Euro Robos Set Sights on American Shores
The battle has well and truly begun in the cyberwar for the souls and the pockets of American investors, but while U.S. firms have so far taken the lead, European contenders are quietly building their strategies, with a view to a different kind of an American invasion.
Like American firms such as Betterment and Wealthfront, Europeans are developing "disruptive" technologies. But unlike their U.S. counterparts, the majority of these start-ups are not looking to draw clients away from incumbents. Rather, they are developing tools that will keep the humans in the game, pitching their wares to existing client relationship owners, including financial advisors, wealth managers and private banks.
“If robo-advice was the most popular theme, personalization struck me as the most important one,” blogged Benjamin Ensor, a research director at advisory firm Forrester, after a tech conference in London last month.
The Finovate Europe conference, which pitted financial technologies against each other, suggests European offerings are focusing on consensus and collaboration, attempting to bridge the gap between artificial intelligence and human interaction.
In the U.S., having been caught flat-footed by the first wave of now-established robo-advisors, traditional investment intermediaries have fought back, with large firms such as Charles Schwab, Invesco and BlackRock putting new tools in the hands of financial advisors.
Automated platforms evolving
The initial robo-advisor combination of low fees, algorithm-driven vanilla investment options and intuitive web-based functionality – seen as a cost-effective, scalable way of meeting low-level investment needs – has long since acquired higher levels of sophistication.
Newer features – Value at Risk (VaR)-based risk management, performance tracking, live consultation – deployed in the battle for the mass affluent have also convinced many that robo-advisors can play a key role higher up the wealth management spectrum.
Yet sampling the European robos on display at Finovate in London suggests the key to success for robo-advisors in the high net worth realm depends on artificial intelligence delivering personalized service on a cost-effective basis to a client sector that has responded to the uncertain returns of the post-crisis world by pushing back on fees.
Geneva-based InvestGlass, which already white-labels to Swiss private bank SYZ Group, delivers functionality which supports – not supplants – the existing relationship, its offering built around automated onboarding, portfolio optimization and personalized investment advice.
Claiming to be the first robo-advisor for the professional investor, InvestGlass launched its "Leads" functionality at Finovate Europe, which uses AI to optimize sales opportunities.
According to the firm, Leads learns from and responds to factors including client contact frequency requirements, preferred investment themes, financial behavior, ineligible securities and contact relevance.
CEO Alexander Gaillard asks: “Before you call your client, how do you know your products are suitable?”
InvestGlass not only tells the advisor who to contact about a new service or investment opportunity, but who to contact first, and how to approach them.
As well as providing details about existing portfolio performance and risk appetite, a customized client profile uses social media-type tags denoting tax status and eligibility to help the advisor assess suitability, as well as the topics to mention and avoid, based on past communications and platform usage.
“InvestGlass helps the advisor to build the investment case for the individual client, based on signals, then creates and delivers a customized proposal,” says Gaillard.
Formed in 2003, Amsterdam-headquartered Backbase last month announced its expansion from retail banking (where clients include GE, Barclays and ING) to wealth management with the launch of the latest version of its Digital Banking Platform, designed to help private banks and wealth managers create interactions which “boost engagement, resulting in increased retention, larger share of wallet and happy customers”.
Like its existing solutions, Backbase claims its "wealth management accelerator" can provide a unified cross-channel user experience; seamless for customers but trackable by intermediaries.
Again, the focus is on personalization, from multiple portfolio views (e.g. by total net worth, performance, allocation); range of assets managed and client-advisor communication options (click2chat, click2call, video conversations, etc.); to a variety of news alerts, research preferences, account views, transaction drill-downs and money transfer choices.
In addition, it uses client information to automatically offer specific types of financial planning for key life events, either to personalize communication from the intermediary or on a self-service basis.
Head of marketing Jelmer de Jong believes smaller wealth managers risk losing out to larger operators in the digitalized market unless they acquire the tools to compete at scale: “The success of Betterment shows banks dropped the ball but now they’re waking up – and catching up.”
Investors have grown used to consumer services that offer recommendations based on user input – such as Netflix and Amazon – and will expect the same from their financial advisors, he adds.
“Just like Netflix recommends films according to your prior choices, so our platform adapts to your behavior. We are enabling the service provider to accommodate customer preferences,” says de Jong.
Alongside these, two German robo-advisors – Scalable Capital and Investify – are also beginning to stake their claim in the high net worth market. The first is offering VaR-based downside protection. The latter is banking on advanced risk-profiling, variable convenience levels (i.e. likelihood to intervene in portfolio) and use of broad themes to adjust investment strategy.
Pros and cons to European approach
Yet the white-labeling approach espoused by these European robo-advisors has pros and cons. On the one hand, partnership can open doors at banks that hitherto viewed fintechs with suspicion, paving the way for global distribution of a solution, backed by deep resources and multiple client relationships.
On the other, as Aite Group consultant Virginie O’Shea blogged recently, collaboration-minded fintechs must “still undergo rigorous financial scrutiny and risk assessments” to prove they can make it in the big leagues.
InvestGlass’s Gaillard says a critical element of this collaborative approach between fintechs and financial intermediaries could potentially be easier in Europe – and especially in the U.K. – where financial regulators are pushing a shift to open application program interfaces.
Open APIs make it easier for third-party bolt-on services to be added easily to core banking systems, offering a visible audit trail and a basis for revenue sharing.
In this paradigm, banks switch from being manufacturers and distributors of financial services to trusted online retailers.
“It’s about mass customization – delivering what the client wants, when they want it,” he says.
Some banks are beginning to open their software and data to third-party apps, but open APIs have not yet taken off more widely. This might hamper the collaborative approach of the European robo-invaders but it is not likely to stop it.