April 29, 2013

Do the current technology platforms match upto the advisor needs?

Suresh Sadagopan
CEO, Ladder7 Wealth Planners Pvt. Ltd.

Life is a challenge – meet it! I have heard this somewhere. More than anyone else, that’s definitely the attitude we financial planners need to have today. We are living in challenging times. There is so much change happening in the financial services space that the way we do business itself, will have to undergo a metamorphosis.

We have been hitherto charging for doing a plan and were getting paid in the distribution business, by the product manufacturers. Some of us also charge over and above this, for advice, management and monitoring of the portfolio.

The Investment Advisor regulation has changed all this… now we will have to be advisors charging a fee to the clients and not getting any other remuneration or will have to be distributors of financial products, earning commissions from the manufacturers.  Now this is going to disrupt the businesses of individual financial advisors, who have to choose one or the other.  Nothing changes if one has a corporate setup – it is business as usual for them after constituting a separately identifiable department or division.

Platform for Investment Advisers

Now, let us see how things can be made easier for those of us, who want to be investment advisers. In the new milieu, everything that we get as income would be by way of fees. There can be two income streams for an Investment Advisor –

  • Fees for Financial Planning or other advisories
  • Fees ( AUM based or lumpsum )  for managing & monitoring client’s portfolio, on an ongoing basis

This means the investment advisors will now collect a fee, for all work they do. Collecting fees for the financial plan, is not a problem.  It is collection of the ongoing charges that poses a problem. If a AUM charge has to be collected, collecting a cheque  everytime, poses a logistical  & a psychological problem. The client will always have that inhibition while writing the cheque and would tend to think dark thoughts about how much they are paying for services. We are currently managing it that way. But there are better ways.

Banks and other institutions directly debit client’s accounts, after taking a mandate from them, initially. Hence, these institutions enjoy a major advantage which smaller entities/ individuals do not have. Charging clients on a regular basis, say monthly, is good for the client and the advisor. For the client, it is a small debit per month. For the advisor, it is a regular inflow coming in, which stabilizes the cashflows, in their business.  The problem is that, there is no platform which allows you to collect a certain fee, without linking to the AUM on their platform. Let me explain.

Suppose a client has invested through platform A, the charges can be collected for those. Now, if the same client has not invested through Platform A, but as an advisor, we are managing and monitoring their portfolio and want to charge on a AUM basis or a lumpsum basis, the platform will not help – for the client has not been registered on that platform, in the first place. Also, advisors would want their clients to go DIRECT in MFs ( once we start getting the feeds ) and would like to charge a fee instead. Platforms today do not handle both these. This will be a problem advisors will increasingly face.

Clients may want to keep their investments elsewhere and may come to us, only for professional oversight. We need a proper platform to collect such fees – on a lumpsum or as a percentage of AUM, irrespective of where the client’s assets lay. The existing platforms are currently not geared to handling these. Platforms are business enablers and they need to help advisors to conduct their business.

Platforms for MF distributors

There is a fundamental problem with the platforms in existence today. They charge a percentage of the business done.  But this is inimical to the interests of the distributors.

The distributors are bringing business to the platform and the platform is but a tool to put through the transaction & helps in reporting. The software usage is the same for a Rs.25 Lakh transaction, as it is for a Rs.25,000 transaction and there is no justification to charge a higher fee ( in rupee terms ) for the higher value transaction. Platform providers claim that the need for backoffice is eliminated. The claim is only partially true, as we have seen that we still had to coordinate regarding various aspects, from time to time. Also, the intervention of their backoffice in a smaller value and a large value transaction, is not really different to justify higher fee for larger transactions.

I’m not advocating that the platform providers should not charge. They can charge a base fee & a fee above a certain base level of transactions. This kind of charge would provide the platform owner returns on the investments made & would be fair to the distributors too. In this arrangement, the distributors would pay a fee for platform usage & not part with a portion of their business revenues.

Financial PlanningSoftwares

In case of a financial planning platform / softwares, it is a tool to deliver a service to the client. Here there are several tools available that charge for the software. These kind of tools are welcome as they are business enablers.

Integrated Platforms 

An Investment Advisor needs a software for Financial Planning, a software for managing the assets/ reporting on them, a distribution platform that allows the Investment advisor to do investments in Direct mode ( as and when feeds start flowing in ) & a tool to bill & collect the charges from the client directly, by debiting their bank accounts. This would have lot of appeal for the new class of Investment Advisers we will be spawning in the future.

Admittedly, some may not prefer an all-in-one platform like this – as some may prefer a different software for Financial planning over the software which comes with the platform.  Hence, there is space for integrated platforms and specialist platforms to operate side-by-side.

Why platforms should charge a fee and not take away a portion of business revenues?  

The platform is a useful technology tool to do business – not the business itself. Had the platform been integral to the business itself, like in case of Flipkart.com, itunes or Dell, it is different. It is not the platform which attracts the business; it is the distributor who brings business to the platform. In this situation, it is wrong for the technology platforms to charge a percentage of business done.

They should charge for the software. The Software as a Service (SAAS ) is an accepted model for technology tools, worldwide.  The platform provider could charge a flat fee per year for use of the platform and charge an incremental fee, above a certain level of transactions or usage of the platform.

I have talked to different platform providers on this issue and they claim that this is the way business abroad. This is the status quo. Status quo will change when someone comes up with a blueocean offering that results in a leap in the value to User groups ( by focusing on attributes that are critical to them and eliminating unwanted frills ). That would be entirely beneficial to the platform providers as well.

The point at issue is whether the model is equitable. Currently, it is not. It is clearly skewed in favour of the platform provider. If they are doing good business today, it is due to lack of viable alternatives. There is another reason – there are many advisors who want to charge a fee to their client and are finding it difficult to get a cheque out of them, all but impossible. These advisors come to platforms as they can collect a fee here in the auto mode, if they do business on the platform. They figure that even if a portion of their revenues go away, they atleast get something.

We are seeing the beginnings of tech platforms which would think on the lines of software as a service. This is the future. Platforms will be important for collecting payments and as an enabler to the business.

Technology is very important to doing business today.  The tech providers should understand their role and assist advisors in their business, instead of thinking they are partnering with them and are business co-owners.

There is a clear opportunity waiting to be tapped  for platform providers. That will help the platform providers & the Advisers to take advantage of this emerging opportunity. Life has just got really interesting for them. We do hope they pick up the gauntlet.



Authored by,

Suresh Sadagopan

Ladder7 Financial Advisories

8 Thoughts to “Do the current technology platforms match upto the advisor needs?”

  1. Zia ul haq says:

    Good thinking inline to the recent changes in the distribution space. But if the technology platforms have to charge a fixed fee on an annual basis it may become unaffordable for small & medium size advisors especially from tier II and tier III cities. 


    If the platforms should charge only a fixed fee why shouldn't it be the same for advisors too? The amount of effort taken on research and financial planning will more or less be the same for a 25,000 investment and 25 lakh investment.  Few platforms available in the country do more than just enable electronic transactions and fee collection. They offer research, financial planning tool & at times even assistance on new client acquisition.


    So an advisor must evaluate the platforms on many parameters and join hands withvone which offers more value for money. After all there is a price to every service, be it advisory or platform offering.

  2. Very good write up Suresh. Hopefully the blue ocean should be the new platform from AMFI that would bring all clients online for processing investments, but would need follow through with application forms and cheques. Of course, this is based on simple trust that the auntheticity of the data from registrars IS TRUE.

  3. venkytuty says:

    Dear Suresh,

    You have put across the requirements very well.  Technology, in my opinion, would evolve as the profession develops and move more towards fee only FP.  There are definitely players in the market who have the technology, which is not exactly what we want, but can be finetuned to meet our requirements with minimal cost. 

    You have mentioned in couple of places, that even if the client goes direct, you would be able to get the data feeds from R&Ts.  I think that would be a real game changer and provide great fillip to fee only planners.  What is this all about?  I would like to know more about this.  Please share more information if you have any.


    • Thanks for your comment.

      Today, they are not giving the feeds. But I have heard that they are contemplating giving feeds if ARN Number is mentioned, they would give the feeds to the ARN Holder. Now, this will be useful only if the Financial Planner/ Investment Advisor is also AMFI regiatered. There are many financial planners, who are not distributors and want the feeds only to offer advice. Now, there is still no mechanism to enable that. But that will come eventually, giving fillip to the fee-only planners.

  4. atulkhanna75 says:

    Speaking from platform provider (Next Advisors) which charges a flat amoutn per year as its earning but also does not have provision for IFA to charge its investors on % AUM, let me quote a few problems why this is so 1) How to ensure that IFA is not adding up charges on AUM about which it he just has knowledge? If we dont control this, Investor can be double/ triple charged on same AUM and investor would complain 2) Direct transactions do not give ARN in feed file hence manual entry is only option again leading to problem no 1. 3) we started with just online mode as we believed that moving paper is no more a value add…moving information is. However it seems the indian consumer is still not comfortable with investing online. However starting an offline setup is way 2 expensive 4) not many IFA's are ready to invest in business thus leading to loss making proposition currently

  5. financeMind says:

    nice thinking sir…i'll appriciate it…

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