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Wealth Management Advice

Defeating Robo-Advisers Will Take More than a Pulse

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Michelangelo: Creation of Adam. Robot Hand.A “robo-adviser” joined MoneyGuidePro founder and chief executive Bob Curtis on stage at this week’s T3 Enterprise conference and proceeded to melt down when Mr. Curtis asked it qualitative questions like “I’m worried I won’t be able to retire when I planned, can you help me with that?”

During his opening keynote, Mr. Curtis was speaking about the future of advice delivery and digital disruption, when a colleague in a silver robot costume shuffled to the stage as rock band Styx’s “Mr. Roboto” provided the appropriate theme music. The robo-adviser recited its advantages such as “You can call me at 3 a.m., I never sleep.” In a robotic voice, naturally.

I suspect that many advisers were initially chuckling in comfort as Mr. Curtis overloaded the droid’s circuits by asking follow-up questions, but that comfort didn’t last long. He then warned of the constantly improving capabilities of the more tech-centric firms, which will increasingly be able to provide answers to more and more complex questions. More importantly, he correctly described how they’re raising the bar for clients’ expectations about investment firms’ client-facing technology.

Competing with the Robo-Advisers

More than one presentation at T3 mentioned competing with robo-advisers. I did not coin that moniker, which some have taken to be derisive, and I am not anti-robo. I am a fan of any approach that uses technology to make advice delivery more widely available and comprehensive at the same time. Though catchy, the term is not even very accurate for most firms it’s been used to describe — most are RIAs with real, live strategists and sometimes even real, live advisers and financial planners.

Yes, they have web portals and mobile apps and model portfolios and interactive planning tools, but so does nearly every other firm. The big difference is that they designed their client experience around the latest innovations and built their internal processes around that, rather than bolting new technology onto 1970s architecture and processes.

Their technology also allows them to start a relationship with an aggregated view of their clients’ total holdings, as Mr. Curtis pointed out. That’s a claim that only 10% of advisers can make today, according to CEB TowerGroup.

More Than Just a Pulse

I am certainly not anti-adviser either. As technology-oriented as I am, I cannot envision a future that doesn’t have live financial advisers, but many will have to change to compete in the future. Especially in a world in which 68% of advisers rate their own technology as “fair” or worse, and 63% rate the integration of their tools the same way, according to Patrick Yip from Pershing and David McClellan from Albridge Solutions Inc.

The real challenge goes deeper than just technology, though. I have heard advisers dismiss their cyber challengers with arguments that are flimsy and often just plain wrong.

“My clients aren’t that tech-savvy”, they say, or “My clients want to talk to a real person.” Those points may be true in certain instances, but advisers will need more than just a pulse to compete with and beat the robos.

In other words, the mere fact that you’re human being isn’t a sustainable competitive advantage. Yes, some clients are technophobic, but most learn to appreciate the efficiency and 24/7 availability that technology can provide, not to mention the very real cost efficiencies. Advisers still have the edge in emotional intelligence and the ability to help protect clients from their own worst instincts, but they will need to make the best use of those advantages to create real value on the clients’ terms. As InStream chief executive Alex Murguía put it, “My clients don’t need a friend, they need an adviser.”

Remember, as science fiction author (and coiner of the term cyberspace) William Gibson famously said, “The future is already here — it’s just not very evenly distributed.”

(This post originally appeared on my TechTalk blog at InvestmentNews.com)

Can FinTech Improve Investor Behavior?

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Business strategy

In my last post Personalized Service in the Digital World, I discussed the so-called “Robo-advisors”—the new breed of technology-driven online investment advisors—and how they are changing the competitive landscape, whether or not traditional advisors like it or even realize it.

I recently attended Money2020 in Las Vegas to hear directly from some of the “Robo-advisors” themselves. Most of the conference was focused on new technologies in payments and e-commerce, but one session “Emerging Wealth Management Solutions” featured Personal Capital CEO Bill Harris, SigFig CEO Mike Sha, LearnVest CEO Alexa von Tobel and Asset Vantage CEO Sunil Dalal.

One of the most surprising things from the session was that Harris, Sha and von Tobel all felt strongly that by 2020 the majority of wealth management will still involve real live wealth managers. Harris agreed to that statement as a ‘5’ on a scale of 1 to 5, and von Tobel ranked it as a ‘6’.  SigFig’s Sha answered ‘5’ for high net worth investors, but ‘2’ for the mass market (meaning lower advisor involvement in the future).

Also notable was the fact that despite all of the firms’ heavy investment in technology, that was not what the panelists focused on in their discussion. At least not in the context of better trading algorithms or more sophisticated asset allocation models. Instead, they focused on how they deploy technology to reduce investor expenses and overcome the common failures of human behavior.

In other words, some of the same things that any good advisor should be focused on in their own practice.

Weight Watchers for the Financial Space

LearnVest’s von Tobel said that “Money is 10% math, 90% emotion”, and described her firm as “Weight Watchers for the finance space”. I like that analogy because the basic formula to lose weight is deceptively simple—eat less and move more.

Yet, people spend billions a year on gym memberships, workout gear and diet books. And yes, on trading advice, financial plans and investment seminars, too. All of the gadgets and bells and whistles are alluring, but the basic formula for growing wealth is simple too—spend less and save more.

Setting aside Asset Vantage’s Dalal, whose firm has a different hardware and subscription driven model (and who was less optimistic about the future role of advisors), the rest of these disruptive asset managers are all RIAs. They are in the exact same business as many readers of this site. They just have a dramatically different service delivery model, and they have collectively raised over $100 million in capital that is betting that their model wins over the long run.

I believe they will win if they can convince people to actually change their behaviors. They have the advantage of leveraging their technology to give regular feedback at a scale not possible for most individual advisers. The Nike Fuel Band and competitors like fitbit have helped thousands of people tune into their caloric intake and level of activity needed to burn off the excess. Maybe the next generation of financial advisors will be able to help investors avoid costly mistakes in their financial behavior too.

As Personal Capital’s Bill Harris put it,

“The biggest problem is inertia, and technology alone won’t help that.”

(A version of this post first appeared in my blog on InvestmentNews.com)

Scaling Financial Advice and Collaboration in a GPS World

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Road map

We live in a real-time traffic, turn-by-turn directions, GPS world. Why do financial institutions still hand out the equivalent of gas station maps?

I hear from many financial institutions that creating financial plans for their clients is an important goal, in fact some have goals to provide financial plans to all or a significant percentage of their clients. Part of this is a noble goal– firms will be able to do their best work when it’s relevant to a clients’ unique situation and goals. But it also makes good business sense. Research links financial planning to deeper wallet share and a higher likelihood achieving that elusive “primary financial advisor” status.

Unfortunately, the client’s experience at most firms goes something like this:

  • Bring your financial advisor a briefcase full of personal papers (tax returns, bank and brokerage statements, insurance policies, will, trust documents, etc.)
  • Your financial advisor, their financial planner colleague, or one of their assistants will manually input data from your personal papers into financial planning software.
  • Meet with your advisor again and receive a spiffy multi-page document with color pie charts and bar charts a bunch of text (that usually says you will not be able to meet all of your financial goals unless you immediately and significantly increase your savings and reduce your spending).
  • File your financial plan away with the rest of your personal papers.
  • You may get a call in about a year to repeat the process (or maybe not, if they were just conducting a box-checking exercise).

That’s the paper gas station map, folded up inside out at the bottom of your financial glove box.

Firms should be integrating a broader view of client data onto their desktops and into their financial planning process. According to research from CEB Tower Group, 90% of advisors cannot see a consolidated view of their clients’ holdings that are held away from their firm, and 76% cannot even see a consolidated view of their clients’ holdings within their own organization!

It’s not just financial planning. The client onboarding process is often a similarly manual process that also often squanders significant opportunity to improve client engagement.

It’s time to bring the industry into the GPS world.

 

What About the Overbanked?

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I spent a great couple of days in San Francisco this week hearing from 72 FinTech companies at Finovate, stay tuned for my unique recap and thoughts from the largest Finovate ever.

As usual, there were several companies focused on improving access and service to the so-called underbanked– those who are priced out of traditional banking services, and those who simply opt out. This is a large market– several markets actually, and providing services people want and need at an affordable price is always good business.

But what about the Overbanked?

I’m talking about affluent and high net worth customers. Not because they don’t have sufficient access or because they are priced out of any markets. In fact, it’s just the opposite. Affluent customers have plenty of choices. Maybe too many. It is a market niche most financial institutions should be pursuing, but it’s hard to stand out to affluent customers.

Marketers hoping to reach the affluent need to tailor their offerings to be relevant. Messages about daily cash flow budgeting, for instance, can be powerful for the mass market and the underbanked. Every dollar matters and the timing of every dollar matters. It is worth spending time on activities that will save money by avoiding late fees and overdraft fees, for instance.

For many (though not all) affluent customers, it’s the other way around– they will often willingly spend additional money in order to save time. They will also spend money on unique experiences, as I have written about before.

(See Reimagining Bank Product Design in the Experience Economy)

A Moneyball Approach to Wealth Management

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Baseball Ball

Smaller and midsized banks can play in the wealth management big leagues, but they have to use some Moneyball type tactics to compete and win against the big budget competition.

Before the financial crisis, a “Field of Dreams” approach worked– if you built it, they would come. An environment of deregulation, falling interest rates, a rising stock market and a seemingly unlimited supply of talent allowed banks the luxury of focusing largely on acquiring clients, almost regardless of cost. Now with compressed margins, skittish investors hoarding cash and a changing competitive landscape, new tactics are required.

In an article I recently wrote for BAI Banking Strategies, I detailed six key Moneyball strategies:

  1. Bigger is not always better
  2. Focus on the right metrics
  3. Focus on wins, not hits
  4. Look beyond allocated costs
  5. Invest, support and challenge the front line
  6. Role players can be more important than sluggers

There is no reason for smaller banks to resign themselves to the minor leagues, as long as they make the right investments in their wealth management business and establish the right metrics to manage them.

Read the entire article here: BAI Banking Strategies: A Moneyball Approach to Wealth Management

 

 

Reimagining Bank Product Design in the Experience Economy

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Experience_Economy

When B. Joseph Pine II and James Gilmore wrote a book called “The Experience Economy,” they built on the work of Alvin Toffler (“Future Shock”) and others on the value of creating experiences. They cited Disney, Starbucks, Nordstrom and other leading brands as examples. Pine and Gilmore argue– and I agree– that our economy has been evolving, and continues to evolve.

We started as an agrarian society, and we extracted raw materials from the earth. Then we eventually began to make products from the materials we extracted, and we further evolved into delivering services. We still do all of those things, but they are all becoming increasingly commoditized. Think about banking products and services. How do you differentiate your brand from your many competitors? Interest rates? Fees? Product features?

Being able to stage memorable experiences, large or small, elevates your brand to a level far beyond the commodity discussions of features and price. Staging experiences allow you to connect with people emotionally, and surprising numbers of people decide with emotion and justify with fact—including the affluent. (How many of us can say we truly need to spend $6 for a cup of coffee, let alone a $2,700 espresso machine for our kitchen?)

Ultimately, being able to guide customers through a transformation is the highest evolution, and financial services companies are uniquely positioned to be able to do that. (Figure 1)

Winning with Affluent Clients

A KPMG study in June 2012 revealed that 9 out of 10 banks were considering a major overhaul of their strategy, and 40% said that wealth management would be an important part of that strategy. And for good reason— affluent clients hold higher balances, are better credit risks and use more fee-based services. But competition is fierce, and it is difficult to grab the attention of this busy demographic.

(See: 9 out of 10 Banks are Mulling an Overhaul of their Operating Models)

How do you become the bank your affluent clients can’t live without? There is no shortage of financial providers willing to help clients borrow, save, manage and move money. How can you add value beyond these utilities?

This may seem like a bit of a stretch for product managers typically steeped in competitive rate shops and price elasticity curves, but winning affluent clients in this new era requires some broader thinking about ‘products’ and about value propositions.

What business are banks in?

As I wrote in a recent American Banker article: Anyone who has taken even the most basic business course in the past fifty years is undoubtedly familiar with Theodore Levitt’s 1960 treatise “Marketing Myopia”:

“The railroads did not stop growing because the need for passenger and freight transportation declined. That grew. The railroads are in trouble today not because that need was filled by others (cars, trucks, airplanes, and even telephones) but because it was filled by the railroads themselves. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry incorrectly was that they were railroad oriented instead of transportation oriented; they were product oriented instead of customer oriented.”

So what business are banks in if they are not in the banking business? They are in the business of helping people achieve their financial and life goals, and the best brands differentiate themselves by reimagining the definition of ‘product’ beyond a typical set of tangible attributes.

For bankers, it is about moving beyond the rate and fee discussion and de-commoditizing the service offering. It is also about thinking more broadly about how to deliver value to clients, on their terms. Affluent clients have the financial assets to achieve their goals, but they are very often time-poor, and the wealthier they are, the more willing they are to trade dollars for time (and experiences).

I recently collaborated with Ten Group USA, the U.S. arm of London-based Ten Group, one of the world’s leading lifestyle management and concierge services companies to explore some ways financial institutions can deliver compelling clients experiences that might be outside of financial firms’ core capabilities.

In future posts I will discuss other ways savvy firms are innovating well beyond the typical rate/fee/feature conversation.

 

Honors for Innovative Wealth Management Companies

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My friends and former colleagues at U.S. Bank’s Ascent Private Capital Management recently won “Best Newcomer- Private Wealth Manager” and was highly commended for “Best Multi-Family Office- Client Service- Over $2.5 Billion” in the 2013 Private Asset Management  (PAM) Awards in New York.

Congratulations to the entire team!

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Separately, Fast Company listed “The World’s Top 10 Innovate Companies Companies in Finance” as a part of their Most Innovate Companies in 2013.

Three companies that work in the investing/wealth management space were included on the list:

#2 OpenGamma – “For cracking the secret world of capital markets by creating open-source risk-management software.”

#9 Riskalyze- “For helping individual investors assess risk, using personalized algorithms and portfolio alerts.”

#19 SigFig- “For becoming the online portfolio doctor, highlighting overpriced funds and suggesting alternatives within seconds.”

Read the entire list here.

 

Clients Do Not Want Help. Until They Do.

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(This was originally published as a guest post for my friends at the management consulting and strategic communications firm Beyond the Arc: Understanding how customers really want help.)

On the same day I published a post about the sometimes disappointing allure of technology (Technology is Not a Silver Bullet), the always insightful Discerning Technologist Brad Leimer shared a a post from The Financial Brand on LinkedIn (Big Study Examines Retail Channel Preferences).

The study, sponsored by Cisco, showed strong consumer preferences for non-branch channels such as web, mobile, phone and ATM for many types of interactions. However, branches were the preferred channel for such things as “Apply for a loan” and “Support from banking representative”. (See below)

What explains the stark differences? First of all, as Ron Shevlin of Snarketing 2.0 says,  just because a person visits a branch for help or to complete a transaction doesn’t necessarily mean that they prefer to do it that way. It may mean that the web site or phone representative was inadequate to meet the client’s needs.

Secondly, and not to get all snarkety myself (that’s Ron’s sole province), but clients really don’t want your help. Until they do.

Results Not Process

Much has been written about the so-called “customer experience”– everything that a customer comes in contact with during their lifetime interaction with your brand; direct and indirect, obvious and subtle, conscious and unconscious.

Successful firms correctly attempt to measure the expressed and latent needs of clients. The best keep in mind the words of the great ad man David Ogilvy, who has been variously quoted as saying multiple versions of “People don’t want quarter-inch drill bits, they want quarter-inch holes.”

I have long found inspiration in the work of now-retired Harvard Business School professor David H. Maister, and I have been using some variation of his 2×2 matrix below for at least a decade.

Maister uses a healthcare analogy to describe the key operational and profitability metrics of different departments, and I have found it useful to help financial firms think through their various activities and how they provide value to their clients.

Pharmacy (Low Touch/Standardized Process)
For a financial firm, these are the things that just need to get done quickly and accurately. For the most part clients have little preference as to how.
–
• Account Opening
• Transactions
• Balance Reporting
• Transfers
• Basic Service Issues
–
Nursing (High Touch/Standardized Process)
These are items that might need a little more hand-holding, even though the processes and protocols are still well defined, and good client-service skills can go a long way to improving client satisfaction.
–
• Standard Credit
• Product Advice
• Estate Settlement
• Discretionary  Trust
• Complex Issues
–
Brain Surgery (Low Touch/Specialized Process)
These activities require specialized skills, but the real value comes from applying the expertise, not necessarily from the advisor/client relationship.
—
• Custom Credit
• Asset Allocation
• Basic Trust Admin
• Complex Assets
• Basic Estate Plans
–
Psychotherapy (High Touch/Specialized Process)
For financial firms (and especially wealth management firms), this is the top of the value chain. It’s what happens here that drives most loyalty/at-risk measures. Diagnosis is key, and it is from here where brain surgery may be prescribed.
–
• Goal Setting
• Financial Planning
• Complex Estates
• Succession Matters
• Nonfinancial Issues
• Moral Support
–

Bringing it All Together

Clients may well be willing to use your new app for certain things, utilize your web site to download transactions and contact your call center to change their address. Those things may improve your operating margins– as long as they work.

The face-to-face interactions that do the most to improve the client experience are not the ones that solve the issues that could have been (and should have been) solved via other channels (See two surefire ways to irritate your customers. It’s the ones where they are really receiving the time and attention from someone who understands their situation and their goals and is helping them get to where they want to be.

Clients don’t want your help. Until they do.