Neelesh Shah, President, Karnataka Association of Mutual Fund Advisors, shared his views at the Morningstar Investment Conference held in Mumbai on October 23 & 24, 2018. Below is an excerpt from that discussion moderated by Dhaval Kapadia, Director - Portfolio Specialist at Morningstar Investment Advisers India.
Why do you think RIA model has not picked up in India? Is it because of regulatory clarity or unwillingness of investors to pay for advice?
The RIA model is ahead of its time for a market like India. I interact with close to about 800 distributors in my state, so I know I can vouch for each one of them. Let’s look at the experience of lawyers and chartered accountants. Lawyers and chartered accountants have had a tough time collecting fee from their clients over so many years. Similarly, collecting a separate cheque from an investor is going to remain a challenge unless you are doctor. A doctor is a life saver. On the contrary, investors feel they are doing distributors a favor by investing through them. Unfortunately, investors do not understand the nuances of the services we offer. They do not understand the value of paying fee. Thus, RIA is not going to be such a successful model as far as the second cheque issue goes.
How do you define what is the point at which the market is ready to for an RIA model?
Except bank deposit, financial products like insurance, mutual funds and direct equity are still underpenetrated. On the other hand, the penetration of financial products in developed markets like U.S or Europe is 40%-60%. Our market is still nascent. We have to let the market forces decide the pricing of a particular service/product. So, we are not yet in an era where people are willing to pay for advice.
Can robo advisers service investors through their lifecycle or there is a need for a face-to-face adviser?
Robo advisers can work when markets are bullish. Now when the markets are bearish, everyone needs an adviser. Some of my tech savvy investors have migrated to robo advice. When the markets turn choppy, they feel anxious. In such times, adviser is able to calm investors just by having a conversation with them. Not many investors want to give up on this comfort. So I guess a hybrid model will work in India where investors are able to speak or meet their adviser when they have doubts.
Why is global diversification so low in Indian mutual fund investors portfolio?
Indian economy and the market offer diversity. The market has delivered 17% CAGR returns over the last 30 years. That said, millennials are open to new investment avenues. Advisers need to offer a wide range of products to keep up with client expectations. I think investors would be open to diversity outside India in order to mitigate risk if advisers make a case for it.
