FinTech – Answering The Wrong Question

What Problem Is FinTech Trying To Solve?

A lot of people are trying to work out the best way that technology can help customers of financial services.

Not all technological advances have seen commercial success. Robo Advice has been subject of much debate and does not seem to be having the impact many anticipated. I have a suggestion for why this might be. I think it is because the technology is seeking to answer the wrong question.

There is a tendency for technological advances to say “Look what we can do!” rather than considering what customers actually want. See the Iphone 7 headphone situation for an example.

The problem that a lot of new financial technology (aka FinTech) attempts to answer is “How can we help people to invest more easily.” I’ve also seen this expressed as “How do we overcome customer inertia towards their investments.” A reduction in cost is often implied.

The trouble with that question is this (sweeping generalisation alert): People don’t actually care about their investments (as I’ve written about before).

What they do care about is outcomes.

The Advice Process

Financial advice works in three stages:

Stage 1: Identify preferred outcomes. When advisers are involved we can call this Financial Coaching.

Stage 2: Test and model these outcomes to plot a path to the future. Financial Planning.

Stage 3: Implement a strategy using the best products, investments and tax plans. Financial Advice.

Those individuals who can (and want to) afford an adviser can get help for one or all of these stages. But what about that vast number of people that don’t have access to advice? What can Fintech do to help these people?

How Can Fintech Support The Advice Process For Those Who Can’t Afford An Adviser?

There are two questions that FinTech should be asking.

Q1:  How do we best support the advice process?

A1:  Get out of the way!

What do people want from their financial adviser (be it automated or a person)? Here’s a little spoken truth about what financial advisers do:

People want to think about their finances as little as possible

Ease of access, mobile technology, they all help people to see their investments more easily, when in fact the requirement is to not to have to look at them at all.

People look at their money when they have to, when they are driven to by a need or a concern. Few people gain any pleasure from the experience.

(Incidentally, of course these are generalisations, there is a large segment of society who do want regular updates. However, I believe they are a minority (albeit a sizeable one) and, more to the point, already very well served).

Q2: What can we do to support the coaching and planning parts of the process?

A2: Some technology tries to help stage 2. I don’t know of any technology that helps stage 1, other than simply asking for                                                              objectives or goals (and usually as a number to suit the technology). Moreover, I’m told no one is working on one either.

Not Only The Wrong Question, But At The Wrong Point

FinTech predominantly solutions for stage 3 only. This is the final stage of the overall financial planning process, and is the least interesting or revealing for most people.

FinTech should aim to provide solutions for the point at which the need for those solutions arises, and to the individuals the need arises to. A person seeking to establish an investment portfolio has very probably just gone through stages 1 and/or 2, where all the value has already been added. An automated investment portfolio (which is what most ‘robo advice’ really is) will simply be putting into action major life decisions that have already been reached.

Conclusion – How To Engage The Public

To really reach the masses, therefore, FinTech should now turn its attention to providing solutions for coaching and planning. Talk to people in terms of objectives and motivations, help them to understand themselves better.

Only then will more people overcome their ‘inertia’, engage with their money, and enter stage 3 requiring advice. A general public more engaged with their finances and their future has to be better for all advisers – whether robots or humans!

Chris’s book on financial planning for happiness – The Financial Wellbeing Book – reached number 3 in the WHSmith business charts this summer. All proceeds go to the Penny Brohn UK cancer centre.