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At the 6th annual Wealth Forum Platinum Circle Advisors Conference held in Mumbai in July 2015, one of the most engaging sessions was a panel discussion on emerging business models in the financial intermediation space. And, one business model that caught the attention of all participants was the new paradigm in retail financial planning that has been very successfully adopted by FinEdge Advisory, Delhi - a business led by three ex-bankers, Harsh Gahlaut, Mayank Bhatnagar and Annirudha Bose.
FinEdge is redefining financial planning with a model that sits in between the traditional face-to-face approach on the one hand and a robot advisor on the other hand. Online and phone based financial planning services are offered out of a single office in Delhi, which now serves over 31,000 clients across 220 cities and towns across the country. FinEdge currently has over 10,000 live monthly SIPs/STPs which are goal based and tracked using a proprietary software. All clients are managed directly by a team of 40 financial planning managers. And all of this, in just 2 and a half years!
New business models, new paradigms: seated L-R: Col Sanjeev Govila of Hum Fauji Initiatives, Rahul Parikh of Aditya Birla Money MyUniverse, Harsh Gahlaut of FinEdge Advisory, Aashish Somaiyaa of Motilal Oswal AMC and Vijay Venkatram of Wealth Forum
We asked Harsh to take us through how FinEdge's proposition works. Here's an excerpt of the discussions at the panel:
WF: What led you to set up this kind of a differentiated financial planning proposition? How does the customer proposition actually work - from the time of client acquisition to plan preparation to transaction execution to reviews?
Harsh: When we set up the business, we were clear that we wanted to avoid one pitfall that we often see in financial planning and wealth management businesses that attempt scale - and that is the dip in quality of advice and the lack of consistency as you keep expanding the team. We wanted to make sure that as we reach out to more and more investors, we maintain the same levels of quality in advice and service.
The second key driver was a business opportunity that we saw in reaching out to retail investors with a high quality financial planning service. This is an under-served and a very large segment that we wanted to focus on.
In order to achieve both objectives, we needed to build a highly cost efficient and scalable model where we can control quality and ensure consistency. A central team of financial planners, serving clients on the phone made sense for the objectives we had in mind.
Our client engagement - right from sign up and through all stages of execution happens on phone, video conferencing and online. We don't send out teams to visit clients, but serve them from our central office. Clients also pay us our upfront fees electronically - through payment gateways.
WF: Financial planning is supposed to be a highly personalised service. How can you offer this through only a phone service?
Harsh: Yes, I agree it is a high touch service, and that's the reason when we evaluated business models, we chose this over a robot advisor model. We believe that our business must be technology led but not that technology should replace humans.
In our experience, a lot depends on how you set the initial tone of your engagement, how you convey your proposition to your client, how you showcase the value you seek to add in their financial lives. If you get the initial communication right, and once clients understand what you are doing and how it will help them, we find clients very happy to discuss matters over the phone with us. Several of our initial fact finding / data gathering calls last between an hour to two hours, with clients discussing even the minutest of details of their monthly budgets, expenses, savings etc with us - all on the phone. I believe its about first showcasing the value proposition correctly - if you do that well, clients are happy to discuss everything on the phone.
WF: What is the typical profile of customers who choose your service?
Harsh: We don't have a threshold portfolio size in mind when we sign up our clients. Ours is a SIP oriented business, with SIPs tagged to goals. If I were to look at clients who have been with us for 12-18 months, the average portfolio is around Rs.5 lakhs and an average SIP is around Rs.20,000. So, its not really mass retail, and its not HNI oriented either.
WF: Clients who have Rs.20,000 in SIPs and who are willing to try out something new and unconventional like your service, are presumably also net savvy and therefore potentially "direct" investors in mutual funds. What has been your experience with clients migrating to direct plans?
Harsh: Our experience is that when clients come into a financial planning proposition, when conversations revolve around their goals and not around products, direct plans don't feature in these conversations at all.
That said, I think we as an industry need to think differently on direct plans. Clients deserve value, its our job to deliver value. We probably need to, as an industry, think about how we can offer value to clients using direct plans.
WF: What if clients come to you for the initial plan, pay you the first year fee, and once they've figured out the investment plan, they go in subsequent years to direct plans?
Harsh: Let me share a recent experience. When we set up our firm 2 and a half years ago, we started with an upfront fee and didn't sign up clients on an annual fee. We brought the annual fee on only later. To all our initial clients, we wrote them an email where we gave three options - no annual fee, a small annual fee and a higher annual fee, and asked them to decide what they would like to pay us based on the value they believe they received from us. We made it clear that no matter what their decision was, the service proposition would remain unchanged for them. We were pleasantly surprised to note that 92% of these clients opted to pay us an annual fee, and a large proportion of them actually opted the higher fee option.
WF: If you were to look at your business model objectively, what would you say are the biggest strengths and the key weaknesses?
Harsh: I think our model has some phenomenal strengths and also has some weaknesses. As a firm, we want to get to 100,000 SIPs in the next few years - that's our aspiration. For us to reach the scale we are shooting for, we need to do something different from the traditional financial planning model, and this model is helping us scale up rapidly and cost effectively.
We hear so many businesses say that they are coming to India because of the demographics, but then very few of them actually do something meaningful to tap into these demographics. Our model is enabling us to tap into India's demographics and reach out to large sections of retail savers. That's a big strength of the model.
The main weakness of this model is the lack of face-to-face contact. It takes longer for trust to be built in our kind of relationships vs what could have been achieved through face-to-face contact. So, if a client were able to invest say Rs. 40,000 in SIPs, he might start typically with Rs. 5,000 - Rs.10,000 with us. We understand this, and are happy to build the relationship over time, as he gets more comfortable, and as trust and confidence increases. We've also observed that if we get our communication right, the comfort, trust and confidence builds faster.
WF: Congratulations Harsh, on building a unique and exciting new financial planning model and wish you and your team the very best for the future.
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