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Game on: the potential for gamification in asset management

By David Bird | September 25, 2017

Mixed perceptions of the ‘Me Me Me Generation’ also include their finances. Millennials are saving but for different reasons than their parents.

Millennials do not have a great reputation. This group of people, born sometime between 1980 and 2000 are apparently lazy, entitled, narcissistic and more interested in their smartphones than human interaction. In China they are the ‘only-child generation’ and considered ‘little emperors and empresses’ given their privilege and lack of hardship. In the West, they’ve been accused of ‘killing’ cereal, chain restaurants, and even the napkin industry.

At the same time the world over they are described as socially conscious, entrepreneurial and highly educated. In South Africa and Latin America they have been called upon to ensure democracy and act as the force of change.

Millennial money – interested in saving, not investing?

Mixed perceptions of this ‘Me Me Me Generation’ continue when it comes to their finances. In the same month this year one news outlet ran the headlines “Why Millennials Aren’t Saving Enough Money To Retire” and “Hey, Millennials, You May Not Be As Bad At Saving As You Think You Are.”

According to a recent report by Merrill Edge, millennials are saving but for different reasons than their parents; they save to live their desired lifestyle rather than to leave the workforce. They are less interested in getting married and becoming parents than older generations, but more desirous of working their dream job and travelling the world.

Millennial money is therefore more concerned with short term goals, which may explain why they are good at saving but not so interested in investing. By 2020 millennials could have a net worth of $24 trillion yet only one third invest in the stock market. Many grew up during the Financial Crisis and saw their parents suffer as a result; this has engendered distrust in investments and a risk-averse attitude. In China where millennials are relatively more prosperous (70% are homeowners), their preferred investments are property and cash over stocks or funds.

Relatability is another issue; the average age of a financial advisor is 50 years old and there are more financial advisors over 70 than there are under 30. 60% of millennial women equate a typical investor to an old, white man. This wariness of investing is compounded by high student debt, house price rises and the fact that young adults today earn 20% less than their counterparts did in 1989.

Not just a millennial problem

While millennial saving for short term goals may be damaging to their long term financial health, it is also bad news for asset managers. The average investor is currently in their late 50s but 81% of asset managers say they want to become more attractive to the younger generation.

Asset managers that fail to adapt business and operating models to attract this next generation of wealth may risk losing a substantial pool of future investments. Asset management is not immune to the fintech boom and millennials are particularly open when it comes to technology; 85% of UK millennials are comfortable with using robots for financial advice. Arguably this will only be grow when Generation Z (born 1995-2012) reach investment age; they are the only generation to have never known a world without internet.

Its game time

Gamification, defined by Merriam Webster as “the process of adding games or gamelike elements to something (such as a task) so as to encourage participation” may be one way for asset managers to engage and educate future investors.

The principles of gamification have been used successfully in a range of scenarios. Although many of us would not consider ourselves ‘gamers,’ we have probably encountered gamification techniques in our daily lives; from walking that bit further to reach our Fitbit reward to moving up levels on retail or airline loyalty programs.

Languages are an area where gamification has really taken hold. Some readers may remember a time when learning a language meant attending a cded evening class, or self-learning using a cassette tape or CD. Then the language startup DuoLingo launched its free app about 5 years ago. It has applied the principles of gamification to help 120 million users learn up to 22 languages including French, Japanese and Swahili. They, and other language apps, use gamification elements such as level unlocking and rewards to educate and motivate users but also, crucially, to encourage them to continue to use their service over the competition.

Gamification principles are not restricted to recreational activities; tangible business problems have been tackled using this approach including improving security awareness (by improving employees’ filtering of phishing emails) to enhancing stakeholder engagement (by facilitating ‘tailored story-telling’ by external stakeholders and employees as they explore the firm’s vision and culture platform).

Applications in asset management

According to Fintech thought leader Paolo Sironi, gamification can “achieve sustained innovation in financial services because it can provide a way for individuals to rewire their brains and bodies and achieve better investment behaviour against the imprints generated by financial events and the experience of their formative years.”1 This is particularly relevant for millennials, 82% of whom say their investment decisions are motivated by the Financial Crisis. For asset managers, gamification can also create “stickiness” among clients and enhance profitability.2

Encourage investment

According to Legg Mason’s recent Global Investment Survey, 85% of millennials describe themselves as conservative investors, compared to just 29% of Baby Boomers. For asset managers to attract these future customers they must be able to demonstrate to millennials not only the risks of investing, but also the potential rewards.

One startup, Copper Street, is drawing on the concept of popular game fantasy football to “gamify the stock market.” The app serves as an educational tool for potential investors to learn about trading through “fun competitions and rewards” without feeling overwhelmed. Users create teams of stocks and compete in interactive challenges. Once they feel confident, they can transition to trading real stocks via the same gamified structure.

By providing first time investors with no-risk educational tools prior to making real investment decisions, asset managers could encourage participation amongst this generation of cautious investors. Better education could also improve investment strategies and outcomes, all of which improves asset manager profitability.

Assess risk and reinforce positive behaviour

Although many millennials are conservative, they are not immune to risk. However, in an age where lives can be managed on smart phones few younger investors appreciate filling in lengthy risk appetite questionnaires. This is one area where gamification could not only improve engagement, but also the accuracy of outcomes.

Neuroprofiler is a risk profiler that uses gamification techniques to assess an individual’s investor profile. The potential investor plays a 5 minute interactive game whereby they must make choices when presented with different scenarios. Questionnaires can be flawed; they can be complicated and ultimately rely on individuals understanding their own inherent biases and motivations. Games however can be instinctive, simple and better at simulating real life experiences. Furthermore they can be repeated with higher frequency and ease than questionnaires.

By using such techniques to understand an investor’s risk appetite, asset managers can identify early warning signs of negative behaviour not just at the initial point of investment, but throughout the investment lifecycle. In a gamified setting, this could allow for the reinforcement of positive behaviour through rewards and appropriate penalties for negative behaviour improving outcomes for both the investor and manager in the long term.

Improve customer retention

Investment startups using gamification techniques such as Nutmeg or Meetinvest don’t just aim to improve trust and education in the investment process, they also want to make it fun – an adjective perhaps not always associated with investment processes of old.

Investing real money is of course not a game in itself, and sensible risk taking should always be prioritized above simply ‘having fun.’ However the two need not be mutually exclusive. By continuously engaging with customers in a manner that is both fun but also demonstrates an understanding of their goals and concerns, asset managers can increase loyalty amongst a generation known for its lack of brand allegiance.

Game on – the wider impact on Asset Managers

Adapting business models to meet the requirements of future investors is not simply a technology bolt-on, to be successful it will also require asset managers to adjust traditional work and talent structures in their organisations.

Asset managers will need to understand the role technology will play in their core business strategy as well as which cultural attributes and organizational capabilities will create competitive advantage in this new landscape. Talent will need to be realigned with these priorities which may require asset managers to look for skills outside of their traditional employee base – from software developers to artificial intelligence.

1 Paolo Sironi, FinTech Innovation: From Robo-Advisors to Goal Based Investing and Gamification, John Wiley & Sons, 2016, p. 137
2 Ibid., p. 138

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