How do you attract multi-billions of pounds in assets from consumers that don’t trust the industry you belong to, don’t know what a ‘robo-adviser’ is, don’t recognise the name of your firm, find it difficult to find you in a search engine, and have yet to try – let alone trust - this new robo-way of investing their hard-earned money?
Or put simply - who trusts their life savings – or even a reasonably large sum of money - to a faceless, an unknown ‘robot’?
The answer, of course, is ‘Not many’. At least, not today.
Recognition and trust in a brand is hugely important - a massive 89% of respondents to recent Altus consumer robo-research claimed these attributes as ‘very’ or ‘quite’ important.
Some robo firms have recognised that when you have no history, no brand recognition, no scale, and few customers, building a scale business by only targeting the end consumer is an expensive and difficult business – diversification is key. Diversification by target market, by breadth of product and service offering, by route to market.
First generation robo survival tactics
For many small disruptor tech / investment firms in the UK, the most obvious survival tactic is to position themselves to be acquired, or convert to a B2B model (aiming to become the outsourced white label solution for adviser firms, banks, building societies, platforms and / or life companies looking for a lower cost, accelerated entry to the market).
It’s just a matter of time of who buys who, who partners with who…. First mover advantage to date to Schroders (investment into Nutmeg,) Aberdeen (proposed purchase of Parmenion), and LV= (acquisition of Wealth Wizards).
This follows what we have already witnessed in the States. Betterment (one of the more successful robos with AuA of c.$3bn), has still seen the need to diversify and has launched a retirement-focused proposition and Betterment Institutional, while a host of other firms have also developed an institutional solution, such as FutureAdvisor (purchased by Blackrock), SigFig, Schwab, Jemstep, Trizic, and Hedgeable. And some of these firms are now also looking internationally to broaden their reach.
Another key finding in our research is that robo customers will drip feed (not invest) up to a maximum of 24% of their overall savings with an automated investment service - 42% of respondents overall and 55% of the over 55s (not dissimilar with figures from the States where Jon Stein, Betterment CEO, has stated that most of his clients allocate between 10% to 20% of their portfolios to Betterment). Evidencing the credentials of the brand, targeting higher value customer segments, and broader product strategy to encourage higher-value savings are all key strategies to increase this percentage of overall savings.
Big brand opportunities?
But what about the established players in the UK, the Big Brand financial services organisations? Surely they – many with tarnished reputations following decades of misdemeanours – are not trusted either?
While there is an undoubted mistrust across the financial services industry, the advantages of the Big Brands are clear: they do have history, brand recognition, and (despite the ‘scandals’) are still recognised as competent and safe. And, significantly, they have ‘reach’: hundreds of thousands – and in some case, millions - of existing customers. Yes, they have scale, and plenty of it!
It takes time for consumers to trust new players in a market. In our recent Altus consumer research we found that well-established firms such as banks and insurance companies are still considered ‘most trustworthy’ by over 55% of all respondents, more than three times as many as the next most popular answer. Across all age bands the new tech-driven start-ups didn’t fare so well, (registering just 1.6% of the overall vote), confirming it will be a hard slog – at least in the short term - for many to attract sufficient clients to make a sustainable profit.
The Big Brands cannot be complacent though. Despite having a very loyal following, particularly in the older 55+ segment (62% support), this position will undoubtedly be eroded over time, our research identifying that the 25 to 34 year old segment had an almost equal preference for well-known, non-financial services brands (retail stores and technology / social media) as they did for the well-known financial brands (42% vs 45%). Watch out for the Digital Giants, acquiring or partnering with world class fintech organisations, or established, strategically complementary, firms. More on this in a forthcoming white paper.
Does all this suggests that the new kids on the block, the Digital Disrupters, are on a hiding to nothing? Well, for many, this will likely be the case – the VC money will run out long before scale and profit make an appearance. Diversification for these players is key.
And meanwhile, watch out for new entrants – the Big Brands vs the Data Giants - the robo market is set to witness the Clash of the Titans.
Part 2 of this article considers the key marketing strategies – both digital and traditional - of the first generation robo-advisers - either to target the D2C end-consumer, or alternatively, potential B2B partners.
Can they fend off the established brands now waking up to the robo opportunity?