How Fintech Companies are Changing Investment Planning

The advent of technology has been highly anticipated in the wealth management industry for some time now. What started as a shift from analog to digital in banking more than two decades ago has finally evolved to become much more disruptive with the emergence of fintech companies. Their success can be gauged by the fact that India has transformed into a topmost destination for fintech deals in Asia. In global terms, the second-largest number of fintech startups in the last three years occurred in India, second only to the US. 

The reason behind their success is the unique experience that fintechs have brought to wealth management, making it accessible, convenient, and more transparent.  

Making it More Democratic

Finance is a complex subject where we learn to juggle our mortgages, incomes, taxes, investments, and life goals. The inequality of wealth makes it even more complex where those with limited resources are further crippled by their lack of knowledge or access to knowledgeable resources. Ironically, this further increases wealth inequality as most of us simply fail to capitalise on our assets or use available resources to the best of our advantage. 

While wealth management has existed for centuries, it was largely seen as the domain of the very rich. It is this mindset that fintechs have quite successfully managed to break through. Since most of them charge a reasonable fee, they are seen as an affordable option. The easy-to-understand format of a fintech helps in demystifying investments, making it easy to access and utilise. Since these are available through the internet, almost anyone can use them from any place. With the coexistence of several investment platforms, users can also take the advantage of a highly competitive marketplace. An investor can get onboard a fintech at a very reasonable cost, irrespective of starting capital or location. This makes it a truly democratic tool within wealth management. 

Unbiased and Reliable Advice 

Unlike most traditional wealth managers or platforms, fintech companies do not rely on brokerage or commission from the manufacturers for their revenue. Instead, they charge a consulting fee from the customer. While this may seem counter-intuitive, it actually provides the foundation for a more transparent and ethical advisory system. In some cases, traditional non-fintech platforms, brokers, and agents would push products to clients because of their commitments. Because a fintech charges the user, their loyalty lies with their customers. Since their revenue does not depend on the other side of the spectrum, that is, the manufacturers, their advice is likely to be unbiased. 

Holistic Advice Across all Products

Wealth management planning is usually divided into two parts, investment planning and financial planning. While the former is limited to assets earmarked for investments, the latter takes a more holistic view. More and more fintechs are today moving towards the holistic approach through several tools. For instance, many wealth management fintechs start with charting the user’s goals that can range from buying a car and children’s education to early retirement. Similarly, there are other wealth management tools that go beyond investments. 

This flexibility of scope is now also slowly extending to the basket of products being offered by fintechs. Until recently most platforms had focused solely on mutual funds. Now we’re seeing a set of fintech companies who are moving towards offerings of a fixed income through PSU, corporate, and perpetual bonds. 

Smoother Execution of Services 

Fintechs offer a tremendous amount of convenience to investors because of the flexibility of their services. Most of these platforms offer their services across several channels, including mobile apps. Digitisation brings automation, which means higher efficiency and quicker results. Since the nature of the advice is digital, it is also easier to store, record, and share. 

This account keeping has another advantage as it allows investors to track their goals. Users can, at any given point, easily track their portfolio and its history. They can check its performance, vis-a-vis their goals to see whether they are on track, if they are falling short, or have extended their initial investment goals. It helps in regular monitoring and rebalancing the portfolio. The clear consolidated record-keeping also creates more transparency and understanding of how one’s portfolio evolves over a period of time. 

The Emergence of AI-Based Tools

Fintechs have led the race when it comes to the adoption of AI-based tools. By their very nature, fintechs are generally keener in the adoption of new technology. They have seized the advantage in tools that can range from account verification to predictive analytics and the groundbreaking Robo-advisors. While some traditional platforms have slowly adapted these tools, they have been less proactive than fintech companies. Even where AI-based tools are used, fintechs have generally been more aggressive about pushing the new technology. 

For instance, in the case of Robo-advisors, most traditional platforms are still sticking to a basic advisor form. Contrast this with fintechs that are using cutting-edge AI tools that require minimal human intervention, while providing a far more holistic service. As our services become more digital, the influence and presence of these AI-based tools will only increase. 

The advent of technology is not new in wealth management. In many cases, the industry has taken the first steps in adopting technology, from creating better record-keeping to improving overall efficiency. However, the emergence of fintech companies can be seen as a true game-changer. These firms have disrupted traditional practices, introduced more democratisation with better access, services, and transparency. What these fintech companies have introduced today may well become the standard of services tomorrow, creating a lasting change that will revolutionise the industry.  

The author is Co- Founder and CEO at 1Silver Bullet

DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.