Why financial institutions can become the leaders of digital investing

There is little room in the market for standalone investment management services, Nucoro COO Nikolai Hack told FinTech Global.

Instead, the real opportunity for digital investing lies with empowering banks, insurance companies and other established players to offer these services and leverage their existing client-base.

“The entry point is not the newly launched, standalone robo platform, I think it will come through other channels. It will be banks, insurance companies and other engagement points where people think about their finances already and then they are ready to engage with investing and wealth management as well.”

It was this realisation which led to the creation of Nucoro in the first place. The co-founders Lennart Asshoff and Nikolai Hack had looked at robo investing companies in the market and noticed there wasn’t a lot of digital investing happening as they were still heavily reliant on manual processing and portfolio managers. As a result, the appeal of these services largely came down to digital customer experiences. Hack said, “But then they also weren’t able to crack the problem of, on the one hand, acquiring enough customers, and on the other, making really personal and unique and tailored Investment management available to everyone.” This led Asshoff and Hack to the idea that there was a massive untapped opportunity in helping existing established institutions build their own digital financial tools, as they already have big client bases as well as customer trust.

“If you’re a bank and a customer does banking with you, why wouldn’t they do investing with you too, especially given the outlook into the future of pension shortfall and under saving for a large part of population leaving a lot actually unprepared for retirement.”

On that basis, they set out to build a platform which would empower organisations to build their own digital financial products, whether that is an investment, savings or advice platform. Its technology is a modular set of pieces which take a kind of “Lego” approach to enable a business to establish their own versions of services to compete against the Nutmegs, Robinhoods and Money Farms in the market.

Nucoro offers a range of products which a business of any size can integrate with their existing infrastructure to improve their digital offerings and customer experiences. Its tools can help with processes including digital onboarding, forecasting scenarios, reporting, portfolio transfers, goal-setting, portfolio management, compliance and more.

Making investing for everyone

The need of digitalisation is becoming more paramount. A recent study from Nucoro revealed that just 55% of companies operating in the wealth management space today will still be around in 10 years’ time if technology is not adopted. Companies are noticing the requirement of digitisation with, on average, companies expecting to increase their investment in digitising their businesses by 27% between now and 2022.

However, one of the challenges Nucoro has observed is companies do not realise how simple it can be to digitalise their services. “A huge challenge is to convince existing players to believe that what we have created is possible,” Hack said. Prior to Nucoro, there were two options available to firms looking to digitise their offerings. The first was to offer a whitelabel solution which offered little configurability for businesses. Hack believes these do not work, as every business is different and has differing needs. The other option was through custom software development, but that results in heavy costs, long timeframes and complexity. These typically put companies off making digital investing services, Hack stated.

Digitalisation doesn’t happen overnight and can be hard for big financial players which have legacy systems holding them down. “Traditional firms struggle to build these things themselves and they struggle to lift really exciting propositions off the ground,” he said. “Obviously, a big tanker is not as nimble and agile as you need to be to have cool and great working technology in place. But partnerships are a way out of this misery. Big financial players partnering with FinTech’s brings together the best elements. They have existing relationships, trust and data, and we have the tech.”

By working with a FinTech like Nucoro, a bank, insurance firm or wealth manager can offer their customers tools to better prepare for their future. By connecting these services within the financial framework, investing can be made available to everyone and not just those who can access private banking or wealth management.

Consumers in the UK have not been particularly active with investing. According to research from Israel’s Bank Leumi, 67% of Britons feel they are not wellequipped to make financial decisions for themselves and 68% also stated they are not financially observant. However, this does not suggest they don’t want to start investing.

Engaging consumers with investing

Nucoro recently polled 1,028 UK retail investors and found that 53% would be interested in using a roboadvisor. As the balance of wealth shifts to the younger generations, the importance of offering digital investing is going to increase rapidly. Of the survey respondents, 76% of those between the age of 18 and 24 said they would consider using an investment service.

The eagerness is there, but maybe the lack of financial education is holding them back. Hack said, “I’m not a big believer or fan of the line of thinking that we need to educate people more.

Sometimes it’s even talked about being a subject in school. While I think all these things can play a role, I still think the convincing element will be how much a consumer wants to interact with the product and how much they want to engage with it. If that’s there, then consumers are very willing to put in their own effort to educate themselves.”

Instead, one of the biggest deterrents for people investing is simply being bogged down with lots of technical talk. Hack explained that a lot of players in wealth management talk a lot about how things work, such as investment products, portfolio management methodologies, alpha and beta products, and so on. This is fine among investors, but not for the consumer. “The average person on the street doesn’t even have an idea of what an ETF is or how an ETF works and they don’t need to know. They don’t want to know either. The inner workings of wealth management are a mystery to most people or how the stock market works and that’s fair enough.”

He went on to explain that it would be similar to going into a car showroom and the salesman just talking a lot about the engine and showing off what is under the hood. However, when most people go out to buy a car, that’s the least of their interest. All they really care about is how it looks and if it will get from A to B. “We need to shift our mindset to accommodate that and get a lot better at selling the experience and selling the outcome, and not so much about how things work, because that’s just something we’re interested in. Only we care about the ins and out of better management. Clients really don’t.”

Another aspect wealth managers are guilty of, is getting bogged down with the types of investments, when consumers do not care. It’s all just money regardless of if it comes from whether its life insurance, investment portfolio or savings roundup tool. The main thing the customer cares about is a great, seamless user experience.

The product performance and portfolio management approaches are one of the last areas companies should look at when they are trying to reach more customers, he said. Overall, the best way to attract the average person to start investing is through an improved user experience and engagement.

Companies can only survive for so long when relying on out-dated client experiences. While it is not a big problem during a ten year bull market, when the market shifts, finding new customers could be quite difficult. “Right now we’re seeing the beginnings of how an environment can be very different. If you struggle to have client engagement and good conversion numbers in a ten year bull market, then tell me about it when there’s nothing but bad financial news for not only a day or a week, but maybe for a month or five. When the tide goes out a bit it’s the realisation moment for a lot of business leaders.” When this happens, companies are going to look to streamline their processes and bring in automation so their advisors can nurture relationships instead of handle admin.

Nucoro was recently named in the WealthTech100 2020 list, to check out the full WealthTech100 click here: WealthTech100

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