Exclusive: ‘Plan to accumulate ‘ – Alex Ford, Claro in “The Paytech Magazine”

If people don’t know their ETF from their ESG, how on earth are they supposed to make the right investment decisions? For mission-driven, personal financial coaching app, Claro, the answer is simple. We’ll teach them, says Chief Revenue Officer Alex Ford. Alex Ford | Fintech Finance

An idea, from inception through to execution, inevitably undergoes refinement along the way. And this is proving to be the case with Claro Money’s financial coaching app. 

Founded in August 2019 Claro, lead by CEO Rob Brockington – a 15-year trading floor veteran managing complex algorithmic execution platforms – Claro Money started out as a pure-play trading app with an ESG (environmental, social and governance) data element.Following Google Ventures Design Thinking methodology and listening to user feedback has seen Claro morph into a platform aimed at ‘working with people’ rather than ‘working for people’, while retaining its ESG, ethical core.

Now Claro Money is looking to provide the necessary education, support, community and tools needed to build a personalised financial plan, in addition to also match users to financial products that align to their core values and personal situation.

As Alex Ford, its chief revenue officer, explains: “As we started to speak to more people about investing, saving, and general finance, a repeated comment was ‘they don’t teach you this stuff at school’. As a team, we must’ve conducted over two dozen user interviews face-to-face, as well as seven or eight surveys, reaching out to roughly 30,000 people.

“We ended up thinking that, instead of focussing on the execution end of the investment space, which is what a lot of people are doing, why not do something different and build value by helping investors to learn and plan their finances? We want to help people understand the ‘why’ behind it as well as the ‘how’. That way, users will be much better informed and empowered to make educated decisions about what they’re doing with their finances,” says Ford.

Feelgood-factor investing

Set to launch in 2021, Claro Money has been in development for the last nine months, growing from an original team of three to more than 14 during the COVID pandemic, with plans to expand to 24 by end of the year.

The app has four pillars to it: empowerment, planning, investing and sharing. The latter connects like-minded people and experts looking for financial coaching because, despite there being no shortage of financial  information available online, feedback has shown that many people view it as jargon-heavy, complex and, in the case of savers new to finance, completely overwhelming.

“So, what we’re trying to do is create a source of information that people can dip into and learn from to build their personal financial plan,” says Ford.

He knew that, for the more passionate ESG adherents, principles invariably come before profits, but even he was surprised at just how much they’d be prepared to sacrifice for their beliefs. According to one Claro survey, 12 per cent of investors would be happy to give up more than 75 per cent in returns if they knew their money was being invested or managed in a completely ethical way.

“While we were aware of the growing popularity of the ESG approach, we didn’t expect people to be that passionate,” says Ford.

Claro’s job as a facilitator, rather than an advisor, is to expose the ESG options to those who perhaps aren’t as aware of  mission-driven investing – in fact, its research revealed that 59 per cent of ordinary folk didn’t even know what ESG was, which means they probably don’t know that ESG portfolios have been shown to not just equal but outperform the market, in some cases over the long term. That, notably, is also the case during market downturns, which is why BlackRock is now parking billions in them.

To help inform their users’ ESG investment decisions, Claro has partnered with an ESG data provider, which applies its own metrics to the Sustainability Accounting Standards Board (SASB) framework to give insights across short-, medium- and long-term investments. The ESG data  also takes into account how the world is impacting a company’s financials.

“What we’re trying to do with that [ESG] data is not to be preachy about it, but simply to bring it to the forefront of people’s minds so that they can come to informed decisions,” says Ford.

“It isn’t really our place to tell people which way to go, although we should definitely highlight the options/choices.”

While some suspect that adopting an ESG investment approach means sacrificing performance on the altar of principle, in its report, Sustainable Investing: Resilience Amid Uncertainty, BlackRock noted that, in Q1 2020, global, sustainable, open-ended funds (mutual funds and ETFs) brought in US$40.5billion in new assets, a 41 per cent increase year-on-year, with US sustainable funds attracting a record US$7.3billion for the period. BlackRock also noted that global data provider Morningstar was reporting that 51 out of 57 of its sustainable indices had outperformed their broad market counterparts.

Of course, one swallow does not (necessarily) a summer make; especially given that the returns were witnessed during a wider market sell-off that could have had a knock-on effect later. And yet, according to BlackRock, it was consistent with the resilience of sustainable investment strategies (versus non-sustainable) demonstrated in previous drawdowns, such as 2015-2016 and 2018.

Digging into data

This year, sustainable funds continued to show their resilience, even after the market began recovering by the end of March (the Dow Jones had slumped more than 10,000 points over the previous month), with 88 per cent of sustainable funds outperforming their non-sustainable counterparts over the January-April 2020 period as a whole.

One problem that Claro recognises, though, is that methodologies employed in ESG reporting are difficult to follow. For example, if corporations are self-reporting, and use different ESG criteria without audits, it follows that validating or comparing performance will be difficult.

Other key issues include third-party ESG data providers using different methodologies regarding their ratings systems, which inevitably leads to significantly different assessments, depending on the agency. A less obvious, though equally valid, issue is the apparent disconnect between many companies’ accounting data and sustainability investment tracking.

“One of the biggest challenges for us at Claro, and I think for the industry as a whole, is that there isn’t a centralised, standardised framework,” says Ford.

“There are two main frameworks, the Morgan Stanley (MSCI) framework, and the SASB framework. At Claro, we’ve decided to go down the SASB framework route because we feel it’s a lot more comprehensive, covers more data points and will allow our customers to drill down in a more granular kind of way.”

There’s a lot to cover before they get to that stage, though. Claro’s cycle of releases will start with the learning content and financial planning tools.

“Planning is the thing that people told us was most interesting and most valuable to them, so we have a beta release that works with open banking coming that’s out before Christmas,” says Ford.

“We feel that the users of the Claro app will be much better informed, and much more empowered to make educated decisions about what they’re doing with their finances,” he adds. “Whether they’re buying Tesla or Netflix stocks, or investing in a FTSE 100 fund, they’re not doing it just because a robo-advisor told them to; they understand, hopefully, some of the reasons behind it, and – thanks to the learning pillar of the app – whether it’s suitable for the plan they’ve built with the app and which they’ll be constantly reviewing at whatever frequency works for people.

“They’ll understand that maybe, at some points in their life, investing in individual stocks and shares might be a good option for them, but not perhaps at other times, when alternative funds will be more appropriate.”

And that’s definitely something you won’t learn in school.


This article was published in The Paytech Magazine: Issue #06, Page 28-29

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