There can be both great power and potential destruction in a world where technology is king and information is available at the click of a button. The financial industry is not exempt from the ever-evolving climate technology creates. With an onslaught of do-it-yourself investing platforms and robo-advisors, some investors and advisors alike may be questioning the value of having a financial coach.
One prominent example of technology transforming an industry is the travel industry. In 2000, there were 124,000 U.S. travel agents—an all-time industry high.1 But 14 years later, that figure fell more than 35% to 74,000, as travelers began opting for ease of booking through online platforms. When customers book travel online, they are likely basing their decisions largely on price, reviews, and pictures (which can potentially be deceptive), rather than the advice of a travel agent who can cater their recommendations to their customers’ exact budgets and needs.1 The rise of online booking may have simplified the process, but potentially created new problems.
Like travel agents of the past, traditional financial advisors and the future of the financial industry, are under attack. Technology is replacing what traditional financial advisors have offered in the past. Investors are increasingly turning to robo-advisors and popular stock-trading apps, which, in addition to being simple to use, offer an appealing gamified experience. Even DIY tools offered by well-known financial custodians are advertising to investors with messages that tout ease and simplicity with investing-at-your-fingertips, potentially replacing the need for a financial advisor.
The global robo-advisory market size is expected to grow from $18.71 billion in 2021 to $28.10 billion in 2022 at a compound annual growth rate (CAGR) of 50.20%.2 Likewise, stock-trading apps have increased in usage and revenues, growing from $3.2 billion in revenue in 2016 to $22.8 billion in 2021, with a large increase coinciding with the pandemic.3
Dr. Terrance Odean, a member of Matson Money’s Academic Advisory Board*, warns about the popular stock-trading app Robinhood and how it uses simplicity and elements like virtual confetti to make users feel like they are winning even when they lose.
“Unfortunately, I think many of the Robinhood investors haven’t gotten around to investing, so they’re somewhere between trading and playing a game, and Robinhood makes it seem like playing a game,” Odean said at the 2021 Advanced Advisor Conference, noting that Robinhood users often had steep losses after periods of increased trading activity.4 “When you take frictions away, people do things more. It’s tempting to say, ‘let me pull out my app and trade.’ On average, individual investors do worse when they’re speculating; they lose all the advantages of diversification.”
If you use an online booking site instead of a travel agent, worst case scenario—you have a lousy vacation. But if you trust a stock-trading app or robo-advisor that relies on a machine rather than a financial coach who is trained to help empower you through financial ups and downs, you could be putting your financial future at risk.
That is why, at Matson Money, we believe the investing experience should begin with an exploration of purpose. We are committed to empowering advisors to coach their clients to discover their True Purpose for Money and build confidence in their long-term investing strategy. Just like athletes have coaches to help them achieve their goals, a financial coach—especially one who is trained in Nobel Prize-winning investing principles—can help their clients become prudent and disciplined in investing over a lifetime, even during volatile markets.
When it comes to investing, it’s easy for negative biases to take over. Investors might get lured into thinking they should get out when the market begins to go down, only to miss out on major gains when the market recovers. Or they might put their money on a hot new stock tip, forgetting the importance of diversification.
A financial coach can be an invaluable tool to help investors stay disciplined toward their long-term goals. What technology cannot coach or predict is human behavior. While the traditional financial advisor may be under attack, the value of a financial coach can far surpass what technology attempts to offer. At Matson Money, we integrate Noble Prize winning research and empirically tested investing science – along with studies in human behavior – to coach investors toward achieving their financial goals.
- Explore Travel Agency Stats on Industry Trends, Bookings, Sales, Fees & More! Condor Ferries. Retrieved 10 October 2022 from https://www.condorferries.co.uk/travel-agency-statistics.
- Robo Advisory Global Market Report 2022 – By Service Type (Direct Plan-Based/Goal-Based, Comprehensive Wealth Advisory), By Provider (Fintech Robo Advisors, Banks, Traditional Wealth Managers, Others), By Business Model (Pure Robo Advisors, Hybrid Robo Advisors), By End-User (Healthcare, Education, Retail, Others) – Market Size, Trends, And Global Forecast 2022-2026. The business Research Center. April 2022. Retrieved 10 October 2022 from https://www.thebusinessresearchcompany.com/report/robo-advisory-global-market-report#:~:text=The%20global%20robo%20advisory%20market,(CAGR)%20of%2050.20%25..
- Curry, David. Stock Trading & Investing App Revenue and Usage Statistics (2022). Business of Apps. September 2022. Retrieved 10 October 2022 from https://www.businessofapps.com/data/stock-trading-app-market/
- Matson Money (July 2022). The Truth behind Robinhood’s Gamified “Investing – Part 1/3 . YouTube. https://www.youtube.com/watch?v=y26MYKFQdtA&t=4s.
This content is based on the views of Matson Money, Inc. This content is not to be considered investment advice and is not to be relied upon as the basis for entering into any transaction or advisory relationship or making any investment decision.
This content includes the opinions, beliefs, or viewpoints of Matson Money and its Co-Advisors. All of Matson Money’s advisory services are marketed almost exclusively by either Solicitors or Co-Advisors. Both Co-Advisors and Solicitors are independent contractors, not employees or agents of Matson.
Other financial organizations may analyze investments and take a different approach to investing than that of Matson Money. All investing involves risks and costs. No investment strategy (including asset allocation and diversification strategies) can ensure peace of mind, guarantee profit, or protect against loss.
Barber, Brad M. and Huang, Xing and Odean. Terrance and Schwartz, Christopher, “Attention Induced Trading and Returns: Evidence from Robinhood Users.” (October 12, 2021). Journal of Finance, Forthcoming.
Dr. Terrance Odean is a member of Matson Money’s Academic Advisory Board.
*Academic Advisory Board members receive compensation from Matson Money for their services which include, but are not limited to, independent leadership consulting; co-authoring white papers; and speaking at Matson Money conferences. Advisory Board members may also provide insight to Matson Money on portfolio construction, asset allocation, quantitative analysis, investor behavior and other areas of expertise, as needed.