Why Running a Robo-Advisory Startup is Not Just About Right Algorithms In the recent years, the algorithms-based financial advice is gaining popularity in the country, especially among millennials

In the recent years, the algorithms-based financial advice is gaining popularity in the country, especially among millennials.

With the growing popularity of the mutual funds, especially through the SIP route, robo-advisory is leading the disruption in the wealth management industry.

To those of you who are new to the concept, Robo-advisory is a new age digital financial advisor – which uses minimum intervention and the suggestions are based on algorithms.

The recent years, this financial service is gaining popularity in the country, especially among millennials. In fact, according to Statista, Indian robo-advisors are managing worth USD 20 million in 2018, which is expected to touch USD 116 million by 2022 with CAGR of 54.4 per cent (2018-2020).

But running a robo-advisory firm is not an easy job. BIZ Experiences India, in conversation with fellow BIZ Experiencess from industry, discusses the key issues of managing a robo-advisory firm:

Human Capital

Srikanth Meenakshi, Co-founder and COO, FundsIndia says overseeing a robo-advisory firm is a unique endeavour. Firstly, one has to bring together people with very deep domain knowledge with people who are highly technically skilled – and ensure that each group is sensitive to the other group's perspectives and constraints.

"This is an internal challenge for an organization, and externally, there is the challenge of marketing and positioning the product and its virtues to tough market that is, to an extent, wary of automation," he added.

Building Brand Value

While on the other side, Dinesh Rohira, Founder & CEO of 5nance.com believes that a robo-advisory play needs to create significant differentiation in its offerings driven by continual innovation, ease of use, consistent and improvised user experience to stay relevant and drive customer interest.

He shared, "Being an online platform and trust being the prime driver in the financial investment space, the robot advisory play needs to drive consumer-oriented new age offerings for higher adoption as well as focus on significant brand building for long-term trust creation."

Customer Acquisition

Given the fact that it's a new kind of service, for Samant Sikka, Co-Founder, Sqrrl getting new clients is an ongoing challenge due to low awareness about the benefits of a robot coupled with personal finance among customers.

"While young millennials are the ideal catchment segment given their comfort with technology, their high debt levels make it a challenge to get them to invest their surplus," he pointed out.

Additionally, older consumers from Gen X might have a larger portfolio and lower risk tolerance which is why many companies are pivoted around them.

Having said that, Sikka also notes that technology and marketing investments are substantial in this space to scale up and compete leading to the overall growth of the industry.