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The next big disruption? Brokerages bet big on advisory services

While there is a surfeit of brokerages in the country, there is still room for disruption in the advisory space, which appears to be underserved. And both new-age and traditional brokerages are eyeing the niche.

April 28, 2021 / 12:56 PM IST

Abhimanyu Bisht, 36, who works with a venture capital firm, manages his own stock market investments. He researches the segments he’s looking at thoroughly and picks stocks he thinks will do well. On occasion, though, he would have liked to be saved a bit of that effort with some reliable advice. “Advisory is heavily missing. While many investors can decide on their own there are many who need some kind of help or guidance. There could be some innovative models around this (by brokerages),” says Bisht.

The last few years have brought about a paradigm shift in the manner investors trade in the stock market and the stock broking industry has been the most impacted. Gone are the days when investors would call their dealers or relationship managers to trade in the stock market. Now, most retail investors just open an app on their smartphones and start trading, be it in stocks or derivatives.

This trend has also brought along with it a huge disruption in the stock broking segment, with most new-age technology savvy players now making the maximum number of new-client additions and the traditional ones witnessing a slowdown in the pureplay broking business.

It comes as no surprise that the current list of the biggest brokerages in India, in terms of the number of client accounts, features young and tech-savvy broking entities such as Zerodha, Upstox, 5Paisa and Groww.

While there is already a surfeit of players in the broking industry, the recent past saw PayTM Money entering the sector and PhonePe also announcing its intent to venture into stock broking.

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An underserved niche

Market participants are divided on the issue of whether there is room for so many brokerages in the country, but note that there is still space for disruption in the advisory space, which appears to be underserved.

“There are too many brokerages already in existence and hence I feel there is not much opportunity in the plain-vanilla broking space. But there is still a lot of room for disruption in the advisory space,” said Nithin Kamath, founder of Zerodha, which has become the country’s largest brokerage in terms of the number of active clients.

“There is not much one can do to differentiate the default product as everyone offers a trading app. Investors need products that can guide them on investing in the stock market. There are many first-time investors and a good advisory element in terms of highlighting the risks etc can prove to be a good differentiator,” added Kamath.

Incidentally, Zerodha has a feature called Nudge in its app that warns investors when they attempt trades that are not in line with “basic trading rules.” For instance, a message will pop up when an investor is trying to trade in a penny stock.

Karun Arya, a Singapore-based investor, says he has been trading for a few years now. “The experience has been great so far. The platform I use is a strong one with excellent versatility. Some people would certainly appreciate better access to advisory services, too, with a degree of flexibility,” he says.

Harsh Jain, Co-founder and Chief Operating Officer of Groww, believes that broking in 2021 is not only about giving investors a platform to invest but also providing them educational resources so that they can understand the world of investing and are empowered enough to make their own decisions.

“Many millennial investors are coming to the market today, and two distinct user behaviours make them different. Firstly, they don’t like to be sold financial products. They rely far more on their own research than what a relationship manager would advise them. Secondly, there is a huge gap between people who can invest and who are actually investing in India. Therefore, I believe that there is huge scope in the broking industry,” said Jain.

According to industry estimates, Groww, which launched broking operations in May 2020, already has around nine lakh active client accounts, with around 1.5 lakh additions every month, on average.

A spokesperson for PhonePe declined to comment for this story.

View from the other side

Interestingly, traditional brokerages, while agreeing that advisory could be the key differentiator, feel they have an edge over their newer rivals in terms of research capabilities and hence can offer better-quality investment advice.

“Traditional brokerages have a history of advisory and if such an entity can create scale in terms of a digital platform, then that would be a comprehensive solution for investors,” said Ajay Menon, CEO, Broking & Distribution, Motilal Oswal Financial Services.

“The penetration level of the stock market is still low and so there is scope for new players. But they need to differentiate themselves from the ones already present. Millennials are trying to understand the market and they require expert advice. They need to be guided properly so that they can learn, earn and then invest more in the long term,” added Mr Menon.

Motilal Oswal, a brokerage that traces its origins back to 1987, has launched a campaign focusing on the ‘phygital’ model, which attempts to combine the benefits of digital offerings with the knowledge and experience of a physical advisor.

(Ashish Rukhaiyar is a financial journalist)
Ashish Rukhaiyar is a financial journalist
first published: Apr 28, 2021 12:56 pm

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