The application of artificial intelligence can significantly lower wealth management costs and help non-investors in Europe start investing wisely. “AI is simply automation that can provide positive nudges—for example, to not sell when the market crashes.”
The question of how to get more people to invest has been on the European investment sector’s mind for years. Only about 10 to 15 percent of Europeans invest, with variation across countries.
According to Martin Kassing of Upvest, Kim Felix Fomm of Raisin, and Martin Parzonka of PensionBee, the route investment products take to reach the end customer is still too complicated, banks and wealth managers charge excessively high fees, and financial education is lacking. During a panel discussion at the leading international fintech event Money2020 last week in Amsterdam, they discussed the causes of low investor participation in Europe and the role AI could play in growing that number.
“Ten thousand banks are sitting on trillions in assets that are not being invested,” said Martin Kassing, CEO of Upvest. According to the German fintech executive, banks lack the incentive to reduce the cost of investment products because they already operate with low margins. “But I believe those costs need to fall to mere cents per transaction to attract new investors—not euros per transaction.”
He also criticized the lack of quality retirement products in Europe, pointing to the 401(k) plan in the United States, which helped increase the percentage of Americans who invest from 20 percent to 65 percent over several decades. Based on similar initiatives in the United Kingdom, Switzerland, and France, Kassing argued that a “fundamental shift” is possible in Europe as well, because such products encourage people to think more seriously about their financial future.
“Customers often ask us via live chat what the interest rate is on their ‘account.’ But it’s not a savings account—we’re talking about investment returns.”
Martin Parzonka, Pensionbee
According to Martin Parzonka, VP of Product at the UK-based online pension provider PensionBee, people often lack the knowledge to know what to do with their money. “Even those who do invest sometimes pull their money out of a pension plan and park it in a savings account—where it barely earns anything. A painful example: customers often ask us via live chat what the interest rate is on their ‘account’ at PensionBee. But it’s not a savings account—we’re talking about investment returns.”
This raises the question of whether the financial sector should focus more on education, an issue long championed by industry organizations like Dufas. Kim Felix Fomm, CIO at Raisin—a company like Upvest working to modernize the distribution of wealth products—believes that education should start in schools. “In math class, I used to learn complex theories I’ve never used professionally, but almost nothing about the basics of investing.”
Still, he noted that “people just stop listening at some point. So good luck explaining how capital markets work as a whole.” He sees the solution in basic education combined with easy-to-understand products and hand-holding support, such as guidance in selecting a risk class.
Erosion of wealth management costs
Kassing believes the real solution lies in reducing costs. “I don’t understand why anyone would pay 1 percent per year for investment advice. Sure, a lot needs to be done when opening a portfolio, but why would a customer continue to pay 1 percent each year just for rebalancing? That can be fully automated. I expect wealth management fees to erode over the next five to ten years—like what we’ve already seen in the US at Vanguard, where fees dropped from 1 percent to 20 basis points for mass-affluent clients.”
“In the past, a client meeting cost 1 percent—when you still had an office, drank champagne with clients, and invited them to a Formula 1 race. With AI, that cost drops to levels measured in basis points.”
Martin Kassing, Upvest
Client meetings can be cheaper too, Kassing added. “When building a portfolio for someone, you need to ask a lot of questions. What’s your risk-return profile? What’s your family situation? How do you handle taxes? Are you a business or an individual? In the past, that kind of conversation cost 1 percent—when you had an office, drank champagne with the client, and invited them to a Formula 1 race. With AI, those costs drop to basis point levels. That’s a good thing, because it encourages clients to think more carefully about their finances.”
“AI also runs the risk of becoming a villain or being programmed in ways that are not in the client’s best interest.”
Felix Fomm, Raisin
Fomm agrees that when applied correctly, AI can outperform human advisors in identifying what is best for clients, as it is better at pinpointing pain points and responding effectively. “But AI also runs the risk of becoming a villain, or being programmed in ways that are not in the client’s best interest.”
Early testing is already underway, he added. “It’s crucial for us as an industry to influence how this is used, to ensure it’s done ethically.”
Parzonka of PensionBee responded that while “manipulation” has a negative connotation, it really comes down to influencing someone to do something they otherwise wouldn’t—“which is basically the same as education, right? You’re teaching someone to take an action they didn’t know was possible.”
That’s exactly why investors need a basic level of knowledge, Parzonka continued. “So they can raise their hand and say something doesn’t feel right. I’m genuinely excited about what AI can do for us. It removes emotion. AI doesn’t want to sell you anything—it doesn’t care what you buy.”
Kassing concluded: “I don’t really believe in financial education—maybe at school, but retail clients already read online that they should buy the dip, diversify, and build a savings plan. AI is automation, and probably better educated than you as an individual. It can give you positive nudges—like not selling when the market crashes or considering another ETF if your portfolio is heavy in US stocks. I fully believe in automation, especially in removing emotions and cutting out the middleman.”