Financial advisors must be able to deliver value to investors to justify the fees paid to them, feel Kunal Kapoor, President and CEO-designate of US-based investment research firm Morningstar Inc. There’s a lot of room for improvement, he told BusinessLine in an interview, making a case for lower costs and better use of technology in in domestic investment environment.

What’s you plan for the next few years with Morningstar?

Two years is a short time when we’re trying to build a business in India and we’re here for the long haul. Having said that, you need to have successful markers along the way. We have a strong offering for advisors in India and in the near-term. We have a capability globally called the Morningstar Managed Portfolio where we build portfolios which are then distributed to advisors and that is a service we hope to bring to India in the near future.

Q. There’s been a tussle of sorts of late between SEBI and distributors of financial products. SEBI is of the opinion that distributors are charging very high commissions while advisors argue there’s a lot of work involved in making investors buy financial products. What do you make of this debate?

A. We have an investor-first view of the world that I think successful advisors would share. It’s really hard to be a regulator, because sometimes you’re perceived as being too early and sometimes as being too late. Their goal is good and I would commend them on that regard. If you look at the actual outcome when what you want is more ownership of financial assets, then that hasn’t happened. Clearly along the way, something is not working. I think this ties back to the fact that aggregate fees being charged in India still has room to come down between what a fund costs, what an advisor charges and the real return that an investor is going to receive.

If you are a financial advisor in India, this is a threat to your business. But I think the regulator is also keen that they move to a fee-based model which has some pain in the short-term but in the long-term, it’s better for your business. And we have seen this happen globally. Advisors also need to be able to differentiate themselves; you earn your fees when you differentiate.

Q. Wouldn’t it be unfair to compare a much more evolved investment market, say in the US, to the one here, which is still fairly nascent?

There’s no reason to jump ahead. The equivalent in India is mobile phones. Many people in India skipped the desktop and went straight to using the internet on their phones; there are fewer landlines and fewer computers than in the West. That’s the evolution of the world. You don’t want to be catching up, you want to get ahead. There’s not a magic number to how much costs (of financial advice) should come down but the reality is that it is not sustainable (where it is now). What you really want is a happy client with a relationship you have built over time who will value your advice and reward you appropriately for it.

Q . How do you see robo-advisors fitting into this picture? It’s a low-touch algorithm-driven model. How does this tie in with building long relationships with investors?

For many investors with smaller balances, this is an effective way of balancing their portfolios. As clients get more wealthier and their finances become more complex, they can focus on more differentiated services for that part of their client base. I think technology allows you to manage scale and it allows you to segment your clients.

Q. We always say the lay investor buys when the good times are ending and sells when the bad times have started. Have you been emotional about your own investments?

A. You can’t help but be emotional about it. But the question is how you react to it. Everybody needs to make some mistakes to figure it out. My father was always interested in investing and I caught the bug from him. He let me have some play money in the ‘80s and it was decade of futility if you were investing in India; there were a whole bunch of events that happened and nothing went right. I remember even in those days, checking prices regularly; it took some fortitude to stick it out but in retrospect, some of the investments my family made in those years, we thought it wouldn’t work out but just left it in place, they ended up being good investments. Similarly, when I moved to the US, one of the formative experiences for me was living through the financial crisis and at a personal level, the worst I ever felt was putting money in the markets in 2009. It felt really awful at the time. But now, they’ve bounced back from where they fell to many times over, if you look at the benchmarks

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