FinTech

Can FinTech Improve Investor Behavior?

October 21, 2013 by JP Nicols

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)

Personalized Service in the Digital World

October 16, 2013 by JP Nicols

Since my Sept. 18 post in the Investment News techconnect blog, “Financial technology trends advisers can’t afford to ignore”, I have been in a number of conversations about how a new crop of web-based investment management/financial planning services are affecting the industry.

Opinions have run the gamut from, “Advisers are toast, everything is moving online,” to “No way, X type of clients will always want personalized service.” As you can well imagine, the tenor of those comments were colored greatly by where the commenters are in the industry or what their business models look like.

Although investor sentiment varies somewhat during different economic cycles, somewhere around 25% to 30% of investors are do-it-yourselfers, and another 20% to 25% want regular help from advisers. The largest chunk is somewhere in between. They make some of their own decisions, but sometimes they want help.

The Consumerization of Technology

I suspect that those numbers increasingly will tip toward more self-service as the consumerization of technology continues to spread. Many of today’s consumers carry better technology around in their pockets than their advisers have on their desktop. Affluent consumers in particular are utilizing a wide variety of software-as-a-service with increasing regularity, and there have been lots of investing and financial planning offerings in the past five years.

This trend will be exacerbated as a $41 trillion bubble of wealth works its way down to Generations X and Y. Members of those younger generations have grown up with technology, they are comfortable with (and often prefer) online services, and many do not have relationships with traditional advisers.

Does that mean that the days of the one-on-one client/adviser relationship are coming to an end? I don’t think so, but I do think they are already changing.

As younger investors grow older (the oldest Gen Xers are already in their 40s) and take on more responsibilities in all areas of life, and as their financial lives become more complex, they may want more adviser help. But the form and method of that help will likely take shape in the form of more video conferencing, online collaboration and other forms of electronic communication.

Enter the “Robo-Advisers”

Raef Lee, managing director of the SEI Advisor Network, recently blogged about “5 Ways Robo-advisers Will Change the Way Advisors Work”, which he enumerated as increased peer pressure, a call for transparency, pressure to accommodate a younger generation, more technology and access to comparative data.

I think all of those are valid points, but what concerns me the most is that the pace of change exhibited by most advisers and firms is much slower than the pace of external change. A device known as the iPad reached 50 million users in just 18 months, and that’s just about the time it takes for a new idea to work its way into the budget approval process at many firms.

And of course, it’s not just about buying and deploying new technology. I often ask, “Remember when laptops revolutionized financial services?” Yeah, me neither. Today’s technological advancements definitely have the potential to make seismic changes, but advisers will have to adopt and utilize these new tools in ways that the clients actually value.

Merely providing “personalized service” is not really a differentiator today, and it will be less so in the future. Hordes of travel agents, book and music stores, and electronics retailers all bet that their customers would value their personalized service over online solutions, but only well-focused niche specialists have survived in the face of these sea changes.

(This article originally ran in my regular blog on InvestmentNews.com. Subscribe for free and keep up with all of my latest content there.)

From Transactions to Relationships: Innovation’s Next Horizon

October 1, 2013 by JP Nicols

There has never been a better time for innovation in financial services, yet most financial institutions struggle to build lasting, profitable relationships with their customer base. New ideas abound, yet actually implementing those new ideas, let alone realizing their financial promise remains elusive.

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way.

– Charles Dickens, A Tale of Two Cities

Why?

One of the reasons is that so many of our industry’s innovations have been about improving transactions, not relationships.

We can access our accounts 24 hours a day, 7 days a week. We can move money from point A to point B with speed and precision. We can access tax, investment and financial planning advice from software and online experts.

So what?

Sometimes we still can’t find what we’re looking for. Sometimes we don’t want to do it all ourselves. Sometimes we want a little help. Sometimes we want to just talk to a professional who will actually listen.

Customers today have many choices, and merely offering the usual menu of products and services will not create a compelling reason for them to choose your financial institution from the sea of similar offerings.

It’s not about your branch, or your ATM network or even your mobile banking platform. Those are just “dumb pipes”.

From Transactions to Relationships

But what if we spent just a little of our innovative energy on improving the relationships customers have with their financial providers?

What do we need to do to move from transactions to relationships? There are four imperatives:

We have to shift our mindset from execution to diagnosis. In healthcare terms, it’s shifting from handing out prescriptions and treating symptoms to really understanding the underlying causes.
We have to consciously build trust and loyalty with our customers. We have to think beyond the transaction, or even a successful series of transactions, and take the necessary steps to have our clients perceive– and believe— that we are worthy of their trust and loyalty.
We have to move from product development– you know, that process where you launch a product that your team has been asking for, then point fingers internally when the financial results fail to meet expectations– to customer development. Customer development is an approach that makes sure that you are solving a problem or meeting a need that your paying customers actually care about.
We have to engage the ecosystem. No product or service exists in a vacuum. Before we launch anything, we need to make sure that we are solving a problem our customers want solved, we have to understand the role our internal and external partners play in the process and we have to know what the value chain looks like and where we fit in. We also want to make sure we avoid any co-innovation risk and adoption risk along the way.

It’s not rocket science, but it is a big change from the way most financial institutions do business. If we can do those things well, we can begin to create value in our relationships and we can innovate new paths to profitable growth.

Bank Innovators Council Launch Party

September 15, 2013 by JP Nicols

Last week during Finovate Fall 2013 we launched the Bank Innovators Council. More than 75 bank innovators, entrepreneurs, CEOs, bloggers and industry analysts joined us on a Manhattan rooftop to celebrate the launch of the first organization designed by bank innovators for bank innovators.

We are proud to be creating a platform to bank innovators do together what they can’t do alone. Join us at BankInnovatorsCouncil.org

Finovate Fall 2013 Best of Show Winners

September 12, 2013 by JP Nicols

Finovate Fall 2013 wrapped up a whirlwind two days of FinTech innovation in New York on September 10 and 11. Eight of the 69 presenting companies were voted Best of Show by those in attendance.

Five of those eight winners had direct or indirect applicability for the investing/financial planning/wealth management space (LearnVest, MoneyDesktop, Motif, TipRanks and Yodlee).

Rising Above a Difficult Venue

This year’s venue at the Manhattan Center (which includes the historic Hammerstein Ballroom) was not the best for this kind of show. Finovate is really two simultaneous events– the eight sets of back to back to back rapid-fire 7-mintue demos (no slides or Q&A), and the longer one-on-one interactions with the presenters at each of their booths for those who want to learn more and/or make connections. Past venues provided sufficient separation between the stage and the presenter booths to allow both to co-exist. That was not the case this year, and unfortunately both parts suffered a little.

Beyond rows of chairs close to the stage, better seats with tables were placed around the two balconies, with remote viewing via video screens also available on the 7th floor and its balcony (plus a press room in the basement) . This split up the crowd a quite a bit and did make it more difficult for the ongoing conversations and networking that are so valuable at a show like this. There were also a few audio glitches that detracted, but the WiFi was much better than last year at Javits Center.

Still, it was great to see all of the newest innovations, meet the innovators behind them and catch up with my growing list of friends at these must-attend events.

Bank Innovators Council

(In a semi-related note, we held the launch party for the new Bank Innovators Council on the middle night of Finovate. More than 75 bankers, partners and thought leaders joined us on a Manhattan rooftop to kick off this new organization designed specifically to help bankers innovate together in ways they cannot do alone. More on this in a future post)

Finovate Fall 2013 Best of Show Winners

(in alphabetical order):

Interactions, for its voice-based virtual assistant technology

______________________________________________________

LearnVest, for its iPad app and Workplace Solutions Center

______________________________________________________

mBank & Accenture, for their Bank 3.0 online platform

______________________________________________________

Mitek for its Mobile Photo Account Opening solution

______________________________________________________

MoneyDesktop, for its GuideMe solution

______________________________________________________

Motif for its platform that lets you invest in ideas in one click

______________________________________________________

TipRanks, cloud-based accountability engine for investors

______________________________________________________

Yodlee, for its debut of TANDEM that helps groups manage and discuss shared finances

Congratulations to all of the Finovate Fall 2013 Best of Show winners, all of whom are very deserving of this honor.

I also send an extra personal congratulations to my friends at MoneyDesktop and Yodlee, whom I have had the pleasure of getting to know and work with over the past year. I look forward to our future collaboration.

Read the entire story on finovate.com, where you will also soon be able to see videos of all 69 presentations from Finovate Fall 2013.

Scaling Financial Advice and Collaboration in a GPS World

July 17, 2013 by JP Nicols

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.

Too Small to Fail: The Partnership Driven Nature of FinTech Startups

May 28, 2013 by JP Nicols

Too small to fail: The partnership-driven nature of fintech startups (via Pando Daily)

By Houston Frost On May 22, 2013In the last quarter-century or so that has made up the digital revolution, one universal axiom has held true: evolve or die. Record labels were too busy suing pirates in the 1990s to adapt their business model to the digital world, newspapers were consigned to the recycle…

What About the Overbanked?

May 17, 2013 by JP Nicols

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)