This is a challenge for all of us in the industry, but the biggest impact is on consumers, who will reap the benefits of having more control over their finances.
At Acorns, we’re at the forefront of this technology and as we pass our first anniversary, it seems like the last year has been a bit of a whirlwind.
In many ways, the iterative, learn as you go process of start-ups follows our own first year – the year we were born – in that with little foundation and little basis for comparison we have to adjust to the big wide world.
In our case, this involves changes to the status quo of the financial sector to match the way consumers want to engage with investing.
We’ve learned a lot and – to extend the metaphor - have certainly began walking rather than crawling, but what we’ve learned has repercussions for the whole of the financial advice community.
It points to a fundamental shift in the way consumers want advice, and why fintechs and the advice community need to work in tandem.
Below is a collection of some of that experience and what we see as the future of advice heading as technology becomes a greater part of the mix.
Investing has been opened to everyone
I have a very traditional banking background and when I joined Acorns, the world of investing via an app was just as new to me as anybody. But the potential it holds is huge especially in terms of introducing financial advice to a whole new segment of the market.
Previously, investing was for those with thousands of dollars and opening an investment account involved filling out a pile of forms.
Now, consumers can have a diversified portfolio with as little as $5 and takes mere minutes to set up, with just a mobile phone in their hands.
Knowledge of the markets used to be a barrier to investing, but now robo-advisers and smart algorithms are doing all the hard work on consumers’ behalf.
These changes mean investing has been revolutionised from a big, complex decision for those with deep knowledge or pockets to a small, simple decision, open to all.
Those who were previously unable, or unwilling, to invest now have the tools, knowledge and appetite to start early.
For financial advisers, this has opened the door to a new breed of investors – young, tech-savvy and interested in understanding and controlling their finances.
Global trends analyst Babs Ryan told The Australian that only 5 per cent of Australia’s Millennials have a financial planner.
Already, Acorns has signed up nearly 200,000 Australians, helped them save and invest nearly $50 million in spare change and expanded its product base into superannuation.
It shows just how eager this segment is to engage, as long it’s on their terms. It’s why financial advisers need to work together with fintechs like Acorns to provide the right service for every customer.
The right investment product for the right customer
When the uninitiated hear the term ‘investing’, they immediately think stocks, but my time at Acorns has brought to bear the importance of picking the right investment product for the right customer.
Acorns’ core Millennial audience is looking for a strong and stable portfolio delivered in a cost-effective manner.
They don’t want overly high risks, they don’t have time to check on their portfolio every couple of days and they don’t want to have to leave their money in their Acorns accounts for years in order to see a return.
We use seven different ETFs in our portfolios here at Acorns and we wouldn’t want to do it any other way. How else could we provide our investors with exposure to thousands of the world’s biggest stocks?
We all know how important diversification is and how hard it is to beat the market, especially when delivering it to a mass audience the way Acorns is. In this environment, we think that ETFs are the optimal pathway for growth.
Literacy is low but appetite isn’t
Financial literacy is a challenge for a number of Australians, with NAB and the Centre for Social Impact’s Financial Resilience in Australia 2015 report finding that 48 per cent of people say they only have a ‘basic understanding’ of financial products and services. A further 9 per cent say they have ‘no understanding’.
For Millennials, getting a grip on their financial views is even more taxing. Deloitte found that only 8 per cent of Australian Millennials believe they will be better off financially than their parents as a result of a new, complex and expensive financial market.
For this reason, what we’ve become most proud of here at Acorns isn’t the savings we’ve helped our customers create, it’s the education journey we’ve set them on.
For those of us who work in the financial services sector, it’s often hard to remember that not everyone understands a dividend or the power of compound interest.
Which is why it’s our job not just to provide the tools for financial freedom, but to explain the importance of getting into the market often, and early.
The best way to learn is by action, irrespective of whether your portfolio is a $100 or in the thousands. The beauty of Acorns lies in its ability to fully invest customers in the market upon sign up.
Learning the basics removes any apprehension that can come with moving into the daunting investment market and empowers our customers with the confidence to take control of their finances.
The trickle effect is that this, in turn, benefits our broader communities and generations to come.
Brendan Malone is the chief operating officer of Acorns Australia.
