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Trends in the Financial Planning Industry

Mukesh Dedhia, CFP, IndiaBy Mukesh Dedhia, CFP

In India, about 10 or 20 years ago, if you were lucky enough to have a relative who was an insurance agent, your family would receive financial advice. With growing complexity in financial products, more people started looking for somebody to help them make the right decisions. This created a shift towards embracing financial planning. The financial planning profession is still in its nascent stage and is experiencing many changes.

Financial Technology Trends

Organizations and IFAs are striving to match technology with fast changing business needs. Giving clients online access to their financial planning account enables them to track their investments and financial goals independently. Many online platforms are built and operated in India, such as iFast or IFAN. This new technology offers vast benefits to financial planners. One benefit is that it provides another medium, such as audio/video, for the advisor to communicate with their clients. Technology platforms also allow the client to use online resources such as research reports or videos of financial expert seminars/talks.

Another form of technology that many advisors have started using to keep in touch with their clients is social media. The most popular channels seem to be Skype, Facebook, and Twitter.

Some platforms such as Mutual Fund Service System (MFSS) by NSE India, BSE Star, and Next Advisors Platform are developed for the convenience of the advisor. A click of a button can accomplish everything and save the advisor from being buried in unnecessary paperwork. Even the recent e-IPO norms announced by SEBI (the capital market regulator), will help in a similar fashion for IPO applications.

Mobile Apps for Financial Planning

With the increase of the number of smart phone users in the country, there has been a strong growth in the use of mobile applications. Mobile apps in the financial planning domain can enable clients to track their portfolios, goals, access research reports and market news etc. Few advisor specific apps have been developed. These could include access to client accounts, interaction with clients, etc. Specialized apps for advisors could take the profession to another level.

Most of the Banks (Private & Public Sector Banks) have come up with Net Banking facilities. More and more people are opting for the same. Many Asset Management Companies (AMC) have developed channels where investors can purchase or redeem mutual fund units by a phone call, SMS or online. One AMC has come up with an innovation of providing an ATM debit card to individuals links their investments to a liquid fund. These measures enhance the liquidity and convenience for the clients.

Financial Literacy

In a country where 50% of savings are directed to physical assets like Gold & Property and the majority of financial assets are parked in Bank Fixed Deposits, Postal Schemes or traditional Insurance Products, financial literacy is of utmost importance. The National Strategy recognizes that financial literacy and financial education play a vital role in financial inclusion and inclusive growth. They envision ways towards creating awareness amongst the public and educating consumers. They focus their education on access to financial services, availability of various types of products and their features; changing attitudes to translate knowledge into responsible financial behavior; and understanding their rights and obligations when working with financial services companies. There are even chances of introducing financial education from the school level. All this will give a boost to the financial service industry as a whole.

SEBI also understands the need for financial literacy and has set up an education arm of its own, named National Institute of Securities Market (NISM), that gives various certifications pertaining to finance and financial services. More and more insurance and mutual fund advisors are undertaking the CERTIFIED FINANCIAL PLANNER certification course to get professional knowledge in financial advisory. Since the time the CFP certification program started in India, in 2001, over 23,000 candidates have enrolled in it and over 16,000 have been certified, either as associate financial planner (AFP) or as a CERTIFIED FINANCIAL PLANNER professional.

Media also understands the importance of spreading financial knowledge and has given special coverage to financial planners. There are dedicated columns in newspapers written by CFP professionals and special TV shows for financial advice running as much as every day or as little as once a week.

As an independent effort, and in a bid to create interest among investors about financial planning, a small group of CFP professionals in Kolkata conducted a road show. The group put up a stall that said ‘Personal Financial Health Check-up’ in a prominent location that attracted a huge crowd. Events like this will help enhance investor awareness about the importance of professional financial advice.

Financial Regulation Changes

In addition to financial literacy, financial inclusion is also very close to the heart of global regulators. Recently, SEBI announced that investors having investments up to Rs. 50,000/AMC do not need to furnish their PAN Card to make a mutual fund investment. This rule will go a long way to brining new investors to the mutual fund industry.

Another set of changing regulations in the mutual fund industry regarding allowing charging higher expense ratio granted asset management companies (AMCs) flexibility on fees by allowing them to charge up to 30 basis points more as the total expense ratio (TER) – fungible across schemes — if they are able to get inflows from smaller towns beyond the top 15 cities and if these inflows are 30% of the total inflows. This will boost mutual fund penetration across India. On the insurance industry front, the Insurance Regulatory and Development Authority (IRDA) has come up with many investor-centric reforms. It has also approved a website for easy comparison of health insurance products.

Lastly, the government has set up an apex level Financial Stability and Development Council that will coordinate the activities of the existing financial sector regulators, including the Reserve Bank of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority (IRDA) and the Pension Fund Regulatory and Development Authority. By setting up the Council, the government hopes to strengthen and institutionalize the coordination amongst the various regulators.

Product Innovation

Apart from various types of schemes available in the mutual fund and insurance arena, many structured products have also hit the market. These structured products are not only based on equity and debt but also on commodities like gold and silver. In the real estate market, where buying direct property is becoming increasingly expensive, many real estate PMS structures are coming up, giving rise to a financial product category linked to physical product. These alternative investment avenues have opened space for the advisor to offer specialized advice to the mass affluent and HNI clients.

Behavioral Finance

Behavioral finance is gaining significance with advisors and wealth managers. Advisors can use aspects of this new and evolving discipline to gain a deeper understanding of the client before offering investment advice. Though it is just the beginning, we need more structured programs on this topic. Realizing its importance, even FPSB India has incorporated it in its revised CFP certification syllabus, effective from February 2013.

Certification organizations need to equip financial advisors with tools, applications and knowledge which would enable them to service their clients effectively. Advisors, in turn, will have to adapt to the changes happening in the industry, and move along with the trends.

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