Growing profits through smarter clients – The importance of financial education – part 1

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Knowledge is power.

Though it might be a cliché we heard in a hundred movies, or read in a thousand books, it is nonetheless an ever-present truth in every aspect of our lives. From administrative officials who send us through incomprehensible bureaucratic loops to teachers who mistreat their students to senior individuals who hoard the ins and outs of their jobs as if it were gold to be treasured. This last particular example is more prevalent than we might think.

We all know the type: someone who’s been with the company forever, knows everything and everyone, but is still reluctant to show the work to anyone or teach new recruits to solve the problems that only they know about. Their work is essential, but it clogs up the system with a bottleneck, because when they are not reachable, there is no one else to take over their tasks. Even worse, they encourage this situation, due to a misguided conviction that teaching another about their work would jeopardize their station, rendering them redundant to the company.

The same mentality could unfortunately be observed in the finance industry as well. The market was something for those “in the know”, who sent their time studying business and finance at university and closed off to everyone else. Through this attitude consulting firms and advisory agencies thrived, since they had to be hired by everyone remotely interested in investing money, just like lawyers need to be hired by anyone needing any legal work done. This traditional model has however been upended by the democratization of financial services through digitization. More and more, we see financial institutions educating their clients instead of gating off the information they held so precious for decades.

So what changed?

It would be impossible to consider all the sociological, political, cultural, and economical reasons here, but suffice it to say, following the financial crisis of 2007-2008, the confidence and trust in intermediaries plummeted to an all-time low, while at the same time mainstream access to the internet lead to a higher demand for education from everyone who want to by smart about handling their earnings.

Financial institutions recognized that for the economy to recover and to allow it to withstand huge fluctuations, such as the one we’re experiencing right now due to the COVID-19 pandemic, it can only be sustained through the trust of all market players. Trust requires transparency. Transparency in turn requires that investors understand what they are doing. Regulatory bodies also recognized the necessity of everyone being informed, which lead to the creation of the mandatory suitability and appropriateness tests that every would-be investor is subjected to today. And this is also why advisors do not simply suggest the investment products with the highest possible yield to their clients, but instead, they take the time and walk the investor through all the potential risks and benefits of a particular product.

This mentality started to pay off for everyone, as the market not only recovered, but blew past the numbers prior to the crisis, and this change towards transparency can now be seen even at entry level investors. By pulling down the barriers that alienate and scare off potential investors from risking their assets, financial institutions can cast and even wider net and find more clients with money to spend than ever before. In this way, educating the masses not only ensures more secure investments for the clients, but more money in general to the financial institutions as well, making it a win-win situation for everyone.

With this general background in mind, our internal research team decided to go through and check the level of education that financial institutions and applications provide to their existing, and more importantly, to their potential new customers.

We seek to answer the following questions:

Who is the target demographic for companies?

  • Financial illiterates, newcomer investors of experienced professionals?

What medium are they using to educate?

  • Detailed textual descriptions, illustrated guides, video walkthroughs or interactive demonstrations?

And finally, what is the goal of the educational material?

  • To give general background on the financial market, to teach the specific ins and outs of a particular product, or perhaps, to aid the company in selling something?

To give you a preview of what we mean, consider the investment trading app eToro, who started an aggressive ad campaign that apparently focuses entirely on educating their clients and would-be investors. Here is just one example:

“3 pieces of advice from eToro on how to trade safely in a period of increased Market volatility:

  • Monitor your positions frequently
  • Review your Stop Loss and Take Profit
  • Consider trading with lower or no leverage”

So, is that real education, useless advice, or a camouflaged sales pitch?

Stay tuned for Part 2 for all the answers and more!

WHY CHOOSE DORSUM

OUR CORE COMPETENCIES

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20 YEARS OF EXPERIENCE
The company was established in 1996 and since that it has grown from a few employees into an organization with a staff of 300 for delivering integrated investments IT solutions.
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EXPERIENCED PROJECT TEAM
We have an experienced project team, with team members working at Dorsum almost since the beginning, gaining a lot of experience in multinational and broad projects.
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CONTINUOUS PRODUCT INNOVATION
We are delivering solutions based on the trends we monitor and on the knowledge we gathered over the decades. We listen to our customers to create innovative solutions.
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LONG TERM SUPPORT AND PARTNERSHIP
We support our clients by offering them unique cooperation throughout the lifecycle of the products, managing expectations in terms of functionality, time and budget.

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