On last Thursday, one of the largest Pan-Nordic online banks, mutual fund distributors, and stock brokers Nordnet Bank AB unveiled its new robo-advisory service for its Swedish clients. The new independent robo-advising service is called Robosave, and this move signifies a new strategic direction in Nordnet’s overall story. Nordnet has a long history, alongside its main Swedish-only competitor Avanza, of continuously launching new innovative financial services. In the past, Nordnet’s value proposition, as has been noted by Pekka Puustinen in his great book FinancialServiceLogic: In the Revolution of Exchange in Banking and Insurance, has revolved mainly around the promise of functional value (and associated benefits).
Nordnet has focused primarily, but not exclusively, on streamlining internal operations, extending the benefits of its various services beyond the plain vanilla retail brokerage (e.g. trade capture, clearing & settlement, and reporting) – all that are essential hallmarks of a value proposition constructed around the promise of functional value. The primary focus of financial companies, that are focused on the functional value is to provide as straightforward and convenient financial service as possible. Companies, such as Nordnet that concentrate on promising functional value need to focus on several things simultaneously: the focus should be primarily on fulfilling the promise of functional value (and secondarily economic value) by designing, testing and managing it with a particular focus in mind. What does this mean in reality? Basically, it’s about reducing waste by streamlining and simplifying internal and external processes, fast and efficient financial (and customer) service, eliminating low-value service, providing value-added services, and good stakeholder relations (e.g., partners, distribution, etc.). 1)Nordnet’s presently stated corporate values are curious, honest, smart, and committed. These are strongly related to the notion of transparent banking. Before the recent brand renewal, Nordnet’s values were modern, simple, and active with “unbank yourself” as the corporate motto. So does this represent an actual transition from functional value to emotional value? It remains to be seen.
Nordnet is making the biggest shift in business model since we started more than 20 years ago.
– Peter Dahlgren, CEO, Nordnet (Press release, 31.8.2017)
Nordnet is the latest Nordic financial company getting into the digital advice game. 2)In March 2017 it was announced that Norwegian Skandiabanken has acquired a considerable stake in fintech start-up Quantfolio and in November 2016 Finnish B2C robo-advisor Evervest was able to gain authorization from the Finnish Financial Supervisory Authority (FIVA). In the first stage, Robosave provides Nordnet’s Swedish clients with a financial and investment plan comprised of a portfolio built exclusively with low-cost exchange-traded funds (ETFs) and managed by predetermined rules, as well as regular access to customer service and financial advisory service via multiple channels. The service model relies on discretionary investment management so the client cannot choose which ETFs he will ultimately invest in but basically there is a universe of investable financial products that are limited by certain preset rules and principles. 3)There are already several similar tools available, for example, Avanza’s Portfolio Generator (Portföljgeneratorn) but they are missing robo-advisory capabilities such as rebalancing and indexing.
Not a surprising move to be honest – or why this was foreseeable?
The Nordic robo-advisory ecosystem is still minuscule when compared to neighboring Germany, France and UK. I expect the Nordic robo-advisory landscape to grow, and as the overall market grows, new entrants will inevitably force traditional wealth managers, brokers, and financial advisors to compete on multiple fronts as robo-advisory could be one of the key components of the evolution of mass/affluent wealth management model thanks to new digital capabilities.
For the Nordic wealth management and investtech players to continue to grow, they will have to onboard new customers, scale from one country to another and offer differentiated investments and savings products and services, and find efficient ways to provide relevant financial advice to their clients. Overall, Nordnet has several advantages on its size, with approximately SEK 260 billion (~€ 26 bn) total savings capital among almost 620 000 clients, according to its 2017 customer-related key figures. 4)Nordnet – Our vision; Nordnet Financials [Retrieved on 2 September 2017] This is a huge first-mover advantage as Nordnet will probably be the first Pan-Nordic incumbent with a robo-advisory arm.
— Nordnet (@NordnetSE) 31 August 2017
To continue to expand and develop, Nordnet launched commission free trading of exchange-traded products (ETPs) and appointed new CEO Peter Dahlgren from SEB in May, formed a partnership with IPSoft 5)IPsoft’s Amelia Expands Financial Services Experience with New Role at Digital Bank, Nordnet, named a new CFO Hannes Wadell and launched new trading applications together with Infront in August, just recruited Stefan Alexandersson to lead Nordnet Ventures (Nordnet’s VC arm) and now Nordnet has its very own robo-advisory business arm. 6)We’ll see what happens to Evervest that relies on Nordnet’s platform in Finland. There are arguments to be made for direct competitors being beneficial to organizational learning and creating additional revenue streams, and arguments to be made that companies should not continue working with imminent cannibals. These multiple operational, strategic, tactical, and strategic maneuvers of Nordnet in such a short time, plausibly accelerated by Nordic Capital and Öhman Group’s private buyout via NNB Intressenter, clearly confirms that Nordic digital wealth management and financial advisory space is now at least partly moving away from the one-size-fits-all mindset. This happens by combining multiple capabilities and digital solutions across various client segments, developing new digital solutions to fill the skill-and-demand gap to foster client engagement and mitigate churn of different DIY customers looking for digital solutions based on the idea of minimal interaction, and shaping a more diverse set of customer journeys. So wealth management and advisory business are being reorganized around investment and financial advice, not financial products or and services 7)On the reasons of the recent buyout, see Ström, V. (2016). “Därför kan Nordnet vinna på att lämna börsen“. digital.di.se, 25.10.2016.
In addition, given the increasing customer and regulatory demand for transparency regarding fees, expenses and potential conflicts of interest, which all are notable drivers for ordinary retail investors migrating from traditional financial advisory and wealth management to robo-advisory service models, incumbents need to better understand and embrace these lower cost models via acquisitions, partnerships and other forms of cooperation with various external players. Some Nordic financial companies, such as Nordea, OP Financial Group, SEB, United Bankers, and Nordnet, have adopted a more granular innovation model that relies both on internal and external cues for change and innovation. This effectively means that these companies are not closed innovators but rather encourage innovation in many different ways, e.g. idea crowdsourcing, accelerators, and incubators, internal design studios, living labs, venture capital activities, etc. 8)For more information, see “Digital Disruption in Nordic Wealth Management: Why the Industry Needs to Change Now of Fall Behind“.
What is Robosave all about?
Nordnet’s Robosave, currently available only for Swedish clients with at least 5 000 SEK (~€500) to invest initially and 500 SEK (~€50) monthly (which are less than several traditional Nordic financial advisors and wealth managers), will create an ISK-based portfolio. According to the press release, Robosave will automatically construct the portfolio and rebalance it as required. The portfolio composition will be based on information provided by the client via questionnaire, and this input is then used to create a recommendable portfolio consisting solely of ETFs. Based on client’s economic profile, risk tolerance, personal goals, an acceptable return on investment, financial literacy, and savings horizon, Robosave will offer a portfolio matching those criteria.
Nordnet will charge around 0.65-0.73% fee on assets per year depending on the structure of the portfolio, and Nordnet’s discretionary management fee is automatically deducted from the account balance every month (1/12). 9)The total basic fee includes Nordnet’s discretionary management fee (0.5%) and management charges for the underlying holdings (0.15-0.23%). This fee doesn’t apply to spreads and currency exchange fee. For more information, see Nordnet’s Robosave FAQ. As Nordnet’s Robosave also utilizes foreign currency denominated ETFs, additional foreign exchange fees on robo-advisory trading may apply. Nordnet’s Robosave is relatively cheaply priced (if you don’t calculate in possible extra fees, e.g., foreign exchange) when compared with other well-known Nordic robo-advisors and wealth managers. Sure, Robosave might be a bit more expensive than Swedish robo-advisors Lysa and Tieless, but standalone robo-advisors have their own issues and challenges such as high customer acquisition costs and low brand awareness amongst mainstream investors.
Nordnet’s CEO Peter Dahlgren was interviewed by Swedish online financial industry newspaper Realtid.se just before the launch of Robosave. In the interview, Dahlgren discusses the future of Nordnet and rise of artificial intelligence in the investment management industry. In the interview, the new CEO emphasized that he is interested in digital space as a way to create additional value to the customers. According to Dahlgren, Nordnet is perfectly positioned to take advantage of transparent disruptive technology. “[Nordnet] also has a strong brand, a high level of customer trust and one of the best tech platforms in the Nordic region,” Dahlgren stated. Dahlgren reveals that Nordnet has additional plans for this autumn as they are preparing to launch a new website and a new mobile app. 10)Nordnet’s Brand Library, Nordnet Sweden’s landing page, and Robosave can be treated as some kind indication of the future visual profile. Besides, as I pointed out earlier, there are plans to shift from one old stock trading platform to another, create a new kind of customer service with the help of IPSoft’s Amelia, and to continue overall operational simplification and streamlining. In the end, Dahlgren also mentions one striking thing about the very recent buyout; according to him, “the stock market is not clearly the best environment for a company in a transformation process.”
Welcome to the Nordics, robo-advisors!
The Nordic robo-advisory landscape is still very unmatured in contrast with its older, well-established and more popular traditional wealth management and financial advisory counterparts. In the past, it was tough to compete against bankers in suits and polka dot ties, but the situation has changed enormously during this decade. Even the incumbents are now at least considering implementing new robo-advisory capabilities in their business, and some Nordic financial services companies have already taken serious steps towards this direction.
Recent research of Nordic investors carried out by Accenture reveals that an overwhelming majority of Nordic investors would welcome new digital financial planning and investing tools if they are offered by the local trusted brand. From the first Nordic robo-standalones, services like Evervest, Lysa, Opti, Wizer, and Tieless, to the models that are better integrated with investment management companies, such as Nordnet’s new Robosave and Evli’s old-fashioned Online Banker (Verkkopankkiiri), robo-advisory experimentations can be expected to continue and expand. 11)Evli’s Online Banker was the very first robo-advisor in the Nordics. It’s portfolios are based on Evli’s own mutual funds. All of a sudden Nordnet is leading the emerging robo-advisory game in the Nordics. Nordnet is no longer only a stock broker or niche bank but rather a financial technology company, according to Nordnet’s CEO Peter Dahlgren.
The basic idea of robo-advisory is becoming increasingly attracting for both the new (small) and old (big) players in the wealth management space. According to Techfluence’s recent mapping, there are well over seventy robo-advisors in Europe (and there are several Nordic robo-advisors that they haven’t even tracked) and notable global wealth management giants like Blackrock are moving forward in the European investtech M&A space. It’s hard to know exactly how much every automated investment service provider in the Nordics has assets in AUM or how many clients they have, but there are some numbers out there that are pointing out somewhat sluggish growth regarding new customers. In the US, standalone robo-advisors are doing well. Betterment recently surpassed over $10 billion in AUM, Wealthfront has gathered over $5 billion in AUM, and Vanguard’s hybrid model, Personal Advisor Service claims to have over $65 billion in AUM. As I have been writing in the past, robo-advisory is not really a new product or service innovation, but rather it is more about distribution. It’s surely true that the rise of robo-advisors will compete for the addressable AUM and clients but at the moment robo-advisory is fundamentally about the new ways to distribute financial and investment advice, and how to best mass customized/personalized the delivery of various financial services.
If and when more and more Nordic incumbents understand that there is real money to be made with robo-advisory, they will actually enter the race; and I can say with 100% certainty that Nordnet’s Robosave will be monitored for years to come by many local competitors and international peers.
As recent Nordic research by Accenture shows, “most Nordic investors do not use the services of new wealth management entrants” and “only 24 percent of respondents under the age of 50 years and 14 percent of those 50 and above report engaging new entrants”, which strongly suggests that there’s plenty of room for automated investment services, personalized financial advice and robo-advisors to expand. In fact, as Accenture’s research points out, c. 77% of Nordic respondents aged under fifty and c. 86% over fifty don’t currently use digital wealth management services, and it seems that they don’t understand or even trust digital wealth management services such as robo-advisory, online brokers or social investing platforms as comes across in their unwillingness to invest in an entirely digital service platforms. Although it might seem like robo-advisory and other forms of digital wealth management are not desirable, these findings also underscore the possibility of going forward and engaging customers at multiple fronts. We know that robo-advisors will not replace financial advisors any time soon, but robo-advisors will force financial advisors to do their job better as now customers can quite easily compare robo-advisors’ performance against human advisors. 12)Robo-advisors are not only for wealth management and financial planning as robo-advisors could also be used for mortgages, personal financial planning, and budgeting, retirement and pension planning, etc.
No wonder that consumers and regulators have become so interested in different costs, fees, and various expenses associated with investing, portfolio management and wealth management over the last ten to fifteen years. Nordic and international media has also added considerable pressure against multiple incumbents, and for example in Finland, the quality of investment advice has been discussed for a long time. Not too long ago FIN-FSA (Finanssivalvonta) imposed hefty fines on banks found guilty of severe shortcomings in investment advice. 13)KPMG (2016). “Evolving Investment Management Regulation: Responding to closer scrutiny“. June 2016 Robo-advisors, whose value proposition is mainly based on economic value (overall fee dispersion) and functional value (making investing substantially easier and less daunting), are not exempt from this discussion. We have already witnessed several kinds of robo-advisory fee models and cost structure comparisons.
For example, in Sweden, robo-advisor Lysa’s total fees is about 0.27-0.39% per annum, and Tieless is 0.66-0.78% per annum, and in Finland, Evervest’s per annum fees start from 0,95% for portfolio under €20 000 and end up at 0,45% for a portfolio over €100 000 and Evli’s Online Banker’s pricing is much more bracket-tied. Not only will new competition expand the space of available service models, service offering, and product lines, but the pricing strategies will also develop along the line as robo-advisory will become more and more mainstream. 14)Although I personally like Nordnet’s Robosave very much, I can totally understand those educated investors who might find Nordnet’s model portfolio approach, based on your criteria for risk and return, somewhat costly and annoying. The value proposition might not be so convincing after all, and it might be missing some essential components that have attracted people to become Nordnet’s customers in the past. A savvy investor may ask himself if it really makes sense to pay something around 1% (including currency conversions) for something as simple as an ETF-robo. It’s not actually very difficult to generate a highly diversified (global) portfolio in various core asset classes and satellites with only a handful of low-cost ETFs (and index funds) in DIY style.
What about the robo-advisory business model?
Not so much time ago, retail brokerage could cost something up to 100 bps per trade, mutual fund fees were much higher, and sales load and exit load were considered to be entirely ordinary, and retail wealth management was offered in practice only to the wealthiest individuals out there. Currently, the retail investment and wealth management space is being altered by various kinds of new players such as robo-advisory, social investing platforms, equity-based crowdfunding, P2P lending, new digital brokers (e.g., commission-free trading), and various kinds of new financial products ranging from CFDs to cryptocurrencies. 15)CB Insights (2017). “Wealth Tech Market Map: 90+ Companies Transforming Investment And Wealth Management“. 24.3.2017. Which do you prefer when you invest: a cheap, DIY stock broker, or a more expensive money manager with exceptional service and polished shoes? The range of choice, thanks to increasing competition, available to the ordinary retail investor have changed a lot, and therefore companies – even the new robo-advisors – need to differentiate at broad scale or follow the route of differentiation focus. It’s not enough to just offer a wide array of alternatives but also guide and help the client out – get the jobs done.
We will see in a couple of years if Nordnet is able to attract significant amounts of regular retail investors as its robo-advisory customers. 16)e.g., the total number of clients, active investment contracts, average investable sums, AUM, customer growth, etc. The success of Nordnet’s experiment depends on multiple factors, and I just want to point out two possible things to consider in this. First of all, Nordnet’s two main target groups (personas) are called achievers and explorers. 17)For more information, see Viksten, Annelie & Holmström, Linn (2015). Aligning Corporate Culture with Brand Values A case study of a financial tech SME. Master’s Thesis, Chalmers University of Technology. Nordnet aims at being lovable by achievers that are characterized by strong goal-orientation, high engagement, and the feeling of being empowered. The clients that belong to this category are interested in investments and savings, and they prefer to “make decisions independently and like to be in control.” If Nordnet is able to do their job, and guide them through the often obscure and complicated world of finance and indeed deem its functionally-oriented value proposition, they are probably able to both convert at least part of their existing client base as robo-advisory clients as well as attract new (millennial) customers from the competing personal wealth and money managers. 18)Polya, Ilana (2015). “Millenials and robo-advisors: A match made in heaven?“. CNBC, 22.6.2015. Can they attract middle-aged, non-tech-savvy clients from traditional investment and financial advisors and wealth managers? I think that they can, but without branch network and relationship managers, this might turn out to be quite difficult so it might be a good idea to try out various marketing strategies.
In Sweden, Nordnet now offers a simple robo-product, real financial advice, low fees, and a wide selection of investable model portfolios under Robosave. This range of potential benefits exceeds the simple financial advice of putting all your money into a couple of highly diversified, yet expensive, hybrid funds, and buying this or that structured product. I am quite sure that Nordnet, at least in Sweden, is currently operating at a two-speed robo-advisory mode: bring investment advice to the masses via digital-only distribution (“promotion mode”) and simultaneously focus on the enormous potential of currently underserved client segments (“future growth mode”). I have also noted that Nordnet is strongly focused on “niche marketing” (e.g., Twitter promotion, blogs, etc.), and this might be a smart way of informing the most potential robo-advisory adopters of the benefits obtained from using Nordnet’s robo-advisor instead of any substitute (and to ease the pain of starting investing, i.e., the decision is not only between financial products a and b, but instead anyone can also decide to do nothing). Despite the fact that ordinary people don’t really care about financial jargon and might not really be aware of new investments and savings solutions, there is a plenty of room for robo-advisors to grow (even in the Nordics).
What is your worst enemy? Irrelevance through commoditization
As it turns out, Nordnet’s Robosave is not operating either in a red ocean or blue ocean. Robo-advisors are still far away from out-competing yourself, family and friends, peers, and financial advisors as a potential source for tips and tricks. There will still be a plenty of room for traditional advisors to maneuver in the midst of all the robo-advisors and social investing platforms out there. Financial advisors can also take advantage of the existing solutions, and for example, test out their ideas with excellent online tools and ask peer advice from colleagues through social media or dedicated social communities. In the US automated investment services like Personal Capital, FutureAdvisor (part of Blackrock since 2015), Vanguard Personal Advisor Services and Schwab Intelligent Portfolios are offering something called hybrid advisory model. I think that this distribution and business model, namely hybridization (and “cyborgization” – i.e., an advisory-centric transformation of the client-advisor relationship), is still mostly missing from the Nordics. Therefore, as the competitive ocean turns, even more, read year after year, advisors need to differentiate their business more from their main competitors. Finding out particular niches is not easy, but it’s not impossible either.
Let’s take for example two Finnish niche wealth managers, namely Helsinki Capital Partners and Obsido. These both companies are relatively small niche wealth managers that do serve only ordinary private investors but instead they have a firm focus on helping professional athletes. Wealth management and financial planning for professional athletes is something that no robo-advisor or digital tool can take care of for now, and for example, something like Nordnet’s Robosave is not a viable silver bullet solution for these people either. Highly-specialized financial advisor, probably with at least some personal experience of the particular niche in question, can place a hefty premium on the price of financial advice and planning by using some creative pricing tactics. The importance of value-based pricing is something that financial advisors and investment planners need to consider very carefully in the future.
Sure, not every financial advisor is able to pivot and discover new value proposition for some particular niche, but I think that this is the way the wealth management and financial advisory business will eventually head thanks to automated investment services creating an odd playing field for non-digital traditional advisors. In the end, I believe that we will have roughly speaking three main business models for financial advisory and investment planning with various mutations: (1) premium wealth management for HNWI/UHNWI clients, (2) online- and/or branch-centric hybrid (robo-)advisory, and (3) easy/pro/premium standalone/integrated variants of the basic robo-advisory model (B2C/B2B). These three advisory models are explained in Figure 1.
Which one of these business models will be the winner? Nobody knows this for sure. Again, I personally firmly believe that currently the hybrid advisory model is adequately matched with the financial advisory target business model, and might act as a way to solidify the financial advice value chain. As bits and pieces of the overall advisory market, ranging from the mass to private, is being occupied by various robo-advisors, the hybrid advice model is still there as an untapped source of revenue. By combining the best of the robo-advisory and traditional advice, financial advisors and wealth managers could quite scale up quite aggressively (see Figure 1).
Which one of these business models will be the winner? Nobody knows this for sure. Again, I personally firmly believe that currently the hybrid advisory model is adequately matched with the financial advisory target business model, and might act as a way to solidify the financial advice value chain. As bits and pieces of the overall advisory market, ranging from the mass to private, is being occupied by various robo-advisors, the hybrid advice model is still there as an untapped source of growth and revenue. By combining the best of the robo-advisory and traditional advice, financial advisors and wealth managers could quite scale up quite aggressively to compete against the new digital wealth management players (see Figure 3).
If financial advisors and wealth managers are able to add new capabilities, people and structures needed in order to provide financial and investment advice that fit to the needs of the less affluent clientele – like setting up personal financial statement, doing budgeting and cash flow statement, developing simple asset allocation strategies, planning for the next financial goals (savings calculations), advice on personal and family finances and home mortgages – they can actually become the trusted advisors for those people who were not previously served at all. These simple value-add services can actually complement the core offering, and by attracting those people that are less wealthy, there are various benefits arising from the sheer status of being able to empower and encourage ordinary people to achieve their goals and dreams. 19)Just by offering something as simple as free spreadsheets for novice investors would be a good way to stop selling to actually sell.
Case study: What is Nordnet up to?
Nordnet is now one the very first Nordic banks embracing the robo-advisory revolution. I don’t want to ruin anybody’s party, but I am more than sure that Nordnet will roll out Robosave very soon in Finland, Norway, and Denmark too. My mystic hunch? No. First, Suvi Tuppurainen, Country Manager Nordnet Finland, tweeted out that Robosave is planned to be rolled out in Finland in early 2018. Second, I just did a very simple WHOIS lookup. Relevant domains – robosave.no, robosave.dk and robosave.fi – have already been reserved by Nordnet, and one doesn’t have to be a rocket scientist to understand that these domains have not been reserved just for fun. As my knowledge of the nuances of Nordic retail investor taxation is not so great anymore, I can only make a couple of speculative assertions based on my understanding of the Finnish situation.
I personally think that rolling out a plain vanilla robo-advisor in Finland, without unit-linked savings and investment policy or capital redemption contract, probably isn’t the best way to do it as every sell transaction of ETFs will realize potential net profit or loss, and thanks to Finnish robo-advisor Evervest, we already have an advanced standalone robo-advisor doing just this with an ordinary Finnish book-entry account as its backbone. 20)Sure, tax-loss harvesting is one way to try to fix this problem. My hypothesis, and let me stress that this is just a hunch, is that Nordnet will probably launch its robo-advisor (MVP version) in a step-by-step fashion in every Nordic country no later than next year (2018). I also assume that Nordnet might actually be working with tax-related stuff to offer more attractive robo-advisor, coupled either with savings and investment policy and/or capital redemption contract in Finland.
Why I think like this? First of all, the Swedish version of Robosave is based on the Swedish investment savings account (Investeringssparkonto, ISK for short), and this account is a kind of a “tax wrapper” encouraging one to save and invest through this particular account type. 21)No wonder that ISKs are pretty popular in Sweden. So why not offer something similar in other countries, and especially in Finland, as well. 22)I wouldn’t bet on this though. Secondly, when customer profiling, model portfolios, the robo-advisor (setup and investment universe), proposal generation, etc. are already in place, it’s not hard to partly rebrand it, pack it, ship it, and tweak it to suit other Nordic markets as well. 23)Sure, the robo-advisor needs to be registered with the local FSA though.
Whether Nordnet launches a downgraded version of Robosave in Norway, Denmark, and Finland doesn’t really matter. Nordnet and other Nordic incumbents integrating robo-advisory capabilities (easy robo-advisory/-assistant, hybrid advisory, etc.) demonstrate that the new frontier for the wealth managers and online brokers is just being built. There are enormous opportunities for consumers, wealth managers, and other stakeholders to adopt robo-advisory-related functionalities, capabilities, and platforms. Benefits, of course, depend mainly on serviceable client segments and preferable service model but it can be assumed that for example, Nordnet is now diversifying its core business from execution-only to advice-too, and will probably acquire new Gen D investors as its clients. 24)Yes, Nordnet also has Shareville which relies on social interaction, transparency, and togetherness – something that Gen D appreciate.
During a recent couple of years, we have witnessed mere glimpse into the scope and scale of a fascinating emerging development where automation, algorithms, low-cost investment strategies, and personalized advice at scale are mixed together. We are now living in the midst of the second and third generation of robo-advisory, and it’s to be expected that more and more financial services companies will jump this promising bandwagon. Not all financial services companies are inhabiting the same reality. Some companies are, of course, moving faster than others, and major divergence is to be expected as some companies will accelerate their growth by adopting new digital wealth management and automated investment services faster than others. Some companies will eventually fail with their experimentation, but others will thrive and succeed. Soon we will see how low fees combined with low minimum investment threshold, simplicity, focus on the customer experience, and transparent product offering will change the Nordic wealth management and financial advisory landscape.
As we have seen, software is progressively eating its way through the financial advisory and wealth management value chain from the very simple routines to the most challenging and complex steps in the client-advisor lifecycle. This is a slow process but along the way, software is fundamentally altering the way wealth management industry perceives its future, and as we have already seen, the cost to serve, cost for advice, and expectations have been changed quite drastically.
However, it’s not really about the buzzword – robo-advice – that is interesting, or algorithms, automatization, or indeed even the highly disruptive robo-technology for that matter. Robo-advisory is not fundamentally about efficiency, streamlining, driving the costs down, scalability or anything of that sort (or at least, should not be). Robo-advisory is really about empowering ordinary hard-working investors and savers with all the necessary information about why to invest so that they can let someone else do all the whats and hows.
So, what am I talking about? Start selling time back to the people so that they can do something much more significant and meaningful with their life than spending time figuring out where to invest today and tomorrow. The question remains: How many people are willing to switch on the self-drive mode in the case of their life savings?
Photo credit: Nordnet / Robosave
Full disclosure: I worked for Nordnet in several different roles for almost six years. I left the company in September 2016. Please see disclaimer.
PS. I’m not a customer at Nordnet Sweden, so it’s very hard for me to review the robo-advisor itself. However, I promise to keep my readers updated when and if it’s eventually launched in Finland.
|↲1||Nordnet’s presently stated corporate values are curious, honest, smart, and committed. These are strongly related to the notion of transparent banking. Before the recent brand renewal, Nordnet’s values were modern, simple, and active with “unbank yourself” as the corporate motto. So does this represent an actual transition from functional value to emotional value? It remains to be seen.|
|↲2||In March 2017 it was announced that Norwegian Skandiabanken has acquired a considerable stake in fintech start-up Quantfolio and in November 2016 Finnish B2C robo-advisor Evervest was able to gain authorization from the Finnish Financial Supervisory Authority (FIVA).|
|↲3||There are already several similar tools available, for example, Avanza’s Portfolio Generator (Portföljgeneratorn) but they are missing robo-advisory capabilities such as rebalancing and indexing.|
|↲4||Nordnet – Our vision; Nordnet Financials [Retrieved on 2 September 2017]|
|↲5||IPsoft’s Amelia Expands Financial Services Experience with New Role at Digital Bank, Nordnet|
|↲6||We’ll see what happens to Evervest that relies on Nordnet’s platform in Finland. There are arguments to be made for direct competitors being beneficial to organizational learning and creating additional revenue streams, and arguments to be made that companies should not continue working with imminent cannibals.|
|↲7||On the reasons of the recent buyout, see Ström, V. (2016). “Därför kan Nordnet vinna på att lämna börsen“. digital.di.se, 25.10.2016.|
|↲8||For more information, see “Digital Disruption in Nordic Wealth Management: Why the Industry Needs to Change Now of Fall Behind“.|
|↲9||The total basic fee includes Nordnet’s discretionary management fee (0.5%) and management charges for the underlying holdings (0.15-0.23%). This fee doesn’t apply to spreads and currency exchange fee. For more information, see Nordnet’s Robosave FAQ.|
|↲10||Nordnet’s Brand Library, Nordnet Sweden’s landing page, and Robosave can be treated as some kind indication of the future visual profile.|
|↲11||Evli’s Online Banker was the very first robo-advisor in the Nordics. It’s portfolios are based on Evli’s own mutual funds.|
|↲12||Robo-advisors are not only for wealth management and financial planning as robo-advisors could also be used for mortgages, personal financial planning, and budgeting, retirement and pension planning, etc.|
|↲13||KPMG (2016). “Evolving Investment Management Regulation: Responding to closer scrutiny“. June 2016|
|↲14||Although I personally like Nordnet’s Robosave very much, I can totally understand those educated investors who might find Nordnet’s model portfolio approach, based on your criteria for risk and return, somewhat costly and annoying. The value proposition might not be so convincing after all, and it might be missing some essential components that have attracted people to become Nordnet’s customers in the past. A savvy investor may ask himself if it really makes sense to pay something around 1% (including currency conversions) for something as simple as an ETF-robo. It’s not actually very difficult to generate a highly diversified (global) portfolio in various core asset classes and satellites with only a handful of low-cost ETFs (and index funds) in DIY style.|
|↲15||CB Insights (2017). “Wealth Tech Market Map: 90+ Companies Transforming Investment And Wealth Management“. 24.3.2017.|
|↲16||e.g., the total number of clients, active investment contracts, average investable sums, AUM, customer growth, etc.|
|↲17||For more information, see Viksten, Annelie & Holmström, Linn (2015). Aligning Corporate Culture with Brand Values A case study of a financial tech SME. Master’s Thesis, Chalmers University of Technology.|
|↲18||Polya, Ilana (2015). “Millenials and robo-advisors: A match made in heaven?“. CNBC, 22.6.2015.|
|↲19||Just by offering something as simple as free spreadsheets for novice investors would be a good way to stop selling to actually sell.|
|↲20||Sure, tax-loss harvesting is one way to try to fix this problem.|
|↲21||No wonder that ISKs are pretty popular in Sweden.|
|↲22||I wouldn’t bet on this though.|
|↲23||Sure, the robo-advisor needs to be registered with the local FSA though.|
|↲24||Yes, Nordnet also has Shareville which relies on social interaction, transparency, and togetherness – something that Gen D appreciate.|