In August, CAMSfinserv, the Reserve Bank of India (RBI)-licensed account aggregator (AA), announced it was getting on board all 17 asset management companies (AMCs) that its registrar and transfer agent (R&T) arm, Computer Age Management Services (CAMS), manages. CAMS is one of India’s largest R&T agents in the mutual fund industry.
Now with mutual funds coming on board AAs, those firms or individuals (your financial advisor, for instance) who need to get an idea of your finances can see your mutual fund (MF) holdings in one dashboard.
Anuj Kumar, managing director, CAMS, said, “This is a seminal event in the development of the AA ecosystem in India, given its potential to uplift the financial experience of the 2.7 crore MF customers we serve.”
“This move holds the potential to be a game changer for financial advisory, similar to the impact that UPI (Unified Payments Interface) had on payments,” said Shavir Bansal, founder and CEO of Kifaayat, a fintech startup. He added that this could very well be the “UPI moment” for wealth advisory in India.
To be sure, only the 17 fund houses serviced by CAMSs are on board CAMSfinserv. The fund houses managed by KFintech—the other large R&T agent in the Indian MF industry, are yet to come on board.
How does this help?
An AA is like a financial dashboard. Think of it like this: You wish to take a loan from a bank. Your bank will assess your credit quality, or your ability to repay your loan. For this, your bank would want to check your income, expenses and your bank balances.
Traditionally, you would take a printout of all your account statements and even perhaps your salary slips from your employer. Is there an online financial space that captures all this and your lender (a bank or financial institution) can just see your details, assess your financial standing and give you the loan?
Another example: Say you wish to go to a financial advisor. In order for your planner to make a sound financial plan for you, and ascertain your financial goals, he or she would need to look at your income, expenses, existing investments, whether or not you have sufficient insurance, your bank balance and so on. Here again, instead of searching physical documents from several places and collating them, is there a financial dashboard online?
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A financial dashboard
Here's where an AA comes in. An AA is an online platform where your financial life can be accessed at a glance. It can only be seen by those whom you explicitly give permission to. You can link multiple bank accounts, National Pension Scheme (NPS), equity holdings, insurance policies and MFs.
Here’s how it works. The bank or the financial planner we spoke of above is called a financial information user (FIU). In simple words, an FIU is an entity that will use your financial information. This could either be to make a financial plan for you or assess you to give you a loan or sell a product or service.
On the other end is a financial information provider (FIP). This constitutes all the places (firms, institutions) where your money lies. It could be a MF, bank, your NPS, an insurance company, a demat account and so on.
An AA is built to pass on your information simply and seamlessly from an FIP to an FIU, depending on the level of information you have consented to give.
Let’s say you go to a financial planner. Say, also, that this financial planner has an app. You download this app. For the planner to assess your situation and financial life, it will raise a consent request on its own app (which you have downloaded on your mobile phone). Once you give your consent, you will be then redirected to the AA with which your financial planner has tied up with.
Next, your AA will send you a one-time password (OTP) for authentication. Once you authenticate yourself, your AA will show you your bank accounts, mutual funds, insurance policies, demat account details and so on. Here’s where you can select precisely the information that you wish to share with the FIU (your financial planner, in this case).
Next, your bank or MF, depending on the financial details you have chosen to share, will also separately send you an OTP.
“An AA is a platform which manages citizen's consent to share her information with the registered entities (registered with any of regulators like the RBI, Securities and Exchange Board of India or SEBI, IRDAI, PFRDA and the like) that are seeking the same to give citizen's any financial services that she desires,” said Tejinder Singh Manchanda, chief executive officer, CAMSfinserv.
IRDAI is Insurance Regulatory and Development Authority of India, India’s insurance industry’s regulator. PFRDA is the Pension Fund Regulatory and Development Authority, India’s pension sector regulator.
You can also choose for how long you want your financial information to be shared.
It’s even easier to share your data with your lender at the time of taking a loan as this just entails you to share your bank account details.
“Given that at times data gathering can become a sort of speed breaker in the financial planning exercise, an AA-based system that lists everything in one place will definitely speed up the financial planning process. Not only for the individual but also for the advisors,” said Dev Ashish, a SEBI-registered investment advisor (RIA) and founder, StableInvestor.
“To be truly useful in your financial planning process, you must link all your bank accounts, mutual funds, equity accounts, insurance policies, NPS, etc.,” said Amol Joshi, founder of Plan Rupee Investment Services.
As revolutionary as the AA architecture is and the way it works, it has a long way to go. One of the foremost challenges remains the incomplete information out there to be shared. For instance, the newly-launched CAMSfinserv provides information of just CAMS-serviced fund houses. But there are more than 17 other fund houses that remain out of this ambit, so far.
Also, there could be instances where, for instance, a customer chooses to share only some information with his or her FIU, instead of everything, like linking just three out of the five bank accounts he or she has.
“Further, in AA scope, you do not have several other investment products that a typical investor has in his portfolio which includes PPF (public provident fund), EPF (Employees Provident Fund), postal and small saving schemes, and any bonds that are held physically,” Joshi added.
The next challenge revolves around building trust. “Investors must feel confident that their financial data is secure within the platform. This will be one of the biggest challenges in linking and sharing the data,” said Bansal. He added that educating investors on how to effectively and securely use the AA platform will be crucial for a seamless transition.
Proliferation of online scams also need to be watched out for. Manchanda of CAMSfinserv said the AA system is safe enough. “The data which moves in the ecosystem is fully encrypted and even AAs don’t have access to the information,” he said.
Last, but not least, Joshi added, as things stand, only RIAs can access the data and not mutual fund distributors, thus limiting its scope. That’s not all. Smaller RIAs, typically those who do not have a strong online presence, such an app, would also be left out, as they won’t be able to capture their clients’ data using the AA architecture.
All said and done, the AA framework is revolutionary. Manchanda said that it is a tool to “distribute hyper personalised financial solutions in a sachet size at a population scale”.
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