The answer is more automation, not less

The answer is more automation, not less
The online retirement advice giant Financial Engines just published a report called The Human Touch highlighting the role of the real-life advisor in delivering client counsel. Among other things, the report found that 54% of self-guided 401(k) investors have an interest in working with an advisor. While I won’t gainsay this figure, I’m loath to extrapolate stated interest into willingness to pay. Indeed, the report acknowledges cost concerns as the primary obstacle to investor engagement. That said, it’s hard to argue with success, and Financial Engines has accrued more than $100B in assets by combining automated portfolio construction with access to a (remote but real life) advisor. Other firms, like Personal Capital, also have done well by this model. Today it’s a rare voice that will argue the appeal of the hybrid “robo-human” platform. The model speaks to the needs of contemporary investors, who are tech friendly but want to get their advice in person. The rub for firms like Financial Engine and Personal Capital is that real life advisors cost money. The advice they deliver, moreover, is not easy to scale. That’s a problem for firms whose core service—automated portfolio construction—is under increasing price pressure. To avoid commoditization, Financial Engines and other hybrid firms will need to move out the advice value chain and automate decision making around complex areas like de-accumulation and wealth transfer. A human being can still filter or tweak the advice, but automation will be the way to drive scale.

Newfound financial freedom: pension reform update – what about the mass affluent?

Newfound financial freedom: pension reform update – what about the mass affluent?
Today I had the pleasure of attending the Wealth Briefing Summit held at the prestigious Guildhall Art Gallery in London.   The event consisted of 3 sessions and was led by a panel of industry experts who conversed about some of the most pertinent topics facing the UK wealth management industry today: pension reform,  digital solutions, and personalized portfolio construction. While each of these sessions were of interest to me, I found the pension reform “debate” (in quotes as this was much more civilized than the recent PM election debates have been) particularly intriguing. Clearly, one of the solutions to navigating through the new pension rules will be advice from a wealth manager. But, as we know, not everyone wants this advice or can afford this advice. So what are the mass affluent going to do? This was a question raised by an audience member (and a fair one at that). After all, everyone is entitled to a pension and will presumably need some form of guidance in light of the reforms.  I was surprised that not one of the panel members mentioned the idea of automated investment advisors; Nutmeg and insurers (who have created their own automated investment platform) have entered into the pension space. It’s a good thing we’re here (see our wealth management reports) …anyway, I digress. Perhaps this is an indication that automated investment advisors have barely tapped into the UK wealth management market, or could it be that the panelists’ firms are building their own robo advisor solutions, but are keeping this under wraps for the time being? Or, maybe traditional wealth managers are so out of touch with the mass affluent (we know this to be slightly true), that this question hadn’t occurred to them previously? This is a thought-provoking topic in my opinion, and one that I look to explore further in an upcoming report about the UK retirement market.    

FinovateEurope 2015 – 2hat’s in it for wealth management?

FinovateEurope 2015 – 2hat’s in it for wealth management?
Last week Celent attended FinovateEurope 2015, great place to hear about new technologies and what companies will be launching in the upcoming months. While usually the main focus is banking, this year we saw a number of initiatives from a wealth management perspective.   1. Personal financial management and money management– lots of technologies to target the retail investors 2. Client onboarding — improving the process 3. CRM – creating value with data at your hands 4. Video graphics 5. Social media/mobile 6. Crowdfunding 7. Security — data privacy 8. Gamification – using games to attract younger generations to save and invest   In summary, vendors are putting their efforts on a number of areas, focusing on both the advisor and the retail investor. And it’s all about enhancing the customer experience. Very strong focus on CRM and financial planning. We are currently covering and will be covering many of the areas above. If you are a vendor that is interested in briefing us on their solution in any of the categories above and you are targeting the wealth management industry, please reach out to us!

Newfound financial freedom – pension reform in the UK

Newfound financial freedom – pension reform in the UK
The UK pension industry will undergo significant regulatory changes in a few weeks’ time. From 6th April, millions of savers aged 55 years old will be permitted to take the cash from their pensions and will no longer be herded into buying annuity products.  Historically, savers had the freedom to take 25% of their pension in a tax-free lump sum, then were encouraged to buy an annuity with the remaining 75%.  However, pension reforms will now enable savers over the age of 55 to take out smaller lump sums (in each case 25% of the sum will be tax-free). The government has also changed rules around the 55% inheritance tax rate. What are the implications of this newly instituted “financial freedom” that impacts millions of Britons?  This historic change will bring about opportunities and challenges to the investment management industry and raise questions among retirees about tax consequences, suitable products and fees, life expectancy calculations, and wealth transfer and estate administration, for example. While these liberties provide retirees with control over their financial destiny, one must ask if they are adequately prepared to make the critical investment decisions that will impact the rest of their lives, as well as that of their heirs. Who is poised to help them? Perhaps this an opportunity for automated investment advisors and traditional investment managers to join forces (Nutmeg’s recent entrance into the pension space & “Retiready” from Aegon both come to mind).

How has the UK online retail brokerage market evolved over the past 12-18 months?

How has the UK online retail brokerage market evolved over the past 12-18 months?
The self-directed brokerage market in the UK continues to evolve in the post-financial crisis world. Investors increasingly demand transparency, competitive pricing, greater control over their investments, and multichannel account accessibility, while regulators impose stringent legislation with the intent to protect investors. Despite a challenging and volatile environment over the past several years, the self-directed market has shown moderate growth. In an effort to retain and attract retail investors, online brokerage firms continue to improve the client experience by enhancing trading functionalities and platforms, offering multichannel account access, deepening their asset class lineup, and developing innovative, tech-driven tools and solutions. The UK brokerage market is fragmented, with market entrants and “digital disruptors,” such as digital online advice and social trading firms, which are challenging traditional brokerage firms, while nontraditional brokerage firms have expanded into the space. In this report, Celent aims to provide an overview of the current UK online retail brokerage market with particular attention to digital strategy developments among firms serving the self-directed retail investor. Celent will endeavor to:
  • Segment the UK brokerage firms based on their client type.
  • Identify recent developments and trends to the industry.
  • Categorize retail investor product preferences.
  • Provide a breakdown of the various customer investor groups.
  • Size the retail investor market by approximating the current and future self-directed investor population and next generation of investors.
  • Identify the major market players and types of firms.
  • Highlight developments in firms’ digital strategies, including the online, social, and mobile channels.
  • Conclude with a prospective look at the future of the online brokerage industry, the growth of the various retail investor categories, and how online brokerages can differentiate themselves in the marketplace.
“In order to attract and retain clients, particularly NextGen investors, online brokerage firms should focus on building a robust digital strategy,” comments Ashley Globerman, an analyst with Celent’s Wealth Management practice and author of the report. “With the proliferation of the Internet, information and education, social media, and the affordability of smartphones, clients’ expectations are changing. As such, the enhancement of online trading platforms, mobile apps, and social media presence are critical features to develop in this fragmented market. For example, we are seeing the addition of social features and hybrid services, both DIY and advisor-led, among traditional brokerage firms.”

Sizing the retail investor market: an analysis of the Western European market

Sizing the retail investor market: an analysis of the Western European market
In the second of three reports that analyze the retail investor market, this report addresses six Western European countries with respect to their retail investor market, country’s overall economic health, regulatory drivers, and wealth management market maturity and sophistication. Celent will conclude by stating its findings on these six countries and in which of these countries wealth management solutions providers should focus their attention in the near term.  The other report in this series is entitled, Sizing the Retail Investor Market: An Analysis of the North and Latin American Markets and Sizing the Retail Investor Market: An Analysis of the Asian Market. The following countries are included in this report: France, Germany, Italy, Spain, Switzerland, and the United Kingdom. European retail investors are a diverse group with differing levels of affluence, investment knowledge, preferences, and expertise. Factors such as investor confidence and regulatory reform in the aftermath of the financial crisis and the ongoing European debt crisis are some of the many factors influencing the size and characteristics of the retail investor market. Since the financial crisis, there has been a mixed growth rate across Europe in terms of retail investor population. A few of the many factors contributing to the retail investor population growth rate include: cultural and historical views towards financial markets, loss and recovery of financial asset due to financial crisis, and more stringent regulations of financial markets. It is without question that the financial markets play a significant role in European household and personal wealth regardless of country (albeit to varying degrees). The other report in this series is entitled, Sizing the Retail Investor Market: An Analysis of the North and Latin American Markets and Sizing the Retail Investor Market: An Analysis of the Asian Market.  This series of reports will be available to subscribers in Q2 2014.

Sizing the Retail Investor Market – An Analysis of the North and Latin American Markets

Sizing the Retail Investor Market – An Analysis of the North and Latin American Markets
Celent’s upcoming report, Sizing the Retail Investor Market – An Analysis of the North and Latin American Markets, is the first of three reports that analyze the retail investor market. This report addresses four countries across North America and Latin America with respect to their overall economic health, regulatory drivers, retail investor population (including growth, breakdown, and investment preferences), and wealth management market maturity and sophistication. Celent will conclude by stating its findings on these four countries and its recommendations in which of these countries wealth management solutions providers should focus their attention in the near term. Celent’s other reports in this series are: Sizing the Retail Investor Market: An Analysis of Western European Market and Sizing the Retail Investor Market: An Analysis of the Asian Market. Celent conducted a broad preliminary study of North and Latin American countries and concluded that Brazil, Chile, Mexico, and the United States show the greatest signs of retail market growth due to their recent economic developments and potential opportunities for wealth managers and service providers. This report aims to provide firms with an understanding of the retail investor landscape across four countries in both North and Latin America.  Additionally, firms that provide services to a global client base may draw comparisons between the retail trading markets domestically and internationally.  Finally, this report will encourage firms to assess their strategic plans with a further understanding of the products and services offered to retail investors in the Americas. A sample of Celent’s findings include:
  • The percentage of retail investors of the adult population in Brazil, Chile, and Mexico are lower than the United States and Western Europe, however, the number of retail investors in these markets is expected to grow through 2014.
    • The emerging millennial women are positively contributing to the size of the self-directed investor population, particularly in the United States.  The millennial generation as a whole is generally more self-directed and tech-savvy.
  • The degree to which individuals’ assets were affected by the financial crisis varies per country; however, as a whole, investors continue to seek recovery of their financial losses from the financial crisis and will continue to do so as the global economy continues to improve.
  • Overall, there has been a balanced growth across customer segments (mass market through to upper high net worth individuals).
 

The European Retail Online Trading Market: Trends in Europe and the Nordic Region

The European Retail Online Trading Market: Trends in Europe and the Nordic Region
My upcoming Q1 report, The European Retail Online Trading Market: Trends in Europe, and the Nordic Region endeavors to identify trends in the retail online trading industry across Western Europe, Eastern Europe, and the Nordic region. The European retail online trading market remains dynamic in nature due to challenging economic conditions, stringent regulatory reformations, varying client expectations, and narrow commissions and interest rates. Retail investors continue to be a diverse group with differing affluence levels, investment knowledge and skills, and trading preferences.  Technology continues to play a significant role in how businesses will expand their existing client base and access new clients in the current environment. The following countries are included in this report: France, Germany, Italy, Spain, Switzerland, United Kingdom, Czech Republic, Hungary, Poland, Romania, Russia, Denmark, Finland, Norway, and Sweden. This report will begin with a market overview of the European retail online trading market, including market and technology trends, followed by market sizing of each of 15 European countries including a further segmentation of each country’s self-directed investor market.  Celent will then review investor product preferences and product availability, as well as channel development as it relates to digital strategies. This study examines the online brokerage market, looking specifically at drivers, technology, challenges and opportunities as they relate to retail investor online trading. Investment product preferences and availability across Western Europe, Eastern Europe, and the Nordic region vary slightly from one another due to cultural and historical investment preferences, sophistication of the country’s financial market and impact of the financial crisis on the market and investor confidence. Technology continues to play a significant role in how businesses will expand their existing client base and access new clients in the current environment.  With the proliferation of the internet and affordability of smartphones, the way in which clients prefer to perform banking or trading activities is evolving. Firms continue to outsource and partner with external vendors in the current cost controlled environment in which they currently operate. The continued enhancement and development of online trading platforms, mobile apps, social media presence, and social trading platforms are at the forefront of firms’ strategic plans. The degree to which European firms respond to these investor preferences varies between country and region.

Social Trading

Social Trading
This blog post, an abstract of Celent’s research note to be released in Q1 2014, will focus on the topic of “social trading” in Europe and the US, which is a method of online, self-directed trading where users connect with each other in an online setting to share investment knowledge and copy each other’s trades. With the proliferation of the internet, social media, and affordability of smartphones, the way in which clients prefer to perform banking or trading activities is evolving. The continued enhancement and development of online trading platforms, mobile apps, social media presence, and social trading platforms are at the forefront of firms’ strategic plans. Social technologies are an integral part of our lives and social generations are driving companies to realign their business strategies. Financial firms have taken notice of this overwhelming trend and have incorporated digital strategies into their agenda. Social trading platforms are relatively young companies, many of which began as brokerage sites and evolved over the past several years into network-only sites.  Over the past several years, social trading has become increasingly popular, a reflection of shifting attitudes of retail investors across generations and throughout Europe in a post-financial crisis world. Like any other firm, social trading platforms face challenges to their international reach and business models, such as regulations, building trust among its users, and near-term limitations to the retail-only market. What is Social Trading? Social trading provides retail traders with access to the financial markets and other traders of varying levels of expertise. Social trading incorporates relatively expert-led guidance, while the investor still maintains control of investment decisions. Where Does Social Trading Take Place? Social trading is a global trend, but for the purposes of this report, Celent will focus on the European and US markets. Below is a sample list of conclusions that have been drawn based on Celent’s research in the social trading space:
  • New business opportunities are emerging due to client demands.
  • Technology continues to plays a substantial role in how businesses connect with tech-savvy clients in a cost controlled environment.
  • Transparency is still of foremost concern to investors and regulators.
  • Social trading negates information arbitrage that traditional banks and traders typically hold over their clients and industry players by allowing members to share local knowledge.
  • Regulations around social trading vary between Europe and the US.

Online Not Just a Low Cost Service Channel for Mass Affluent Customers

Online Not Just a Low Cost Service Channel for Mass Affluent Customers
Recently, I have been seeing online portals and self-directed functionality migrate up the wealth ladder, from being a low-cost method of servicing mass affluent clients to becoming another service channel for high-value customers. This is a welcome development that will ultimately lead to better service and happier clients. Many firms may worry that by giving too much functionality to the end user, you are diluting the advisor’s value-proposition. This is short-sighted. The online channel is now developed enough such that firms can offer different levels and types of self-service based on various client segmentations. Self-directed investor functionality via online portal or mobile device for the HNW market can provide valuable insights into what the HNW investor is thinking on a real-time basis, which can drive informed and more frequent client-advisor interaction. Let me give an example: “Investor X”  just learned that his employer announced that annual bonuses will be reduced going forward.  Investor X is now worried that his financial plan does not consider a reduction in his annual income. Investor X logs into his online portal account, and uses the  calculators to adjust his expected cashflow. Once he completes this chart/calculator, the system asks if he wants to send this chart to his advisor; he clicks “yes” and his advisor receives an email alert. The advisor now knows, in real-time, that something has changed in his client’s life, and he now has the opportunity to reach out to his client and make product recommendations based on the new reality.  No longer does the advisor need to wait until his weekly call or monthly check-in to find out any new developments. In sum, the advisor has up-to-date information in real-time, and the client receives fantastic service. Ultimately this leads to better service and a happier client.