BW Disrupt got into an exclusive conversation with Swati Aggarwal, Yogesh Powar, Vijay Kuppa and Nitin Agrawal, Co-Founders, ORO Wealth to know everything about their start-up and long term wealth management: Q- Tell us everything about Oro Wealth?A- ORO is web and mobile-based wealth management platform which enables retail investors and offline intermediaries to access high quality advice and investment services. Wealth in India is growing yet penetration of financial products remains very low (For instance Mutual Fund AUM in India is 7% of GDP vs. a global average of 37%). People find investing in financial products difficult either due to lack of time or lack of knowledge, thereby creating a massive gap for financial advisers. However the financial advisory ecosystem in India is still nascent. Financial advice is largely offline limiting its reach beyond Tier 1 cities. Offline advice also leads to non-uniformity of experience - some advisers may be good but many are not. The industry is mainly commissioned-based which often leads to mis-selling and technology is missing especially on the front end.
ORO is trying to solve these problems by building online, automated tools which can be used to provide high-quality, unbiased advice uniformly and at low costs thereby increasing the penetration of financial products. One way in which we are taking these tools to retail investors is by partnering with existing financial intermediaries who already have an established client base. This has helped us to lower our customer acquisition costs and scale quickly.
However, our claim to fame is that we are India's first 0-commission investment platform, i.e. you can come to ORO and transact in direct plans of mutual funds. These plans have lower costs as compared to regular plans because investors do not have to pay commissions. Not paying commissions translates into higher returns for end investors and helps them avoid the biased advice that often comes from commission-based sellers. Instead, they can use a small part of the commission they have saved to buy ORO's advisory tools and experience the difference that truly low cost investing and unbiased advice can make to their returns. So far we have obtained two partnerships with big brands in the financial services industry. Our tools have the potential to go global and we are talking to a few international players. On the B2C side, we launched in Jan 2016 and so far we have processed 7 crore worth of investments with very little marketing.
Q- What are the different service under Oro Wealth?A- ORO Wealth offers the following services:
a. A transaction platform: Where investors can come and transact in (purchase, redeem, switch) 0 -commission (direct) funds from multiple AMCs in one place. They can do these transactions by paying a small convenience fee.
b. Various value-add services such as fund screener and portfolio tracking are available which investors can use for free. For instance, investors can just upload a pdf statement of all their mutual fund investments (which is easily available) on ORO and start tracking their investments.
c. ORO advisory services: ORO currently offers mutual fund advisory and we are planning to launch stock advisory soon. Investors can pay for these advisory tools on a pay-as-you go basis or they can avail of all our services by becoming an ORO premium member a paying an annual fees. All of these tools suggest only direct funds and the fees is a fraction of what you save on commissions. So the advisory is actually self-paying.
Apart from this, for our channel partners, we offer an automated advisory API which they can integrate with their existing platforms.
Q- What are the different plans available on your platform?A- For customers who just want to transact with ORO, they can do so by paying a small one-time convenience fee (No charges for liquid funds; 0.1% of the transaction amount for lump sum transactions and 200/yr for SIPs). After this they are free of paying commissions for life. These commissions can be anything from 0.5% to 2% of investment amount paid every year. For our advisory tools, customers can either get these tools on a pay as you go basis. We are currently charging 500Rs per advisory tool. Or customers can become an ORO premium member and by paying 2000 Rs/yr can avail of our entire array of advisory tools. Finally, we also have something in the wings for HNI clients which we are planning to introduce soon.
Q- Why does it makes sense to shift to direct mutual fund plans?A- Whenever you buy a mutual fund, you pay some expense ratio every year which goes towards meeting the costs of running the fund. With a regular plan, the expense ratio is higher because it includes the commissions which get paid to the distributor or the entity which sells you the mutual fund. Direct plans are 0-commission and are hence cheaper. The difference in returns of direct plans and regular plans can be anywhere between 0.5-2% per year depending on the fund. And given that these expenses are incurred every year, this can become a huge gap for long-term investors. Hence the question really should be why investors should not switch to direct plans.
We believe the answer is mainly lack of awareness. A majority of MF investors do not even know that they are paying these commissions. This has to do in large part to the fact that the distributors, who are closest to investors, have no incentive to promote direct plans. In fact, many of them market their services as “free” to the client, conveniently overlooking the fact that they get paid every year from the investor’s money, even though it is via the mutual fund. A second reason is that so far it has been difficult for retail investors to invest in direct plans. The main way of doing this has been by maintaining separate accounts with each mutual fund company which is cumbersome. This is of course now changing with ORO. Finally, many retail investors are also scared away from direct investing by distributors and platforms which claim to offer expert advice that investors will miss out on if they go direct. Professional financial advice is important and can make a big difference to returns, but the important question to ask is – Is commission-based model the best way to get investment advice? Mis-selling i.e. selling investors the highest commission products is the biggest flaw with this model. The second question is whether that advice should actually cost 2% per year. Instead of going direct, investors can use just a part of the saved commission to hire an unbiased, fee-based advisor whose incentives will be aligned with their own.
Q- What were the initial challenges and how did you overcome them?A- We think that the B2C product that we have is a no-brainer. Buying direct funds + fee based advice works out to be cheaper than buying regular funds with the added advantage of not having to worry about misselling. However, investor awareness about direct plans is low. Many regular fund platforms market themselves as "FREE" which they are not by any stretch of the imagination. Hence actually charging people up front can be difficult.
They key for us is to raise awareness which we are doing on an ongoing basis through various investor awareness workshops. SEBI regulations which will make it mandatory for mutual fund houses to disclose commissions to the end investors will become effective from October and should give a big boost to our efforts. Media will also play a very important role in this regard.
Q- As a consultant, what should the business owners/ working class do for a long-term wealth management?A- Our first advice to anybody would be to start investing in financial products like mutual funds, stocks, bonds, etc. Financial product penetration in India is still very low by global and even emerging market standards. People just leave their money lying in bank accounts where it is not even able to grow with the same rate as inflation. In contrast financial products such as equities, bonds etc. have given good returns while keeping your money liquid. And such portfolios can be geared towards to risk level that you are comfortable with, which is a service which ORO provides. So start investing in financial assets today, even if it is a small amount.
Our second advice to most investors would be to get professional advice. Even if investors have the financial knowledge, all too often people they do not investment or invest sub-optimally because of lack of time. A financial adviser can really help in such situations. But investors should make sure that they are paying for financial advice because as the famous saying goes, if you are not paying for the product you are the product.
Q- What is your competitive advantage and how did you find it?
A- There are a number of things working for ORO:
a) We are an online platform: As mentioned earlier, offline distribution has problems, mainly limited reach and non-uniformity of experience. Online platforms can solve for that
b) Positioning as a direct player: All large players in this industry are commission-earning while ORO is direct. This has enabled us to acquire customers with very low marketing spend.
c) Our Channel partnerships: ORO has partnered with two of the most trusted financial players in India. This helps us to lower customer acquisition costs and scale up quickly.
d) Quality team and product: Our founding team has a very strong financial background, having worked with some of the best financial institutions internationally and in India. Also, our in-house technology team helps us to be nimble with product development.
Q- What is the most important thing to keep track of your financial management?A- We think retail investors tend to make 3 mistakes which prevents them from earning the same returns as HNIs and large institutions: 1) paying too much for investment products often unknowingly in the form of commissions 2) holding an under-diversified portfolio - retail investors focus on equities and do not pay enough attention to the other asset classes and 3) holding a portfolio which is not suited to their goals and risk appetite. Most investors tend to "just invest" for high returns without any specific idea of what they want to achieve. Taking care of these 3 things can keep financial management on track.
Q- What was the catalyst for starting Oro Wealth?A- Given the extensive experience of the founding team in finance, we wanted to do something in this area. Within finance we specifically chose the area of investments due to 2 reasons, firstly, there is a massive problem and opportunity in this area and secondly, the industry is in a state of flux with the regulator (SEBI) trying to move the industry away from a commission-led system to an advisory-led system.
Q- How do you inspire innovation and drive a leading edge?A- At ORO we believe that the key to driving innovation is to listen to the customer and keep the customer first and that is what we always try to do.
