Major challenges hurting financial planning industry

Every industry face challenges and financial planning industry is no different. Here are some major hurdles faced by the financial planning industry.

Investor Awareness
Only 24 per cent Indians are financially literate as per the global financial literacy survey done by Standard & Poor. This means that 76 per cent of the country is not aware of even the basic financial concepts. On top of that they have blind faith on real estate and gold, without realising the drawbacks of these modes of investments, people still continue to own them and buying more of them. There is very little awareness about concepts like asset allocation, risk management and financial planning. Though government has set up the National Centre for Financial Education (NCFE) to create financial awareness across various sections of the population, it would be interesting to see how things move further.

Trust
For long Indian investors have faced losses due to mis-selling of insurance products or mutual funds and the people they trusted (insurance agents or mutual fund distributors) earned maximum income in the form of commissions. And now, these investors are afraid of trying out any investment other than safe investments like post office savings scheme or bank FDs. This has made it difficult for an individual investor to believe in financial planning as well, as financial planning doesn’t offer any guaranteed returns. Through financial planning, a financial planner ensures that his clients meet all their financial goals well in time. If a tree is planted today, it would take some time to begin yielding fruits. Likewise, one year is a short time to evaluate the success of any financial plan. One has to be patient and financial planners need to educate their clients from time to time.

Changes in regulations:
Since this industry has been witnessing various mis-selling activities, Securities and Exchange Board of India’s (SEBI) main objective is to cure these malpractices and bring advice-based system to this industry which is ethical via various regulations. This is to safeguard investors' interest. This brings SEBI (RIA) Regulations 2013 in to picture. In the long run, these regulations will prove to be good for both the investors as well as the industry. However, in the short run, it is creating a lot of difficulties all over as making earnings through only fees becomes more difficult than making earnings through commissions.

FinTech
Financial planning industry is changing at a very fast pace due to digitalisation. Innovation in FinTech companies is changing the landscape and redrawing the boundaries. There are new business models in place which claim to operate on lower costs, hence saving substantially on investors' money. Customers are getting attracted to these new non-traditional online modes of investment known as robo-advisory. People are getting attracted to such platforms as it makes their lives easier with mobile-friendly applications and no paper intervention. Most of the Financial Planners have shown their uneasiness towards these platforms and they believe that financial planning is a very customised process, the success of which highly depends on the quality of interaction between planner and the client. But due to the online availability of all the products, expectations on the service and innovation levels have changed dramatically. We no longer wish to wait for weeks to get our things done. As per a research report on global FinTechs and their growing influence on financial services conducted by PwC, 67 percent of the industry incumbents acknowledge that these FinTech companies post a threat to their business.