Monthly Archives: July 2014

In which suburban garage is Australia’s disruptive wealth strategy being formulated? 3 July 2014

Over the past five or so years, a number of new ‘direct-to-consumer’ digital wealth management models have emerged in the US and the UK, in an attempt to gain market share from those that cannot afford advice or from those who do not trust advisers. Models that seek to take financial advisers and vertically integrated groups out of the wealth management business, by providing simple to use, cloud based programs, that solve sometimes complex financial problems, but without the legacy issues and enormous cost structures that support those incumbent models.

One would think that the general population would be awake to hear from these low cost and non-instituonally owned digital propositions, in light of recent high profile scandals that are causing collateral damage to the greater good in the financial planning industry.

Here’s the pitch…

“Why are you paying a financial adviser to do a risk profile and then build a portfolio using active managers, who then charge you a percentage based AUM fee that increases as your wealth rises when:-

  1. The first two components are just basic algorithms,
  2. Active managers do not add value and are expensive, and
  3. There should be no link between how much you pay for this service and how much money you have.


For $10 per month, we will build you a model portfolio that fits your risk profile, supported by monthly buy/sell recommendations using ETFs and goal tracker technology, where you can use your existing broker or for $25 per month, we will manage it for you.”

Of course, this pitch ignores the importance of goal setting, empathy, other non investment related strategies etc but think of those who cannot afford advice – it’s just maths after all!

Offshore examples of some of the disrupters include Market Riders, Mint, Nutmeg and Betterment that offer various financial solutions/propositions for end consumers – from budgeting to portfolio management tools.

Closer to home, KKR supported Findex, has recently launched MOVO; a direct to consumer online financial planning tool, that in addition to providing a genuine solution for simple financial plans, also looks like a great solution for generating leads for Findex advisers, as they seek to build a multi segmentation advice model ranging from MOVO (low value), to Findex (mass affluent), through to Centric (HNW); and maybe soon Crowe Howarth, which straddles both the mass affluent and HNW markets.

Andrew Barnes and Ben Heap’s listed company Australasian Wealth Investments (ASX Code: AWI) is aggressively going after this ‘direct to consumer’ market, having made a number of acquisitions (both fully and partially owned), including van Eyk, InvestSMART, Intelligent InvestorSelfwealth, YourShare and Stockspot. They have also launched AWI Ventures  to provide venture capital and team support for new entrants who are looking to create new direct-to-consumer digital models.  How they bring these disparate groups together remains to be seen.  They might also be just as happy to back a number of models and the winner may emerge through trial and experimentation.

And in suburban Ryde (go the burbs!), Russell Medcraft from Financial Choice has been ahead of the game for years through the development of his lead generating sites such as, selfmanagedsuper, lifecoveronline, findmysuper, findmybestsuper and findmymoney.  He has the building blocks in place, and a very sizeable database to start the process of offering a range of direct services.

In a narrower sense, Roger Montgomery has developed a very successful direct to consumer investment proposition offering Australian equity portfolios, and has even developed a site under his own name Roger Montgomery in addition to his investment business Montgomery Investment Management.  Rather than a digital approach, Roger has put himself out there across various media channels, in addition to fostering an active social network – e.g. he has close to 10,000 ‘Likes’ on Facebook.

In a far bigger way, the founders of Square Peg Capital, are looking to take on the banks  in the payments market who earn “insane profits” of $29bn per annum.

Why will these new entrants succeed in a market of such intense competition?

ASIC’s 2010 Report Access to Financial Advice In Australia highlighted, that whilst there is a great need for consumers to have advice in an ever increasing complex economic environment, the report cited cost, mistrust, consumer perception that advice is out of reach, and financial literary as some of the reasons why consumers do not engage with an adviser. The report estimates that between 60-80% (yes, that is a large unserved market to go after) of consumers have never used or sought the services of an adviser. Added to this, recent scandals such as Storm, Timbercorp and CBA to name a few, have only provided the new entrants with a ‘whiter than white’ platform to engage with this very large (and valuable) cohort of consumers, with low cost solutions and no institutional ownership.

Whilst I think that these new digital disrupters will provide a ‘good enough is ok’ solution for important services over the long term that will be successful in attracting assets and generating revenues, I am still bullish on the need for face to face human interaction.  But like any markets, it is all about segmentation. Market segments will simply have more options to engage in a way that suits them at a price point that best represents their needs.  A young tech savvy consumer (think Gen Y and the Millennials) with low income and few assets, may be very comfortable interacting with an online portal versus a pre-retiree baby boomer who is asset rich and concerned about ensuring they will not outlast their capital base – the latter would no doubt appreciate a hands on approach.  Further, part of the value of receiving face to face advice, is that advisers bring all of the components parts into one convenient location versus a consumer having to visit multiple online sites to achieve a similar outcome.

The emergence of these new online direct to consumer models, is simply an evolution in a market that is maturing – something to be embraced rather than feared!  After all, a consumer who purchases an online financial plan versus having no plan at all, has to be better off.  This can only be good for the Australian economy and the wealth management industry in the long run.

Andrew Fairweather, Founding Partner and Managing Director