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How digital-first investment challengers
are winning digital-first investors

 

COVID-19 has inspired a level of retail investor confidence in both self-directed and robo-advisor accounts that has not been seen before. What is driving this behavior and more importantly, what digital services will stand out to encourage further investing moving forward?

Reviewing the capabilities and trends across 20+ providers found within FBX’s latest Robo-Advisor research, this blog covers:

  • The drivers of investment participation levels
  • How digital challengers’ account openings are outpacing traditional providers
  • The discovery and onboarding processes that welcome younger, inexperienced investors

 

Participation at levels never seen before…

It is not surprising that this month Goldman Sachs launched its new Marcus robo-advisor proposition. The new solution enables investors with $1,000 to spare to open an automated managed portfolio based on their risk appetite and timeline.

In the U.S., it is estimated over ten million new accounts were opened in the retail investment space in 2020 . A new wave of investors flooded the scene inspired by the volatility of the stock market and promise of lucrative gains. This, combined with the pandemic’s impact on social and working life, has meant that a significant segment of consumers has more disposable income and time than they may have ever had before.

Investing is also now more accessible than it has ever been. Investors can view their portfolios and make trades on the go. Commission fees have dropped to zero, and low minimums means investment accounts are available from as little as $1.

The investment market is becoming more prevalent, appealing, and engaging, with providers welcoming this new influx of investors, “We saw more small investors participate in the market, as did all of our competitors across the board, in a way that we’ve never seen before” stated JJ Kinahan, chief market strategist at T.D. Ameritrade.

 

What comes first: the digital experience or the bells and whistles?

When looking a little deeper into this new wave of investors, it is the younger generation that is fuelling the fire. In the first quarter of 2020 alone, when the pandemic first struck, Robinhood acquired 3 million new accounts and net deposits were on average ten times versus its monthly average the year before

The typical customer age for users on the Robinhood platform is 31. In the robo-advisor space, Acorns hit a milestone of 7 million signups in 2020, with its average customer age being 32

This is in comparison to established broker Charles Schwab, who acquired a record breaking 609,000 new accounts in Q1 2020, considerably fewer than its digital-first competitors with an average use age of 52.

Should this difference in new customer acquisition be a concern for traditional market players?

It certainly appears that digital challengers are becoming more appealing to the younger customer base than established and trusted brokerages. The younger generation may not be as traditionally lucrative as older investors, but by appealing to them now, providers such as Robin Hood and Acorns can establish valuable relationships with these customers for the years ahead. As the new segments proceed with their careers, with some receiving intergenerational wealth transfers, they will be building up their wealth and transition into retirement.

If we think about what could be appealing to the new wave of investors, it is clear the old argument of zero commission and low fees can be put to bed. Traditional market players have all reduced their minimums and cut commission rates on trades, yet, are not experiencing the same level of growth.

So, it would suggest the streamlined digital experiences and mobile capabilities of these challengers is becoming more appealing than the advanced analytics, product range and bells and whistles approach of traditional providers.

“We’ve got a massive group of individual investors who’ve become in many ways a more powerful collective force than the professionals, and they simply don’t care about the same things as the experts,” said CNBC’s Jim Cramer.

It all starts with the onboarding experience

FBX tracks the onboarding and platform servicing experiences of digital investment propositions across the U.S. and Europe, capturing, analyzing and identifying best practice across the entire range of journeys .

Starting with the product discovery stage, we explore how providers position their products, educate different customer segments, transition customers through the sales funnel, and support customers in selecting the most appropriate investment product for their needs.

It is at this stage where we can immediately identify why certain younger customer segments may struggle to embrace traditional brokerage firms.

Taking research from our recent Robo Advisor Onboarding Report, upon first accessing a site such as TD Ameritrade, a single click on the menu can be an instantly daunting experience for a novice investor. The wealth of options, tools, and choice can quickly overcomplicate the simple process of trying to open a managed portfolio.

 

FBX-TD_MainMenu-DigitalBankingHub 

TD Ameritrade’s main menu, taken from FBX’s Robo Advisor Tracking Onboarding Report

Comparing this to the experience provided by Acorns, a quick, concise, well-designed summary of the different ways to invest reduces the complexity. It is clear which option is more likely to reassure and ease a new and inexperienced customer into the account opening process.

 

FBX-Acorns_Welcome-DigitalBankingHub 

Acorns’ user-friendly welcome for the typically less-experienced customer,
obtained from FBX’s Robo-Advisor Onboarding Report


Of course, TD Ameritrade clearly has a larger product range and scale than Acorns, with a far wider set of user needs to meet. However, revising information architecture and visual hierarchies can facilitate more personalized ways to structure large volumes of content and information, streamline access and navigation, and improve interface design to make products and services more appealing and engaging to different segments of users.

A quick look at UK brokerage firm Hargreaves Lansdown shows how providers are aiming to simplify the wealth of investment products and services they have on offer to customers. The provider offers three quick routes to invest as soon as the user lands on its webpage.

 

FBX-Hargreaves_3WaysToInvest-DigitalBankingHub 

Hargreaves Lansdown provides product and service-based pathways for new and experienced customers, obtained from FBX’s UK Self Directed and Robo Advisor Onboarding Report

Within each option are products, tools and resources that relate to the pathway that the customer selected. This structure supports customers who arrive on the website without a specific investment product or a clear goal in mind. Selecting the middle option ‘start with a little help’ navigates inexperienced customers to the robo portfolio for a simple introduction to investment services.

The digital application process

The next step in the process is the account opening journey, reviewing application forms, portfolio customization, asset selection, account approval, funding, platform registration and next steps.

Looking to identify how market players best direct customers to the form and into the platform, we examine whether customers can be approved instantly, and if the process is fully digitally end to end: How have providers simplified and optimized application forms? What suitability assessments are present to help identify and recommend personalized portfolios to users?

Most important is exploring how market players ensure continued engagement with their new customers – the features, communications, or resources used utilized to keep the customer engaged with the products and services on offer once that account has been opened.

Digging into our recent Robo Advisor Onboarding Report , Acorns provides a useful Round-Ups feature during the application process. Customers can link a bank card to their portfolio and invest spare change from any transactions made on the card.

 

FBX-Acorns_Round-Up-DigitalBankingHub

Acorns’ round-up feature is integrated into the application form and encourages users to deposit spare change into their portfolio, obtained from FBX’s Robo-Advisor Onboarding Report

This feature can make customers who have greater financial constraints feel more comfortable in making deposits, by using smaller and more manageable contributions. The frequency of contributions can keep the customer engaged with the platform and the portfolio, with Acorns stating that the typical user invests over $30 per month through the Round-Ups process alone.

 

Stay ahead of the digital investment curve

Digital trends and capabilities within the investment space are evolving at a rapid pace, and currently, it is the digital challengers who are setting the pace.

FBX’s Digital Banking Hub tracks digital innovation and offers insight into the digital journeys during the onboarding process and behind the point of login, enabling our clients to stay ahead of key market trends, drive their customer engagement and enhance digital capabilities.

Want to see the Robo-Advisor Onboarding Report?
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