An interview with Harry Chemay, Co-founder and CEO, Clover.com.au
The financial advisory and funds management industries have been following the same playbook for decades. With governance, fees and transparency facing increasing regulatory scrutiny, and new technologies and a global market creating unprecedented investment opportunities, it was inevitable the existing model be disrupted.
Harry Chemay left the world of ‘big investment’ with the aim of disrupting the norms in financial planning and investment, by co-developing a tech-led platform that abandoned the ‘old rules’ - as well as unnecessary fees and jargon - and rebuilt investing from the ground up. The result was Clover.com.au, an automated investment service built to serve the needs of time-poor, digitally-savvy investors.
What was it about the traditional investing model that you felt needed ‘disrupting’?
There was a time when professional investing was an activity solemnly undertaken by the trust department of financial institutions. It was about service, and a deep sense of fiduciary duty owed to clients, often widows and pensioners, whose wealth was managed.
The sixties heralded a changing of the guards, with managed funds becoming the vehicle of choice for investors wanting a slice of action in the then booming US sharemarket. Funds management became a rapidly growing and highly profitable business, and it has stayed that way ever since. Net profit margins in most major developed markets has comfortably been in excess of 30% on the near $100 trillion under management globally, according to global consulting firm The Boston Consulting Group.
What I find fascinating is that the funds management industry has become so incredibly large without any economies of scale reducing the cost to the end user, in the same way that Moore’s Law has for information technology. Quite the opposite, the average active retail managed fund in the US is more expensive today than its predecessor from the sixties.
When I looked into why this might be the case, it turns out that investing remains stubbornly expensive for individual investors because of the number of agents and intermediaries who are each clipping the ticket as money moves from investor to investment and back again. In short, there’s a veritable swarm of helpers; financial advisers, asset consultants, fund manager rating houses, execution and clearing agents, administrators, registry providers, custodians, fund accountants…. I could go on, but I’m sure you get the picture.
Can you see further disruption on the horizon for financial / investment services?
Some say the last great financial innovation was the introduction, fifty years ago, of the automated teller machine. I don’t hold that view, having seen the financial industry evolve and adopt over the last twenty years. It’s just that most of the innovation has been in middle and back office solutions; enterprise banking platforms, enterprise CRM systems and multi-million dollar re-builds of investment platforms to help financial advisers deliver advice more efficiently.
What has changed over the past five or so years is the increasing use of technology to enhance the user experience. Until recently that was basically an after-thought. Whether a customer actually had an enjoyable experience interacting with a financial service provider was of little concern to the provider. Who’d believe tracking your spending habits, applying for a personal loan or saving for your kids’ education could be engaging, let alone enjoyable?
Where we are right now, with new FinTech startups springing up all over the world and innovative solutions across payments, transfers, lending, wealth and insurance, is just the beginning of a wave of disruption that could fundamentally alter what the financial institution of the future looks like.
Imagine a future where your personal digital assistant sitting on your kitchen benchtop senses your presence as you pour that post-dinner glass of Merlot and asks if you’d like to review finances. It proceeds to collate information from your various FinTech service providers, giving you a snapshot of your net worth and insurances, keeping you abreast of new offers and opportunities, and providing a plain English spoken-word version of the arcane legalese buried in the contracts for new services of interest. That future is not so far away.
What have been the main challenges in educating people about investing online?
We’ve been pleasantly surprised by the level of enthusiasm shown by our users in receiving advice and investing online. The recent 2017 EY FinTech Adoption Index survey indicated that 37% of Australians are now considered regular FinTech users, up from only 13% just two years ago. Admittedly, these numbers are biased to younger Australians, and to Gen-Y in particular, but it’s fair to say that Gen-Y is much more comfortable investing online compared to previous generations.
That comfort is reflected in our client base, with more than half our clients aged between 25 and 35. Millennials look first online to find solutions that can solve a problem faster, more efficiently and at a time and place of their choosing. Most of the interaction we have with new clients happens after-hours and on weekends.
That’s when busy young professionals have the headspace to turn their attention to their own affairs.
With today’s tech savvy consumer, 9pm is the new 9am, and if you can’t meet their desire for flexible interactions, frankly you’re going to be increasingly irrelevant.
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