The Fintech industry is made up of companies that provide technologies to improve and reinvent financial service solutions. The goal of such businesses is to make financial reporting processes easier, faster, and more efficient. Fintech is typically thought of as a limited-service with a large number of various financial technology solutions.

Fintech has been driving trends in the wealth management industry, thanks to the emergence of e-trading and online banking. But owing to recent advances, wealth management – like every aspect of the modern finance world – is currently experiencing profound disruption.

Wealth managers have traditionally provided a wide range of professional financial services, ranging from investment advising to general financial planning. These multi-skilled advisors basically help people manage their portfolios and finances.   Fintech - the application of technology in the financial sector, is now making an impact on the investment asset management industry by developing digital solutions. However, this shift signals the new potential for wealth management in the future.

In this blog, we have captured the insights shared by Mr. Abhijit Bhave, CEO of Fisdom Private Wealth, Mr. Vikas Sachdev, and Mr. Sachin Shah of MK Investment Managers, during the 2^nd episode of the Emkay Alpha Mavens video series.

Emkay Alpha Mavens is an informative series that brings out valuable insights on Wealth Management straight from experts in the industry. We, PMS Bazaar, are presenting the 2nd Season of this insightful video series in partnership with Emkay Investment Managers Limited.

In this session, they discussed about Fintech and how it has captured the imagination of many financial services firms looking to leverage differentiating technology to accelerate their innovation.

According to Mr. Bhave, “Fintech is a kind of business that tries to solve problems. So we have to first identify what are the problems that the clients are facing or it may be the case the clients don't even know that they are facing problems”. Mr. Bhave identifies four such problems which are known as the four Cs that need to be resolved. These four Cs are – Correctness of advice, cost, convenience, and control

The first is correctness of advice, which is unbiased advice using the latest research tool without focusing on revenue from the best talent in the industry. The correct advice comes through knowledge and experience that happens through research by wealth managers. Also, another important thing is wealth managers must not solely focus on revenue targets. So once you take out revenue targets from the wealth manager, his/her priority will always remain customers.

Next is the pricing or cost problem. Many wealth managers have been doing regular plans in mutual funds as well as in PMS and AiFs. Regular plans are those mutual fund plans that are bought through an intermediary. These intermediaries can be brokers, advisors, or distributors. The intermediaries charge the fund house a certain fee for selling their mutual funds. The AMCs usually recover this fee through expense ratio. There is also an AMFI campaign that talks about direct plans. Direct Plans are for those who prefer to invest directly in a mutual fund scheme without the help of any distributor/agent. Direct plans have lesser costs and give higher returns than regular plans. Over a sufficiently long investment horizon, the difference in returns can be substantial. However, you need to have some investment experience and knowledge to invest in direct mutual fund plans.

However, Mr. Bhave is a proponent of passive investments and according to him, passive investments can be better than active investments. Active investing requires a hands-on approach, typically by a portfolio manager or other so-called active participant. Passive investing involves less buying and selling and often results in investors buying index funds or other mutual funds.

Mr. Bhave says, “For any clients who come in with an investment of one crore we offer advisory service only which means advisory service for direct plans not just of mutual funds but we are tying up with all the manufacturing companies of PMS and AIFS trying to do direct plans for PMS and AIF”. This is where the cost will drastically go down and it's not about the cost, if for example say invest 100 rupees and then he/she save one/two rupees. Therefore, compounding gives a higher return.

The next C is convenience. When you talk about convenience you talk of technology but at the same, you also talk of a “fidgetal model”. That is convenience here means both fidgetal model and technology available to clients. Any client needs both technology as well as a Relationship Manager (RM). Fisdom was the first organization that on its app allowed signature with the finger for mutual fund KYC. PMS requires 30-50 physical signatures now which is not convenient by any standards for clients. Hence, Fisdom is working on a technological platform where it will be only one wet signature (any signature affixed to a hard copy with a pen or other writing device) for PMS, and for AIF  there will be zero wet signatures.

So, what is the fidgetal model that we are talking about? According to Mr. Bhave, “when we talk about the fidgetal model, we talk about the 4t framework, which means “talent plus technology with transparency equals trust”. When you ask an HNI client what does he expect from his wealth manager, the answer would be – “a wealth manager who does not have targets and a wealth manager who knows more than the client”. 

So knowledge, wisdom, and experience - that's talent and that's important especially when clients are investing crores of rupees. And along with talent, we need technology. In addition, clients also need the trust of wealth managers so that they are comfortable investing their money. So a combination of technology, talent with transparency leads to trust and this is what we call the fidgetal model.

Control over the portfolio is where the client gets a consolidated view of reports in mobile and Web apps, and the facility to compare products like PMS, MFs, and ULPs. While a client would depend a lot on any advisor, they also would want to do certain things without any advisor at different points in time. In Fintech, there's this phrase called the democratization of information.

Democratization of information means that we extend the power of business information that's created by the people, to the people. This means if you can't google for the information you'll have to still have it in some way. Hence, Fisdom is working on something where clients have a certain control on information where across all mutual funds all PMS products, AIFs, unit link plans, etc., clients can actually do a dropdown comparison for themselves and form their own opinion related to investing.

So talking about the fidgetal model, the question might arise do HNIs whose age range above 55 are able to understand, are tech-savvy enough to understand the model, and avail of the sort of insights that Fisdom is trying to give through this fidgetal model?

According to Mr. Bhave, “technology does not depend on age but the interest to learn. It's about learning -you learn you, enjoy, you use it. So most older HNIs are able to understand technology. Nevertheless, today the average HNI age ranges from 35 to 55 who are actually open to change, and some may not be. These are the people who are creating more and more wealth but they don't have time and that's where technology helps. You can just use an app or use a web app and do your transactions very fast. You can do a quick WhatsApp video call and do a transaction fast. So, I don't think it's really about the age for technology usage”.

Next, is the role of wealth managers. When we talk about the democratization of information and investors having control over information and knowing many things, the question arises, is if investors know enough, would they need wealth managers or investment advisory to help them invest their wealth? Especially, since some investors may feel that now that they have been guided enough by wealth managers, they have enough knowledge and with this knowledge, they can directly invest rather than go through intermediaries.

Mr. Bhave says, “Not all investors have the time to invest or sit down and select stocks. For most HNIs their time is important. The time that spend selecting a stock or a PMS or a mutual fund they can spend that time in their manufacturing plant they will enjoy. They will create more wealth. As far as investment is concerned, there is a need for somebody who is a subject matter expert, whom they can trust who will be client-centric and who will help them achieve their financial goals. So yes there is a need for wealth managers”.

Now coming to the cost, the cost for an investor should be seeing that the wealth manager is adding value and that is when you know the investor will be more in tune in terms of subscribing to the services of a wealth manager. Investors would be willing to pay more if he/she gets used to a particular service, and it goes from beyond customer satisfaction to customer delight and the customer enjoys that particular service for the value. But it is important that the wealth manager must create the value, show the value, and if the customer enjoys the value then he/she would be willing to pay, and over a period of time, the wealth manager can see profitability which will come because of volume.

Finally, what is the future of the wealth management industry and the traditional wealth management industry? Up until a decade ago, the wealth management industry was relatively resistant to technology. The years since have seen more enthusiasm and implementation, but Fintech innovation in wealth management is still in the early stages. However, the wealth management industry can no longer ignore the rise of Fintech.

If this article has whetted your appetite for more, relive the entire session with the recording of the session appended below:

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