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There's A New Kind of Investor Out There and We May Not Be Ready to Serve Them!

Written by Amit Shah®March 22, 20233 min read

Technology has made investing more accessible than ever before. This report from SBI shows how in just April and May 2021, over 440,000 retail investor accounts were added. Another report shows that the number of Demat accounts has leapt from 2.5 crores to 6.5 crores in the past year. I’m not surprised at all. But the question on my mind is – is the system ready to handle this?

Traditionally, institutional investors have dominated the financial markets. But today, higher levels of retail participation in these markets are causing a disruption – both globally and in India. These new players are a group that Indian financial services companies don’t yet have as much experience with.

For instance, I see younger professionals in my own family investing for the first time. I’m semi-convinced that some of this may be to divert themselves from the boredom of the pandemic lockdowns and the unavailability of other avenues to spend money! But even allowing for that, many youngsters in their 20s and 30s into trying their hand in the stock market. These guys are different from their older counterparts who used to buy stocks with their pensions. They’re ready to take more risks because they’re looking at this as a way to build a pension (or to retire sooner!). They’re also a whole lot more confident, thanks to affordable trading apps, advice from social media influencers, and stock-tipping chat groups.

I’ve also got my eye on another interesting demographic – namely those from outside Mumbai, New Delhi, Ahmedabad, etc. A number of people from tier 2 and tier 3 cities and rural areas have entered the market. The Indian mutual fund industry has consciously targeted these entities by advertising through television, social media, and billboard advertising, thus enticing them into the arena. And boy – are they ready to play ball. These guys want to make long-term investments, compared to those from the bigger cities. I’ve read reports stating they tend to put in more money whenever the markets are down. This is now a key factor considering that the rural sector is growing faster than urban India. Last year’s GDP numbers showed that while COVID caused a contraction overall, the farm sector actually grew by 3.6% Y-o-Y. With reforms starting to hit home and a more friendly tax regime to deal with, the disposable income available to these “investors from India’s interior” is likely to climb.

Moves like this are a clear shift away from older habits of saving money or investing in physical assets like real estate, gold, and bank deposits. While rural farmers and the urban working class have traditionally relied on gold, Indian millennials (those in the age bracket of 25 – 40) are more inclined to take risks in the market. Maybe they’re disenchanted with the traditional method of earning and saving, or maybe they have greater ambitions and aspirations. Whatever it is, this age group is leading the way in purchasing stocks.

So now we have investors from smaller cities, Millennials, and newly rich professionals getting ready to be long-time investors. How does the system of wealth managers and financial advisors serve them? We need to understand what they want from their advisors and service providers. Here’s what I think they will value:

1. Ease of Understanding

Many new-age services refrain from using jargon and simplify the whole process. It’s no longer about throwing around big words and making it seem like stocks are just for seasoned pros. While our initial instinct may be to keep these barriers for entry intact so that the investments are left to pros, it’s counterproductive. As we can see, making investments easy to understand and simplify the language used attracts people like working professionals. They would want some help in dealing with their finances because they simply don’t have the time to keep a constant check on the market while holding down their jobs. But at the same time, they’re more distrustful of things they don’t understand. As financial professionals, if we can help them understand the game better, it will increase their trust in the process. That will lead to more long-term investments over time, and from many more people.

2. Ease of Use

I believe the new investors want their financial services to be easy to use. They don’t want to spend hours trying to figure out how to trade or take holidays in between work just to figure out the status of their funds. They want this information to be at their fingertips (in a friendly mobile app for instance) or a quick call away. Therefore, financial services companies and advisors must be attentive to their needs, provide information whenever needed, and use technology to keep their clients in the loop throughout.

3. Greater Connectivity

Apps, social media platforms, investment gurus, and the like are allowing people access to information in real-time. Access to the internet and cellular devices have made it easy for investors to conduct investment activities online. Even banks have simplified their processes by creating online methods to purchase stock options. Today’s investor relies heavily on the internet and I only see this trend increasing steadily over the next few years. There’s even the phenomenon of meme stocks, which are the stocks that experience a boost in trading volume and volatility based on info online. Some young investors are investing their money based on discussions on Whatsapp, Telegram, etc. Our systems will have to evolve to include social media as a focus area whether it is to engage with the customer or to allow new ways of conducting transactions.

4. Personalized Options

As we can see, this new demographic of investors is not a homogenous blob. Some have been hit by the pandemic, others have somehow managed to thrive. They’re scattered all over the country and, as we know, each Indian city itself has a distinct mindset and personality. They will also have different financial goals. I also see many more women investing today than ever before. Many of these investors are unmarried while many others are either preparing for marriage or are planning a family. All these factors, and more, have to be taken into consideration when making an investment plan. Different bundles will suit different people and having personalized options will surely appeal to this new audience.

5. Low Transactional Charges

Many of these new-age platforms are offering commission-free investing. A certain Indian company didn’t use traditional bankers and roadshows to market their first public offering. Instead, they conducted an online free-for-all event where the founders fielded questions from attendees. In some ways, this mindset also explains the popularity of cryptocurrency, as it enjoys almost negligible transaction charges. But one point to note – while these entities offer lower rates and high accessibility, there’s always the chance that there will be a hike in interest rates in the future. That would cause turmoil in the global market and it’s currently causing institutions to brace themselves for rising interest rates.

6. The trusted advisor

The people coming into the market today, especially those from the smaller towns and rural areas want to find advisors they can trust. That trust is based on their belief in the expertise as well as the integrity of the advisor. To me, this means there’s room for a massive explosion in the market for Independent Financial Advisors. This community will have to embrace technology and social marketing to become visible, provide information, build a brand, and grow their “tribe”. I suspect this will become one of the growth engines of tomorrow’s investment extravaganza.

The Wealth Management business is ripe for disruption. I welcome the changes technology brings, as it’s healthy to have this injection of innovation into the financial markets. We need to keep our eyes and ears open to understand our new investors and what they’re looking for. That way, we’ll be ready to serve them no matter what or when.

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