This article is written in two parts. In Part 1, we talk about the headwinds the fund management industry faces worldwide. In Part 2, we discuss some of the recommended approaches to tackle these impending problems.
Digital has permeated into seemingly every industry. With Retail & FMCG / CPG initially trailblazing digital transformations across the world, other industries have caught up to a large extent. This is largely true in Indian markets as well where the forays of Amazon & Flipkart, combined with cheap cellular data revolutionised by Jio and digital payments spearheaded by the current central government, ushered a digital approach to selling and buying. Financial, insurance, and media companies have also been active in undertaking digital-first approaches to their business models.
But within the financial industry, this transformation has mostly been prevalent in the banking sector. However, the fund management industry has lagged. Many of them still stick to an “offline relationship” approach that has worked for eons. But that approach may suffer going forward. In India especially, where more millennials are investing in funds and many newer high net worth individuals (HNIs) are millennials, it is imperative for the fund industry to play catch-up and quickly. It almost feels like your organisation is archaic if you are not on the digital bandwagon.
Today’s smartphone-savvy consumers have been clamouring for digital offerings from the fund management industry as well. They have tasted the digital goodness the other industries offer and want to see the same for wealth and fund products as well. They expect everything to be available at their fingertips on their smart devices. The new-age investor wants things to turnaround quickly – financial information available on-demand, multiple choices offered, intuitive information, and digital transactions. They want what works for them and not just what works for the assets or wealth institutions. They do not want to be encumbered with limited options sold at the behest of these institutions but want to be spoiled with choices. This is true not just in India but worldwide as well.
Here are a few areas where fund management falls short of the new-age consumers’ expectations:
- Data silos – data about funds are not readily available and they are not easily accessible. An investor or a potential investor needs to jump through hoops to find the information that they are looking for.
- Incomplete information – even after the user manages to find the source of fund information, they end up staring at incomplete/partial data. This is especially frustrating for an informed & DIY investor who likes all data to be available and prefers to do their own research.
- Limited choices – consumers have an abundance of options when it comes to retail and even banking industries. However, their choices (including findability of these choices) are quite limited and, in many cases, unviable ones are thrust upon the investor. This drastically reduces stickiness in an industry that spends a lot more than others in customer acquisition.
- Cumbersome user experience – online fund solutions are still very stodgy. The user interfaces and user experiences offered in these fund solutions for both potential and existing investors are, in most cases, uninspiring.
- Tedious onboarding – while e-KYC and digital transactions have improved in the recent past, there is still a lot of scope to play catch-up to an exemplary consumer experience. Fund management solutions still rely a lot on paper-based processes, the tedious back and forth workflows, inconsistent data, and compliance issues. This enormously increases costs for both sides.
- Just (not) in time – due to unwieldy onboarding and reporting processes, investors do not get an up-to-date view of their investments, portfolios, redemptions, etc. And when they do, they rely on more of 3rd party solutions than the ones provided by funds, if any. And even if funds and wealth institutions provide this capability, they are found wanting and it may be due to some regulations enforced upon them.
Fund management players should worry about the old-school mentality that they continue to run with. Consumers and investors will naturally gravitate towards more cutting-edge digital solutions that offer the same upside than the uninspiring value adds that these traditional institutions offer. We believe, it is just a matter of time before the cracks start to widen.