I remember speaking to an investment advisor who told me about someone he was assisting on personal finances. At every meeting, the advisor repeatedly told the gentleman to appoint nominees for his investments, but he kept delaying it for some reason. The advisor only found out why after three years of their association – the client had a second wife in a different city. His financial plans had to be overhauled as a result. I wonder if a ‘bot’ advisor would have handled the situation better.
We have all dealt with pesky insurance salesmen from our grandfather’s time who would sell us one endowment policy from LIC (which was in vogue that time) either for marriage, education of a child, savings for a home, or pension. It was a one-size-fits-all approach. I am sure you visualised a certain type of person while reading this example.
Such salesmen seem redundant and we would want technology to take over. I have given two examples above – one which is very rare and another which is quite common. This should help you to make decisions easily.
Complex history of India’s financial services
Let us first understand how the Indian financial services market developed.
Earlier, Indians would just save for themselves and neither invest for the long term nor protect themselves with life insurance. This resulted in the government bearing the burden of the needs of the ‘older’ population. Where would they get the funds for long-term infrastructure development from?
The advent of LIC or the Life Insurance Corporation of India, in 1956 changed the way Indians saved. The insurer introduced insurance-cum-investment products that suited the scenario then: Explain as little as possible to the investor and sell it as an investment product that protects his or her future needs and also provides financial support to his or her legal heirs. The product could not be marketed to millions of Indians without a very robust distribution network, in other words, the agents.
Everybody was happy: The government (long-term funds for development and less spending on social issues), the family (in case something happens to the insured), the investor (he gets some returns in case he survives the term of the insurance policy), and the agent (who received commissions from the government). LIC often bailed out the government whenever it needed funds. But that’s a story for another day.
When the stock markets (thanks to Harshad Mehta) and mutual funds (thanks to UTI’s unit scheme 64) gained popularity in the early 1990s, they needed a distribution chain. This gap was filled by the life insurance agents who mostly sold endowment policies. They sold the products with the same mentality – less transparency and hard selling.
25 years of change
The government and regulators have made serious attempts to change the way different financial products are sold in India. Presently, transparency is widespread, many disclosures are made before selling a financial product and the regulator strongly favours the small investor, which should be the case.
Particularly for mutual funds or wealth management schemes, the regulator asks ‘agents’ to define their role – are they advising or are they facilitating the transaction? The overlapping area is being minutely monitored and is getting smaller. Similarly, for insurance, there are policies in place to sell transparently and there is a free look-up period within which the policy holder can return the policy if it is not what was sold to him.
‘Advisor-breed’ gets smart
Much of the change in financial services has been driven by forward-looking people like Dhirendra Kumar, Uma Shashikant and others who felt the industry needed change and more transparency. They set the wheels in motion and brought on board many young people as agents.
Advisors are very customer centric and are available 24×7 for them. They know that even if the customer isn’t profitable for them today, he or she will be sooner or later.
We need to change our expectations of advisors. They are also human beings and need to grow. Such services cannot be offered for free. Indians don’t have the mindset to pay for services. But the trend is changing – people are starting to believe that they need to pay for the best advice.
Rise of FinTech
I clearly remember a very renowned portal, till six years back, would scan copies of insurance premium charts from its site for pre-determined options. This is how FinTech started.
It is sheer coincidence that developments such as increased market transparency, rapid change in the mindset of offline advisors and the rise of the FinTech industry, are all happening at the same time now. This is happening much before the financial services industry can mature to the level of the US market, for example.
I am yet to see a FinTech startup that has a human being servicing a customer when needed.
So, who wins?
The best part about India is that if you choose any section, put filters in terms of product acceptability or target segmentation, there still would be a sizeable market to be served.
The basic premise of debating whether FinTech will replace the stereotyped financial advisor is wrong. Each incumbent will continue to grow in their space. While FinTech startups will have to add a more human element to their operations, advisors will need to adopt technology, and the two will have to collaborate more with each other.
India still has to ensure inclusion in this space. The stereotyped financial advisor is in the market because he is earning, while the FinTechs are yet to earn. I don’t call something a disruption until it hugely adds value to a client. Today, a person can call his advisor, decide on what to buy or sell—mutual fund or equity—and do the transaction online.
FinTech firms need to show that value and build that trust before even broaching the subject of technology replacing human effort. They have just touched the tip of the iceberg, and the ice is very deep and thick.
Neither replacement nor competition is the right word here. Collaborate and co-exist are what can define the dynamics of growth for all stakeholders.
Sangeeta Verma is co-founder and chief executive at BankerBhai.com. The Gurgaon-based startup provides its users an online platform to connect with experts for financial products and services.
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