How technology can help investors become goal focused rather than return focused

By Harsh Gahlaut, CEO, FinEdge
Investment Technology platforms have further deepened the ‘recommendation trap’ in India due to the one size fits all approach towards selling investment products completely based on short-term past returns.

This product-centric – return-based approach is creating terrible investing experiences for millions of investors who start investing with totally incorrect expectations, setting up the foundation for investing failure.

Investing success is based on customisation, managing behavior, and an individual’s relationship with risk & reward. A product that might be incredible for one person could be disastrous for another. Rather than focussing on creating wealth for investors, most investment platforms are focussing on getting people to invest on the basis of greed, by hooking them on to short-term high return focussed, low-cost, zero-revenue products and then quickly upselling other high-revenue products, knowing fully well that the client relationship is not going to last due to the high expectations created in the first place.

The same can be seen in the high customer attrition these tech platforms are witnessing!
So ideally what role should technology play in investing?
A perfect tech deployment would be where it could enhance the role of an investing expert, enable her to discover the requirements, chart the current financial situation, understand investing personalities, assign and prioritise goals, align investing solutions as per unique requirements, enforce discipline and process, manage investing behavior and review investments. Of course, technology will also play an important role in reach, convenience, speed & transaction ability, reporting, and paperless onboarding. Technology must bring out the best in people, and make investment experts better at what they do to create a generation of better investors.

One can get a person to start investing based on an impulse or push based on greed, but getting a person to remain invested requires a solid foundation. A foundation built on understanding, customisation, collaboration, joint decision making and investing best practices. Technology can play a lead role in enhancing relationships between investors and experts, and assist hyper customisation, and strict adherence to investing processes but one thing it cannot do is bring in empathy and an emotional quotient to the mix. Merely building a goal-based investing app will be of very limited efficacy because investing is emotional, and tech can only go so far when it comes to helping people manage their emotions! This is why it’s critical for technology to play a complimentary role to the
the human side of investing.

The solution is simple, but not easy. The answer to the above quandary lies in making investors goal-focused instead or returns-focused. Goal-focused investors see the big picture, are less transactional, and are more resilient in the face of volatility. Therefore, they are able to remain invested for the long term and reap the benefits of compounding, unlike return-chasers.

Second, it needs to build in specific modules that uncover & drive conversations around hidden behaviors and beliefs that could impact the journey. For instance, do you want high returns but are unwilling to take risks? Are your investment decisions driven by what your friends and family are doing? Are you so concerned about seeing your investments in the red that you stick with low-return investments for even long-term goals? And so on.

Third, the tech must incorporate fantastic tools for joint & collaborative decision-making, based on clear visualisation of the impact of today’s decisions on future goals. For instance, how will choose an 11% return investment vs a 13% one impact my retirement 30 years down the line? How will delaying by just 1 year affect my goal? Can I cover goal shortfalls through disciplined annual step-ups? How will the compound effect come into play 10-12 years down the line if I stay invested? When investors participate in the goal-planning and decision-making process, it results in a much higher level of customisation and commitment toward their goals. Technology can enable that.

The oversimplified rules of “100 minus age into equity” or “save 20% of your income every month” just do not apply today! It’s customise – or die. There is a reason, in this information age, where top-performing funds are just a simple Google search away, that very few people are able to stay invested to create long-term wealth. Clearly, the answer to investing success does not lie in finding the ‘top performing’ fund or the lowest cost product. The solution is in building investment resilience. The answer lies in getting
technology and investing experts to collaborate with investors and customise them as per their needs. A unique combination that is very rare to find.

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