ARTHAYANTRA

FP&A INDUSTRY BACKGROUND

Formal Sources Informal Sources

Access to formal FP&A limited to HNI and UHNI segment
These advisors built long-term relationships with their clients
Provided customized solutions for each client periodic review sessions
conducted with the clients
Fees for these services typically ranged upwards of ₹15,000 per year or 1-2%
of the AUM
Majority relied on these sources
Includes -
(a) a mix of distribution agents for financial products (insurance agents,
mutual fund distributors, stock brokers, etc.)
(b) investment advice from experts on media (television, radio, newspapers,
magazines, blogs, etc.) and
(c) ad hoc advice from friends and family members

CAGR 6.5% CAGR 6.9%

2014 Financ 2014

Real
ial
GDP
Assets

1991 1991

Income levels had grown strongly across India since the initiation of economic
reforms in 1991
 TRADITIONAL VS ROBO-ADVISORY

Parameter Traditional Model Robo-advisory Model

Focus - Long-term wealth accumulation - Goal-based planning with assistance on expense management
- Identification of strategies that generate alpha - Achieving an effective well-diversified portfolio across equity/debt and
liquid funds

Services - Investment advisory services - Financial advisory services to help customers identify and achieve their
- Insurance and tax planning financial goals
- Financial research and information - Investment advisory services
- Insurance and tax planning
- Expense management and account aggregation
- Financial research and information

Costs - User fees typically in the range of Rs. 15,000+ p.a. or a - User fees typically below Rs. 10,000 p.a. or a percent of AUM
percent of AUM (typically 1%+) (typically lower than 0.5%)
Client - Strong personal relationship nurtured by the advisor with a - Limited personal connect. Focus on transparency and clarity through a
Servicing focus on building trust well-designed web interface.
Model - Periodic in-person reviews along with portfolio performance - Real-time access to portfolio information along with periodic telephonic
reports reviews

Execution - Clients provided signed documents to the advisor for - Most advisors provide digital (completely paperless) processes for
execution transaction execution
 TRADITIONAL VS ROBO-ADVISORY
Parameter Traditional Model Robo-advisory Model

Customization - Significant ability to customize advice/products as per - Ability to customize solution varies with each service provider.
unique requirements of each client - Advanced robo-advisors provide a level of customization close to that
of traditional service providers

Consistency - Nature of advice could vary across different advisors with the - Technology-backed approach ensures consistency of advice across
same service provider different advisors for a service provider

Privacy - Risk largely limited to mala-fide actions by advisor or a - Greater risk of exposure to an electronic breach
physical breach - Risk of mala-fide actions of employees/physical breach continues to exist

IMPACT ON MARKET DYNAMICS

Parameter Traditional Model Robo-advisory Model

Competitive - Wealth management outfits of financials service providers - Advent of over 20 robo-advisory firms with a large number preparing to
Landscape - Boutique FP&A firms launch over the next few years

Market - Focused largely on UHNIs and HNIs - Active targeting of the middle class
Definition - Limited penetration of FP&A services among the middle class
 IMPACT ON TRADITIONAL WEALTH MANAGERS
Robo-advisory a threat?
1. Lower fees and lower minimum investments for
discretionary portfolio management than
traditional wealth managers
2. More efficient management of investments
3. Addresses the advice gap for less sophisticated
investors
4. Transparency of performance
Way forward?
1. Traditional wealth managers and standalone robo-advisors can expand market share by taking the
hybrid approach.
2. With improved robo-advisory algorithms and better personalization, robo-advisors can evolve to
address the needs of the affluent segment.
3. Smoother customer onboarding, improved reporting, and premium offerings incorporating human
advisory connects and chatbots can drive higher adoption.
 ARTHAYANTRA JOURNEY

• Significant gaps present in FP&A

• Distribution Agents were focused on quantity
• Small financial planning boutiques lacked consistency and scale
• Arthayantra was founded with a vision of answering the unanswered personal finance questions

Refining Value
The Vision Setting it up Headwinds
Proposition

• Two main considerations-

1. Holistic advisory services & not piecemeal approach
2. A tech platform flexible to accommodate varied customers in terms of both finance & tech
• Initial plan was to offer it with a partner or make an outright sale but faced with skeptical market
response
• Launched in Nov-2012 with a target of acquiring 6000 users in first 6 months
• Two level of services offered under Basic and Elite Plans.
 ARTHAYANTRA JOURNEY
• Value Proposition of Holistic Financial Advisory services
• Three aspects to make sure that processes & systems were scalable-
• Specialized Teams for User-handlings - For CRM, Customer Service and Investment Advisory
• Data Backed Approach - To convince customer regarding the superiority of advice
• Strong Technology Platform - ArthaYantra's proprietary model,  ARTHOS capable of generating detailed
action plan for the user covering risk, expense and capital management

Refining Value
The Vision Setting it up Headwinds
Proposition

• Upto Q1, 2014- Challenging external environment – sluggish economic plus elections caused pessimism
• User were steadily rising but not the customer base as high fees acted as the deterrent to many users
• Erosion of Talent as employees were doubting the execution ability of Nitin’s vision (13 in late 2013)
• Initial seed funding raised in 2012 had been exhausted by 2013 leading to deferring some obligations for 5 months
and a desperate need for short term funding
• Things started to get better in Q1 2014-
i) Fin-tech gaining popularity ii) arthayantra featuring in media iii) additional funding for medium term
ROBO-ADVISORIES IN INDIA
 VALUE PROPOSITIONS OF ROBO-ADVISORIES
• INDMoney (Comprehensive Wealth)
• Real time hyper-personalized advisory on money, markets, investments, loans,
expenses and financial future.
• Invest in commission FREE direct mutual funds, Stocks, Bonds, PMS & NCDs
• Offers real-time portfolio rebalancing in single click.
• Pricing- AUM Based pricing (Eg. For AUM of upto 50Lakh- 300+GST)
• Cube Wealth (Comprehensive Wealth)
• The platform uses gamification to help users invest through the app and
provides investment options across asset classes, including mutual funds,
foreign equities, digital gold and stock trading to help users diversify their
investment.
• There is a Management fee and profit share over and above the hurdle rate
• Orowealth (Fund Based)
• Lists some goals that you could invest towards (like education, retirement etc.)
and then asks you a few queries to create your risk profile and suggests some
mutual fund options on the same. Orowealth also offers many financial
calculators that can be used to determine how much money should be saved to
achieve a certain goal
• No charges for advisory services with direct investment in MF
• Fundsindia (Fund Based)
• They recommend funds based on in-house and in-depth research to meet the
goals.
• You can use the platform for free. But only to invest in regular plans. If you want
to invest in direct plans, you are required to do it independently.
• Kuvera (Fund Based)
• Provides Direct Mutual Fund, direct equity, gold investing platform
• Services Offered- Goal based investing, Joint Account, automatic tracking of
external transactions
• Scripbox (Fund Based)
• Robo-advisors mostly offer a portfolio made up of debt & equity mutual
funds. Within this, some firms such as Scripbox only offer a limited set of
funds that are pre-selected by their computer algorithm & in-house experts.
• Scripbox also provides only regular funds and the robo advisor service is free
• Goalwise/Niyo Money (Fund Based)
• Provides goal-based Direct mutual fund investments & robo-advisory services
• Services include- Portfolio Rebalancing, Capital allocation, On-track / Off-
track recommendations, Tax Gain Harvesting.
 ROBO-ADVISORS

Revenue Segments
Model (based on nature of offerings)

Direct Indirect Investment Goal-based Comprehensive

Facilitators financial planners financial planners
Model Model

Wherein the Based on distribution Offered Offered customers Offered advice

customers were commissions from asset customers ability to outline on all aspects of
charged a flat fee or management firms on guidance on key financial their personal
a percentage of the the investments optimal goals and develop financial life
transacted facilitated by them or investment plans to achieve including
amount/assets advertising revenue products and an those. income/exp
under management from the leasing of ad ability to transact mgmt., tax
space on their portals in them. optimizn etc.
 GROWTH ROUTES

Core / Sole Advisory Model Advisory-cum-Execution Model

• Continuation of the current strategy • Significant deviation from company’s current strategy
• Flat Fee of ₹10,000 per annum for comprehensive FP&A • Involves expanding offerings to include execution services
advisory service • Annual service fee would be reduced to ₹ 1,000 per year to
• Fee revision on an annual basis accelerate growth for targeting mass market segment
• Target market: Affluent Customers • Income includes commission at time of deployment of investment
and trail fees
• Pros:
• Pros:
• Segment with higher profitability
• Potential Market size expanded significantly to over 120 million
• Focus of the company restricted to advisory whereas execution would households
be sought from partners
• Supplementary revenue stream from distribution commissions from
• Enables Arthayantra to offer a clear value proposition to customers AMCs for provision of execution services, which would be opted by
1/3rd customers
• No potential conflicts of interest between advisory and distribution
services • Larger customer database to mine and develop better customer targeting
strategies
• Cons:
• Cons:
• Growth stays much lower than option B
• Economies of scale required to rationalize cost levels
• Longer time to scale & bleak future funding viability
• Potential conflicts between distribution & advisory Functions
 FINANCIAL ANALYSIS: CORE ADVISORY MODEL

• Assumptions:
• Annual Fee per customer = ₹ 10,000 per annum
• Growth in annual fee = 10% pa over the next 10 years
• Customer Growth = 25% pa over the next 10 years
• Customer base to grow from 3000 customers in 2014 to around 22,000 customers by 2023
 FINANCIAL ANALYSIS: ADVISORY-CUM-EXECUTION MODEL

• Assumptions:
• Annual Fee per customer = ₹ 1,000 per annum which is revised after year 5
• Customer Growth = 100% pa over the next 10 years
• Turbocharged growth will be achieved by tapping the underserved, relatively large segment & Arthayantra
will be able to convince a significant portion to opt for the elite plan
• Customer base to grow from 3000 customers in 2014 to around 950,000 customers by 2023
 IMPACT OF BOTH BUSINESS MODELS ON VALUE

Core
Advisory
Model

Advisory-
cum-
Execution
Model
 IMPACT OF BOTH BUSINESS MODELS ON VALUE

Customer Growth Profile Operating Profit per customer Profile

Model 1: Core / Sole Advisory Model Model 2: Advisory-cum-Execution Model

• Model 1 is profitable from the first year itself

• Customer Network created through model 2 is around 45 times larger than model 1 due to better affordability
• Benefits: Create higher intangible value by leveraging customer data and better brand visibility
 IMPACT OF BOTH BUSINESS MODELS ON VALUE

Net Customer Lifetime Value in ‘000 (by joining year of customer)

Model 1: Core / Sole Advisory Model Model 2: Advisory-cum-Execution Model

• Hitting Customer Growth targets and Cost rationalization critical to achieve success in Model 2 where operating profit is expected to stay
under pressure due to rapid scale-up
• Share of revenue from execution (distribution) services increasing steadily resulting in rapid increase in Customer lifetime value in model 2
 KEY RISKS TO EACH GROWTH DRIVER

Core / Sole Advisory Model Advisory-cum-Execution Model

Customer Growth

• Relatively low pressure on growth as it is based on the • Value greatly dependent on the firm hitting the ambitious
current strategy growth rate of 100% across 10 years
• Major roadblock on growth is the lack of reach and not on • Model based on the assumption that people from mass
Willingness to Pay market segment who were previously unwilling to spend
₹ 10,000 will be comfortable in paying ₹ 1,000
• Competitors:
• Boutique FP&A Advisors
• Incremental revenue per customer dependent on
conversion of existing customers to Elite plan
• Wealth Management Services extending into the upper middle
class segment • Strong competition from Agents who have been the
primary influencers
• Other robo-advisory firms
• Competitors:
• Majority robo-advisory firms
• Standalone distribution agents for various financial products
 KEY RISKS TO EACH GROWTH DRIVER

Core / Sole Advisory Model Advisory-cum-Execution Model

Customer Lifetime Value

• With profitability as the main objective, customer lifetime
value mainly dependent on achieving 2 goals for the next
10 years
• 10% growth in annual fees
• 25% customer growth
• Little to no scope for cost optimization as the business
model is the same
• With sole focus on advisory services, there is no conflict
of interests with execution, which is handled by agents &
distributors
• As the focus is on reaching to a larger audience rapidly,
focus is shifted from profits to scale up at an optimal cost
• With expansion in network, cost per customer is expected
to drop with lower acquisition & service costs
• Arthayantra also hoping of rapid scale-up of distribution
revenue which would be a new revenue stream
• However, it poses a conflict of interest with other agents
as their plans would be listed with that of Arthayantra

Other Important Aspects

• No network effect benefit – Customer base to stay limited • Significant Intangible value potential arising from adding
to a small section of the population new customers from an untapped market segment
 WHICH OPTION TO CHOOSE

Core / Sole Advisory Model Advisory-cum-Execution Model

Market Size ✓
Customer Growth ✓
✓ Operating Profit Growth

₹1,798 million NPV ₹ 5,963 million

Risk ✓
₹27,000 (2023) Net Customer Lifetime Value ₹ 19,000 (2023)

Availability of Future Funding ✓

Low Customer Database (Intangible Value) Very High

Advisory-cum-Execution Model seems the best option for Arthayantra