There has been a spectacular rise in e-commerce industry and it has disrupted many traditional businesses. There is virtually no industry or market where it's impact cannot be felt or foreseen today. In the financial services industry, the emergence of a new group of digital wealth advisory/management firms offering automated investment advice services has today become one of the debated topics. There is one view that such firms may revolutionise distribution and advisory practice. Yet many experts have discounted and labeled this movement as unproven and believe that its' solutions are no match for a human, personalised investment advice. In this context, we want to explore the emerging challenges and how we can sustain and indeed grow our business in this rapidly evolving digital age.

The Evolving Market Place:
Let us take holistic, template view of the evolving industry. We may thereby segment the fraternity of financial advisors /distributors into the following three groups...

1. Fully Automated: These firms provide no human interface and work solely on softwares. Investors would register online on website for advisory /distribution related solutions for KYC compliant investors. Often offline verification / bank mandates are requested for enabling online transaction facility. Typical investor would be young, tech-savvy individual yet not serviced by traditional IFAs. They rely on smart visuals, packaged solutions and ease of use for investors to grow their customer base.
2. Financial Advisor (FA) Assisted: The segment is a combination of both technology and human interface in equal measure. Technology is smartly used for doing many activities /processes and providing value-added services to clients. The human interface is primarily involved in acquisition, relationship management, custom financial planning and behaviour orientation. The transaction process, reporting, customer service, business MIS, etc. are all automated and technology driven as also portfolio advice and management to some extend. A typical investor is difficult to define as they consist of HNIs to retail customers.
3. Traditional IFAs: These IFAs rely almost entirely on human interface and a large number of processes involve manual intervention. They are primarily dependent on physical branch networks. A large amount of time and efforts is spent on non-value adding services. While such IFAs do have a mixed clientèle of retail and HNI customers today, it is difficult to foresee profitability and growth for them in this model unless the clientèle is primarily HNIs and super HNI who would be more comfortable dealing with professional advisors face-to-face.

Widening Horizons:
The digital age is here and it is going to stay. E-commerce in the digital age is finding resonance and favour from not just investors but also regulators and government. With the government's focus on Digital India and a rapidly evolving financial services landscape, it is more likely that the transition will only continue. There has never been so many smart phones, ease of payment options and entrepreneurship spirit present together ever, each complimenting each other to create innovations to serve customers. It is really exiting to see the pace of change as it is all benefiting the consumers in the end.

The widening horizons of e-commerce enhances the ability to offer multi-channel strategies to industries and organisations. This can potentially reduce costs and improve customer management. A single organisation, multi-channel approach is fast becoming dominant. To be successful, we must all offer a positive client experience, problem solving solutions and take a unified view of the client's overall relationship. E-commerce must also be used to expand client options and offer broader product choices. Organisations which have existing clientèle, a diversified product basket, unified portfolio view, automated & integrated transaction platform, backed with effective customer servicing model cannot be easily replaced by digital entrants. Given the abysmal levels of financial products penetration in India, the markets can only expand hereon and every existing player and new entrant will have their own fair share of the growing cake.

Meeting the Challenges:
The main objective to consider here is what strategies will wealth managers /financial advisors adopt to stay competitive in the e-enabled environment? What value can they add to their clients? This concerns will only grow as we progress in the digital age and as industry evolves and matures. The emergence of the digital age has made clients more inquisitive, experimental and thus less loyal to traditional channels of distribution. The client's preferences and habits are also changing. Today the clients want solutions not products, ready access to information not processes and desire to act 'now' rather than to wait. These are changes which have big impact on the business of financial advisory /product distribution.

How can a traditional financial advisor meet these challenges? There are few things that need to be done with priority, if not in a mission mode ...

1. Making the strategic choice and commitment: It begins with defining your business model and approach. The strategic choice has to be made of moving business to the digital mode or keeping with the traditional ways of business. That conviction and commitment has to be come before anything else is to be done.
2. Adopting technology & automation: Next is your understanding and adopted of technology and automated processes in your organisation. As advisors, you need to identify which processes can be automated and which processes shall you manually focus on. Defining the processes is crucial as it will provide a ready template for your firm to work accordingly.
3. Pushing Customers to Automation: If the choice to go digital has been made, then it is also the time for your customers to go digital. In the age of Facebook and Flipkart, there would hardly be any customers who would not have smart phones or be tech-savvy. It is only a matter of perspective & attitude when it comes to wealth management and use of technology for same by customers. A plan for shifting existing customers on the digital platform is to be made while for new customers, the enrollment should ideally be in the digital mode.

Customer Value Identification:
Surviving and growing in the digital age also demands proactive actions and marketing by the advisors to their customers. The need is to highlight the value added services on offer to customers. In absence of this, their will be some risk for customers getting attracted to other digital entrants. If this idea looks stretched at the moment, we should at least accept that the customer, in absence of knowledge of our services, would be more prone to being fished by someone else highlighting his/her services. Your service value identification by customers is also important when we are trying to push the customers to the digital platform.

The question now is – what is my value proposition as a financial advisor in this digital age? The answer for NJ Wealth Partners is very simple and can be found by bit of soul searching ourselves. We would just list the elements constituting our value proposition without going too much into details...

• Consolidation / aggregation of entire portfolio for family easily accessible
• Access to a rich, diverse basket for financial products and asset classes
• Paperless /online transactions in financial products
• Value added services of proper financial need assessment (financial planning) and portfolio management
• Effective and efficient customer query /complaint management

Adopting Technology in Business Practices:
The challenge is also for the advisors to make activities process & technology driven rather than keeping them manual. The idea is to use maximum system tools which are available on the go to optimise and scale their practices. NJ Wealth Partners can effectively use many automated services offered by NJ like CRM, Financial Planning, Employee Management, Subscriptions, Customer Care in their business. They can also potentially do wonders for their business if clients switch the the E-Wealth platform and MARS. These few and many other services by NJ can also help Partners to improve their value proposition greatly.

Branding Your Differentiation:
Marketing or branding too has evolved enormously with changing times. Financial advisors are unfortunately not really keeping pace with the trends. In the digital age, your identity begins with your website. Having a website is a must for any advisor who presents himself as a seasoned professional. There is no meaningful shortcut to avoid this requirement. Next is the question of marketing and branding your business, products and ideas in modes, ways and channels which are relevant to the customers. While the need for traditional marketing through physical literature is still very relevant today, the advisors today now must use the the new channels of communication using digital formats like videos & images. These formats can be effectively circulated through your mobile phones, email accounts and websites. In combination with websites, they can be effectively used to enrich your live content for visitors. At NJ we have kept pace of this need for branding differentiation with our offerings in BizMall like WebNest and MCS.

Conclusion:
The following are some key observations...

1. Digital entrants combine the use of packaged solutions, presented with simplified user experience having ready online access backed with increased transparency and a largely automated process to offer automated advice directly to investors.
2. Emerging models have potential to make 'advice' for the mass market feasible and a certain segment of investors will find value in them. The advice varies from standardized to customised depending upon the complexity of automation.
3. The changes taking place are here to stay as is the fact with many industries/businesses today. So traditional players now need to determine if and how they want to approach these changes.

The emergence of digital entrants into the wealth management space has now slowly gathering pace. It will be some time before they can actually start making an impact on the industry and investor expectations. Presently the scale and size is very limited but what is clearly visible to us the the experience of other industries and the emergence of the digital era and e-commerce, in general. The evolving trends in the market will ultimately benefit new and existing investors alike by providing better and innovative solutions through an improved client experience.

To survive and grow, wealth management providers can no longer rely upon customer loyalty only. The advisors working in traditional ways will have to make the choice of transitioning their non-core services /operations to automated modes while keeping their human interface skilled & informed. Further, investors too will have to be gradually pushed in the digital environment so as to avoid loosing them in future to any of the digital entrants. The good news for NJ Wealth Partners is that the platform is ready today for the digital migration of Partners and their clients as well. Effectively using the many services offered by NJ can help the advisors to start making the transition to be strongly competitive in the industry and also be ready for the challenges. But investors will have to be made to acknowledge & appreciate the value of this digital platform and infrastructure behind the Partner. We at NJ are aware of the emerging challenges are keeping pace to make our Partners stay as competitive and resourceful as ever.

“People will forget what you said, people will forget what you did, but people will never forget how you made them feel”

The job of a financial advisor is remunerative and thrilling, but highly challenging at the same time.

He is expected to be a repository of knowledge and abilities. We have been hearing the clichéd advisory skills and stress on polishing the advisor's skills in terms of acquisition of knowledge and certifications; brushing his portfolio management skills, accounting skills, business administration, tax planning, technology management, etc. However, while carrying out his roles, the most important skill required by an advisor is often overlooked, and i.e. interpersonal skills.

The advisor's business is service oriented, you have to deal with human beings. And in our business, building and maintaining relationships is equally important as generating sales. A financial advisor is like a slab of marble, the surface has to be glazed to bring out the sheen of the piece. Similarly, the interpersonal skills of the advisor should be polished to unearth his hidden civil skills.

Following are the few elements of interpersonal skills which should be smoothened to blow the lid off the financial advisor:

Listening: This is the most important skill required in a financial advisor. You have to be patient to what the client is saying, even if most of it is immaterial. You'll find the vital stuff within that conversation. “An advisor has to hear what isn't being said”. As an advisor, you have to interpret the expressions of the client, you have to figure out his needs and goals, even if he doesn't clearly mentions them to you. Because the effectiveness of his financial plan depends on all his material personal and financial factors, and they can't be omitted, so you have to listen carefully and not just hear what he says.

Communication: The effectiveness of your advice will depend on how effectively you communicate the same. Your speech must be assertive, so that the listener takes you seriously. You may enhance your content by narrating success stories of your clients. The client may not easily comprehend numbers or financial jargons at times, so your style of communication must be simple and easy to understand. On the whole, in order to create an impact of your words, it is vital to adapt an elementary yet powerful style of communication.

Sensitivity: An advisor should be sensitive towards his client needs and not his financial targets. Client's needs and goals must be on top of the priority list. You must speak in terms of his needs and seem sincerely interested in him, else he will not be able to trust you. He will engage with you only if he is convinced that you are genuine and would work in his interest. And this conviction will come only if you keep his needs at the center.

Personal Touch: Display of care and an element of personal touch can solve your equation with the client. By referring to him by his first name or if he is an elderly person, by his surname affixed with Mr. will be much more impactful than referring to the client as Sir or Ma'am. A call for wishing birthday or anniversary can also build your relation with the client on a more than professional level.

Convincing ability: You should possess the talent to be able to convince people. You are selling products and services, which might at times be resisted by clients. Because of someone's bad experience with mutual funds in the past, he may not be wanting to try his hand once again. So, you should be able to explain to the client, the probable reasons for his past failure, overcome his fear and direct his money towards the right fit of investments which may include mutual funds. You must also be able to convince the client that his life goals are more important than his lifestyle. He should be able to understand the fact that if his current lifestyle can result in a compromise on his future, he should immediately start cutting where possible. And building this thought process in the client's mind is not an easy task. You have to possess exceptional convincing ability for the same.

Etiquettes: People have a tendency to assume that someone who counts low on manners is equally low on the knowledge quotient. Manners are becoming very crucial for our business, since we have to tackle people from different cultural and religious backgrounds and its essential to stand up to their expectations as far as civic behavior and politeness is concerned.

Because of increasing awareness, plethora of investment options and advisors, our industry is becoming increasingly demanding. An advisor has to work on the product as well as it's packaging to be able to make it appealing in the eyes of the beholder.

You do not want 'Constant', what you want is 'Constant Growth'. And to achieve a constant growth, what do you do? You expand your reach, you target newer clients each day. And how do you target clients? You look for referrals, you hold seminars, you target your relatives, friends, colleagues, ex-colleagues, etc. There is still a corner left which you don't look into, and that is your clients family.

You always ask your clients for references, and some clients are very kind, they give you references because they believe in you and hope that you'd provide good service to the referrals also. Now, there is one question that you often tend to not ask from the client and that is about the financial planning status of the client's family members individually.

While we do consider the client's kids, spouse, parents, when we advise them. We design their Portfolio keeping in mind the family's requirements, but we seldom consider the latter as a separate entity.

Why should you regard your client's family members as separate clients?

Parents: Your client is doing financial planning for his family, but the client's Dad might also need some financial planning for him, he might want to leave behind some assets for his kids and grand kids. He might have kept his entire retirement corpus in a Fixed Deposit or worse in his saving account. He might be 70 + and doesn't have a Will. Though people do plan for their parents future, but they often ignore to sort their Parents' finances. In Indian families, the kid would prefer facing troubles later over gathering the guts to ask his father, "Do you have a Will?" Or "It's time you must have a Will". So, it is the financial advisor who has to take care of the succession planning of the elderly, you are the one, who'll explain him that money kept in savings account or FD is depleting day by day on account of inflation and expose him to better options of growing his wealth like MIP. So, when you advise a client remember to ask him about his Parents, ask if they need your help!

Siblings: A Client would give you ten references, his friends' and relatives', etc. but would often forget his own brother or sister. So, when you ask for references, ask specifically for the clients siblings. Ask if they have a financial plan, ask if you can help them.

Spouse: This is another overlooked section, the client's spouse. When you plan for the client's next vacation with his wife, or for his retirement years with his wife, all aspects of his financial plan involve her. But what about her own finances, she might be earning, she might have her savings too. Her salary might be getting accumulated in her salary account giving her an interest of 4% pa. So, you must ask your client about his spouse, if her finances are in shape.

Kids: The next, most overlooked and the most important zone is the kids of the house. Kids are generally not involved in financial planning conversations as we believe it would serve no purpose. But the reality is if they don't say today they will tomorrow, so make sure you talk to the kids about the basics, about savings and investing, why should they save and invest. If the kid has a goal of buying a pair of professional skates, how saving from his pocket money can help him achieve his goal. When a kid sees you advising his parents about money, when he learns from you about saving and investment, he starts trusting you, he looks at you as the money man of the house.

Why the advisor should acknowledge the client's kids:

1. Intergenerational transfer: Kids would require a financial advisor most in the inheriting stage. In many cases family's wealth is transferred to the kids at an early age. They would not know how to handle so much money. At this time, they know you have been handling their family's finances, they would look up to their money man to guide them.
2. They will be your clients after a decade or two: Those who are kids today, will be the breadearners of their family in the future. So, putting in efforts towards the kids, is like investing your time for tomorrow. They will never look at any one else but you for their financial planning.

So, when you ask for referrals from your client, ask for the in house referrals first. Each of your client's family member must be considered as a separate prospective client.

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As financial advisors we are well aware that the value of money changes with time. It lies at the heart of any financial planning. There are many reasons or sources of change in the value of money. Understanding these sources of change as well as possessing the skill to calculate the time value of money is a must for every financial advisor. In this piece, we introduce our NJ Partners to these basic skills.

Primary Sources of Change:

1. Cash flows: The primary source of change in an amount over time would obviously include the cash flow changes like additions or withdrawals from investments. These cash flows can be one time or recurring in nature like SIPs or SWPs.

2. Returns:

• Simple Interest: Simple interest is a form of returns where a fixed amount of interest is earned only on the initial investment amount over time. The calculations for simple interest differs with compounding as we will know later.

• Compounding: Compounding returns is where your growth on investment is on the total amount at the beginning of the period. The total amount would consist both of your beginning period investment plus your growth on that investment. Thus it is like earning interest on interest. Over time, the power of compounding greatly affects any investment value.

3. Real Value:

• Inflation: The factor of inflation has the power of reducing the underlying value of money over time. While it does not affect the absolute money calculations, adjusting for the inflation factor in our calculations will give us 'real' value of money. This is most important for planning for future goals.

• Deflation: Deflation on the other hand is literally the opposite of inflation or just negative inflation. It would mean that the value of any particular asset/object decreases with time. It has effect similar to discounting in calculations.

Calculations for TVM:

Excel (and other spreadsheet programs) is the greatest financial calculator which we can use. Excel can be effectively used for calculating results to any financial problems. They also have certain excel functions (built-in formulas) that help us in easily in our calculations. Every financial advisor should be familiar with few financial formulas and key excel functions as they are very commonly used while planning for investments. This piece, the first part of a series, will demonstrate these important formulas and financial functions to handle basic problems encountered in our profession. We will keep the examples simple and will assume that you are already familiar with a bit of excel.

The Basics:

Before making any calculations we must ensure that there are matching figure for rate and amount and they are as per corresponding period of measurement. For eg. if calculations are on a yearly basis, the rates and the amount should also be on a yearly basis. A common problem encountered here is the “effective rate” for a period since normally we have values which may not be suitable for the period under consideration. Getting this standard right is very important for getting accurate results.

Problem 1: Find actual periodic rate when only effective annual rate is given.

Formula: = (1+r) ^(1/n) – 1; where r = effective annual rate and n = number of periods in a year.

Example: If the annual returns are 15% then what is the effective monthly rate?

Result = (1+.15)^(1/12)-1 = 1.171%. Note that being compounded, it is less than 15% / 12 = 1.25% which would be result if there was no compounding involved.

Note: Most monthly SIP calculators available online give wrong answers ignoring is simple difference. They assume monthly returns as /12 which would obviously give higher effective returns annually.

Problem 2: Find Effective Annual Rate when only actual periodic rate is given.

Formula: = (1+r) ^(n) – 1; where r = periodic rate and n = number of periods in a year.

Example: If the effective monthly rate is 1.25% then what is the effective annual rate?

Result = (1+1.25%)^12-1 = 16.08%. Note that being compounded, it is more than 1.25% * 12 = 15%.

Problem 3: Find Effective Annual Rate when a nominal annual rate for periodic periods are mentioned.

Formula = (1+r) ^(n) – 1; where r = annual rate / n and n = number of periods in a year

Example: If the annual nominal interest rate is 10% and four interest calculation periods are defined, what is the actual interest rate (effective rate) annually?

Result = n is 4 and r is 10% /4 = 2.5%. (1+2.5%)^(4)-1 = 10.38% which is the effective annual rate. To find the monthly effective rate from 10.38, we can then use the solution given in Problem 1 which will give result as 2.5%.

Excel = EFFECTIVE (Nom,P) = where Nom is the nominal annual rate and P is the number of interest payment periods in a year.

The above case can be used when choosing between different investments which carry a different interest rates which are compounded at different frequencies.

Basic Excel Function Terms:

1. FV = Future value remaining after the final installment has been made.

2. PV = Present value that a series of future payments is worth right now.

3. Rate = Defines the interest rate per period.

4. NPer = Total number of periods (payment period).

5. Pmt = Regular payment made per period.

6. Type = Denotes due date for payments. Type = 1 means due at the beginning of a period and Type = 0 (default) means due at the end of the period. In calculations, we can consider beginning period or type=1 assuming that our plans will take effect immediately.

Note that the usual problem in all time value related problems are related to any one missing term/value from FV, PV, Rate, NPer or Pmt where other terms/values are known.

The FV calculations (lumpsum)

Problem 1: The present cost of a holiday package is Rs.5 Lacs. What will be it's cost after 3 years?

Problem 2: I have Rs.10 Lac that I wish to invest in an equity fund. What will be it's value after 5 years?

Formula: FV = PV * (1+r) ^ n where FV & PV is the future and present value; r is the rate of inflation or returns and n is the period. As financial advisors, we encounter these questions very often and we often have to assume the rate of inflation and returns while forecasting.

Result 1: n = 3 years and r = assumed inflation of 10%. = 5,00,000 * (1+10%)^3 = 6,65,500.

Excel Function: FV(rate,nper,pmt,pv,type). = FV(10%,3,0,-500000,1) = 6,65,500

Result 2: n = 5 years and r = assumed conservative returns of 12%. = 10,00,000 * (1+12%)^5 = 17,62,342.

Excel Function: FV(rate,nper,pmt,pv,type). = FV(12%,5,0,-1000000,1)

Note: In excel function, we use FV and PV values for lumpsum amounts and pmt for annuity calculations. Further, we use negative (-) sign in above examples to denote a cash outflow /outlay.

The above FV function can be used for many other calculations and is a very handy function for financial advisors. We also introduced you to the formula behind this function which we had learnt in our school. There are many more formulas and functions which we will introduce you to in later articles. Till then, keep practicing.

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