Product for the Times

This month, it was reported that Chime had closed a $485 million capital raise. The financing gave the digital bank operator a valuation of over $14 billion making it the most valuable capital-backed consumer fintech company in the U.S., edging out trading platform Robinhood. 

Catalyzed by the global pandemic, the popularity of Chime is in part a testament to the public’s growing reliance on, and trust in, electronic platforms as a means to access professional services. But, beyond its “works from home” convenience, the Chime brand reflects a broader set of features especially appealing in our new virus-defined normal.

Chime fits the bill for a social-contact deprived customer inclined to appreciate a company that seems genuinely concerned, relatable and client-centric. Chime’s stated mission to make financial peace of mind a reality for everyone is explicitly communal. Chime is built on the principle of protecting its members, making managing money easy and never profiting from customers’ mistakes or misfortunes. The promise of this mission is reflected in the following service features:

• Chime is almost completely no-fee banking. Chime makes money not from the customer, but from third-party firms like Visa who compensate Chime for transactions

• The Chime app allows customers to get paid up to two days early when they use direct deposit

• There are no minimum balance requirements, and the 1.00% rate on savings is well above the national average

• Saving is assisted by automatic purchase round-up and payroll savings functions as well as various account alerts

As the Pandemic wears on and people’s behaviors and sentiments adapt to new realities, we expect that consumer fintechs will increasingly project the type of relationship-centric brand evidenced by Chime, which promises electronic customers a safe and trusted social haven where they can transact business as respected and appreciated members rather than anonymous account numbers.

Finding the Right Advisor

In recent years, an increasing number of fintech referral platforms have been created to help investors find the right financial advisor. Examples include SmartAsset, Wealthramp and Positivly. These platforms ask prospective investors a series of qualifying questions, then align these investors with advisors who ideally are equipped to serve them.

In most cases, questions focus on the basics: age, income, investable assets, risk tolerance, retirement focus, comfort with and knowledge about investing, service requirements and location. However, some firms are trying to create more nuanced prospect profiles that will allow for enhanced alignment with advisors and ultimately a deeper advisor/client relationship and more customized client experience.

Positivly, for example, bases its referral service on what it claims to be the “world’s first financial personality test.” The test probes deeper into prospect’s psychology as it relates to investing, focusing on four primary components: 

Purpose  to what degree the investor is motivated by a deeper sense of meaning or purpose
Security – to what degree investments are made to provide physical security and peace of mind
Touch – how investing is tied to meaningful relationships
Viewpoints – how investing serves a need for intellectual satisfaction of getting things right

Unfortunately, Positivly offers little information regarding the scientific basis for its approach. However, we believe the firm is representative of a trend in fintech to develop richer and more meaningful client profiles. These move beyond simple risk tolerance to more behavioral models that can be instructive in client management, service, investment selection and portfolio creation.   We keep an eye on these referral firms to track innovative developments in their approaches to client profiling and to measure their success as viable referral engines for advisors.

Active Still Not Rebounding

Some observers have pointed to the volatility of the market this year as an opportunity for active managers to regain some of the ground lost to their passive competitors over the last decade.

July data from Morningstar did show some interest in active plays in sector funds, but overall investors have continued their avoidance of actively managed equities. Of the record $45.5 billion in estimated net outflows from U.S. equity funds in July, nearly 60% were accounted for by active equity managers. The picture was worse for international equities. Outflows from active international funds in the month were five times those from passive vehicles. Companies hardest hit included American Funds, Invesco, DFA and Fidelity.

It’s worthy of note that on a trailing 12-month basis, actively managed U.S. and international equity funds have lost a substantial $334 billion, while passive funds in the same classes have grown by a net $73 billion.

While renewed volatility is likely going forward, the broad market has recouped most of the losses suffered early in the pandemic. This gives added support to the “buy and hold” crowd as well as to the index investors that had the fortitude to stay invested. It’s likely that if active is to make a comeback, it will probably have to wait until next year and will depend in large part on any relative performance gains sustained through 2020. 

When Cash is no Longer King

With the prolonged global low interest rate environment, the attractiveness of cash holdings for wealth management firms is also at an all time low. UBS Group AG, in fact, announced yesterday that it is increasing fees for “international wealth management clients located abroad and holding deposits in Switzerland” in the face of persistent low/negative interest rates.

Beginning in 2021, the bank will charge 330 Swiss francs monthly for those not living in Switzerland on cash deposits of 500,000 francs or less. That is the current approximate total annual fee for that level of cash deposits, so this represents a twelve-fold increase. The goal is to “encourage” clients to move cash into longer-term investments. Other Swiss banks also have fees in place to offset the costs of negative interest rates. Credit Suisse charges clients on deposits of more than two million francs/one million euros.  

U.S. private banks and other wealth managers, at least for now, still consider client relationships based on overall assets and have not disaggregated the cash portion of a client’s relationship for fee purposes. It is possible, however, that the “lower for longer” environment could drive private banks to do so. One could, of course, argue that motivating investors to put their funds to work to achieve long-term goals is a good thing, but there are more collaborative, educative ways to do so. 

For RIAs and other wealth management firms that take a holistic approach to looking at a client’s total financial picture, this represents an opportunity to engage in positive dialogue regarding the impetus for UBS’ move. While the end goal of holding less cash may be common for all organizations and their clients, the means by which they accomplish this move can be a relationship-building move for those that do it in a client-benefits oriented way.

Teddy Bears at the Gate

Wall Street firms are not historically known to be the overly sensitive, “touchy feely” types. Anyone who has read the book “Barbarians at the Gate” might assume these firms would be the last to adapt to changing employee needs brought on by the pandemic. It appears, however, some of these same firms may be leading the way in providing accommodations to employees who are now working from home.

According to FundFire, KKR, Blackstone, Carlisle Group and others have implemented a number of progressive programs to support their employee base working from home. These programs include expanded family leave and flex time programs, as well as resources to help work from home parents navigate their work and parenting responsibilities more effectively.

According to PwC’s U.S. Report Work Survey, almost 70% of financial services workers expect to have at least 60% of their workforce working from home going forward, up from just 29% of firms expecting to do so prior to the pandemic. Clearly, financial services firms need to reconsider the support they provide to their work from home employees. The PwC findings below point to a number of important areas that work from home employees feel will enhance their productivity.

It remains to be seen what additional accommodations financial services firms will bring to the table to support their work from home employees. But it’s encouraging to see a number of firms stepping up their efforts to support their workforce during these trying times. In addition, this represents an opportunity for financial services firms to evolve their brands to incorporate this new sensitivity. A brand that recognizes a changing environment, employee considerations and the need to provide the resources needed for their company to succeed will enhance both new business development and recruitment of top talent. 

Sniffing Out an Engaging Client Experience

If you’ve ever bought or sold real estate, you may agree that the way to a homebuyer’s heart is through his or her nose. Baking cookies just before a showing is a realtor’s trick of the trade, generating a warm scent that lingers and triggers feelings of joy and hominess that can potentially inspire a bidding war.

There is a lesson to be learned from this tactic. When building your financial services brand, it’s not only curb appeal that counts. While the visuals, including your logo, color palette, and imagery are critical for a strong and unified brand, the other senses should be considered as well when mapping out the client experience. 

A holistic approach to marketing appeals to all the senses, including:

Smell. According to the American Marketing Association, exposure to pleasant scents (like the smell of warm cookies) can substantially increase customer satisfaction and have a positive impact on mood, intentions and behaviors.1 In fact, some financial services organizations have introduced signature scents in their physical locations to reinforce their brand, elicit desired emotions and help them connect with customers. 

Sound. A sonic logo amplifies brand recognition and helps define who you are. For example, last year, MasterCard introduced its sonic brand, a melody played with each customer interaction. Sound has become increasingly important in today’s world of virtual communication. You can use a sonic logo to introduce webinars and podcasts, on mobile applications, and as phone hold music to set the tone for your brand.  

Touch. We email, text and tweet for efficient, speedy and convenient communication. However, sometimes a tactile experience is best. A printed piece is more likely to be noticed and deemed important. Many advisors print wealth plans for this reason, as well as to encourage clients to refer to them over and over again. 

Taste. Business professionals pitch prospects and build relationships over a meal because breaking bread with others engenders familiarity and trust. Social events (even a Zoom cocktail party) creates a more relaxing, low pressure environment, and adding food and beverages into the mix can help make you more persuasive and your listener more receptive.2

1Press Release From the Journal of Marketing: Does Smell Sell? How Ambient Scent Improves Shoppers’ Mood—and Spending, American Marketing Association, November 6, 2019.

2Five Ways Buying Lunch for a Client Makes You More Persuasive, Entrepreneur, January 27, 2017.

Short-term Pain, Long-term Gain

2020 may not be the year global asset managers envisioned, but it’s unlikely to affect long-term growth prospects according to analysis by Cerulli Associates. In addition, compared to the outlook in March, the outlook is much less bleak than originally projected. 

Cerulli projects that global assets under management (AUM) will decline by $1.7 trillion in 2020, falling from $104.4 trillion (end of 2019) to $102.7 trillion. While a decline of less than 2% may not seem significant, especially given the extraordinary circumstances of this year, it does mark the first decline in global assets under management in over a decade. Declines are expected to occur primarily in the U.S. and Europe. 

However, Cerulli also believes that the long-term growth trajectory of asset management is positive and will be driven by rising demand in developing countries. The firm expects global AUM to top $130 trillion by 2024, representing a solid annualized growth in the 8% range. 

It will take some time for investors to feel comfortable again, and more conservative investment behavior, including increased liquidity, particularly given current overall bond yields and the yield curve itself. This will likely come at the expense of equity investments. 

The lesson for asset managers is three-fold. First, things are not that bad, and, not nearly as bad as projected earlier in the year. Second, is that asset managers need to be aware of and responsive to potential short-term shifts in risk attitudes and subsequent investment preference. Finally, asset managers must take the same long-term view that they recommend to their institutional and retail clients and resist reacting emotionally to the markets.

The Pace of Change

A recent Broadridge survey of North America’s financial advisors had some relatively dramatic findings. 

In the context of fundamental changes to client relationships catalyzed by the environment resulting from the pandemic, 77% of financial advisors said they lost business as a result of not having the appropriate technology tools to interact with clients. Those that lost business reported an average drop of a substantial 22% of their book. A full 87% of advisors reported that they thought recent changes in investor communications and engagement would be sustained over time.

The lack of suitable technologies compromises advisors’ relationships with their clients. But it also threatens the viability of wealth firms who risk losing their advisors to firms that already employ next-generation wealth platforms. While it was impossible to foresee the onset and impact of COVID-19, advisor communications technology was evolving relatively rapidly before the onset of social distancing, as new electronic communications technologies were refined and increasingly adopted by forward looking investment firms. The lesson of the current situation may be that accelerating the adoption of new technologies to stay ahead of the technological curve is a strategy that pays off in the end.

A New Generation of Active Traders?

This year has seen a remarkable rise in account growth and retail trading activity across both leading and upstart discount brokerages. Consider the following:

• Fidelity added a record 1.2 million new retail accounts in Q2 with daily equity trades doubling to 2.3 million.

• Charles Schwab added 552,000 new accounts (1.6 million if you count the USAA acquisition) in Q2 2020. Daily trading rose to 1.6 million, a 126% jump over the same period last year.

• With over 650,000 new accounts in the first half of 2020, E*Trade enjoyed greater retail organic asset growth in the first half of the year than in the previous two years combined. A daily trading level of 1.01 million in June for the firm and was 267% higher than in 2019. 

• Most impressive of all was the new player on the block. Robinhood, despite having significant technical issues in March, added over 3 million new accounts in 2020 and posted an industry leading 4.3 million daily average trades in June.

Conditions in the second quarter were a kind of perfect storm – in a positive sense – for self-directed brokerage. The foundation was laid last fall when the leading discount brokerages followed Robinhood’s lead in slashing their commissions for online trades to zero. Some added an additional incentive to less well-heeled traders by allowing fractional share purchases. Then the pandemic hit, introducing extreme market volatility, and with it the potential for extreme profits. Social distancing and the economic shutdown also left a good cross section of the potential trading population, both young and old, at home with little to do and no way to make money. 

While conditions this year were highly conducive to growth for discount brokerages, the level of growth is still impressive. Just the four companies cited above added over 6 million new accounts in just a few months. 

It will be interesting to see how long this spike in interest persists and whether it creates a new, sizable market segment of investors that are more comfortable with active trading, at least for a portion of their portfolios.

Building Awareness and Trust Remotely

It’s been six months since coronavirus became a household word globally, and resilient businesses have adapted to a new (and hopefully temporary) world of social distancing.  

Wealth advisors have likewise had to adjust. How do you demonstrate your thought leadership and value-add when you can’t connect with prospects at a local event?

One way is to host a compelling webinar to engage with clients and prospects and build your business. Below are some helpful tips to conduct successful webinars:

Set your objective. Every webinar you host should have a specific goal that influences every other step you take. Are you prospecting to build your business? Educating and addressing client issues for retention purposes? Develop your content, target list and marketing plan accordingly.

Choose your platform. There are different software options with varying features and limitations. Popular video conferencing platforms include Zoom, Microsoft Teams, GoToMeeting and Google Meet. Determine the option that works best for your organization. 

Determine the format. There are several ways to structure a webinar, such as interview style, Q&A or, most common, presentation format, which is an onscreen presentation along with pre-written notes.

Prepare your presentation. If you are using presentation format, there are important factors to keep in mind for presenting remotely. Keep it brief:

• Write for your target

• Make the slides easy to read

• Prepare a script and stick to it

• Engage your audience

• Interact with your audience

Include a call to action (and contact information)

Build your audience. For a client-only event, stick to email. If you’re open to including prospects, social media (which you can boost for added reach) will widen the net. Things to keep in mind when developing your invitation:

• Email twice, the first time about one to two weeks out with one or two ‘it’s not too late’ follow-ups 

• If you’re using social media, be sure to include link to register

Hold a dry run…or two. Before you host a webinar, rehearse to make sure everything works and presenters are comfortable. Check that your audio is clear and electronics are plugged in and/or fully charged. 

Follow up with participants. Send a thank you email with a link, if possible, to the presentation, using this opportunity to (softly) promote your business.

Track your results. Measure the number of people who opened your email invitations and the click through rate of people who registered for the webinar (via email and social media) and the number who actually attended. If you’re not generating the response you anticipated, adjust variables for the next one until you feel confident you’re maximizing response.