Article by Geoffroy de Schrevel, CEO of Gambit.
We launched Birdee in 2017, with a simple vision: to make money a better support for what comes next. We wanted to execute on this vision both directly with our B2C robo-advisor (Birdee Money Expert), and indirectly through our B2B business line. By getting first-hand market insights and live-testing of our functional and technology innovations, we have been able to help our institutional clients build better and faster solutions that meet their clients expectations. Walking on the B2C and B2B legs was always essential to us as we believe innovation brings extra value when it is shared.
In a series of articles, we focus on some interesting findings that could help other companies when starting an online savings and investment advisory service. In part 1 we have looked at the robo-advisor user profile, its diversity and its behaviour across the onboarding process.
Investment behaviour
A robo-advisor is a customer experience and also an investment service. It is therefore essential to understand the risk profiles of users and the way they select a particular a particular portfolio. By design our B2B robo advisor Birdee Money Experts (BME) only offers discretionary portfolio management service, so the interesting element here is to understand how a user favours a particular portfolio over the others.
BME distinguishes five different investor risk profiles. Three of them are rather traditional from defensive to dynamic with a moderate in the middle. Investors with a moderate risk profile are split between investors who would rather protect their capital while accepting a bit more risk in the revenue produced by this capital (protector profile) and investors who are more focused on maintaining a stable revenue while accepting a bit more the risk on the capital value ( a bit like annuity sales).
As mentioned briefly in a previous article, most of the first robo-advisor users show a dynamic risk profile (about 50%) , followed by the group of moderate profiles (including protector and stable profiles, when our institutional clients propose these profiles).
This is the case for all age groups, except for the younger generation (18-25) where profiles are evenly spread across the three main profiles.
Data also indicates that women’s profile is rather moderate, closely followed by the dynamic one. Men show massively a more dynamic risk figure.
Investors with a monthly income of less than € 2.000 have essentially a moderate risk profile while high-income users split evenly between prudent and dynamic profiles and seem to shun the protector profile.
Finally, the users’ risk profile has shown a strong stability across time, including crisis times, leaving gender diversity and inclusion as the main variables that affects a robo-advisor typical user’s risk profile.
Robo advisors clients cold-minded in rocky waters
Data indicates that robo-advisors haven’t recorded strong changes in their net cash-in during the 2020 crisis times. However at Birdee and different other institutions, dynamic profiles and recent investors have been more inclined to cash-out.
The churn-rate is the highest in the first 3 months of portfolio opening. Clients who have opened their portfolios for more than a year show strong steadiness across market conditions.
50% of clients are in the 25-39 group age
At Birdee and several of robo-advisors, 50% of clients are in the 25-39 group age, and another 30% are in the 40-65 group. This is significantly different than for the more traditional investment advisory business of our institutional clients, where the 65+ group is the majority.
Investors and recommendations
Beside regulatory warnings, about 25% of robo-advisor clients do not follow recommendations when they have a choice. This is particularly the case for the defensive profiles where practically every other recommendation is ignored. These investors tend to invest in diverse portfolios, usually with a higher risk profile. Birdee like other robo-advisors propose investment themes, like ISR (not a theme at Birdee since all portfolios are ISR), biotechnology, real estate, etc. However it seems that most investors have difficulties to understand the real difference and value brought by these themes.
Thematic portfolios are not always understood by the investors.
Traditional education does not help much contrary to focused, everyday life and gamified communication via social networks and push messages.
One of the major lessons learned (is it a surprise?) is indeed that on most investment aspects, robo advisor users (curious testers and clients) in continental Europe react poorly to traditional financial education. Apprehension and suspicion about financial markets dominate. Return matters less than transparency, than experience of kindly and helpful disposition. Optimisation is less important than connection to day-to-day life.
As we dig and correlate the data we have gathered, the profile and expectations of robo-advisor users in continental Europe become more specific. We share our analysis, of which the above is only the tip of the iceberg, with our institutional clients to help them build the right service and focus on the most efficient marketing actions.
Interfacing with end-customers and providing the right reports, financial and fiscal, are key elements of the investors’ perception of the service quality. In a coming post, we will continue to share some of our findings as we build on various experiences around our Wealth as a Service solution.
Again, based on our data, we have now information that can guide firms willing to offer robo-advisory services to design the right offering with the right operations and realistic expectations.