Financial Services Through the Lens of Jobs-to-be-Done

In this episode of Jobs-to-be-Done Radio, Bob Moesta and Chris Spiek of The Re-Wired Group sit down with guest Stephen Mohan, Managing Director of Operational Services at Cofunds, to look at financial services through the lens of Jobs-to-be-Done. The conversation explores why people really invest, why so many flee to cash even when it loses money, and why the job of a financial advisor looks far more like a coach than a salesman.

You will learn how the competitive set a financial planner imagines (retirement plans, mutual funds, stocks) differs from the one consumers actually build (go into debt and buy what I want now, hold cash to feel safe, or do nothing). The discussion then turns to the solution space: how advisors can match their offering to the progress people are trying to make, address the anxiety in the four forces, and pull more people in from non-consumption.

Meeting Jobs-to-be-Done in the financial services industry

Chris: Welcome to this latest edition of Jobs-To-Be-Done radio. I’m Chris Spiek with the Re-Wired Group, and I’m here today with my partner Bob Moesta as well as Stephen Mohan who is the Managing Director of Operational Services at Cofunds. Stephen is going to talk to us a little bit today about how he views financial services through the lens of Jobs-To-Be-Done. I’m going to let him do a little bit of intro here, and tell us about how he became aware of the Jobs-To-Be-Done framework, how he met Bob Moesta and how things have progressed from there. Welcome, Stephen.

Stephen: Hi, Chris. Very nice to speak to you. And Bob, nice to speak to you too.

Bob: Good afternoon to you. We’re five hours apart.

Stephen: Good morning here, good afternoon here. I came across Bob through the joys of podcast. Actually, I listened to him talking on the Critical Path; to Horace Dediu. He did a great interview there, and really fascinated me over the challenges of design. I’d worked in consultancy a long time ago and we had a thing then called building market focused organization, which we consulted on. This struck me as taking it to the next level. We were building a conference for about 20 of the chief execs of our key clients. They’re typically financial advisors in the UK. Financial advisors, wealth managers, stock brokers, those sorts of people. We had a lot of people who were going to be just talking about the financial services industry but nobody here was really going to give us an idea of how to tackle the challenges, which we all accepted we have within financial services; particularly in the UK, and could come to us with a new way of looking at it rather than the normal “how do I get more money for my clients, how do I gain greater trust and all those issues?” I should probably say that what we do as a platform is we sit between financial advisors and fund managers or pension providers and we allow them to aggregate their information, their trade data and all the information for their clients.

Stephen: I think there is a challenge for financial services that Jobs shows very well but there are some particular challenges that are making life worse in the UK at the moment. I love the model that, when Bob came across to see us he went through the influences you could have on a person, how you could make them change and the drivers to make someone do something. I thought it was interesting to see actually why people invest, which is fundamentally what we as an industry are trying to get people to do. What is the job of that investment and once you get to the job of the investment it’s what is the job of the advisor, of the platform and of the fund manager in there.

Why people invest: the emotional job behind the money

Bob: I want to interrupt you for one second. What is interesting is, it seemed that when we were there and talking in this big room of people is you found that it’s all so rational. You have a room of very rational people who are talking about ways in which to calculate risk and ways to calculate return and on the other side of the table when you look at the person who’s investing the money it’s a pure emotional buy. “I’m investing for the wedding. I’m investing for the kids’ college fund. I’m investing for a house. I’m investing for a car. I’m investing for retirement.” They’re not rational thoughts. At some point you can try to make them rational but they’re very emotional.

Chris: They’re real life events.

Bob: When the conversation came up, Stephen, about everybody moving to cash and we started to put it through that lens of the forces of progress and how people are moving one way or the other. From a rational perspective cash makes no sense. I put it into cash, I have inflation, I’m actually losing money every day that I keep something in cash. Yet people are flooding into the cash side of the business. What are they looking for? What job are they really trying to get done? Do you just not have an investment that at least use their money and help them get the protection they want?

Stephen: It is partly the problem. Cash does or money does different jobs. If you thought of those three generic jobs you’d have cash flow, the how-I-live-now stuff. I might go overdrawn and then go into credit as I go through the month but generally it’s just a straight cash flow thing. There’s a whole bunch of people who do the protection, the insurance of wealth; the stuff that keeps me the way I live now. Some of that you have to do like certainly in the UK, car insurance. But then there’s house insurance and medical and life insurance. Then the third one is the thing about investment, which is how I’m going to live in the future. That’s the saving for that same housing, for the education, all those sorts of things. It strikes me as an interesting anomaly, that when we as an investment industry look we tend to be talking about how to help acquire the funds, the money, and we ignore the fact that actually it always has a purpose.

Bob: There’s always a purpose.

Stephen: There is always a purpose. If we can get that job 10% of our assets roll off our platform every year. Well, they go off because people have saved up the amount of money they want and they’ve reached their goal and they need to spend it or they’ve reached the time at which they need to spend it because that wedding or something like this. The only purpose of the money arriving is to depart. We very much tend to focus on that; how to accumulate and not how to help people match their accumulations to that process.

Lighting the light bulb: the advisor as coach, not salesman

Bob: I remember sitting next to one of the gentlemen who ran one of the investment advisor groups. He likened to when he started off there were three of them in the office and they’d sit down with people and they’d talk about their dreams. Where did you want to go? What did you want to do? And helping to make that dream more tangible. I want a cottage. I want a summer home. I want my kids to go to college. Backing into that investment side. He said, “Now that I’ve got hundreds of advisors and I’m up at the CEO level of managing a very big advisory firm, we don’t talk anything about that. We sit down with people who want to invest and we tell them everything about the investment but we never help them figure out what their dreams are.” That’s the thing that’s been lost: we’ve all been in such a hurry to sell the investment that we forgot to take the time to really listen to the investor and what they’re trying to do.

Stephen: The problem there is then the advisor doesn’t understand what value the investor is genuinely [inaudible 08:33] advice. In his example the advisor gets paid a trail of commission by the fund manager which means that the investor appears to get the advice for free. Then we actually provide the advice for free provide then [??] for free to the advisor and to the investment group itself. It’s very difficult to understand the value add of something which people [feel is free].

Chris: Stephen, you’re a little bit muted there. I don’t know if you’re far from your microphone. The one thing to me is I will say in the short term I think there will be an adjustment but the reality is is that people can’t do this alone and they’re going to move to the self-service side of things for a period of time. Again, it’s free for me to do self-service, I don’t really need the advisor, but the reality is when it comes back to it the advisor is very, very important. They need to be reset. The fact is that it is in the best interest of the investor, or the consumer in this case, to pay for the value they believe in. Just showing up and giving…again, I got the impression that the advisors were like, ‘Hey, I have a stock tip today. That stock tip is very important and that’s where I should make my money is on the stock tip.’ The reality is I think it’s more the latter, ‘Help me figure out how to translate what I want to do into what should my investment strategy to make sure I have the money to do what I want to do.’

Stephen: I agree. A funny example for me is someone who I hired and was speaking to recently; she’s very well respected in the tax community and she said, “What happened was I got my qualifications, it went into the press and an advisor phoned me up and said, you must be getting a pay rise and therefore you need to start thinking about savings and pensions. And every year or every six months they’d come in and say, “let’s make sure we tuck the right amount of money away. It actually doesn’t matter whether they gave me good advice or bad advice. I would have spent the money on shoes or something. What they’ve helped me do is build up a lump sum of money which I’ll be able to use for my retirement. A lot of the value was to make me do something because typically we won’t do it.’ I try to do some self invested stuff myself and it’s still sitting in the bank because I can never get round to doing it and having an advisor really makes a difference there.

Bob: We in the jobs world call that creating the light bulb. It’s that ‘I want to make progress.” You’re fundamentally not going to make someone do something that goes against what they define as progress or what they want to do. But to show them that something is actually possible and there is a way to achieve it is lighting that light bulb. For her it was, “I could go blow this on shoes. I might realize it’s not the right thing to do but until somebody sits down with me and says, look, these are the steps you need to take in order to ensure financial security for the future and it’s something we can work on together and we can get done,” shoes are the much easier option.

The real competitive set: debt, cash, and going into debt now

Stephen: In fact, there was a direct consumer platform in the UK that was set up about ten years ago. They started off with savings accounts and they…

Bob: We’re losing you Stephen. Can you repeat that? Started off with savings accounts…

Stephen: This business set up lots of savings accounts, they had a lot of clients there. Then they started doing two things. They set up deals with local stores, that allowed you to buy online at discounts through them. They also set up a fund platform, a fund supermarket where you could invest through them. It was a very good deal on the investments, huge choice, and hardly anybody used it. Lots of people used the online shopping and nobody did the online investing. It was that problem that says you understand the gratification of shopping. You never buy an investment for the sake of buying an investment. It is a means of reaching that light bulb. It’s another step in the process and for many people actually going into debt is an easier way of reaching that light bulb because at least you have the certainty that says, “I’ve got what I want and I know therefore I will pay for it. If that means I’m paying for the next 5, 10, 20, 30 years; it’s still worth doing.”

Bob: This is resonating with me along with a lot of the work that we did in the home-building industry. I actually want to take this to another place and talk about what’s in the consideration set when people think about investing for their future and what are the alternatives? On the other side how do you position yourself in a way that you can pull more people into these investment products? I think what you said is extremely true: investing for your future is really competing with going into debt and getting what you want right now.

Bob: As we talked about in France, one of the notions is you look at the competitive set and talk about who’s emerging. I think the people to be really worried about from a competitive perspective are those people who are in debt and the banks are helping them get out of debt. There are these new start ups local banks that help them get out of debt. “Pay $25 a month to help get out of this debt.” But it’s helping them structure, giving them the discipline but at some point the flip will be so easy: $Start giving the $25 a month to start saving.’

Chris: You create a momentum.

Bob: It gets back to Clay’s point on disruption. The big guys are only worried about the people who are worth $250,000 or more. The low end of the market they’re not interested in and the fact is the disruption is gong to come when these banks can help these people get out of the debt, they can help them save to get out of the debt. Once they build that relationship…Again, what’s so interesting to me is that I actually think the marketing of how people are differentiating themselves on the investment advisor side is all on the wrong dimensions of value. They’re talking about returns and a good balanced portfolio. The real good guys are literally saying, “I can turn your dreams into reality.” The people who are saying, ‘Here’s how many people I have and here’s how much I’ve helped them get to where they want to go. It’s not about the return on investment. The market is going to go up and down. It’s the people who say, “My clients have been with me for 20 years because I can help them make the progress they need to make.” The points of differentiation have to change and will change because of how they get paid as well as what’s valuable to the consumer.

“investing for your future is really competing with going into debt and getting what you want right now.”Bob Moesta

The four forces: cash, certainty, and the anxiety side

Stephen: And to help them to understand what level of risks they really want to take. The benefit of instant gratification debt is you have certainty of outcome. You’re generally taking it on a fixed interest rate and you know what you’ve got to pay. The real problem you have with investments is if you want certainty of outcome you tend to get a very low outcome and therefore it will be harder to achieve. Trying to help people understand, when you’re looking at that schooling in 8 years time, 10 years time, and therefore you can afford things to go up and down as long as they’re going up and closer to that ten years time and we’ll make sure that we are securing the position for you. It’s not turning them off from their objective is I think a really hard challenge. Humans are very poor at understanding risk, particularly risk over a period of time. Helping them through that is a really hard challenge; and it’s not something we really focus on.

Bob: How does cash play into the mix as a competitor? As opposed to investing I’m going to go a different route. I’m going to go into gold or I’m just going to sit on cash because of the security aspect, the anxiety side of the forces diagram.

Stephen: It does provide that absolute certainty and that is the anxiety side that it plays to nicely. But clearly there are very few counties I can think of where you can be investing in cash and be doing better than inflation so you’re always losing money. Every day you’ve got money in a bank account, the best deposit accounts are losing you money all the time. The same is becoming the case with property; which is one of the other sides; people are always trying to find physical means of savings that they understand as a different way of achieving the same job. You see people buying, as you say, gold ingots, silver ingots. You see people buying properties. They’re not buying them for anything except to do the same job as if they were to buy investments. In almost all cases they are a less good way of achieving that job but they’re real, physical assets and people like that physicality that they understand.

The cave man principle: why people default to the tangible

Bob: Who’s the gentleman we were listening to where he talks about the cave man principle? It’s all about swe go virtual the fact is people always default back to the tangible. As much as you might have a technology where it’s here’s the credit card and people will use it, the thing is there’s something about having dollars or pounds or hard currency in your hand that will always have…he calls it the cave man principle because people talk about the animal they killed; but if they don’t bring it back nobody really believes them. When you say, “I own that house or I own that piece of property,” there’s this tangibility piece to it. Even though it’s cash they can, at least, in their mind know what the cash means. They can go to the bank and get this dollar amount bank. “I’ve got $50,000 in bonds.” What does that mean? What do I have? They can’t manifest it into a concrete thing. Part of it is to understand whether it’s about the concreteness and I know what I’ve got and it’s not going anywhere, even though it might be going down mathematically from an inflation perspective, the reality is that pile of cash is not getting smaller. It’s staying the same. I might be losing my buying power but the reality is if I stack all that cash on the table it’s not leaving the table.

Chris: The rational side, the finance and numbers side, would say, ‘You’re not keeping up with inflation. The cash is actually losing value every day,’ but that cave man principle will overpower that and say, ‘ Even if it’s technically worth less than it was yesterday I still have it in my hand.’

Bob: It’s still on the table and nobody’s peeling dollars off.

Chris: It’s physically not getting smaller even though its worth is probably getting smaller.

The switching moment and the non-consumption opportunity

Bob: There’s something to be said for that. I don’t know exactly what it is. It would be interesting to do some interviews in that space. We always talk about the switching moment; why would people switch from this investment to cash? To understand those forces, it would be very interesting to talk to people about the last time they switched your investments to cash or from cash to the investment? What are they expecting? One point I want to jump back to is the fact that I think there’s a very large portion of non-consumption here which is the point where people want to invest but they don’t know what to do. They don’t have the time to figure out what to do. The self service model has to be made to be simpler. The self service model that’s been built is really to manage the transaction side of it; but it hasn’t really improved the low end, to help people self service who don’t have the knowledge or the know-how to know what to do with it. I could say, “Fine, instead of putting this money in the bank I need to put it into three things. What are the right three things just as a minimum, I should put them in?’ People haven’t simplified; they’ve merely just automated the transaction process. I think there’s another place where there’s opportunity because I don’t think they’ve gone to the low end of the market.

There is a catalog of actual interviews along with analysis available here.

Stephen: That plays exactly to the story I told you about the [inaudible00:? 23:22] who got funds and [23:25]. They had, I don’t know, 200 funds on there. How do you choose? It wasn’t even as if they had one fund of each particular type. If I looked on us we have probably about 4,000 instruments that would be available. Now we’re doing it for financial advisors and we hope therefore they know what they’re looking for. But if I opened up to an end investor and said, ‘Help yourself,’ where would they start?

Bob: There’s a paradox that people think more choice is good; but the fact is when you’re starting out more choice is bad because I don’t know how to differentiate. If you could just give me five really different things that I can pick that will at least help me understand where to go with it I can pick from the five but I can’t pick from the 4,000.

Stephen: Exactly.

Chris: We won’t get real deep into this but the other thing is just the dimensions to wrestle with. I would say as a fairly naive investor myself I don’t even know how to start to think about the decision. I can balance short term return and high risk versus long term return and lower risk. But beyond that just to start to look at that entire set and say, ‘How do I weight these and rule things out?’ I would need guidance on what I’m looking for and what tradeoffs I’m making. It’s impossible for me to even start to dimensionalize the choice.

Bob: It highlights the important aspect that the investment advisors, and the opportunity investment advisors have for non consumption. They have to get paid from the investor themselves now. The investor is going to have to spend some time wrestling with, “What am I going to do?” They’re going to realize they can’t do it. They’re going to need help. The whole aspect of being able to figure out that transition…I believe they could make money than what they’re being paid by the fund managers because the value they’re adding is so much more from that perspective. It’s very significant.

Stephen: I absolutely agree. Once the potential investor can understand the real value that a good advisor can provide them; sharing the benefits will not be the challenge. You will get rewarded, but it’s how to understand that value. What is the job genuinely that that advisor is doing and how does that work?

“It’s not about investment. I think it really gets back to how do I want to live in the future and how will you help me make sure I’ve got the money to do that?”Bob Moesta

The advisor as goal coach, not retailer

Bob: It’s not about investment. I think it really gets back to how do I want to live in the future and how will you help me make sure I’ve got the money to do that? Or do I need to reshape my dreams, because I want to own a house in the south of France. The reality is I don’t make enough to do that. So either I have to reshape the thing or I’ve got to invest in something that’s going to be fairly risky to get there. But you need to help make it tangible for me. I have an emotional dream and the advisor has to be able to help me make sure that it’s achievable. It’s more like a coach than it is a retailer sitting there selling me, “Which product do you want?’

Stephen: That coach analogy is excellent. You need somebody who will act like a football person’s manager or their agent who helps you make sure all the things you’re doing in your life are right. Makes sure you’re not spending stupidly as well as saving wisely as well as thinking about your career and thinking about the future and your retirement and really where you want to go. Almost helping you understand, sort of the quoting Christensen. “How You Measure Your life.” If somebody helps you do that on an ongoing basis then investment is just part of the value of you understanding that light bulb and understanding how you’re going to get there.

From the homebuilding industry: making the future tangible

Chris: Let’s talk about solutions for a couple minutes. This still resonates with what we did in the homebuilding industry. One of the solutions that we implemented was a model called ‘It is Possible.’ What we were highlighting is, as much as I think people that have bought homes over and over again take for granted the difficulties in the mortgage process and the moving process, we were able to understand that for somebody buying for the first time, or even repeat buyers, this created a ton of anxiety. Applying for a mortgage, going through that entire process. How am I going to sell my house? Just the anxiety of moving. I have the dream home of the granite and the three car garage and all this stuff but there’s anxiety around, “Do I have enough money to afford that? I don’t want to be told I can’t afford it because it crushes the dream”. You’re going through this entire process so we actually had a model where we would allow people to interact with a website that let them lay their dream out or their objectives out and lay out some information about their current situation and would allow us to interact with them in a way that would say, ‘We will help craft a solution to either get you to where we’re going or make some adjustments on your path so you can get someplace similar.’ But it’s really allowing them to paint a picture of their future. From a solution perspective t allowed us to bring new people into the market that weren’t in the market.

Bob: How many people wanted to move but didn’t think they could. You don’t think you can move? Come see us. The other thing that was important was that people would come into the model homes and we would never actually sit around the table with the mortgage guy, with the used home person, with the client and the new home person all at the same table and say, ‘How do we help you make this work?’ For us we pull in moving specialists, some furniture people if we needed to but we’d literally sit down and ask, ‘How do we shape the dream?’ Then we’d frame two or three alternatives they could walk through or project their life into and from there they could decide. The thing that was always most amazing to me is that before we did that literally nobody sat around the table until the closing of the house.

Chris: Is this a matter of having the realtor or some specialist that knows homes in the south of France on the call saying, ‘This is what you can expect. This is what this looks like. This is what you should have in the bank and what you should expect to pay, this is the goal you’re working towards,” to be able to craft the entire solution.

Bob: I could see something where the investment advisor becomes a goal advisor and pulls the right people in and says, “Let me do a little research on homes and see where they’re going.” Or, “Education. Here’s where it’s going. Here’s what’s going on” . It’s helping people manifest those dreams and then basically saying here’s where things are going.

Chris: And make it concrete, right? The last thing I want to do is I’m investing and I’m putting off that…

Bob: What did you say, Stephen?

Stephen: This is exactly…the funny things is most financial advisor have a tool which allows you to do thing that says, “Tell me how many years away and tell me how much money and tell me how much risk you’re willing to take and I will tell you the answer.” They do all of that non-emotional of exactly that journey you’ve talked about. The financial bit of that journey they do every time and they completely remove all of that emotional part of it, all of the context.

Chris: You put it into a spreadsheet for me but I still can’t…there’s still some emotion around “did I get the number right?” What if we estimated this wrong and I come up short and I can’t afford the house or I can’t afford the education? Did we talk to the right people up front to make sure we’re putting the right numbers into this calculation?”

Managing the tradeoffs: dreams, risk, and revising the goal

Bob: At the same time there are two types of risk; there’s economic risk and then there’s the risk of did I miss it by 10% or 20% on the goal end. Again, I think there’s a lot of opportunity for the investment advisors because I just think that they’ve taken it to the other side of the market. The commodity of the market is the rational side and the premium of the market is the emotional side. An emotion isn’t, ‘Hey, I’ve got a nice office and a comfortable place for you to come.’ It’s the emotional wrestling that the investor has to do to answer, ‘What do I want? Where do I want to be in my life? What do I want to do?’ Am I the agent for the football player or am I merely just a salesman of many different products?

Chris: But to be a coach you need to allow the consumer to wrestle with that problem with you. If you’re putting forth a solution where when you step into my office you need to know exactly what your dream is, exactly how much it’s going to cost, and then I’ll tell you how to get there, there’s too much anxiety. I need to shape up all of this stuff before I even call you? I’ll never make the call.

Bob: What happens in this meantime is you know you need to be saving cash, you’re putting it on the side. You’re not really investing it because you don’t know where to go with it so you’re holding cash and you’re kicking it down the road or you’re just spending it. This gets back to Whitney’s book. Whitney Johnson wrote a book called Dare, Dream, Do. It’s literally the same scenario: people don’t dream enough and figure out how they’re going to get there. The investment side has swung so far to the rational side. Like you said, how do I actually figure out the kind of risk I want to take? I have no concept to connect that back to my dream because if it’s my dream I’ll do whatever I have to do to get to the dream. When you talk about the risk is it the risk that I don’t get there or…that’s where that notion of risk is not an easy concept in which to translate.

Chris: Whitney’s approach could be very powerful in this realm as well because she approaches it from the fact that even if you are dreaming a lot of people don’t have the tools they need to make the tradeoffs. I could set this lofty dream and the anxiety of the dream is so great that I’m not sure I’ll ever get there, it becomes too far out. She approaches it from how do you make the tradeoffs and how do you chunk it out into logical steps where you can actually achieve these things and make them real.

Bob: The goal is the trade offs. You might have to revise the dream. You might have to revise the investment strategy. You might have to revise what you spend. At some point, you can’t have it all. The investment advisor’s job is to help you manage those tradeoffs, make them explicit and help, not just on the investment side, because it’s not like you manage my arms and someone else manage my legs. We’re all one body.

Stephen: That’s exactly it. And people do tend to buy the solution rather than anything else. My argument with my wife is often we would love to have a ski chalet in ten years time. She would prefer to buy a ski chalet now and pay debt on it and be able to use it for two weeks a year than to invest now to buy one in ten years time which we will then know what size it needs to be, what shape it needs to be, where it needs to be. It’s illogical but emotionally it is the way she would solve that problem.

Chris: But it’s predictably irrational. At some point is perception reality? As much as investments are I’ll say objective, or you can compare [inaudible 00:37:22] most people have their own set of realities. There’s nothing irrational from her perspective about that view.

Stephen: If I went the other way round and said, “Let me take out a mortgage so I can invest it in funds for the next ten years,” she’d think I was crazy.

Wrapping up

Chris: Anything else? We’ve got a couple more minutes. Do you have anything more to add, Stephen? I think we’ve covered this pretty well. We didn’t get to the wine side of things so there may be a repeat guest appearance to get you back on to talk about that.

Bob: I would like to do that because I want to get to the Morgan story. Your whole notion of why you drive a Morgan back and forth to work is a great conversation and I’d love to be able to pull that one out again. I think that gives an example of…people buy cars for different reasons so we’ll see if we can hit that one next time.

Chris: Great conversation.

Bob: Thank you very much for taking the time and in a couple months we’ll have you back on.

Stephen: Fantastic. Thank you both.

Chris: Thank you. This wraps up our episode. Join us next week. We still need to talk about Apple TV and how TV is becoming social as well as Instagram video and how they’re moving into different spaces. Thanks for joining us.

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