Financial advisory in the face of increasing digitisation

Indian investors have conventionally relied on financial advisors to help them with their financial planning. In fact, a couple of years ago, around 70% of investors in India preferred to work with financial advisors. However, with increased digitisation sweeping across the investment ecosystem in the country, the popularity of financial advisory has come under a scanner.

With a transition to the digital-first system, a wide range of tech products are now available that are user-friendly and well-equipped to support DIY investing. The availability of such products has proven to be particularly useful in bringing millennial investors on board. Most first-time investors are tech-savvy, and they rely on information available online to make their investment decisions. With DIY products to execute their investment strategies, these new investors hardly feel the need for expert financial advice.

However, with a plethora of online options, the need for expert financial advisory has never been more acute. Here is why:

Human element

Digital tools work well within the algorithms developed for them to operate. However, practical requirements vary from one investor to the next, and more often than not, there are many complicated layers to uncover and factor into the investment decisions.

For instance, the unfortunate event of the death of the primary breadwinner of a family not only impacts the surviving members emotionally, but it also leaves them vulnerable to investment avenues that seemed good initially. Alternatively, when things seem to be looking up in life, it may deter individuals from focusing on the possible curve balls that life could throw their way. Financial experts excel in helping investors to factor in the human side while planning their money matters, thereby devising more efficient and holistic plans.

Goal-based investing advice

Goal-driven investing is the best investment strategy. Life goals, such as buying a car, building a home, or building a retirement corpus, are strong motivations to save and invest. The value adds that financial experts bring to the table in the context of goal-based investing cannot be emphasised enough.

Digital solutions are often programmed to help you formulate a plan based on the data you key in, regardless of your unique financial situation. A financial advisor, however, works with you to understand your needs and challenges to draw a more personalised plan. You get to leverage years of experience to formulate an investment strategy that encompasses all your life goals - for the short as well as long term. It is for this reason that despite massive digitisation, the financial advisory is likely to continue to be invaluable for goal-driven investors.

Expert guidance

For financial exercises like debt management, the expertise offered by financial advisors, particularly for individuals burdened with multiple high-interest liabilities, can be of great value.

A financial advisor can tap into years of relevant experience to help debt-ridden individuals manage their loans. By aligning their finances smartly, financial experts make it possible for such people to reduce the overall costs of their debt or to repay their liabilities faster, leaving them with more cash in hand to channelise into investments.

Inherent human biases

Financial planning extends beyond choosing investments and rebalancing portfolios. Robo-advisors may excel in these areas, but when it comes to combating inherent human biases like behavioural bias, attachment bias, and recency bias, they fall short by a significant margin. A financial expert, however, can help individual investors mitigate the impact of such biases and help them make investment decisions that are not clouded by these factors.

Decode new financial regulations

Financial regulations are subject to change. Tax codes and slab rates are subject to change every year in the Union Budget. Apart from such changes, reform measures and sector-specific boosters may lead to the emergence of investment avenues not considered before.

Digital platforms may succeed in quickly incorporating new regulations in their algorithms, but they cannot help the common man make sense of such measures and their financial implications. Financial experts are better suited to assist individual investors at the grassroots level to decipher complex regulations and understand how they may impact their goals in the long run.

The bottom line

The fact remains that despite technological advancements in our financial landscape, the role and relevance of financial advisory services remain undiluted. If anything, their need will only increase to help investors safeguard their finances while navigating through the plethora of options and information overload in this age of digitisation.