blog

Not for Millennials Only

Bill Cassidy | Institutional Banking | 1/12/2016 12:13 PM

Penning this blog entry was on my to-do list last week. But I forgot to do it (insert rim shot here.)

You see, last week a brilliant colleague shared with me the results of a 2009 Harvard study (a study from 2009? Like me, she clearly forgot this item on her to-do list.) Actually, the study was recently referenced (October 29, 2015) on Bloomberg View in an insightful piece by Justin Fox, entitled “America’s Coming Cognitive Decline.”

Of the many points made clear in the 2009 study: “The Age of Reason: Financial Decisions over the Life Cycle with Implications for Regulation,” by Agarwal, Driscoll, Gabaix and Driscoll, is that there is hard data to support the fact that our cognitive functions begin to decline around the age of 53. We humans start to make more “errant” decisions as we start to approach the on-ramp for the retirement turnpike.

In my opinion, the facts laid bare in the study present another interesting concept that the participants in the digital advice space (“Robos”) might consider when positioning their services in the market. Robos are widely seen (although somewhat inaccurately) as a segment play on millennials getting ready to inherit all their parent’s accumulated wealth. Robos, which use sophisticated algorithms to make, among other things, asset allocation decisions, represent a new, frictionless, technology-enhanced way to receive investment advice for far less than the expense of a traditional investment advisor.

Last year, to cite recent data called out last week in The Economist, some prominent Robos were capturing new assets at an increase of 10 percent month over month. This year, growth has fallen to near or below 5 percent month over month (still not too bad!) One thing I have suggested in this space is that Robo firms might consider expanding their offering beyond investments; they should find ways to become more relevant to their customers’ financial ecosystems while enhacing their own P&L. Win-Win.

The combination of the Harvard data and The Economist data makes me think that Robos might be missing an additonal positioning opportunity – broadening their appeal to an age group that might be well ready to sit up and listen: affordable, automated investment advice for the over-60 crowd.

Think about it. If senior citizens can help protect themselves from automobile accidents by riding in a car powered by Google, why can’t automated investment advice be the answer to avoiding bad investment decisions at an age you can least afford to? Maybe we should stop trying to implement top-down, regulatory reform and go bottom-up. Let’s insulate retired/retirement-ready investors from those nasty brokers providing bad information to an age group who - statistics now show - are prone to making increasingly bad financial decisions by taking the brokers out of the loop! I spoke to one advisor who said that for this age group, if he had a way to transfer fiduciary responsibility about investment elections BACK to the account owner (to be made without any external influences – i.e. “algos”), he’d sleep better and the industry might spend less on arbitration.

Or, before I “boil the ocean” here, maybe the Robos can do something with this idea to get their marketplace mojo back.

The opinions, findings, or perspectives expressed in this content are those of the author and do not reflect the official policy or position of The Bancorp, Inc., its affiliates, or its or their employees.