The hype cycle, a concept popularised by Gartner, theorises that all transformative technology goes through a steep upward trajectory of excitement then a bust which leads to disillusionment before gradual long-term productivity is finally achieved.
Blockchain’s recent history has been marked by oscillations between boom and bust. Inflated expectations and inherent scepticism have caused a perfect storm of negative commentary when Blockchain hasn’t rapidly changed everything as we know it.
Blockchain has been through two key waves of evolution:
Power behind the throne
At its inception, no-one even talked about the technology powering Bitcoin, the “Godfather” of the cryptocurrency world. However, smug insiders spoke in hushed tones about the “real innovation” of Bitcoin’s underlying technology – the Blockchain.
Big corporate darling
Soon, the big end of town woke up to the fact they could get on the hype train for this new technology without dabbling in the murky world of Bitcoin. Voila, working groups and pilots for Blockchain (or if they wanted to be fancier “Distributed Ledger Technology”) sprung up at all the big banks and financial services companies around the world.
Having been through this cycle of boom and bust, Blockchain is now on the cusp of a third evolution, one that could be truly transformative for its wide-scale use and adoption.
A new economic paradigm
At its heart, Blockchain’s profound potential isn’t about dreary concepts like database management or authentication. Blockchain’s power really comes into stark relief when you consider its potential in the context of incentive design. Incentives are what drive society forward and facilitate creative enterprise. Blockchain enables new and innovative consensus
mechanisms to transparently and accurately motivate and reward communities.
Consider the example of a community on the outskirts of the burgeoning metropolis of Lagos, the beating heart of rapidly industrialising Nigeria. The residents of the community want to ensure that, as the urban sprawl continues, their children still have a field to play football. Today, they would probably have to bribe and lobby their local officials – a tough and fruitless task. Even once the park was built, there would be no guarantee that any institution would maintain the park and overuse would see it soon fall into barren disuse.
Imagine a different way – one supported by Blockchain, which overcomes this Tragedy of the Commons1 and moves the dial towards collective or democratic commerce. Suppose 100 of the residents decide to self-organise and each contribute $30,000 Nigerian nairas (approximately A$100) towards rehabilitating the park, maintaining it, and building a fence around the space. In return, they each receive a unique digital token which they can use to exclusively access the park for the next two years.
If other residents of the community become aggrieved that a subset of the community now has privileged access to this beautiful park, there is a simple solution:
new unique tokens can be issued if a majority of the existing token holders agree; or
the tokens can be sold by the existing holders (for a fair market price) to new residents or other potential park users.
This concept may be anathema to people who believe that capitalism has no role to play in the provision of public goods, but it is undeniable that Blockchain-based solutions of this nature could be profound because they:
facilitate trust where the state is corrupt or property rights are weak
digitise intangible assets to make them unique, indelible and transferable
provide liquidity and reduce friction in the exchange of intangible assets
allow communities to self‑organise, transparently vote and approve activity.
Blockchain is on the cusp of exiting from the trough of disillusionment and enabling a new way of economic thinking and incentive design which “harnesses self-interest as a public good and operates by mutual coercion to preserve the freedom of all participants”. 2
To realise this freedom, individuals and companies alike will need to think differently about Blockchain and its applications to commerce and society. Blockchain really could be a brave new world – bigger and bolder than anything that has come before.
Written by Ashton Jones (BCom ’07), Head of Investments, Retirement and New Propositions, TAL Australia
The super system is big. Much bigger than you realise. It’s so big that most numbers describing super are incomprehensible:
$2.3 trillion of assets invested in 2017
$10 trillion of assets estimated by 2040
wellbeing of 15 million working Australians
the 4th largest pension system in the world.
For a system so big, it’s no surprise that shifting it in a new direction takes time. Right now it’s being pushed and prodded by external forces harder than ever.
In this article, I delve into how these forces are creating four big shockwaves that are rippling through superannuation and reshaping it for future generations.
1. Big isn’t better (but it helps)
APRA has had enough. For years it has taken an influencing rather than instructing approach to the perceived problem of too many underperforming funds. The prevailing wisdom has been that consolidation or outsourcing within the sector was inevitable:
It’s clear now that APRA sees the scale=success equation as more nuanced. To prove it, they have gotten very specific on their criteria for success and will be naming and shaming funds that don’t measure up or have a long-term plan for sustainably improving member outcomes:
Why is APRA becoming so interventionist? In my view, it’s a product of many superannuation funds losing focus on core values (more on this later). The first and foremost responsibility of a fund is to ensure members receive an adequate return for the fees they pay. For some struggling funds, their only way forward will be to merge with others or outsource core activities.
I am hopeful though, that many funds can refocus on their core purpose and provide a more compelling, cost-effective and tailored proposition to their members. One big barrier for smaller funds to do this is the complexity associated with legacy product rationalisation. A myriad of regulations still operate to make it complex for trustees and providers to consolidate or transfer members to more contemporary products. The successor fund transfer regime is good but more can be done by regulators to assist funds in this regard.
Choice and competition is always good for consumers, particularly when funds differentiate their proposition by focusing on areas where they can truly add value to their specific member base. What use is retirement advice when the bulk of members are under 50? What benefit is there for life insurance if the member is under 25 with no mortgage or dependents? Funds need to know what their members are paying for but more importantly what they value. The best way to find this out? Ask them.
2. How to live safely in a net outflow world
“Do not fear death so much, but rather the inadequate life.” Bertolt Brecht
Like many members, I fear death less than I fear not making the most of the years that I have left. Superannuation theoretically plays an extraordinary role in protecting and preserving the lifestyle of hardworking Australians in their retirement years. The problem is, the system was built to make it easy for workers to get money into super (while taxing them on the way in) with little thought as to how they would get money out 40 years later (hence no tax on the way out).
A big shift is coming. Australia’s population is ageing rapidly. The number of people above retirement age grew from 1 million to 3.5 million in about half a century. Within our lifetimes, 1/4 of Australians will be aged over 65 and 1 in 14 will be aged over 85. Source: Ageing in Australia
What’s worse? People don’t even realise that they’re living longer and continue to underestimate their future life expectancy. A National Seniors Australia (NSA) surveyof 2,000 of its members found that, on average, seniors over the age of 50 underestimated their life expectancyby seven years. This generational change will result in many, if not most, funds moving into a net outflow position and the Federal Government’s fiscal deficit position growing rapidly:
Few funds are well equipped to service members in such an environment, let alone help them to make the transition to a comfortable retirement. The funds that proactively focus members’ attention on a retirement outcome rather than an account balance or annual return will be the ones best placed to win. In this future, funds will only succeed by boldly partnering with specialist providers to:
individually tailor retirement solutions for members
provide calculators and tools to demistify projected retirement income
cost-effectively protect against longevity and sequencing risk
offer savings and retirement alternatives to superannuation
equip members to overcome their behavioural biases that lead them to be overly conservative and apathetic about their future self.
Regulation may force their hand anyway but funds can’t rely on a Comprehensive Income Product for Retirement (CIPR) or an Alternative Default Model regime alone to deliver quality retirement outcomes. Regulators may even go further in fulfilling their promise that superannuation policy setting will be reoriented around a retirement income focused purpose. The unspoken threat on the regulatory horizon is future governments dipping into the superannuation honeypot by taxing retirees on pension withdrawals. Then we would really see a new retirement paradigm emerge, one that may no longer be so dependent on superannuation.
3. If you build it, Millennials will come
“If I have seen this far, it is by standing on the shoulders of giants.” – Sir Isaac Newton
In many ways, this could be the mantra of the super “disrupters” gaining a lot of press attention. There are new ones popping up every day, super designed for:
the lads (Grow Super)
techies (Spaceship)
women (Human Super)
mobile addicts (MobiSuper)
first grade spellers (Zuperannuation) – kidding!
I’m an inherent skeptic about whether these new entrants are in it for the long haul. But really, that doesn’t matter. What matters is that they represent an important customer acquisition trend. You can make prospective members care about the fund they select by tailoring the experience down to the lowest possible level (or the lowest common denominator in the case of Grow Super’s hilarious ad below):
But what’s behind their sudden rise? A mix of technological and market trends:
the rise of outsourced administration / trustees for hire
a rapid improvement in out-of-the-box superannuation software solutions
the advent of seamless electronic contributions/rollovers (aka Superstream)
savvy entrepreneurs and VC investors seeing big captive margins in the super industry and sniffing a quick juicy pump and dump.
Incumbuents can learn from this. Millennials will gravitate towards those companies and people who share their values or have similar core characteristics. You shouldn’t have to start a whole new super fund to provide a great experience to female members. In fact, Spaceship’s entire proposition could be encompassed by making available a single tech-focused investment option within an existing fund and marketing the hell out of it.
So why aren’t more funds doing this? Corporate inertia and high barriers to entry surely play a part. The bright side is, if there’s an easy answer, there’s an easy solution…
4. Forget FinTech, focus on the fundamentals
Blockchain, bitcoin, artificial intelligence, insurtech, supertech. They’re all just spokes on a wheel. This one’s on top, then that ones on top, on and on it spins – crushing the innovation ambitions of super fund board after super fund board.
Unlike Daenerys Targaryen though, I’m not advocating that funds break or reinvent the innovation wheel. Rather, funds need to return to their core principles and reflect upon how they add value to members. At a recent presentation by Bravura’s Darren Stevens, I got profound insight into the areas where Australia’s largest superannuation fund (Australian Super) believes it can add value to members long term:
net returns (gross returns less fees)
insurance
education / advice
retirement planning.
If most funds reflect deeply enough on their strategic ambitions, they would all boil down to a version of these four things. If a super fund’s value proposition is so ubiquitous, what is the purpose of having so many different funds? I think it comes back to my earlier point that choice and competition are good for consumers only if funds are adding value to the specific member base they serve.
For funds to have a differentiated purpose which reflect the members they service, they must understand the member preferences and characteristics that demand a unique and tailored service model. For example, one sector of the economy grossly under served by the superannuation system are contractors including those working in the “gig economy”. Where is Share Super – a fund designed for members in the sharing economy? *cue series A funding round* As ASFA points out, “It is crucial that superannuation settings are adjusted to ensure the superannuation system remains fit-for-purpose, and can best meet the needs of all Australians.” –Superannuation and the Changing Nature of Work
I’d argue that to better service members, most funds don’t need more or different regulation, but they do need to adjust their service proposition and provide more tailored solutions to members. Innovate but do it with purpose. This may sound odd coming from a “Fintech Freak” but innovation to me has never been about experimenting with the coolest new technology or chasing the latest upswing on the Gartner Hype Cycle.
Innovation must always be purpose-driven and customer-centric. Superannuation funds should look to the experience of sports drink giant Gatorade for inspiration. Gatorade invented new products by reinventing old ones in a “Third Way” approach to innovation. When Sarah Robb-O’Hagan took over Gatorade she eschewed the typical approaches to innovation (incremental improvement or a radical rethink) to focus on a Third Way of innovating around the current product to make it more valuable. Superannuation funds fighting for relevance amidst powerful regulatory, technological and demographic forces would do well to learn from this experience.
What other #shockwaves would you suggest are shaking up the #superannuation system? Please comment below with your thoughts to start a conversation.
The information contained in this article is general advice only and does not take into account your individual needs, objectives or financial situation.
Roboadvice is many things to many people in many markets, in turn:
once the saviour of Silicon Valley’s savings
now the darling of the emergent Australian fintech economy
the continued whipping boy of alpha seekers, and
an already obsolete technology for skeptical venture capitalists.
For the true believers, “roboadvice” is seen as a dirty word that diminishes and ridicules the weighty aspirations of those immersed in the profession. Many prefer to use more cultured phrases like “automated advice” because their more positive connotations don’t evoke images of thousands of human advisers trudging to the Centrelink queues having been replaced by HAL or WALL-E.
Underlying this terminology war is an insecurity which stems from the personality crisis that pervades most roboadvice platforms. Are they true disrupters or the soon-to-be disrupted?
This is the conundrum I will explore in this article whilst surveying the current roboadvice offerings in the Australian market. My contention is that:
the nascent roboadvice profession lies sandwiched between a well-established but much maligned advice community and a barely comprehensible future of true artificial intelligence
Australia’s roboadvice pioneers
“If I have seen further it is by standing on the shoulders of giants”
When Sir Isaac uttered those famous words, he could very well have been talking about the evolution of the roboadvice industry in Australia. In many ways, it has followed closely in the footsteps of the pioneering Silicon Valley robo houses focusing first on basic multi-sector portfolio solutions and then evolving into more holistic automated advice solutions, as illustrated below:
In the USA, the automated advice solutions of the second generation that have seen the most success have been those with access to existing scale or a captive audience (e.g. Vanguard and Charles Schwab).
Many of the Australian second generation roboadvisers are banking on bringing fresh perspectives to the automated advice game. Some positioning themselves as product-agnostic portfolio construction tools that put the user in control (OwnersAdvisory) and some giving away their talents for free in the hope of entangling the client even further into their product ecosystem (I’m looking at you, Big 4 Banks).
The levers and dials that Australian roboadvisers are playing with form part of a common spectrum. Each offering being a different spectral play on one of the following characteristics:
Despite the active attempts to truly innovate, the cynical side of me suspects the Australian roboadvice platforms that will triumph will share similar characteristics with their USA counterparts (scale and a captive audience).
However, there is another way…
Making roboadvice sticky
Roboadvisers should be catnip to a prospective client like me. I’m young, growing my wealth, financial savvy but don’t currently have a financial adviser. So what could a roboadviser do to make me use them?
Roboadvisers need to know their client-base and solve real advice problems for them.
Risk-appetite based investment portfolios or generating returns through a top-down asset allocation approach are tried and tested formulas. But they are not engaging or relevant concepts for the average joe investor.
To engage effectively, roboadvisers can take a powerful lesson from the development of mobile applications for financial products and accounts. For example, what do you suppose is the most downloaded superannuation app?
The answer is:
Why do you think this has been downloaded by so many Cbus Super’s members?
Because it:
(a) is useful and relevant to its user base (most construction employees work outside, love their footy and can’t wait until their next holiday)
(b) emphasises features that are much more human and customer-focused than the current balance of their superannuation.
In a previous post, I argued that goals-based advice conversations are the beginning of an industry-wide paradigm shift that will make financial advice relevant again to the masses. Perhaps empathy is the missing ingredient for human and robotic advisers alike.
Unifying the advice community
If humans struggle so much with empathy, what hope for a computer? Roboadvisers don’t need to feel or mimic human emotions to become more useful and relevant to their prospective client base. However, roboadvisers do need to reassess their position in the advice spectrum. Are they cold and calculating or warm and fuzzy? Are they the saviours of the advice profession or the destroyers?
I tend towards the view that roboadvisers can become a powerful part of the advice toolkit, helping to serve clients with simpler advice needs and providing full service advisers a reliable way to begin advice conversations with clients who need help achieving their financial goals or meeting their financial needs.
Roboadvisers that understand their place within the advice spectrum and can humanise their value proposition with gamification techniques are well placed for long-term success. Gamification can turn a chore into a challenge and one of the more appealing conceptualisations of this, from an advice perspective, is Melius.
Melius is a lead generation tool for financial advisers. Prospective clients answer a series of personal finances and wealth questions which are translated into a peer-benchmarked financial wellness (Melius) score. Clients are behaviourally incentivised to improve their Melius score by contacting their financial adviser to, for example, increase their insurance coverage, re-weight their investment portfolio or refinance their home loan.
The Melius concept, whilst appealing, isn’t the panacea for roboadvice. Roboadvisers need to become more human. Or rather, they need to seem more human.
Disrupting roboadvice (the 3rd generation)
Imagine, Siri for financial wellness. Lets call her, Robotica. For the same price as your monthly Spotify subscription you can hold your financial future in the palm of your hand:
Hello, Robotica!
Good morning, Ashton. How can I help you today?
Robotica, how is my investment portfolio performing?
You’re doing OK, Ashton. Your portfolio is currently outperforming the market by 5% which is better than 98% of your peers. However, I recommend that you reduce your allocation to Australian mining stocks by $22,000 as iron ore prices are continuing to soften.
Thanks Robotica, please go ahead and implement that.
All done Ashton, you have incurred $55 of brokerage costs. Have a good day at work. Let me know if you need anything else today.
The future of roboadvice will be built on natural language processing, machine learning and artificial intelligence. With sufficient processing power to mimic human conversation, roboadvisers will interact with clients fluidly and naturally. Once the uncanny valley is bridged, the floodgates will open and the industry will never be the same again.
This may seem like science fiction now but human advisers would be well advised to make friends with their robotic counterparts. Whilst the current and near future generation of roboadvisers may not be that impressive, a new world of financial advice awaits only a quantum computing heartbeat away.
If you enjoyed this post, please like or comment below. You can read previous articles in this series on ideas transforming Australia’s wealth in 2016 below:
