Christian Neuenhaus: Yesterday, after a long and hard journey, investify went online. How does it feel?
Christian Friedlich: It is a ‘we’ve done it’ kind of feeling. The road for us was full of surprises, how difficult it is as a digital asset management service to get a licence for example, or how many processes and things there are to do that require asset management. In the end we are happy of course to have brought this very complex process under our control and to be able to offer a comprehensive service. It was a lot of work and we have learnt a great deal. We are convinced that we can now offer an excellent service to the customer.
Christian Neuenhaus: In the meantime, Robo Advisor has imposed itself en masse on the market. Why will investify have greater success than the existing services? What is different about investify?
Christian Friedrich: investify has a few clear, distinctive features. investify is one of the few digital asset management services that is operating with a licence. Only a quite small group in the market has this privilege. What really differentiates investify, is the emotionalisation and personalisation of the investment that we offer. We don’t offer a standard investment, rather for the first time worldwide the client is in the position to receive a personalised digital asset management service. This is completely new to the market.
Christian Neuenhaus: The investment themes play a large role here. Could you please expand on that?
Christian Friedrich: This individuality, in contrast to the other providers, is shaped by the need to be aware of or to be able to influence where the money is being invested. The classic asset management service is as follows: ‘Invest my capital, but make sure that it’s not invested in weapons or GM technology, rather invest sustainably.’ That crucial individualisation feature possible with a traditional asset management service will come up against what we have to offer with investify. We offer the customer the option to specify the investment focus. The investment focus is packaged into themes such as electric mobility, online gaming, investing with minimal CO2 emissions etc. and some of these themes we have made investable for the first time.
Christian Neuenhaus: So that means that the investment is individualised to a much greater degree?
Christian Friedrich: That’s right—and a wonderful side effect. In the industry we talk about co-creation. That means, when people are involved in the creation of their product, they have a much greater sense of ownership. For example, in the automotive industry, it is standard that the customer creates their own car. In investment this effect is particularly valuable, because for many people it is extremely difficult to develop a sense of ownership with their investment.
Christian Neuenhaus: investify was founded by aixigo and Rhein Asset Management. A digital process was created in close collaboration. Which part did aixigo deliver?
Christian Friedrich: investify was built in a joint venture between aixigo and Rhein Asset Management. Rhein Asset Management is an established asset management company, which manages large sums of money. In our project, aixigo, together with Rhein Asset Management, looked at complete processes in daily work in detail. These began with the first action at 9 o’clock in the morning and finished with the last action at 8.59 the next morning. And the idea was to digitalise all of the actions and processes that an offline asset manager does. The result is a piece of software that digitally reproduces complete sub-processes of an asset management service. Consequently, these services are no longer exclusive to very wealthy clients, but can be offered very efficiently to a very broad customer base.
Christian Neuenhaus: That means that the entire process, from profiling to composing, is digitalised?
Christian Friedrich: Correct. The whole process from A to Z, starting with registration, the creation of a risk profile and daily portfolio management all the way to regular reporting is available digitally.
Christian Neuenhaus: In 2018 MiFID II will arrive. Are the necessary regulatory requirements already integrated into investify?
Christian Friedrich: We are already working daily on the requirements set out by MiFID, from the point of view of the banks as well as from the point of view of asset management. In the new solution, many of the future requirements have already been implemented. This way we have security for the coming years and will at most have to make just small adjustments to the software.
Christian Neuenhaus: How much could you draw on the experience of previous projects for the creation of investify?
Christian Friedrich: Of course we can take a whole lot of synergies from our diverse projects, risk profiling for example. This has been an integral part of our platform for years. However, for investify we had to take many steps differently. There is therefore very likely a difference between in-branch advice and digital advice. For many process steps, we had to think up new innovative methods. There are therefore process steps, which you wouldn’t think of at first when creating a digital contract-drafting process for the customer, but which succeed in making the process fun and very clear.
Christian Neuenhaus: Gauging from volume and the number of clients, FinTech is not posing such a big threat to the banks at the moment. Is the long awaited danger to the banks already over?
Christian Friedrich: It is in fact true that the volume managed by the so-called Robo Advisors is still very small. As it is, the banks need not worry about the pure threat of customer attrition. There is actually a very different pressure emerging and that is a pressure that puts the business model of the banks in danger. FinTech offers the customers many innovative and high value services at extremely attractive costs and promotes these attractive conditions vociferously. This will attract primarily the cost-sensitive customers of course.
We are operating on the assumption that this cost sensitivity will greatly increase from 2018 onwards, when ex-ante and ex-post cost transparency will be implemented by way of MiFID II. Bank and FinTech conditions will be very easily comparable. This will result in a considerable acquisition of clients in FinTech and also make it more difficult for the banks to enforce high surcharges and commission. This cut in revenue presents a real threat to the banking industry.
Christian Neuenhaus: If we could once more explicitly take on the topic of cost transparency and commission. How did you tackle this for investify in the framework of digital asset management?
Christian Friedrich: For investify we decided to offer the easiest and most transparent cost model possible. The client pays 1% per annum on the managed assets. With this percentage, complete services from the account management and transaction charges to asset management are covered. There is no hidden cost or commission.
Christian Neuenhaus: Let’s move on from the pure digital service and ask what advantages the digitalisation holds for the traditional branch-based service. One aspect of this relationship, which in recent times has seen ever more widespread discussion, is the added value service that can come with a deposit. So how can the—I will call it branch-side—benefit from the digital processes and experiences?
Christian Friedrich: UBS in Switzerland are currently setting an example for how digital asset management operated by branch employees can offer attractive conditions to the banks. Here digital asset management will become an attractive product even for the banks. A hybrid model such as this could effectively be a completely digital asset management service, such as that offered by investify, conveyed however by branch employees. The branch employees can then concentrate on the market and the product idea. In comparison to traditional investment advice the regulatory requirements are far less. This has far reaching consequences—the demand on the advisors is significantly reduced and with this a greater number of advisors could sell such a product. Through the elimination of various process steps, the actual consultancy costs sink compared to traditional investment consultancy. Eventually the follow-up costs are reduced too, those incurred for the monitoring of protocols for example. The requirement for this of course, is that the new digital asset management processes are largely automated and fully scalable.
The second part of the answer is that we are currently observing a change in the business model of the banks. At the moment we are still experiencing the traditional business in many places—that means investment advice, surcharges, commission etc. What we are now witnessing, are the first stages of a transition to new business models and payment services that are orientated towards the service around an investment. At various banks there is already something known as Premium Deposits, where customers receive special services that are strongly reminiscent of traditional asset management. For these deposits, the banks offer, for example, an ISIN-applied monitoring of losses, exclusive reporting or the monitoring of asset allocation. It doesn’t therefore have to be asset management in its pure form, there can also be added value services for asset support that run digitally. If these digital services really add value for the customer, the banks will be able to impose charges accordingly.
Christian Neuenhaus: Can traditional advice still be provided economically at all? In the Netherlands and Great Britain barely any advice is given in branches for financial reasons.
Christian Friedrich: A further threat to the business model of the banks, about which we haven’t spoken about at all yet, is the change in direction of the product world towards ETFs. Because of their favourable cost structure, these products are found in many digital offers and are very attractive to customers. Accordingly, these products are celebrated in the press and test magazines too. What is attractive to the customer, poses a big problem to the banks, because the earning potential is extremely low. If a bank wants to deploy such a product it needs to be done within the framework of a new pricing model for instance in the context of fee-based advice, digital asset management or digital asset support—so precisely the aforementioned value added service.
Christian Neuenhaus: Is the move by UBS to offer asset management from 100,000 euro pioneering? That is, can it be assumed that this high value service will receive widespread acceptance in the retail sector?
Christian Friedrich: That’s absolutely right. aixigo is working extremely hard not only on investify, but also generally on digital solutions, with whose help even personalised asset management will be accessible to millions. Alongside investify, next year the first banks will be able to offer asset management services to a very broad customer base on the back of aixigo-technology.
When, in 2020, we look back on the securities business of 2016 and look at the accompanying services, we will notice significant changes. These changes will be comparable to the rapid changes that occurred at the advent of online banking in the 1990’s. We are very much looking forward to these developments.