The future of digital investing: simple and “human” solutions
Let’s be honest, I don’t like to invest. If I have cash on my account, I invest it since I know the powerful effects of compounding and that I need to save money for retirement and to realize my future projects (and also since I am aware that deposits rates are zero or negative).
That might look surprising given my background and my job. I am probably in the top 1% of educated and skilled investors. Intangible money is cold and boring to me, investing becomes engaging only if I manage to connect it to my dreams and projects, just like AdviseOnly. I believe the reason why most people are not investing, is not only that they are financially uneducated, but simply that they are uninterested. Compulsive traders are the only people for whom investing is addictive, but for most of them it’s all about gambling.
The way I invest is quite straightforward . I generally go with bundled and diversified products (funds or ETFs). I select a macro asset allocation, possibly among the ones built by the AdviseOnly team. Then I implement my portfolio through an online broker and unless there is extraordinary volatility on the markets I do nothing for the next 3–6 months.
I do not want to spend time in the lenghty bottom-up process of selecting my stocks, bonds or other instruments one by one.
Going to dentist is important but nobody likes it, and when we do it since we need to, we are looking for 3 main attributes: rapidity, smoothness of the experience and effectiveness.
I have online accounts at three different banks and the only one offering a bundled digital solution (robo-advisory) is CheBanca with YellowAdvice. Most online banks offer only two options: you can build your portfolio by selecting financial instruments one by one, or you can contact a human advisor that will sell you his advisory service for a price and build for you an investment portfolio offline.
The promise of digital investing is to bring investments closer to the people by making them simpler and easily understandable by anyone. That should come with greater transparency, while bundled or structured investment productsin the past have been characterized by opacity and hidden costs.
Transparency to me doesn’t mean full disclosure of any single technical or legal detail of a financial instrument, but rather the investor’s right to be informed clearly and efficiently about
· Cost of a financial solution (including inducements)
· Level of Risk (information about the maximum potential los, liquidity and diversification)
· Suitability for different investors
I believe that the right to such transparency should be granted by Regulators in the first place.
Robo-advisors made a first move in the right direction by proposing simplified investment solutions with ETF portfolios, differentiated by level of risk, or goal-based, and better degree of price transparency.
Still there is a long way to go. Most digital investment services today seems to be a legacy of the previous non digital age, where financial products are the building blocks of the digital offering, rather than moving to a logic of “personalization and service”. Artificial intelligence and a smart use of data will certainly add a lot in this space, but there is a lot that can be improved today, with basic digital services, a decent portfolio management system, and some marketing expertise.
A few attributes that should characterize modern investment solutions are:
- Financial planning tools
- Continuous monitoring of risk
- Projection of investment behavior and adherence to a financial plan
- Personalization of cash-flows and coupons distribution
- Differentiation of the solution according to age and life priorities
- Nudging and behavioural finance features
- Personalized Alerts
Moving from financial products to investment solutions
The first thing to do, in order to design modern investment solutions is to make a step back from the logic of pure financial products and start focusing on investors’ needs.
When it comes to develop financial product or services, no matter how esoteric or complex they are , it is crucial to understand why certain features are developed. That “why” will get you to the actual benefits to offer to your consumer base. It’s the thing that will connect customers to your financial solution
If you want to simplify as much as possible the saving cycle, it is possible to focus on just two basic investment needs:
- accumulation of saving for the working age
- destocking of wealth into annuities(Income).
Then you need to translate such generic saving needs in the context of contemporary society. In fact the global crisis and the advent of the digital era completely reshaped our perception of money and the way we use it. The defining attributes of money and wealth in the digital era are mobility and flexibility.
Surprisingly enough, very few financial institutions are considering that in building their digital investment offer.
Most financial institutions seem to target the youngest generation, but they focus on the way the young use money and debt, which is of course digital, and not on why they use money, and what for. This create some disconnect. It is how we live our daily lives that affects the way we perceive and use our money.
Focusing on the benefits of financial products not on the technical features
When developing financial products, banks should work to create features that respond to their customer’s needs. However, most everyday investors and customers, don’t buy product features, they buy the benefits such features involve.
When you choose an ETF or a mutual fund, you are not buying the detailed information contained in the prospectus, you buy benefits like simpler portfolio diversification, liquidity, professional management and lower investment costs. Similarly, when selecting a pension scheme, you are not looking for some precise and sophisticated technical feature but for a solution to help you plan for retirement.
Such approach makes marketing much easier. It’s the actual benefit investors get, the thing that will connect them to a financial solution.
To make a step forward you would need to convert benefits of financial products into emotions. Financial products are not fun, but useful and financial product features can be translated to benefits that are compelling to customers. If you manage to convert those benefits into emotions even boring financial products will be able to engage end-users.
Riddle: why people prefer playing Pokemon Go to digital Investing?
The answer is quite simple, the modern consumer in the digital age.
1. Like visuals
2. React to simple images
3. Connect with basic human emotions
4. Respond to concepts that are easy to undersand
Unfortunately investments are difficult to visualize, difficult to explain and difficult to stir up emotions. But even if they are unlikely to get viral as a concept, I believe the can get much more engaging than they are right now.