One of the toughest things for any B2C FinTech startup is finding cost-effective client acquisition strategies that scale. At European robo-advisor Scalable Capital, that challenge falls to Ella Rabener, co-founder and CMO.
This is the second of a two-part interview. Part one, which covers Scalable Capital’s approach to investing, is here.
Q. Ella, it’s hard enough to launch a startup in one country, in one language. What made you decide to launch, almost simultaneously, in two?
A. There were two key reasons for that. One, we happen to be a German/British founder team, so we already had that set up. And two, Germany and UK happen to be the biggest markets within Europe. Also, our business scales very well, so being in several markets is not as expensive as it would be for an e-commerce company that might have to have different inventory and warehouses and different logistical setups. At the same time, our business requires scale in order to become profitable, so we believe we need to have a pan-European outlook in order to scale up to the point where we can be profitable.
Q. I was talking recently to someone in Paris who believes that startups in France don’t think about the rest of Europe, let alone about the rest of the world, and that they suffer for it.
A. I think some of it is due to a lack of investor confidence in Europe…a lack of confidence that you can really make it happen. In the past, when I raised money for my startups, and was talking about pan-European expansion – or even talking about U.S. market entry – investors always got scared. I’d hear, “Yeah, but …”
I feel like in the U.S., the feeling is that if we manage to be big in the U.S. then we are going to take the world by storm and everybody is going to love us, and U.S. investors have that level of confidence. It really intrigues me because when you look at Germany, the German economy is strong because it has a lot of global market leaders. Some may be in niche areas, but they are world leaders. So why do German investors – and it’s similar in the UK – why do they lack the confidence that the startups they are backing can make it beyond their home country? I find that intriguing, actually, and I don’t have a full explanation other than risk aversion.
Q. We generally think of the UK as providing a supportive regulatory framework for FinTech, but you were able to launch in Germany first. How do the regulatory regimes in these two countries compare? You are regulated by the BaFin in Germany and by the FCA in the UK.
A. The regulatory regimes are very similar. You can definitely tell that there is a European view of how these things should be done. Getting two licenses as opposed to one is more work because you need to communicate with different teams of regulators and you need to prepare all the documents in two languages, and so on. But it’s not like we had to answer a lot of extra questions in either the UK or Germany. Both regulators are actually very keen to promote innovation, not just the FCA. We had a very smooth experience with the BaFin.
I’m not saying it’s easy – it is not easy and it shouldn’t be easy to get a regulatory license because there is a reason for these checks. In the end, I think it was partially down to luck that it happened to be faster in Germany. You never know what’s happening behind the scenes, but we had a person handling our account in Germany who was particularly dedicated and efficient. But it could have happened the other way around as well.
Q. What does the Scalable Capital brand stand for and what are you are doing that really makes the brand come alive?
A. We stand for a tech-driven and evidence-based way of investing. Very modern, intelligent, and completely transparent. I would hope that is represented in all the ways we communicate with our clients and on our website.
As you can see, we are not shying away from talking about difficult topics such as risk management, and you can see all the information we have on that topic on the website. There is full transparency on the website – even non-clients can see our ETF universe, even though a lot of work goes into picking the ETFs. It’s more work than people might think. There are 1,500 ETFs in Germany and in the UK, so selecting the right ones is a huge challenge in itself. You can also download a 32-page PDF on our investment process if you are really keen to do a deep-dive on our model. It’s somewhat complex, but we always say that some things are simply complex and we are not going to dumb it down to a level where it is so simple that it’s unfortunately also wrong.
We’re never trying to make things more complex than they have to be, though. Of course, we try to think about ways to make everything as understandable as possible, but we are refusing to make the assumption that our clients aren’t smart enough to understand the most important elements of what we are doing. If they have a question, we’re always there to help them and explain. We’re also running webinars and off-line events to explain more about our service and allow them ask questions.
Q. You mentioned that your target market is sophisticated, mass-affluent professionals and high-net-worth individuals who previously didn’t have access to the technology-driven investment methodology you offer. Are you seeing traditional advisors adopting your platform for their clients?
A. We are definitely open to conversations with traditional advisors. In fact, we’ve partnered with a medium-sized wealth manager in Germany. They manage €600 million in AUM. They are primarily after ultra-high-net-worth individuals, so it starts at €5 million. They have the problem that most of their clients are 60 – 80 years old. At some point they will sadly just die. They often can’t deal with their clients’ children – these aren’t teenagers; they are 30 – 40 year-old adults. The children have maybe €300,000 to invest, and our partner firm can’t manage that sized account in a way that makes sense for the firm. But to keep the relationships, they now use us to manage those amounts. They can still offer other services for these people, such as advisory on more complex financial situations.
So we do that, and we are definitely open to working with IFAs (independent financial advisors) in the UK as well. It’s important to point out, though, that these collaborations will definitely not result in a duplication of fees. We would never do that. No matter how you come to us, you will always pay the same: 75bps. If we work with an advisor, we save on the marketing spend, and we would compensate the advisor and it would have to be made transparent to the client that this is happening, but it would not affect our client’s fee overall.
Q. Are your clients coming from banks? Brokerage firms? Are they new to investing, without enough assets to be profitable to traditional wealth managers but still in need of advice, or affluent, sophisticated, DIY investors?
A. It’s really a mix of everything. The majority for now is people who have invested before. In terms of our marketing approach, we’re not trying to talk to people we need to convince that they should invest (at least, not yet). We are really going after the people who know that they should be investing and who are frustrated with the existing offerings out there because they are too expensive, because they don’t feel they are sophisticated or modern or transparent. Getting an account overview once a year is just not good enough for them. They want to know what you’ve done with their money during the year.
Some of them, especially in Germany, are DIY investors who in the past felt that managing their portfolio themselves was the only way to avoid overspending on an asset manager or wealth manager. A lot of them would just have had their money sitting in some mutual funds, mixed together perhaps with the help of a bank advisor. In Germany, a lot of people go to their banks because IFAs don’t really exist, or at least, aren’t as common as in the UK. In Germany, if you go to the bank advisor it’s like going to the sales guy at Mercedes. All he’s going to sell you is a Mercedes. He’s not going to tell you honestly if BMW is going to be more suitable for you. It’s the same with the bank advisor. He’s going to sell you the product of the month, in the shape of their mutual fund, and people aren’t always happy with that. So we have a lot of people who come to us from that sort of investment experience who are now shifting assets over to us.
Q. Demographically speaking, what do your customers look like? Do you sense a generational shift in what investors are looking for from a wealth manager? Is this a millennial play?
A. This may be surprising, but I don’t think so. At least not for us.
For other robo-advisors whose main USP is a very low entry point, I think yes. For us, I don’t think so, (a) because we are targeting different people and have a slightly higher minimum, and (b) because we also put a lot of emphasis on how we do things differently, on the actual product, on the approach to investment management. It’s not just about a smooth onboarding or a lower fee, though that’s important to us too.
Our clients are probably slightly younger than the traditional private wealth management client, but they don’t enter at a younger age. If you look at the private wealth management client, they’ve been there, on average, 15 or 20 years already. If they are on average now 60, the new clients they get are probably somewhere between 35 and 55. This is where our clients come in right now, as well. We have an 87-year-old gentleman in Germany, and we also have much younger people, some of whom are 21. But the bulk of the people are 35 to 55 and I think it’s because these people know already they need to invest, they have a reasonable amount to invest, they have done some research, and they are frustrated. That’s ideal for us, because we don’t need to explain a lot. They just get it.
Q. Then there is something psychographically that unites your customers and prospects? They think a little differently, they are more independent than the rest of the market?
A. I would agree, yes. They are probably more analytical, on average. For example, we have a lot of people who have a degree in engineering, or come from a banking or management consulting background. I think they all have a certain affinity for technology. They definitely see the benefits in data-driven decision-making. They don’t believe a human will always make a better decision, particularly as they know that the evidence points to the contrary.
As you pointed out, quite a few of them would not shy away from doing it themselves. But they feel it is less convenient. It’s time consuming. A lot of our clients have busy work lives, and they really don’t want to spend time on this on the weekend. Plus, they understand that replicating what we are doing is virtually impossible for them, so they are more than happy to outsource it to us.
Q. Are all the investment decisions automated?
A. We often get that question. “Are the trades automatically executed, based on what the algorithm says?” No, the algorithm makes suggestions for portfolio allocations and then our team reviews them. There’s no connection between the algorithm and the trading platform. Trades are entered by our team. There is human oversight. That’s what we think is best practice. You use technology for decision-making but you always have a human layer of oversight and control.
We also continuously work on the algorithm to make sure it has the best quality it can possibly have. It’s not set in stone. We’re looking at it all the time. There is a human oversight element but the people who are with us are not afraid of working with an algorithm and using big data to make better investment decisions.
Q. What’s involved in managing marketing programs in two languages and three countries? Are you simply translating ads and content from one language to the other, or are you customizing your approach in each market?
A. We are trying to keep our communications as consistent as we can between the three geographies. We can leverage a lot of our content. It helps us with scaling, which is in the interest of the clients ultimately because it helps us save costs.
However, some things are special. For example, we have created quite a bit of content on the blog and on the website around ISAs in the UK, which is a tax-wrapper there. It’s not a topic in Germany, obviously, because they don’t have that product. And there are special circumstances in Germany that are not relevant for the UK.
Some marketing channels are not really comparable in terms of how well they are performing. To give you a recent example, we are now running a Tube campaign here in London. The Tube is a great marketing channel for us because of the particular setup of the Tube and where you can place the advertisements, and also because of the people who are typically travelling through London. There is no comparable setup in any German city. We could not run a similar campaign in a German underground. It’s not the same and it wouldn’t have the same impact. So you have to be careful with regard to what works in one geography and what might work in another.
Q. How are your new Tube ads being received?
A. It’s a bit too early to tell. They’ve just gone up! But we do ask people on our site about it, as we cannot track offline activities well in Google Analytics. It’s similar to a checkout survey on an e-commerce website. When people sign up for our product, they need to confirm their email address. On the page where they confirm the email address, we ask them where they heard about us. It’s a way for us to measure, to the extent we can, how off-line is working for us. We can see that quite a lot of people say they’ve seen us on the Tube already.
Q. How have you organized your team? Are you running a global approach with centralized teams for marketing or have you created country-specific teams?
A. We have our team in one place, which I think we will continue even if we were to launch in other geographies. They have two types of specialization. They have the geographic specialization, so they are responsible for all the marketing in their country, but we also try to specialize people on channels, to make them a captain, basically. You might have a captain for paid social media and you might have a captain for all the Google products. We try to make sure in all channels that we are following best practices and are up-to-date.
Q. Are there areas where it helps to be in both markets simultaneously? Do you benefit from extra weight in media buying, for example, or not yet because you are not that big?
A. We are not that big. It will probably make a difference at some point with the bigger online properties: Facebook, Twitter, Google. For off-line, not really, because if you think about TV, the Tube, outdoor, it is all very local. So I don’t see much leverage there, unfortunately.
Q. What does your marketing stack consist of? What software are you using to manage and measure your marketing efforts?
A. We’re working with Funnel to connect cost data with our Google Analytics data, and it’s a tool I really like. But we are also working on a proper BI solution. We are already storing all the raw data about visits to our website. Ultimately, the goal is to have a proper cohort reporting in place, where you can really look at the different months and the different channels to see where the original email signup came from, but then also how and when did that convert into an actual client, what was the initial investment, and – very important for us – what is the follow-up investment. In Germany, where we’ve been out for a couple more months, a lot of people begin with €10,000 or €20,000 for a test period and then move over €200,000 or even €500,000 to us later on. It’s obviously important to monitor that because otherwise you may conclude a particular channel is too expensive based on an initial investment amount that is tiny without knowing that, on average, these people add an additional €100,000.
The most difficult thing that we’re trying to tackle, and it’s the same for a lot of marketers globally, is to connect the dots for cross-device usage. People sign up for the newsletter on their phone and then look at our website on their laptop at home and convert from their desktop at work. The conclusion might be “we’ve converted that client from a direct visit, so probably she’s heard about us in the press”, when in reality she’s clicked on a paid ad on Facebook at the beginning of her customer journey. We’ve got some good ideas in place to track those complicated journeys better through our own BI solution.
Q. That sort of attribution – understanding the journey a prospect takes while becoming a customer – is crucial to real marketing effectiveness but incredibly difficult to get right. You don’t want to put too much weight on that Google search because you might miss the importance of all the other things you did that your client encountered first. So, how are you thinking about attribution?
A. Off-line is always very challenging. With TV, at least you can try to measure website traffic in the minutes after your ad aired. But you will never really know. One way for us to tackle it is via the checkout survey I mentioned earlier. It’s a rough guide, a way of sticking your finger in the air. With a YouTube ad, you have post-view tracking, of course, which is a much better way of tracking what’s happening, but with regular TV ads, sadly, it remains an imperfect approximation.
Q. You have to be comfortable with a certain amount of ambiguity.
A. I’m a very data-driven person. I was at McKinsey before for 7 ½ years, so I love my Excel spreadsheet and my database. But you can’t track everything. For us, for example, PR is incredibly important. We had an almost full-page article in the FAZ, probably the most renowned daily newspaper in Germany, around Christmas. You could see a massive spike in traffic and it had a huge impact on conversion. People just loved it. I can’t properly measure that but we still need it. You have to feel comfortable with that and you have to make a judgement call based on a solid understanding of how your target customer thinks and acts.
Q. Which channels have you found to be most successful for building and engaging with your customer base? Are you seeing that different marketing channels perform differently in each country?
A. Twitter is definitely more powerful in the UK than in Germany, which I think is a reflection of the general usage. When I think about Twitter in Germany, I don’t see as many private people using Twitter. I see more companies and journalists using it. I think people in Germany still use Facebook a lot more, and now WhatsApp, to communicate among groups. Native advertising also works a little bit better in the UK than in Germany, giving you more reach.
What works really well in Germany, which we haven’t talked about in more detail yet, are opportunities for people to talk to us and find out more about the founders, because trust is very important. So we’re regularly offering webinars. Funnily enough, we once had two people actually turn up in our office to attend a webinar.
We also run actual physical events where you can and should turn up. They’ve been incredibly successful in Germany and we’re now running more and more of them in the UK too. We sometimes even have people standing because we have more attendees than we have seats for. We’ve been to Munich, Frankfurt, Hamburg, Vienna, Stuttgart. We’ve been to Cologne. We are now starting to visit slightly smaller cities. In Germany, we also bring Stefan, the professor on our team, quite often, which instills a lot of trust as people get a real understanding of the depth of his knowledge. We’ve also run four events in London. We are now going to Birmingham, Leeds, and Manchester. You can see incredible conversion from these events. It’s important for people to trust the people behind the product.
Very often we also have one or two clients in the audience because they also want to see us. And the most helpful thing that can happen is when clients speak up and say how happy they’ve been with the experience.
Q. How important is mobile to your customers? What role does it play?
A. Until today, the app was a companion app. It was only relevant for existing clients. But we are releasing an update to our iOS app soon, which will allow you to do the onboarding in the app. I am really looking forward to that. The usability is just great. I think we have a really nice set of features in there. It’s very modern, very sleek, very easy to navigate. I’m pretty excited about that.
Having an app is important for our clients because it gives them full transparency at all times. Unfortunately, people aren’t used to that. They should have been used to that level of transparency for decades – even before the advent of mobile apps – but unfortunately people still aren’t used to that. Some people already get excited when you tell them they will be able to see at any given point in time how their money is allocated, how much in fees we are charging. They can know, down to every last cent. I think that kind of transparency, 24/7 and in real-time, is incredibly exciting.
Q. You recently announced that you can manage ISAs in the UK. What other new products are you working on?
A. We are looking to add a SIPP, which is a self-invested pension product specific to the UK, in the near future. We will also add Junior accounts, so that parents can open accounts for their under-age children. In Germany, children also have an annual capital gains tax allowance, so our clients there requested this product quite often and we’re reacting to their feedback.
Q. Is there a timeframe for further expansion? Which countries do you plan to launch in next?
A. It’s not set in stone but I would say Switzerland, even though it will require a new license from the local regulator. There are other markets that are very interesting in Europe, too.
Q. And some new languages.
A. We could launch with a German language platform because that covers part of Switzerland already. Then we would need a French-language version of our website, and eventually an Italian one. Italy is an interesting market, as well, by the way. We’ll see where that leads us.
We are already working on the ability to have every geographically-focused website available in different languages, because in Germany, for example, we have quite a few expats who would love to onboard on the German website to have their money managed in Euros, not in Pounds, but with an English onboarding process and the contracts in English. So we have set up our website so that it can handle different geographies in multiple languages. And potentially, even, multiple currencies, so at some point you might be able to have a U.S. dollar account or a Euro account as a UK customer.
Q. And the U.S.?
A. It’s too early. I wouldn’t exclude it, because I don’t see any competitor in the U.S. doing something comparable to what we are doing. I think people there would be excited about our offering.
But we can passport our German license into any other EU country, so that gives us access to a market that is in total as large as the U.S. market. So going to other EU countries is going to be a quicker win. We are also not that affected by Brexit as we have a license by the FCA in the UK, too.
I also think we would want a U.S. investor before we entered the U.S. market, and we don’t have one yet.
Q. Are you making your platform available on a white-label basis?
A. We don’t have any specific plans to do that. I wouldn’t completely exclude it, but the conversations we’re having right now with partners are conversations where we are not offering to white-label. We are offering different types of collaboration where the clients still know where their money is being managed.
We don’t want to sell our algorithm. We want to build a consumer brand. Then let’s see where that leads to five years from now.
Q. Are you hiring?
A. We are always looking for great software engineers and app developers. You can contact us at email@example.com, and we’re also going to launch a careers section on our website within the next four weeks. We’re typically posting job openings on our LinkedIn page, too.
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