IBS Journal October 2016


33


188,000 customers,” according to Dan Egan, its Director of Behavioural Finance and Investing. He says that the average Betterment customer is 36 years old and is goal-driven in their investment patterns, a common theme amongst customers seeking robo-advice. “Our customers come to Betterment to achieve all kinds of financial goals, whether it be saving for retirement or saving for a down-payment [on a property]. Because we are a goal-based investment platform, our automated advice and technology provide each goal a unique investment portfolio,” explains Egan.


Winning favour


Convincing people to switch from traditional wealth managers is no easy task, however. Although the financial crisis eroded consumer trust in the large banks, it can still be hard to persuade people in this age group to change their investment behavior, particularly as a relatively unknown company. “It’s expected to be difficult because you’re talking about people’s lives and people’s savings. They need to trust you’re going to be there in ten or 20 years’ time to give them their money back. It’s normal that there is a decision-making process and it takes a bit of time,” says Dapra.


Barrass agrees that any new technology faces similar challenges. “People worry until something is proven, and if it connected with their financial affairs they are likely to worry all the more.” The onus is on robo-advisers to prove their worth through stellar performance and attaining their targets. “Firms have not only to be satisfied that their development plans and objectives for clients will be met by investing in robo-advice technology but that their clients too regard the new equipment as trustworthy and something they can work with. Firms may need to help their clients gain this understanding and feel confident about developments.”


There is also a misconception that new entrants are trying to displace the role of human interaction and relationships in wealth management. Contrarily, both Betterment and MoneyFarm say that their customer service proposition is at the heart of their offering. “We don’t believe this is about humans versus technology,


where one will win and one will lose. We believe it’s about how humans employ technology to make their lives better, easier and more efficient,” says Betterment’s Egan.


Dapra adds that even if the decision-making process is completely automated in the future, there may always be demand for human interaction. “Some people want and need a human component in the support function when they’re making decisions about their money.”


It’s not just young upstarts vying for a slice of the action. Last year, Charles Schwab decided to head off the threat from the likes of Wealthfront, Betterment and FutureAdvisor by launching Schwab Intelligent Portfolios. Faced with the low prices charged by the younger challengers, it has gone one better and isn’t charging customers for the service itself, though makes its money through other fees, which rivals claim is more ambiguous and not in the interests of transparency. Nonetheless, the approach is proving popular: according to Fast Company, Schwab Intelligent Portfolios Portfolios now has 75,000 clients and a total of $6.6 billion of assets under management.


Market consolidation in this space is inevitable, claim some analysts and industry experts. Those with a clearly defined, niche offering are most likely to go the distance, argues Sironi. “Retirement is one of the biggest and hottest topics and advising for a long-term retirement will become very important. The robo- advisers who can move themselves into that space offering advice and creating solutions are due to win. Others will remain low-margin businesses.”


Barrass agrees that niche players will likely thrive in the future, but suggests there’s life in the old investment adviser yet. “New niche players overwhelmingly based on using modern technology and branding themselves as such with new ideas are bound to flourish in this market environment and in the future will probably grow. But for the time being at least there will also be a place for traditional approaches, especially among an older generation of investors who grew up on paper, pens, books, chequebooks, and no computers,” he says.


www.ibsintelligence.com


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52