Wealth and investment management is in flux. Regulatory pressure, the rise of passive funds, low bond yields, and the continued rise of fintech are challenging the revenues of many incumbent firms. In our 2019 predictions, we discussed incumbents’ responses to these challenges, including the proliferation of robo-advisors from firms such as JPMorgan Chase, OCBC Bank, and U.S. Bank. We didn’t share their enthusiasm and predicted that many robo-advisors would fold in this overcrowded market, and indeed, over the course of the year, we’ve seen ABN AMRO, Investec, Pacific Life, and UBS shut down their robo-advice propositions. In 2020, incumbents will continue to copy fintech strategies to squash competition and put a stop to digital disruption.
The Race To The Bottom On Trading Fees Will Continue, With Diminishing Returns
Brokers such as Charles Schwab and Interactive Brokers have responded to fintech firms Degiro and Robinhood by launching commission-free trading. But investment firms are running out of pricing leverage. We expect a flat IPO for Robinhood as its free-trading proposition becomes a commodity. While low fees can be a successful strategy to attract investors (according to Forrester Analytics data, “lowest fees” is the most important factor for consumers when selecting a provider for an investment account), it’s not enough to retain customers.[i] When we examined the drivers of customer experience quality for the direct brokerage sector using Forrester’s 2019 Customer Experience Index (CX Index™) data, we found that the prices and fees category of drivers was least important to consumers in their perception of customer experience quality. Customer service experience was the most important driver category.[ii]
Firms Will Aim To Win Customers’ Loyalty By Launching Services That Cut Across Product Lines
To move away from fee-based competition, fintech firms are innovating their products. In the US, Acorns, Betterment, and Wealthfront launched FDIC-insured deposit accounts, while in Europe, Scalable Capital has partnered with the deposit marketplace Raisin. This strategy lets fintech firms attract new customers with a compelling savings rate, then hope to convert them into investors later. US fintech M1 Finance goes further, adding borrowing against the value of the portfolio to its investment and checking account products. In 2020, we expect incumbents to follow suit as they aim to overcome internal product silos to create a more cohesive money management experience for their customers.
Banks Will Keep Tweaking Their Robo-Advice Propositions But With Only Limited Success
Despite the overcrowding and the failure of many robo-advisors, incumbents will keep piling on in the hope of finding the Holy Grail of retail investing. Singapore-based DBS and Canada’s RBC launched their robo-advisors in September 2019. But firms need to do much more than rely on a “build it and they will come” strategy. Success of robo-advice relies on competitive pricing, a strong distribution strategy, and the ability to overcome initial investment barriers, such as fear or lack of confidence. Bank of America is leading the way by combining automated portfolio management with human advice. Firms will keep playing with tiers and pricing levels that make it possible to offer a hybrid approach.
Read the full report to learn more about the wealth management landscape in 2020. To understand the major dynamics that will impact firms across industries next year, download Forrester’s Predictions 2020 guide.
[i] Source: Forrester Analytics Consumer Technographics® North American Financial Services Topic Insights 2 Survey, 2018.
[ii] See the Forrester report “The US Investment Firm Customer Experience Index, 2019.”