Every generation is defined by certain events that changed its perspective on life. Ours has been the coronavirus crisis of 2020 and 2021.
Faced with the uncertainty of life, we re-evaluated how we thought about money. As we saw families plunge into chaos, we dug deep to relook at our own financial situations. And with this relook comes anxiety — we realise that our portfolios are constructed ad-hoc and realigning them brings the prospect of many decisions which we are ill-equipped to take. It isn’t surprising then that a vast majority of Indians with investible surpluses are not allocating capital to portfolios that can help them meet their financial goals.
Sample this: despite the tremendous inflows into mutual funds, the total assets in MFs are at 15 per cent of GDP, relative to the US where that number is over 100 per cent. And the issue is no longer of access — deep internet penetration, and homegrown fintech platforms already provide low-cost execution. In fact, these platforms have brought a whole host of the first time, active investors to the market. These investors have enjoyed the recent up move in the equity markets. And yet, these platforms will not solve for every investor — especially those who do not have the time, inclination or bandwidth.
The true challenge is guidance (or the lack of it). There are thousands of options across mutual funds, stocks, bonds that an investor needs to evaluate while thinking about their risk profiles. This complexity of decision making deters a lot of investors from building long term portfolios. Beyond the initial deployment, keeping the portfolio relevant to changing market situations is the other problem investors must contend with. When investors do not find the right guidance, they either do not begin the journey or exit prematurely when markets oscillate.
Expert handholding is hard to access in India today. With income levels rising fast, and a greater amount of capital flowing to financial assets, the Indian investor needs high-quality expertise to navigate these decisions. Even in the metros, there are only approximately 1200 advisors per million households. The wealth management arms of banks and NBFCs have set very high minimums for access to the advice they offer. For new talent to enter this industry and mature to a point that they will be able to deliver advice will take many years. In the case of the existing service providers like banks, there are multiple pressures of different product lines which may deter them from staying focused on investment advice.
One additional element has been the emergence of new asset classes and instruments. We are now seeing strong investor interest in unlisted equity, high yielding bonds and global assets. These need to be well diligence before being recommended to investors. No surprise then that these assets are available only to India’s ultra-wealthy due to the high ticket sizes. This further skews the wealth gap, as the wealthy get access to high performing assets.
Here is where we now need Wealthtech 2.0 to emerge. To me, the next generation players will work to humanize wealth tech — understand the user better, build customized offerings and importantly, engage in a “human” manner. At the core of this needs to be a real investing talent that is constantly working on behalf of the user to create and deliver high performing portfolios. A strong technology backbone built on the India stack can deliver this to the discerning Indian investor.
It is here that India is uniquely positioned. We have the right technology talent to bring this to life. What is needed is a deep understanding of the investor psyche in India and an approach that aligns with how they think and behave. The opportunity is to create platforms that can rival the largest global investment institutions is now very real. With this, India can redirect the capital of its hardworking population to building world-class businesses and transform jobs and infrastructure. But above all, it has the potential to change lives — when money grows, the options that a family has increased. So Wealthtech 2.0 will not only redefine investing but our country and society as a whole.
by, Sandeep Jethwani, Co-founder, dezerv