WF: FinEdge is clearly one of the most closely watched firms in the intermediation space, as it has very successfully challenged status quo and brought fresh thinking into the financial advisory space. As your business grows and matures rapidly and attains critical mass, there must also be a wealth of insights and live experience in managing clients through market phases and changes in personal circumstances. How is your "phone + web" model playing out in terms of handholding clients at times when they need support most?
Harsh: The phrase "phone + web" can be a bit misleading as it is mostly associated with an "call centre" and actually over simplifies what FinEdge is attempting to do.
Over the last 5 years a huge amount of time and effort has gone in ensuring a robust technology framework for our "bionic" model. What this implies is that we have tried to ensure that the client gets a similar or higher level of relationship management and hand holding as they would get in a more traditional business. Our advisors remain in constant touch with the client to address the behavioural side of investing along with aligning their investments with their risk profile and goals. Complete financial plans are made, comprehensive portfolio reviews are undertaken and transactions are paperless. Technology encompasses and enables all these processes to ensure that all clients benefit from the services we provide.
In addition, the client has a "best in class" dashboard for viewing their investments and accessing their important investment reports and transacting online.
Every client has a dedicated Financial advisor and the relationship is symbiotic. The advisor is highly accessible to help and assist the client more effectively and productively since they don't have to be out of office to meet them physically. All information on the clients is available real time and issues can be handled effectively. In our experience the clients also finds it convenient to just pick up the phone and have a conversation with their advisor without scheduling time for a physical meeting and the paraphernalia involved.
Besides technology, the key has been that the Financial Advisor is a domain expert and not a query redressal person and according to us that makes all the difference on the kind of engagement and trust that is established between the client and the advisor. Once again our business model allows greater control over the knowledge, processes and training we can impart to our advisors.
WF: As you scale up your current model rapidly, what are the challenges and opportunities that now confront you?
Harsh: For us, the biggest challenge and opportunity always will be on how we can enhance the investing experience and deepen our relationship with our clients. We believe that unless we can add significant value addition to the client it would be impossible to sustain the relationship which in turn makes the business model unsustainable. There is absolutely no point in acquiring clients rapidly if we cannot ensure longevity of our relationship with them.
We see an immense opportunity of growth and scaling up but at the same time we would like to set our own pace and ensure that the clients are managed well and get to derive value from the entire chain of financial planning activities we undertake for them.
Of course, the rapid change India is going through on awareness, information, digitalisation and regulation offers incremental opportunities and challenges. It forces us to keep pace with change and ensure we are present in the wider spectrum of the investment space.
Over the last 5 years we have grown at close to 100% year on year (AUM and Revenue) and have clients in more than 500 locations across the country. We strongly feel that we should be able to keep up that pace over a much longer duration.
WF: You have introduced a new Robo advisory model that complements the existing "bionic" model. What were the insights that led you to take a plunge into this space - especially since your firm's philosophy has always been a hybrid model?
Harsh: Well, "Do it yourself" or "Robo advisory" as we call it is a subset of the business model we are in. For us 100% of our technology focus is on the "Bionic" model and Robo advisory supplements within those realms of technology.
Today, within the industry, the DIY proposition is very small and there are multiple players vying for mind space.
The reason for launching the Robo advisory platform, from our point of view, is to have leverage in the digital space and be a part of relevant searches as it grows over the next few years. We plan to continue investing in the DIY platform with a view of 3-5 years.
Our core financial planning services are offered to all the clients of FinEdge irrespective of whether they have been on boarded through the "Robo advisory" or through the "bionic" platform.
WF: Customer acquisition is cited as one of the biggest challenges in Robo advisory models - in India as well as overseas. What has been your experience with the hybrid model and how do you plan to overcome this hurdle with your Robo advisory model?
Harsh: It's a very interesting question, according to me, the ease of customer acquisition and geographical reach are the pillars that the Robo advisory business has been built on. Internationally, we have Robo advisors reaching in excess of 9-10 billion dollars under management in a very short time. However, that number needs to be taken with a pinch of salt when it comes to India. In our country, we have around 3-4% of the population which invests in mutual funds as an asset class as compared to more than 50% in USA. Within this, a small fraction is the target market for a Robo advisory platform. For that small fraction of audience you have the largest insurance firms, asset management companies, bank and a large number of Robo advisory distributors fighting for market share which leads to a very high cost of acquisition per customer. Logically, the only way to overcome this hurdle is to give time for this market to evolve and expand.
With regards to FinEdge, we will continue to grow our "bionic" business and at the same time be present in the Robo advisory space to learn and grow as this segment expands over the next few years. We also feel our "bionic" model gives us an edge over other players in the Robo advisory space, not just on the technology front but also on the user interface / experience and ability to manage investments and relationships. We perhaps have 10 incremental tools to add value to clients through the financial planning process we follow in addition to the cost and convenience advantages that a stand-alone Robo advisory model brings.
Strong reinforcement of our business comes from the fact that even the largest Robo advisors in the world are now evolving to FinEdge's "bionic" model (a case in example would be Betterment, world's largest Robo Advisor with 9 Billion dollars under management - more Robo advisors are moving to a bionic model - read the report here, what do investors want? - Human or Robo Advisory article 1 & article 2.
WF: How do you evaluate the pros and cons of a Robo advisory model and what space/niche strikes you as a promising one from a long term perspective?
Harsh: Allow me answer this question a little differently - Technology (Robo advisory is just a subset) has clear and distinct advantages as it allows everyone in the industry to reach out to a larger set of audience, reduce cost, offer better advice and make transactions far more convenient. This technology is available to everyone and has very low entry barriers. This coupled with increased awareness and faster transfer of information sets the stage perfectly to accelerate the much needed and broad expansion of the customer base. Put together, this has potential to trigger a golden age for investors and every other stakeholder within the investment industry and we should see this play out over the next 10 years at least.
Any business which is built purely and solely on offering cost and convenience only as their business USP, in my opinion, are missing the woods for the trees (some Robo advisors do qualify under this).
We will see a fair amount of consolidation (and exits) happen in India in the Robo Advisory business over the next year of two as the cost of acquiring a customer is not going to reduce. Only those will survive who can sustain the cash burn for at least 5 years or more (and find ways of retaining the clients they acquire) or find alternate revenue streams and allow business fundamentals to come into play.
As Warren Buffett famously said "It's only when the tide goes out that you learn who has been swimming naked."
WF: Many experts believe that Robo advisors are in general, priming themselves to be acquired rather than digging in for the long haul as independent firms. What is FinEdge's likely end game in this context?
Harsh: From day one, we were never in the valuation game (no disrespect for those who are) and ours is a bootstrapped company with no debts, we actually don't have an end game either. We started off on a journey we strongly and passionately believe in - we will add value to our clients financial life by what we do. We have enjoyed the journey so far, along with the struggles it brings with it. We do have milestones we want to achieve and the first milestone would be to get to 1,00,000 goal based SIP's over the next 3 years. We would like to grow at a pace where we can do so without compromising the quality of service and advice that we provide to our clients.
WF: Where do you see FinEdge 5 years from now?
Harsh: The effort of the last 5 years is paying off as our business fundamentals are getting stronger. We are happy that today the business itself is fuelling the investment for further growth and expansion. We have a great team and have tested out and evolved our technology and processes and we believe we are at our point of inflection. We expect FinEdge to show accelerated growth over the next 5 years.
We would like to be known as a company which is known for the way it manages its client relationships and helps them meet their financial goals. Numbers are just an outcome of what you stand for and on their own they are meaningless.
Content is created by Wealth Forum and must not be construed as an opinion by Reliance Mutual Fund.
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