Integrated data: Digital investment challengers advance financial planning services

US-based digital investment challengers are unlocking the vast potential of customer data through the integration of banking and investment solutions

The use of data portability and aggregation has raised a wealth of opportunities within the market, where leading players have identified the possibilities around providing bespoke services and advice.

Wealthfront for instance, prompts customers to link their known financial accounts to the platform – including checking, savings, loans, mortgages, and retirement accounts during the onboarding process. Once collected, the data is then used to provide a consolidated picture of net worth and debt obligations.

The provider then capitalizes on the newly accessed data by promoting its own suite of products: it analyses the interest rates applied across each of the linked accounts, and compares against its own accounts – which inevitably offer a superior rate.

By visualizing the benefits of the account against the user’s existing products, Wealthfront prompts users to consolidate more of their wealth with their own products.

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Consolidating finances: Wealthfront prompts users to bring their products together. Source: Digital Banking Hub

From insights to action

In the modern investment world, connections are about initiation. Many providers enable users to view a balance or transaction feed, but integration stops there. More advanced providers enable the user to initiate transactions between accounts, and others take the initiation even further.

Robo proposition M1 for instance, provides a Smart Transfer tool that monitors a user’s linked account and automatically deposits cash into a portfolio when a balance exceeds a prescribed amount. Elsewhere, Acorns enables users to sweep spare change from their banks debit card transactions into their investment portfolio.

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M1 automatically deposits cash into a portfolio when a balance exceeds a prescribed amount. Source: Digital Banking Hub

These tools are designed to simplify the deposit process for customers. Rather than log in to a platform every time a user wants to add funds to their investment account, these services automatically initiate the transfers in the background.

By targeting only excess cash or allowing users to set prescribed amounts, these tools can also encourage more cash conscious or risk averse consumers to frequently engage with their investment portfolios. Indeed, an average Acorns customer will invest $30 each month through their round up tool.

From aggregation to financial planning

The real advancement in data utilization is occurring though financial planning. Digital challengers such as Betterment and Wealthfront use linked customer data to provide more bespoke goal planning services and savings recommendations.

These providers aim to understand customer lifestyle and financial expectations in order to assist them in reaching pre-defined goals. Does the customer want a luxurious retirement? Do they want to make their money last over time? Do they want to travel for a year living thriftily, or spend all their savings in one deluxe month of travel? The providers capture this information and create savings plans, with suggestions on how can they efficiently reach their target – as well as factoring in potential cost saving measures or applicable tax deductions.

Wealthfront and Betterment understand there is more to a user than a simple financial goal: once an initial target has been established, both providers then prompt customers to start linking more goals to their consolidated financial picture. Key life events can be factored in – such as college attendance, going on holiday, or purchasing a car for example. Any new goal is immediately added to the user’s plan, which is then reassessed and recommendations made to make the new targets achievable.

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Wealthfront will prompt users to add another goal to their financial plan once an initial goal has been set up Source: Digital Banking Hub
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Wealthfront advises users how attainable the new goal is and how it will impact their financial plan. Source: Digital Banking Hub

Third party data

Wealthfront however, goes a step further by utilizing third party resources to provide more bespoke insights and recommendations. For example, if the user’s goal is to buy a property, the provider presents on overview of attainable options based on the user’s consolidated financial position, a number of criteria including location and property size, and third party market data. Estimated living costs including mortgage payment, property taxes, homeowner’s insurance and maintenance are also presented to provide a more accurate representation of overall cost. The additional level of insight visualizes the path to success in greater detail, and ultimately leads to more brand engagement and a stronger customer relationship.

By utilizing customer data and combining with third party insights, goal planning services can significantly enhance a platform. The next wave of digital investment offerings might well integrate offers such as mortgage deals or personalized loan rates based on the user’s debt obligations and financial strategy, or flight and hotel offers that support not only the user’s travel goals but also enhances their desired travel experience. Leading providers will not only help customers understand their financial goals in detail, they will help them to accomplish them.

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Wealthfront utilizes third party data to visualize how much a property will cost in a client’s desired location, based on criteria such as size. Source: Digital Banking Hub

What about advice?

A lingering question in the market surrounds the issue of whether or not customers wish to communicate with human advisors, or if they want to manage their financial relationships independently. There is significant value in integrating advisory services into a platform that has captured and understood a user’s financial position and goals. Having access to comprehensive data enables advisors to have more meaningful and impactful discussions and can support customers through an emotional connection that digital alone cannot replace. 

Throughout the pandemic however, we’ve seen that digital and human advice can work effectively together. Take Vanguards’ Personal Advisory Services – a hybrid of automated investing and advisory services – which experienced 28.4% AUM growth in 2020, the most of any US based robo proposition.

Digital challengers are exploring the potential of integrating banking and investment services. The use of data portability and aggregation is opening up new opportunities for providers to understand their customers in greater detail while providing tailored services and advice. Those market participants that successfully negotiate data capture and utilization will shape the future of the industry.

Rory Pennington
Lead analyst, London
rory.pennington@curinos.com
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