WealthTech Insights #27 with Josh Book: Build, buy or partner? How tech engages with wealth management

Continuing the dialogue with WealthTech influencers, we spoke with Josh Book, founder and CEO of Canadian ParameterInsights, and discussed what’s trending in the market as well as the future of the industry.

Josh Book
CEO of ParameterInsights.

ParameterInsights is a data-driven research and advisory company focused in particular on the financial services sector and FinTech.

Major trends

There has been a rise of automated portfolio-management platforms that offer increasing ranges of wealth management services and capabilities beyond traditional tools deployed by advisors. These digitally led advice platforms are evolving from just automated portfolio construction and management. One example is a Canadian upstart called Planswell, that offers financial planning and makes use of account aggregation and “gamifies” saving and planning in the digital channel. We expect to see firms increasingly make the digital channel more engaging for investors to track their investments against goals, transfer in and contribute new money to their accounts more easily, and track the performance of their investments more transparently net of fees.

Another trend is the big incumbent firms mobilizing on their own product launches. In Canada, there is SmartFolio from the Bank of Montreal who were first to the market in 2016 and RBC, which have “soft” launched their own automated portfolio service called Investease making it available to employees and customers. Then, in the US, Wells Fargo has come out with Intuitive Investor and Bank of America Merrill Lynch has introduced Edge Guided Investing. Furthermore, we’re seeing the incumbent asset managers traditionally focused on wealth product manufacturing begin to mobilize around digital distribution strategies as well. Examples include Vanguard and Fidelity in the US, while in Canada Invesco has launched a service called Advisor Duo, which is tailored specifically for the independent wealth advice businesses.

“The entire wealth management category is evolving – with the main driver being digital.”

Building consumer awareness of wealth management is another concept that needs to be addressed. The fight for the existing kinds of assets under management is one part of the equation, but digital and automated platforms provide an opportunity for the masses to engage in wealth management and access markets and services that previously haven’t been available to them.

“People don’t understand financial services; the wealth management category has generally been an opaque and confusing landscape for consumers.”

From a technology perspective, these platforms are not groundbreaking, earth-shattering “innovations,” but what they’ve done is democratized a great deal of the “value” provided by wealth management services by making parts of it cheaper, more transparent, and simpler by using automation and digital business models. However, the population hasn’t yet been meaningfully engaged by these alternatives. Our research shows that even category awareness for “digital wealth services” or so called “robo-advice” has hardly moved up over the last 12 months.

Incumbent and upstarts alike need to find more creative ways to engage consumers in ways that call them to action. Saving and investing for the future has never been cheaper, easier or more transparent. This is a story that needs to be explained to the person who earns a good wage but has little investment assets and until now somewhat disillusioned by retirement saving if they even give it much thought at all.

The old models we’ve seen of product or service deployment in financial services of “build it and they will come” is no longer a recipe for success. Many of these firms have been built up over many decades either to deliver or to manufacture financial services or wealth-management products to customers in a certain way.

Today, the challenge is that the traditional approach is no longer necessarily the way to move forward. Thus, a lot needs to change to not only optimize or modernize service offerings with, for instance, digital tools, but also to reconsider business structures and deliver these products and services new ways. For example, firms must continually be analyzing data in order to engage customers in increasingly customized ways. Simply modernizing a client on-boarding experience to reduce administrative burden, while an important first step, is really only a table stakes development.

Capabilities required by digital wealth management

Performance reporting is essential for a new-era wealth management offering.

“Business models will need to adapt to these new and more modern ways of executing the business.”

As alluded to, personalization of services will play a key role, whether that’s going to be highly automated, digital, and hands-off, or a combination of automated processes and reporting, gamification, etc., with some form of human support or a chatbot. Data and analytics will be the main instrument to help wealth-management players understand clients needs more quickly and be able to respond in ways that drive engagement, optimal client behaviours and satisfaction.

Some clients may need or demand more traditional or human led touches. On the other hand, clients might just want a monthly text message update saying “You’re on track.”

“Being able to deliver these things precisely in for the ways a particular individual demands or desires is the innovation that firms should be striving towards.”

Servicing high net worth individuals and retail investors

There’s a fundamental flaw in categorizing or segmenting consumers according to the traditional industry approach—that is, around asset sizes, and that this asset size equates to the type service demanded aka human led traditional advice. There are certain levels of “wealth complexity” that come with more assets and later life stages that currently can’t be delivered exclusively through digital. Though the “platform” driven advice firms are moving up the curve of complexity to be sure.

“[Understanding what] consumers want, and how they want it, is challenging.”

Retail platforms need to capture as many consumers as possible in the ways that those consumers want to be engaged. This can start at the low end of the spectrum with basic and automated portfolio management, with more services added as more and more data is gathered which helps reveal how individuals want to be engaged by their advice provider.

For instance, Betterment’s Daniel Egan engages in some interesting behavioral economics analyses in which he studies client behaviors to begin to decode what drives certain client behaviours and the most optimal ways to intervene in ways that optimizes that behavior while also driving the experience positively. However, Josh notes that they need to look beyond their own clients, since these represent an already captive audience. If the platforms can find ways to make it more compelling for individuals to delay unnecessary consumption purchases for, say, shoes on Amazon and reallocate those dollars by clicking through that $100 into their wealth account for future consumption we will see the winners for assets emerge.

Active and passive management capabilities in a digital-advice platform

Josh mentions that active management entails a human being who is using his/her judgment to select components of a portfolio that can be delivered to the client, whereas passive management makes use of index funds and ETFs to give exposure to broader markets.

Modern platforms make use of a passive strategy; however, that doesn’t mean that some forms of automation in combination with active management can’t be added on top. The passive strategy doesn’t comprise robo-advisory only, or truly automated portfolio management; while many aspects of it may be automated, the underlying component is run by an active portfolio manager.

“There is an opportunity at least within digital platforms and tools to deliver portfolio management in all the ways that we know today.”

Large-investment management and FinTech collaboration

According to Josh, there are three possible ways in which these categories of market players engage: build, buy, or partner. Most appear to be either buying or partnering, which makes sense because they don’t yet have any expertise to innovate in a digital way, and there are plenty of firms that have a head start at least on useful technology platforms.

As incumbent wealth advice businesses evaluate these three choices, there is an interesting dichotomy between SaaS firms and upstart tech firms willing to white label their platforms.

The upstart tech platforms were for the most part born out of a direct-to-consumer idea and have experience in delivering digital solutions. This offers great benefits to partners or purchasers, because the solutions are much more out of the box. The challenge is that smaller firms don’t have experience working with large enterprises, and the implementation process can be challenging in different ways from the SaaS providers as these agile, flexible upstarts deploy in more complex and big corporate structures – so it’s about managing expectations.

“It’s like a dance, with firms generally selecting a vendor, whether it is an enterprise software provider or a platform that offers a white-label solution. That is how they’re migrating the technology.”

On the flip side, the SaaS providers don’t have as established a tech platform and require tremendous customization into the incumbent business. Josh sees this as a challenge for clients seeking to transition their entire business models towards digital, mentioning that it’s not just something that can be unwrapped and implemented, like an SAP or CRM solution or office software project, since it really is changing the way these businesses need to operate. So the burden comes to the client to make choices about a digital business model without much experience in digital.

“They’re going to partner and buy, because building is very challenging.”

ParameterInsights’ data collection and use

ParameterInsights delivers syndicated and custom research that make us of scientific and reliable data and insights to help managers make informed choices. The main objective for the company is to understand the interplay between consumers and suppliers in the context of the evolving wealth management category as digital services proliferate.

“We got a question three years ago around this assertion that digital wealth was going to take over every millennial dollar.”

The assumption within Josh’s quote is that age is the key driver for the propensity to consume wealth management in these new ways; according to Josh, this assumption is not true.

ParameterInsights tries to understand the components, behaviors, and feelings of consumers that will resonate (or not) with these types of wealth offers. The company has built a consumer survey data product and algorithms into social media as a proxy to understand, at very fine intervals, the discussion about the wealth-management category to better understand what drives discussion and awareness, and use that to understand consumer behaviors as inputs to their research to help managers refine product and market strategies.

ParameterInsights has a parallel advisory business that helps companies in their specific context as they’re thinking about digital strategies and trying to build their digital capabilities.

Leading market players

Josh feels that companies that are trying to differentiate based on the elegance of their platform or the user experience perspective, or even the breadth of their service offering, will only face short-term gains.

“In a pretty short period we’ll be able to achieve almost anything from a wealth-management perspective in one place through digital.”

One of the biggest findings of ParameterInsights’ research pertains to awareness, as few people have basic familiarity with digitally led wealth management—indeed, this is the biggest challenge for the market. An iconic example of a company getting traction in Canada is Wealthsimple, which also operates in the US and the UK. Wealthsimple scores very high in brand recognition. Additionally, Josh states that measuring success at this early stage by assets under management is not the right metric to consider when evaluating the strength of a particular company:

“That is not the way to measure it just yet, or to measure traction, because of that awareness conundrum.”

In addition to Wealthsimple, Josh names other firms that are ahead of the curve, such as NestWealth and WealthBar in Canada, and Betterment and Acorns in the US.

Future of wealth management

“We’re at the very beginning of thinking through these implications of digital and business models, how to deliver better or build [up] new products [and] services, as well as distribution channels.”

Josh emphasizes the need to modernize traditional practices in wealth management. In the longer run, once basic capabilities have been developed, the battleground will change; to win, firms will need to invest and spend time on the data, analytics, and “plumbing” behind their offering, as well as being more agile and able to provide the most unique and pleasant experience to the broadest range of customers.

The next five years will bring the rapid development of new, modernizing capabilities of existing business processes. It will be the firms who innovate using data and different tactics of engagement to drive awareness to the category of wealth management, and move customers into more, better margin businesses that will end up winning in the long run.


Interviewed by Vasyl Soloshchuk, CEO and co-owner at INSART, FinTech & Java engineering company. Vasyl is also the author of WealthTech Club, which conducts research into Fortune and Startup Robo-advisor and Wealth Management companies in terms of the technology ecosystem.

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