By Josh Book

Digital Advice Expands Beyond Investing (4 minute read)

Last week I had the good fortune to share some brief thoughts with maybe the best wealth management journalist in Canada, Clare O’Hara of the Globe and Mail, about the idea of leading Canadian digital advice firm Wealthsimple (and other digital advice providers) expanding the services they offer to include checking or cash accounts. (See the article here if you missed it) The post got a great deal of engagement and so I thought it would be useful to elaborate somewhat in this format.  

As I had mentioned in the article; when Canadian and American investing age consumers think about the factors that are important to them when choosing a savings or investing option the "ability to move money in/out of their accounts quickly and easily" and the "ability to view all of their savings and investment accounts in one place" rank among the most important of 36 variables we recently tested for.

By offering a checking account, Wealthsimple is attacking this problem and it should delight customers. Questrade, another formidable Canadian digital wealth provider, have applied for a banking license indicating a desire to also broaden beyond online brokerage and wealth advice services. The top ten factors for both Canada and US consumers when considering savings and investing options is below:

(Data Nerding note** This analysis is one of the results from a comprehensive MaxDiff study. MaxDiff is a market research technique which lets us analyze relative importance of a set of variables by having consumers make trade offs when presented with those variables. Essentially, if a variable has a value of 50% you can think of it as being twice as important to a consumer as one having 25%.)  

What’s truly remarkable in both Canada and the US is that the importance of being able to move money quickly and easily is on par with the importance of paying no annual investment management fee as consumers consider savings and investing options. Clearly, the advent of high-quality digital wealth advice has sensitized consumers to astonishingly low investment management fees.

By increasing their involvement in the overall financial services value chain via a checking account, digital wealth advisors not only open the door to more deposit taking revenue but also the ability to widen the scope of customer engagement. With that comes an opportunity to glean more data which can help generate a better and more tailored customer relationship, as well as guide customers to better financial behaviours. It's not at all a stretch to offer "round-ups" on purchases, higher interest savings and subsequent investing.

The skeptic might say “big deal. Any digital advice offer from a large incumbent bank obviously has checking accounts and numerous other financial services available.” True. But I think a lot about end to end customer journey’s for various attitudinal segments across those product offers and how these behemoth firms acquire and engage with customers versus alternative digital wealth advice firms. It’s a tension between complexity versus simplicity and the inherent opportunity to reach a massive and hugely under serviced consumer cohort. I don’t see the larger firms using their size and plethora of deposit customers, for instance, to inform other areas such as an evolving wealth management business and visa-versa. The abundance of data is often disorganized and lacks a cohesive strategy around which to inform business evolution and innovative choices.

For a huge cohort of consumers that struggle with financial literacy, firms like Acorns or Wealthsimple use data and a concise approach. This positions them to do a better job at crossing the divide across various financial services than the traditional banks who are slower moving and present services in ways that often confound consumers. Take a look at a blog post on “jargon” here.

Time will tell which financial services firms transition through the digital age with the most market share. But it’s clear that the businesses that do win will look and operate significantly different than they have in the past short while. The signs are already there.

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