Professional financial advice has evolved consistently over the last 40 years. In the beginning, financial advice meant walking to your chartered accountant’s office and getting advice on how to save tax. Few people really looked at financial advice beyond that.
The second stage, which began about 25 years ago, was to approach your broker for financial advice. The brokers were typically agents for various financial products like insurance and mutual funds and they would broadly fit the products into the customer profiles.
The focus was not only on tax saving but also on wealth creation.
The third stage started about 15 years ago and was marked by the evolution of brokers into financial advisors. Most brokers and distributors realised that to survive and thrive in the business they needed to transform themselves into personal financial advisors.
That means the focus would be customisation of solutions to the unique needs of customers. We are now moving into the fourth stage of personal finance advice where we can combine the power of technology and advisory skills in a much meaningful and profitable way. It also helps scale up with minimal incremental costs.
The fourth stage – “Do it yourself” financial advisory:
As we embark on the fourth stage of “Do It Yourself” (DIY) financial advisory, there are some important things we need to realise about this model. This model of financial advisory is important because it leverages technology, gives advice devoid of emotion and can be scaled up substantially over time.
Let us understand 6 important things about this DIY approach to financial advisory:
- The focus of the DIY approach continues to be on customised advice. The only difference is that it makes a lot more in-depth use of technology in its endeavour. The professional advice is backed by two key sub-stages. Firstly, the client is mapped using a 360 degree view with the use of big data. At the other end, all the investment options are evaluated. Then an algorithm is used to find out the best fit.
- The DIY approach is largely a dispassionate approach. When individuals advice you on finances, despite their best intentions, the human bias comes into play. These biases may be due to the advisor’s personal experiences or learnings. Either ways, you get advice that is clouded by an individual’s bias. The DIY has no such problems.
- The DIY is a huge improvement from the off-the-shelf product approach. You are offering solutions that will solve the problems of the customer. With a young population coming into the investor population, the focus cannot be on products any longer. There is little information that you can provide which the internet cannot provide. You differentiate through customisation only.
- Is setting up a DIY approach expensive? It does entail higher costs in the initial period. That is true of all technology intensive efforts, including the PC and the supercomputer. But in the medium to long term they are substantially cheaper. The investments in this DIY approach need to happen so that the benefits of lower cost can be reaped in the long run.
- Delivery of personalised advisory solutions can be done in a variety of innovative ways. For example, all the back-end data churning can happen in the advisor’s server but the output can be in the form an elegant screenshot or report.
The triggers and alerts can also be downloaded to the client via mobile SMS facilities. Alternatively, there are Android and IOS apps that make it much simpler and safer to access all this high-end advice through an app on your mobile phone. The sky is the limit on delivery!
- The big advantage of the DIY approach is that it can be made seamless from ideation to execution.
Customers are looking at personalised advice, comparison of alternatives, simulation of possible outcomes, actionable solutions and real time execution. All these can be achieved through the DIY approach In a nutshell, the big focus on the use of big data and analytics and machine learning in financial advisory may have just begun. The opportunity is humongous and the market can be virtually scaled infinitely.
(The writer is CMO at Angel Broking)