It’s been a while since a good piece of thought leadership stroke a chord with my musical memory. But that happened this morning, when I read this on LinkedIn, shared in my network, from the March 25th issue of The New York Times: Why I Don’t Make Financial Decisions on My Smartphone.
The point is simple, clear and resonates with me as I hope it does with you. The author, Shlomo Benartzi, a Professor in the Behavioral Decision Making Group at the Anderson School of Management at the University of California, Los Angeles, “found that people did significantly worse on a test of financial literacy (…) when they took the test on a smartphone, at least when compared with those who used pen and paper”
No Robo No Cry.
Neither Professor Benartzi suggests that we are going to reduce the mental bandwidth that our smartphones will consume, nor I see a change in the clear digital trend that is going to further change every aspect of our life – financial services included.
Still, he suggests that “because smartphones can encourage us to tap and swipe quickly, we might neglect the long-term consequences of our behavior” – a particularly relevant aspect in the financial services, as they affect savings and retirement.
The implicit nudging of the digital medium that allows ease and speed of decision-making may objectively seem in conflict with the systematic and careful approach that should inform investment, savings and retirement choices.
Financial services are not for impulse shopping.
We can’t have the same Amazon or Zappos’ “try-it for free” experience that incentivizes sales but gives us the 100% satisfaction option, the possibility to change our mind, 365 days to return the items purchased and get full refund.
If you think about it, in a financial services transaction, it is certain that the occurrence of a “not being satisfied” instance coincides with the impossibility of a full refund. Otherwise, it is moral hazard, risk-free arbitrage for investors.
But this doesn’t mean that for all of us, working to innovate the financial industry, the full exploitation of the digital roadmap is precluded. What this actually means is that stakes are raised, and we are challenged to find win-win ways to nudge for the long term good of investors.
As Professor Benartzi puts it, the question is about “how we can use these remarkable devices to help us think better, not worse”.
The debate has already started in the industry. Robo-advice is already evolving, taking different shapes, from digitally enhanced product distribution channels, to hybrid models with benchmarking, account aggregation, advanced risk analytics, portfolio construction and trading services on the cloud, to full-fledged digital wealth and asset managers.
In this great future, you can’t forget your past.
To succeed in this innovative digital environment, both investors and service providers need to stay true to their respective objectives and promises.
The recipe for this symbiosis is an old one – because, one way or another, there is an element of fiduciary duty associated with the services provided. Nicer, fancier, easier interfaces will need to be coupled with transparent and accountable investment and risk management processes to hopefully deliver “predictable” and verifiable results.
This is why XTAL exists -to contribute a smarter way to track and manage private markets’ performance and risk.
Everything’s gonna be alright.