How money managers use rounding to attract and onboard new investors

Open banking and rounding help money managers attract and onboard investors by reducing barriers to entry for novices and making it easier to save.

For many individuals, investing can be intimidating. The unfamiliar language, process and the seemingly critical choices can create discouraging barriers to entry.  This can prevent less financially literate people and younger demographics, from even beginning. 

Research suggests that the three main barriers to investing are: 

  • Fear and anxiety,
  • Inequitable access, and
  • Insufficient funds. 

New fintech applications, particularly those powered by open banking, have created products that can help make it easier to start and continue investing. One such product is saving and investing through roundups, whereby individuals dedicate the difference between each purchase and the next full-dollar amount to a deposit account. 

In this article, we’ll discover how roundups are utilized in the money management industry, their growth and how robo-advisors can easily leverage a roundup program to attract and onboard new investors.

Attracting new investors with roundups

Money management is facing significant changes as a massive shift in wealth continues to take place. This shift is driven by many factors, but two loom large: first, the growing importance of women investors; and second, the growing influence of younger investors and their consumer demands. 

Women investors

Women are increasingly a critical demographic of investors. As average income levels rise, despite a stubborn pay gap, women have more money to save and invest. Additionally, with the Great Wealth Transfer (whereby parents and grandparents pass their wealth down to the younger generations - by one estimate, transferring about $84 trillion over the next 20 years), women stand to inherit a great share of wealth. However, women generally invest less than men. A 2021 Fidelity study found only 33% of women actually see themselves as investors. A US-based survey by FinanceBuzz found that about 34% of women haven’t even begun investing. While COVID has influenced many women to start investing (about 67% of women are now investing outside of their retirement accounts, compared to 44% in 2018), there still remains significant barriers. 

Young investors

Millennials and Gen Z investors are of particular interest to money managers because they have more economic power than any other generation preceding them. In general, they have higher incomes, and are more interested in saving and investing. Moreover, Millennials and Gen Z investors have different attitudes towards investing. They are more inclined to use their capital for socially responsible investing and in particular, are focused on ESG initiatives. According to an article by Fortune, 25% of millennials who save have more than US$100,000 in savings, and 95% of them say they want to invest in socially responsible ways.

Fintech companies are noticing and some robo-advisors, like Wealthsimple, have strategically targeted women and younger demographics. Female millennials tend to be the target of their marketing efforts. What does that look like? 

These companies have focused their marketing on financial education and literature to reduce the fear and anxiety of investing. They’ve also focused on creating attractive and user-friendly UI/UX to make the process more comfortable. Further, they’ve introduced ESG options. 

Bringing roundups into the mix

While financial education and better customer experience is great, many still have questions about getting started with investing. Oftentimes, it becomes difficult to find the additional income needed to begin investing, and to do it consistently with every pay check. 

This is where rounding can be a major win. 

Roundups remove the burden of budgeting to save as rounding up purchases will automatically save money for investors. Roundups are simple, just set it and forget it. Once a roundup has occurred, that amount can be transferred into an investment account and automatically invested in specified investment products that are suited for the individual. 

It may not seem like a lot, but regular contributions made via roundups and cashback into an investment can benefit from the power of compounding. With applications like Questrade that offer low fee trading, reaching your financial goals has never been easier. In addition those funds can be invested into a diversified portfolio that meets the needs of each individual. Although returns can not be guaranteed, a well diversified portfolio will help mitigate risks for a risk averse investor. 

Creating accessibility is key to adoption for several key demographics. Removing sign up friction is step one, and can be accomplished by providing for open enrollment of any credit card.  No need to carry a certain card or spend in a certain way.  Making it easy to harness the spending already being done, on a card a user already has, can make all the difference in removing the intimidation factor of investing.

A growing strategy for robo-advisors

Many popular robo-advisors, such as Wealthsimple and Koho have rounding features that are built into their systems. Customers can link a card (or sign up directly with their card as in Koho's case), make purchases and see roundups from spare change deposit into their accounts.

The challenge for these companies, however, is having reliable service that can handle the process of card-linking, data calculation and money movement. Data breakages can also lead to customer frustration and backlog.

With Olive, Questrade has been able to overcome those challenges. Questrade's RoundUP automatic savings program has been able to help customers put their change to work and accelerate savings goals. In addition, Questrade's Cashback Rewards program also allows customers link their cards to earn cash rewards directly into their Questrade accounts, further boosting financials goals.

Rounding and open banking for money managers

Open banking applications, like rounding, have revolutionized the money management landscape, offering unprecedented opportunities for money managers to streamline client onboarding, enhance personalized services, and foster investor trust. By harnessing the power of open data and APIs through practical tools like rounding, money managers can position themselves at the forefront of innovation while delivering exceptional client experiences and driving long-term growth.

To learn how you can integrate rounding into your financial wellness program, reach out to us today.

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