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What do account aggregators offer?
The new clutch of account aggregator applications in India like MyUniverse, have made consolidated statements produced by MF back office software look hopelessly incomplete. Traditional back office software packages used by most distributors and advisors consolidate only the clients' mutual fund holdings. Some also offer facilities to consolidate across other assets - including shares and investment oriented insurance policies. What account aggregators do is go a couple of steps forward - they provide the investor a view of ALL his assets and liabilities, as well as his cash flows, in a single application. No need now to look at your bank statement, your credit card statement, your demat statement and your MF statements - all of them get conveniently aggregated into a single account view. Typically, account aggregators pick up information from all sources - banks, MF R&T agents etc - every day, and provide investors with updated comprehensive personal financial information on a daily basis.
Account aggregation is really the starting point to offering comprehensive personal financial advice, on all aspects that matter to the individual - not just his investments. People need help with creating and tracking monthly budgets to make sure they are spending wisely and saving adequately. People need useful reminders to tell them that they are perhaps going overboard with spending this month, and may want to go slow for the rest of the month. People need advice on minimizing credit card outstandings and taking personal loans instead of using revolving credits on their cards. People need advice on the right home loan to take, for their requirements. People need advice on loan pre-payment vs investing. People need advice on insurance cover for self, family and assets. People need reminders on renewal of auto insurance, on payment of periodic obligations like EMIs, school fees, insurance premia etc. There is in short, a lot of hand-holding that people need in terms of day to day money management, before they even start thinking of investments.
Account aggregation + robo advisory = potent competition for IFAs
Account aggregators don't just stop at providing an aggregated view - they are increasingly bundling in robo-advice with account aggregation, to offer consumers an accounting service as well as an automated advisory service. So, you have smart apps that do your budgeting and provide real time updates on how you are doing this month vs spending budgets. They provide you all the reminders that you need to ensure you never miss any financial commitment. And they also provide automated investment advice, based on risk profile and goals that are integrated into the overall application. Transaction capabilities in mutual funds are also integrated, thus making them truly comprehensive and convenient.
Where does an advisor fit into this scheme of things? If account aggregation is tightly integrated with robo-advice and execution, is this a potent threat to financial advisors?
RBI moves to unbundle account aggregation from advice
RBI's recently published draft norms on account aggregation (Click Here) provide an insight into exciting possibilities for financial advisors. RBI's draft guidelines suggest that aggregation services can only be provided by separate NBFCs which cannot undertake transaction services or any other services. They have to provide aggregated information to the customer or to any other person as per the instructions of the customer. There is a clear effort to delink aggregation services from advisory services.
Great implications for futuristic advisors
Once this draft regulation gets enforced, it opens up fantastic opportunities for financial advisors. You can now get your clients to sign up for an aggregation service, have the aggregated information come into your financial planning software, and then offer enriched advice to your clients - not just on their long term goals, but also on day to day money management. You have an opportunity to become a comprehensive personal financial advisor - who advices on both sides of the customer's balance sheet as well as on his cash flow statement. You would, in an instant, go miles ahead of bankers in terms of access to client information and therefore ability to proactively advise them.
You can be sure that the current set of aggregators will now try to offer a 2-in-1 package, where clients sign up simultaneously for two services - account aggregation from company x and robo-advice from company y - both belonging to the same group. At the same time, the new regulations may spawn a new breed of specialist aggregators, who don't tie in either robo-advice or transaction services from group companies. There could be aggregators who specifically target financial advisors.
What you will be offering your clients is a judicious mix of technology enabled personalized advice. Technology comes in for the mechanical parts - the accounting aspect. You come in for analyzing the information and providing customized recommendations. You come in to hold your client's hand through his financial journey in a manner that no robo possibly can. Financial advisors using technology enabled account aggregation services is a true win-win for all - with the investor right in the center of it all.
Content is created by Wealth Forum and must not be construed as an opinion by DSP Blackrock MF.
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Futurist Edge: Technology Insights