers would find themselves out of work in the foreseeable future, when driverless cars become available. Car industry is being disrupted by ola/uber today. There is no compelling need to own a car anymore!  In future, there will be a bank of driverless cars which uber & others will run.

The kiranawala or for that matter, even the big format stores, never anticipated the ferocious onslaught of e-commerce businesses. Mobiles & an increasing array of white goods are being bought at online stores who are offering mouth watering prices. The days when retailers sell at MRP are numbered. Their profitability, nee even their survival is probably in question- if they are not willing to change. Travel & hotel industry have seen technology fully recast the industry –,, oyorooms, makemytrip, tripadvisor, ibibo etc. are some of apps that have changed travel & tourism industry forever.

The winds of change are everywhere and entire industries have been wiped out by the tidal wave of change.  Postal services & telegram got decimated, first due to email, then the ubiquitous phone did the rest.

Mobile phones are now acquiring so much muscle & capabilities that they are making entire industries redundant. Today mobile has a camera, is a computer, a storehouse for books, videos, pictures etc., gateway to the internet, a device to connect with the world, entertainment central & much more. With various apps mobile phone can be your wellness partner, payment gateway, shopping accessory, money manager, portfolio tracker & a million more things. Mobile phones these days are also used to make calls!

Mobile phones have made a range of industries redundant or transformed them completely.

Financial services in comparison has not had too much disruption at all. Only now we are being subjected to a lot of regulations which have come about after the huge financial scam in 2008 in USA, which had global ramifications. Regulators across the globe have tightened the operating guidelines as the laissez faire ways did not work.

Financial service operators were having a field day selling a range of products that suited them. Commissions were juicy & the same money was getting churned in a bid to earn more from the same pile. In the process, clients suffered & the agent benefited.

A slew of regulations followed. SEBI brought in regulations against entry load, charge amortisation in NFOs, stricter surveillance of NFOs, rules governing IFAs while they recommend MF schemes to clients, stricter KYC norms etc. Alongside regulations caught up for other products SEBI was overseeing.

The Investment Adviser Regulation SEBI brought in 2013 was a game changing move.  Through this regulation, they were trying to create a new class of advisers who will be pure play advisers. They would charge fees from the clients & would assume a fiduciary responsibility.  This was the start of fee-only advisory in the country, facilitated or rather pushed by the regulator!

There was a lot of apprehension whether this would work. All of us were worried about whether clients would be willing to pay fees.  However, this is indeed the right way forward as compared to getting indirect remuneration through products sold, where conflict of interest is inbuilt.  Like doctors & lawyers we should be willing to move to a fee-only practice. That’s when financial advisory will become a profession.

But many had not understood the thrust of regulation & had tried to evergreen their commission income by making segregations suggested. Many were RIAs only in the name; actually they were distributors with negligible income from fees. Worse, many were not willing to register and still wanted to continue advising clients without complying with any requirements.

Recognising this SEBI has come up with a fresh consultation paper on IA Regulations to plug the loopholes which were sought to be exploited. The new version expected as an outcome of this would make the IA Regulations far more robust, with lesser scope for abuse.

It is indeed disheartening to note that most are against SEBI moves in the direction of separating advisory from distribution function. Most just want to earn commission income, indirectly, as that is far easier.

The winds of change is blowing in our territory. We need to acknowledge the changes sweeping through our landscape.

Technology has started playing a disruptive role in our industry. With penetration of computer/ mobile phones and with internet penetration, information is easily available to all. The agent who used to educate the customer has much less of a role to play, in many cases.

Most products can be bought online either directly from the manufacturer or from one of the various online platforms, that have sprung up now. These online platforms are slowly morphing into advisory platforms as well – now popularly called Robo advisory platforms.  Currently, they have limited capabilities. But, artificial intelligence capabilities are catching up fast. In the near future, they would be able to offer good quality advice as well.

Product distribution is commoditised & online platforms are already enabling that.  Advice at the lower & mid levels will also be taken over by Robo advisory platforms.  Costs to the customers are coming down and revenues are getting impacted too, due to that. Advisors operating at lower & mid levels can leverage the platforms and offer further customised services which will make sense to the client, to stay relevant. There are actually a whole lot of client specific services, that the advisor can offer.

At the highest level there may not be much competition yet, from Robo platforms. The evolved advisory would be for people with a fair amount of wealth who may not want to take chances & may want the comfort of a human advisor whom they can take counsel from. These advisors can use technology to offer a delightful experience to clients.

The change is upon us. We can embrace it & make it work for us. It may take some doing. But it can be done. The future looks bright for all those who are willing to adapt. Advisors now have to accept the reality that they need to fully demonstrate the value of their services, before getting paid.

The need for advisory has never been higher among people. Our citizens are getting wealthier & need us. We need to get our formula right –  the right mix of technology, human touch and appropriate fees. Those who crack this will be the ones who’ll ride the next wave.


Advisory Platforms, regulations

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