Artificial Intelligence and Robo Financial Advising
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ETFmatic presentation at Imperial College (July 2018)
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Artificial Intelligence and Robo Financial Advising
- 1. The European Robo-Advisor Artificial Intelligence and Robo Financial Advising Imperial Business in the City July 2018 This presentation is provided for information purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any financial instruments. Robo-advisory is a category established by U.S. companies like Betterment and Wealthfront, it does not imply we provide advice. Ask a Financial Advisor if in doubt. Amazon, Amundi, Apple, Barclays, Blackrock, Boost, Deutsche Bank, ETF Securities, First Trust, Google, HSBC, Invesco, Lyxor, SaxoBank, State Steet, Source, UBS, Ubuntu, Vanguard, Windows and Wisdom Tree are trademarks of their respective owners. ETFmatic Ltd is authorised and regulated by the Financial Conduct Authority (No. 657261) and is a limited liability company registered in England and Wales, no. 08856747, with a registered office at 4th Floor 7-10 Chandos Street, Cavendish Square, W1G 9DQ, London, United Kingdom. ETFmatic Ltd is registered for VAT with the HMRC with registration number 190 8981 63. The custodian of our clients money is Barclays Bank, while the ETFs are held by Saxo Bank in an account in the name of ETFmatic Global Nominees Ltd. Our services are available in Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Gibraltar, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. Free simulation accounts are available worldwide.
- 2. 2 A Portfolio Manager in an App ETFs are the most efficient investment building blocks available http://etfmatic.com/whitepaper
- 3. 3 Robo-advisory is just getting started Forecast: total addressable market http://www.businessinsider.com/4-reasons-robo-investing-growing-2017-1
- 4. 4 ETFmatic is the most downloaded robo-advisor in Europe, authorised by the FCA in the UK and passported to operate in 32 European countries Technology Our platform is flexible enough to offer our products both directly to end consumers (D2C) and through business partners (B2B) – i.e. eWallets, banks, ETF issuers, financial advisors, etc. Market The rest of European robo-advisors have mainly focused on the D2C market in one or two countries each This leaves ETFmatic in an ideal position to grow with limited competition in: The B2B market throughout Europe Direct-to Consumer in over 25 countries Company ETFmatic at a glance Proven robo-advisor with a unique angle in B2B and licenced in 32 countries
- 5. 5 The story so far Launching a bank, one step at a time
- 6. 6 Standing on the shoulders of giants 3 mega-trends in the investments space Active Passive Investment style Commission-based Fee-based Regulatory pressure on remuneration Physical Online Interaction with clients
- 7. 7 FCA-authorised in November 2015 Operating with real-money accounts since April 2016 Available in 32 European countries +200 000 downloads of Android, iPhone and Windows Apps Next Steps Continue growing our D2C proposition, that is currently doubling AUM every quarter Develop 3 more B2B deals in Europe throughout 2018 With our dual go-to-market strategy we aim to achieve break- even during 2019 Planned Share Issue Q4 2018 Pre-approved for EIS ETFmatic’s funding from 2014 to today (£2m in total) has come from individual investors Key Milestones Achieved Investing properly should be easier Our journey to make ETFs simple
- 8. 8 ASSETS UNDER MANAGEMENT CLIENT ACQUISITION COST (FUNDED ACCOUNT) APP DOWNLOADS x2 quarterly D2C Traction and CAC: Strong growth at a fraction of industry costs <£100 +200 000 Low CAC driven by freemium model +15% of simulation users create a real- money account Validated approach to reduce friction points CAC < 1-year fees for a £20,000 account CAC down 50% in the last quarter Insights: +70% of users send monthly contributions +75% of traffic is from mobile devices +80% of customers have a LinkedIn profile
- 9. 9 Fees matter because they reduce your returns It's also very unpleasant when you are charged more than you expected 0.29-0.48% + ETF costs ETFmatic manages all your investment goals for 0.48% of your Assets under Management (our fees) plus the ETF issuer costs (fees of the funds you invest in). For accounts larger than 25,000 £/€/$, we charge 0.29% of AUM. The total ETF issuer fees of your portfolio (also know as TER - Total Expense Ratio) will depend on the asset allocation (weights) you have selected. The average TER of ETFs in our portfolios is 0.13%. We invest in ETFs that are managed by the world’s top issuers. No deposit fees × No withdrawal fees × No trading fees × No exit fees × https://etfmatic.com/pricing
- 10. 10 Our Platform enables us to offer competitive pricing in 32 countries Transparency motivates us to improve ETFmatic every week Company Amount Fees Options Total % p.a. Management Avg. issuer fees Currencies Countries <25,000 0.61 0.48 0.13 EUR | GBP | USD 32 European Countries >25,000 0.42 0.29 Child account 0.13 0 <100,000 0.94 0.75 0.19 GBP United Kingdom >100,000 0.54 0.35 - 1.0 0.75 0.25 EUR | GBP Germany United Kingdom <10,000 0.25 0 0.25 EUR | GBP Italy United Kingdom 10,000-100,000 0.85 0.6 100,000-1,000,000 0.65 0.4 >1,000,000 4,140 / year https://etfmatic.com/pricing
- 11. 11 B2B Offering Where and how we could add value to others’ propositions Custom goals for treasury needs. Portfolio execution for IFAs and other Professional Customers. Investment Management for Family Offices. Pricing based on AUM. Whitelabel as a Service Define your own terms of service and pricing structure. Configure your risk map and asset allocation rules. ETFmatic provides you with automated portfolio rebalancing, trade execution and reporting. Software as a Service (SAAS). API + Appointed Representative Build on top of our Platform. Benefit from our economies of scale. Accounts in 3 currencies (GBP, EUR, USD). MIFID Passport; we are authorised to offer investment services in 32 countries. Corporate / Execution Accounts
- 12. 12 Luis Rivera Business Development Johan Hellman Operations and Regulatory Tom Carnell Technology ETFmatic is led by a team of experienced entrepreneurs that believe we all deserve a transparent and cost effective way to put our savings to work Our Non-Executive Directors combine extensive experience in Financial Services (UBS, JPMorgan) and Technology (Google) Our Academic Advisory Board includes INSEAD Chaired Professor of Finance, Cambridge Judge Business School’s Professor of Behavioural Finance and a former Hedge Fund manager and London Business School lecturer. Founders and Advisors https;//etfmatic.com/team
- 13. 13 Experience our approach with a free simulation account Capital at Risk
- 14. 14 Thanks for your time! Please don’t hesitate to contact me with any questions luis@etfmatic.com +44.203.608.3985 @luisriverag
Editor's Notes
- Hi, my name is Luis and Im one of the founders of ETFmatic, the European roboadvisor Thanks for inviting me to share how 3 geeks have managed to compete with Banks in 32 countries I hope my presentation helps illustrate how roboadvisors are disrupting Financial Services, and inspires you in the next steps in your careers 12 years ago I was a Management Consultant for Monitor Group Consultants are often encouraged to study an MBA before they are promoted to senior Management I wasn’t keen to go back to school, but taking a “gap year” to double your salary is a very strong pitch During my MBA I grew the courage to quit a very lucrative career in consulting When I was 14 I had made a lot of money selling collectable card games over the internet, but my dad convinced me to “get a real job” My professors and peers changed my mind-set, and I went from managing a video company that worked for Red Bull to leading more complex startups Eventually I was challenged by MBA colleague to launch a bank automating ETF management strategies we had learnt at business school
- ETFmatic is an online Discretionary Investment Manager We use ETFs as building blocks to deliver custom portfolios, which means we tailor investments to what makes sense for our customers, in contrast to what banks have traditionally done by offering investment funds that paid them back huge commissions, Funds, which BTW, are very expensive and have a tendency to underperform, but banks made so much money selling them that they didn't have the incentive to consider what’s best for their customers What is an ETF? An Exchange Traded Fund is essentially a very low cost way to replicate financial markets, such as the FTSE that covers most of the largest companies in the UK. ETFs are one of the most significant innovations in finance of the last decades, and currently manage over 5 trillion dollars How do we use them as building blocks? We automatically figure out how to deploy your contributions, which many customers automate as a direct debit every month, to bring you as close as possible to your investment plan, so your portfolio can remain diversified without a lower need to rebalance You can read more about our approach in our whitepaper available online
- Why did we start our journey into banking as a roboadvisor? There are two sides to the story On one hand, my cofounder and I where frustrated that 6 years after learning about ETFs in our MBA we still had to use a spreadsheet to balance our diversification and pay huge brokerage commissions to invest in ETFs. On the other hand, it made a lot of business sense, the combination of a tech and regulatory stack that enabled both D2C and B2B across 32 European countries was hugely disruptive in 2014. And the chart behind me is in trillions
- What makes ETFmatic different? First of all, our European focus ETFmatic enables customers in 32 countries to invest in ETFs with our App We are the only roboadvisor available in most of them Second, our cost efficiency. We have developed a full regulatory and technology stack that has allowed us to remove layers of intermediaries in order to deliver a complete service at a fraction of the cost of what others do Finally, we have been the first to distribute our platform both B2B+D2C Our API enables us to manage bespoke investment portfolios for each of our clients without additional overhead, and our capability to aggregate trades enables us to offer better terms to B2B partners
- It is my understanding that our approach has benefited from 3 facts Banks suck Banking is a necessity but old school banks are not. We learnt this the hard way in 2007 2. Tech can lower costs AND improve customer experience In our case it comes down to Operational expense efficiency through order netting & custody integration Spreading operational costs against revenues from 32 countries Lowering acquisition cost by offering a complete simulation, which enables customers to try before they buy
- 3. But more significantly, it helps to ride a wave that drives disruption. In our case we benefit from 3 megatrends: First of all, a switch to passive: Investors are moving away from expensive, underperforming active funds to low cost index funds like ETFs Secondly, RDR and MIFID2, which have increased transparency in Financial Services, and banned banks and financial advisors from receiving commissions from funds. And more significantly, software is eating the world. Customers now seek online, or more specifically App driven, services A great product makes a difference
- The Financial Services industry has changed significantly over the last 5 years Prices are going down because customers are starting to understand the impact of fees in their net returns Fintech startups are combining forces to re-bundle Banking services through B2B partnerships Incumbents are waking up and starting to both compete and collaborate with us What are we planning to do next? Serve more customers D2C, keep increasing our cost efficiency Distribute our Platform via more B2B deals, where a single customer can bring hundreds of millions in AUM Raise another round to increase our runway
- Let me share a few more details about relevant metrics Even with a fraction of our competitors funding, we are still the most downloaded Roboadvisor app in Europe Our Assets Under Management doubles every 3 months Our client acquisition cost is very low, less than a tenth of what it costs many competitors to grow
- So whats our business model? We charge customers a simple fee based on the size of their accounts. Many Europeans still pay up to 3% of their investment every year, but we offer a full service for 0.04% per month Our pricing makes a big difference for our customers because their savings compound. Let me show you how it compares in the next slide
- In the chart behind me, you can see the pricing of UK’s leading roboadvisors ETFmatic might be the only Roboadvisor available in most countries where we compete, but all Europeans benefit from the same pricing as customers in the UK It’s also worth mentioning that we don’t charge fees to accounts you open for your kids, so the savings for your children grow even more as they compound before they turn 18
- Our B2B offering is structured in 3 main formats that help different companies to leverage our Platform API+license, so other startups can build on top of our technological and regulatory stack Whitelabel SAAS, that facilitates integration with banks and financial advisors Corporate & execution, for Fund managers and other businesses to benefit from our economies of scale
- Our international team is based in our London headquarters and Madrid subsidiary Our Non-Executive Directors combine extensive experience in Financial Services (UBS, JPMorgan) and Technology (Google) Together we have faced many Challenges: Building the team Finding Shareholders that believed a bank could be launched for under 1M Developing an awesome Technology with a small team Surviving Regulation without having worked in Financial Services Earning and maintaining the trust of thousands of customers
- Our Customer journey involves 12 steps from simulation to super VIP accounts, those that have invested more than 250k with us What are the main points of friction? Trust; it’s hard to build a brand without a big budget We chose a freemium model to earn customer trust progressively We leverage word of mouth, many of our customers come from referrals And we distribute the best ETFs, which do have significant marketing budgets Secondly, Education. Finance is a complex subject. We publish many educational pieces, including an investors academy We publish 3 minute interviews with experts, including some from Imperial And we systematically A/B test how we present information to customers Thirdly, User Experience. Software needs to be fine tuned to challenge the human touch advisors deliver We continuously upgrade our app based on analytics and customer feedback We publish detailed reports about the returns our portfolios achieve We have a great customer support team and respond questions very quickly So if you are ready to move from theory to practice, download our app and invest a few minutes trying a free simulation account
- Thanks for your time. Please don’t hesitate to contact me with any questions via email, phone or Twitter I believe we might also have the chance for a few questions now and a chat while we enjoy drinks in the terrace