Many quants and poets, over the years, have tried defining ‘Robo advice’. So, we felt the need to add our small definition to the list as well. So here is our version –
‘A Robo Advisor is any automated investing or financial planning solution, that takes into account a client’s circumstances and delivers suitable, appropriate guidance helping them achieve their life’s financial goals’. Settling on the above definition, we are not afraid to use the term “Robo Advisor” on our website. Although, given a choice, we would prefer using ‘Automated Investing and Planning’ instead.
So the way to move forward would mean shifting from an acute product-focused mindset to delivering automated, digital client-centric solutions. As far as we see, this strategy is likely to become the norm for all retail-focused financial services firms in the future. Assuming you concur, we are excited to tell you how you could launch your client-centric Robo-advisor.
Firms can move forward in any one of the following ways:
Building Solutions In-house
Firms such as Charles Schwab and Vanguard launched their Robo advisory platforms by building the solution in-house. However, most firms usually take quite a while to build competent digital products primarily due to arduous internal processes. While efficient companies do build solutions in-house, most are vulnerable to operational risks of failure, and when the work takes a long time to get to market.
In our view, all Tier 1 firms start with this thought process, quickly realising the various bottlenecks associated with such deliverables. Also, a company’s culture could be such that innovation gets stifled. This, in turn, could create tremendous difficulty for the company to stay competitive and in tune with customer trends. To keep up with changing customer trends, companies should launch digital propositions at a faster pace. However, most firms have minimal know-how to move forward at the necessary speed. They would thus need the talent, technology, and capabilities of FinTech firms, a fact which they have come to recognise gradually.
Buying Innovative Start-ups
Larger Institutions have numerous products and offerings across digital channels. Acquiring another FinTech firm allows them to innovate on their digital journeys and get a leg up on the competition. In the last few years, we have seen many acquisitions in the Robo advisory space – Invesco acquired Jemstep and Blackrock acquired FutureAdvisor. These acquisitions made it possible for these institutions to deliver client-centric advice in innovative ways. It is interesting to observe that all these acquired start-ups had completely different business models. But the suitors managed to find value by figuring out how to use them for their specific needs.
Acquisitions do help large institutions enter new markets with new technologies, but M&A deals are very capital intensive. Also, one of the critical post-acquisition challenges is retaining the acquired firm’s culture of innovation within a large organisation. Disparate company cultures are a common cause for the acquisition failing to realise its full value. Some companies have now started taking a partnership approach to investment, providing necessary independence to the acquired. Such partnerships help companies align their goals and work in collaboration, keeping the culture of innovation intact.
Collaborating with B2B Fintech Start-ups
Incumbents, who get into partnerships with open, agile and innovative B2B FinTech start-ups having no conflict of business interests, can go to market faster and in a significantly cost-effective way without losing out to their competition in today’s digital race. At another level, often blindsiding the incumbent, a form of competition comes from small and innovative B2C Robo advisory firms. These are the ones who are slowly starting to gain the trust of customers. It could only be a matter of time by which these small firms would become part of the trusted establishment. Once these small start-ups reach that stage, they would be hard to stop. Those who refuse to transform their strategy in this digital age to address the oncoming competition would find themselves on a downhill trajectory.
So, all institutions, irrespective of size, should leverage the capabilities and technologies available with Fintech firms. This partnership would help them gain a competitive advantage, stay relevant, and grow fast across segments. Today, seamlessly integrating propositions driven by APIs are assisting institutions in creating a superior online offering quickly. Such a proposition enhances the institution’s ability to serve and retain clients by providing them with the best digital experience possible.
At WealthObjects, we think it is best to collaborate with B2B Fintech firms, understand each one’s role in the relationship and respect each other’s strengths. Partnerships, where both firms add value and do their share to build the growth story, are the ones that are genuinely successful in the long run. What we suggest here is nothing new; in fact, firms have been collaborating all along, in various forms as seen in supplier, investor, or joint venture relationships.
So this is not the time to stall. The entire financial services sector is experiencing a journey through unbundling and disintermediation. All existing business models are on the verge of disruption or are already disrupted. The need for collaboration is greater than ever.
Let’s start collaborating, and can create more value together!
– Team WealthObjects