Managing the Soft Side of Robolution with a Hybrid Model

The fact that technology today has become an inescapable part of our everyday lives cannot be denied. From grocery shopping to banking to even buying cars and houses, online solutions are being actively sought by people. Smart phones and the internet have only added to the digitization of daily activities. The financial planning industry has also joined the digital bandwagon.

To make the right kind of financial plan, getting professional advice is your best bet. However, getting personalized financial advice requires sufficient amount of resources and time that everyone might not be able to afford. A potential solution to this conundrum is a Robo Advisor.

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Robo Advisors are essentially digital platforms that provide financial planning and investment services. They usually automate their processes by using mathematical rules and algorithms. Such processes lower labour costs and thus, benefit investors.

They also offer personalized financial planning as per the investment time horizon, risk profile and goals of the customer. Additional benefits include auto-rebalancing of portfolio, accessibility from multiple devices (smart phones, laptops, tablets, etc.) and extremely low minimum investments.

Robo Advisors come in different flavors, ranging from a pure transaction oriented platform to ones with a goal oriented process driven approach. The key for consumers is the personalization and client experience that a Robo Advisor could potentially offer. However, there is a need to be sceptical of platforms that just tom tom about their returns and super product skills. The focus should be on the ones that think long term and make you think long term by focusing on your goals.

For today’s generation, Robo Advisors are crucial. This is mainly due to people’s tendency of living a lavish lifestyle on a working-class income. Saving for the future has taken the unfortunate second place to enjoying one’s current lifestyle. While ‘“I enjoy everyday to the fullest” or “I never plan ahead” might sound fashionable, it certainly isn’t prudent.

As an investor one needs to realise that a successful financial life is the result of one’s behaviour and money choices. The core principles of investing – starting early, having a long term view, sticking to your plan and not swinging with the markets etc – do not change whether you are with a Robo Advisor or otherwise.

Robo Advisors democratize wealth management services previously reserved for the wealthy. They are thus considered to be the future of the financial services industry. Having said that, the industry is in a very nascent stage in India where there are ample opportunities for huge achievements.

As compared to the size of the asset management and investment space in developed countries, India is still a miniscule market. There is immense opportunity in the upcoming 20-25 years. But at the same time, the world is changing at a rapid pace due to exponential technologies. Thus, it is very important to have a vision for the possibilities in the future.

Most wealth managers or firms resist change and think that they must fight the technological advancement. Many also think Robo Advisors will replace humans. Both are wrong. Computers definitely function at a pace that is way faster than that of humans but humans too are skilled at certain things that computers cannot do. Technology can never replace human beings to understand the feelings of consumers and to tell them that it’s ok to stay on course through tough times.

People trust people more than a computer. When it comes to their hard earned money, they need a person who can reassure them that they are on the right track. Technology should be looked at by both – the investor and the advisor – as a tool for efficient implementation and tracking of the plan and the financial goals.

The point is that humans and computers have to work together to deliver a world class client experience . The choice is Not EITHER OR .It is both...

From the July 2018 issue of FHM India.