Headquartered in Gurgaon, Bharosa Club provides high quality financial products for households in areas such as loans, insurance and advisory regarding mutual funds.

What are the various challenges prevailing in wealth management industry in India?

The industry sees the wealth management customer as a unique individual who has a unique set of requirements. He is pampered, and soon enough becomes accustomed to in person interactions & advice. So long as advice is delivered in person, scale can not be achieved. This is the greatest challenge facing the wealth management industry today.

Lack of scale creates a vicious cycle.

It increases cost of providing advice, and consequently results in high charges.

This is turn limits the potential customer base, and forces the industry to further pamper their small pool of haloed customers.

A large fall out is that a majority of investors can’t afford good quality advice. Which leads to poor experiences resulting in a poor word of mouth for financial products.

The other big challenge for the industry is to actually deliver unbiased advice. As long as certain wealth management services earn via commissions, they will never be truly able to divorce their interests from the interests of their clients.

What should the industry and regulatory bodies like SEBI do to ensure better penetration of Mutual Funds in India?

Mutual Fund penetration in India stands at a paltry 1-1.5 percent. Given that we are a poor nation, and given that mutual funds have proved to be a great wealth creation tool; these numbers are nothing short of a national tragedy.

The industry is burdened by arcane rules and changing one rule alone will not alter the landscape. A realignment toward fostering innovation is a must. Hence encouraging new entrants who want to upset the status quo with radically new ideas should be the mantra.

A few directions that the regulators must look at are:

Reduce paperwork and use technology to make trial easy and quick

Encourage distributors to actively target the low value customer by paying a flat fee for acquisition, rather than making earnings commission oriented (which currently motivates them to only pursue the high value investor)

Simplify the construct of the industry. Today there are over 6000 mutual fund schemes to choose from across over a dozen categories of mutual funds. No wonder the common man still finds comfort in the simple to understand FD.

It’s important for a client to understand the investment approach followed by a Financial advisor. What should be the approach of advisory firms when planning a client’s financial future?
A financial advisor must first have a philosophy which governs their advice module. It’s incumbent on the advisor to explain the merits of this philosophy to his clients.

For instance, Bharosa believes that the quantum of an individual’s wealth does not dictate his investment decisions. What matters is his risk profile & goals. Hence mutual funds are a good asset class for all kinds of investors (rich or not so rich); how we chose to use or recommend them differs from one individual to another. It’s the job of the financial advisor to hence understand the peculiarities of his client and then recommend an investment plan which is in line with the stated goals.

At Bharosa, the first step every investor must follow is to take a risk profiling test. We have other tools as well; which together help an investor reconcile his goals with a unique investment approach. We then go on to recommend different funds within an asset allocation. Constant monitoring and insights, help an investor make short term tactical decisions while staying on path toward their long term goals.

What are various points that startups need to keep in mind while stepping into wealth management?

Apart from the standard core ingredients that every start-up must have, there are a few which are critical to be mindful of in this industry:

The first is the regulatory environment. The investment advisory space is a heavily regulated space with several compliance requirements.

With a potential market of 120 cr customers, one can slice the market in a number of ways. Its critical to get a quick fix on your customer. Who you talk to, what you offer, how will you acquire him and how your price yourself?

The financial advisory industry is a push industry, and is very different from all other industry’s where various start-ups are making a name for themselves. Ask yourselves the question, if it has taken 20 years for the industry to create 1.5 percent penetration, what makes you confident that you can make a significant dent in the market?

Startups in India in robo advisory can think global. Simple, honest, transparent, unbiased advice, which is affordable; is not just a need in India. Flat fee AUM agnostic pricing is starting to emerge in USA. Schwab offers 0.28 percent of your AUM subject to a cap of $900 per quarter. Bharosa flat fee is $8 per quarter or more than 100 times less. As Bharosa builds capabilities it could aim to go global by becoming the global value leader.

What does the customer want from Financial Advisors? What are the various simple financial products you provide to households?

Customers want an advisor they can trust to understand their requirements and suggest & execute a simple plan. Bharosa currently offers advice & execution services in mutual funds. What most people don’t know is that mutual funds are not just for the risk taking investor. There are several mutual funds which are designed to cater to the needs of the risk averse investor as well. They are far better than conventional instruments like FDs, Money Back Insurance and Provident Fund on counts of liquidity and returns. It is our endeavor to take these simple financial products to millions.

To this end we are also launching an easy to use app specifically designed for the first time investor.
For the existing mutual fund investor we offer several features:

A Free Online Portfolio Check Up - which analyses your mutual fund portfolio and gives actionable advice

Many investors are looking to exit their commission oriented funds and move to direct plans (commission free) Our migration tool helps them do so easily.

Sophisticated investors can use our Market Linked investing tool to generate higher returns

Numerous factors like high profile scams, damaging practices of advisors with a short-term view and lack of strong investor protection environment has led to investor’s insecurity. What measures should be taken to establish trust and enhance financial literacy?

In all fairness, the regulators have done praise worthy work on minimizing large scams which we had grown accustomed to in the past.

A few steps can be taken to further prevent poor advice and improve investor literacy

Removing commissions: If advisors were to earn a flat fee for their advice instead of commissions, they will be forced to give advice in the investor’s best interest. Market dynamics would then reward high quality advisors. Once investors start being charged for their advice they will become more proactive and the financial advisor would have to prove their value to keep earning the fee

Can you learn to swim by reading about it or watching videos? You must get into the pool. Similarly, there is no better way to teach people about mutual funds and investing than getting them to start with small amounts.