Asset management millionaire-style, but at a price for average earners – that’s the promise of fintech start-up Whitebox. Founder Salome Preiswerk speaks about the balancing act between data-assisted risk management and emotion in investment, as well as about her double-whammy minority status as a woman in banking and female start-up founder.
Asset management millionaire-style, but at a price for average earners – that’s the promise of fintech start-up Whitebox. Robot-driven advisory services make it possible. This is a burgeoning and fiercely competitive market. In 2015,
robo advisors managed around 30 billion dollars worldwide; by 2020, experts anticipate this volume could rise as high as 500 billion dollars. Between 4 and 5 percent of the total is managed in Germany, where there are currently over 20 digital asset management companies. Whitebox founder Salome Preiswerk speaks about the balancing act between data-assisted risk management and emotion in investment, as well as about her double-whammy minority status as a woman in banking and female start-up founder.
Salome Preiswerk, why do we need digitalized portfolio management? For centuries, investment has worked well enough without.
I don’t want to do too much bank bashing – but no, it didn’t work all that brilliantly for the customers, at least not for those with small and medium investment volumes. It’s a familiar story: people were and still are ripped off with high fees; they’re talked into buying investment products that the bank itself sells, or products where there’s a fat commission to earn. There was definitely room for improvement. But, as so often, markets like this will only change when the regulator intervenes, or when new contenders such as ourselves disrupt the status quo.
Reach your financial goals with the help from robo-advisors
When did you know for certain that the right time for your company had arrived?
About five years ago. My co-founder Birte Rothkopf and I were both strategy consultants for banks at the time. And there was a steady stream of griping and complaints from C-level executives at the banks, who’d moan constantly about too much regulation, or excessively high costs; they’d say it was no longer possible to operate at a profit and so on. This was around the time the first
fintechs were entering the market in the Anglo-Saxon economies. It’s difficult to believe: that was when people first began engaging with the oh-so-new subject of digital transformation (which wasn’t really new at all). When we approached banks with our proposals, the responses varied widely. Some turned us down flat; others were reluctant to leave their comfort zone. So we thought: if you don’t act, we will!
We work with dozens of algorithms that keep the emotions out of the investment process.
What can robots do better than humans in the investment process?
For starters, they speed up the registration process enormously. At a pinch, it takes just ten minutes. I don’t have to go to the bank, I’m not “advised” by people who are trying to sell me something. The core product,
portfolio management, is very different in robo advisors. The robo advisor won’t do anything that doesn’t also exist offline – only it’s cheaper in the digital world. We have lots of little robos at Whitebox, dozens of algorithms that keep the all-too-human side of things, the emotional factor, out of the investment process: greed, fear, herd instinct, for example. Or opinions. But humans are also involved at Whitebox as a corrective.
You say that investing with Whitebox should also be fun. How come? Surely it’s enough to get a decent ROI.
I’m not talking about planting random smileys on the site, but I do think it’s more fun to articulate your investment goals as specific wishes – a round-the-world trip, for instance, or a holiday home – rather than filling in a tedious questionnaire. Or instead of ploughing through upon row of figures, it’s good to get an appealing cockpit-style overview with a crisp, neat design, where I can see at a glance what percentage I am closer to my dream of a round-the-world trip. These are playful and emotional elements – more appealing and less mind-numbing than a plain bank statement.
One’s own assets are always going to be an emotional topic. For instance, there’s the psychological barrier to entrusting everything to a single website.
True. Trust tends to be built around personal contact. But at Whitebox you don’t step in the door and shake hands with nice Mr. Smith. So it’s our job to portray ourselves as a human company. That’s one of the reasons why I speak a lot at public events. But other aspects are also important: sound regulation (in our case our license from Germany’s Financial Supervisory Authority, the “BaFin”) or reputable partners. Over time, it will become normal to have your portfolio managed via the Internet. Seen in this light, competition is no bad thing for us, even from the sleeping giants, the traditional financial service providers. I can also envisage hybrid models, such as with a partner who has a network of branches. This will get the customers on side who would otherwise not rely exclusively on us.
A start-up is a typical consultant project: multi-faceted and highly complex.
So far, who’s taking the leap and investing through Whitebox?
Well, it’s definitely not just the Millennials, that’s a false notion! On average, our customers are in their mid-40s, 88 percent men, and they invest around 30,000 euros with us. We also have much older customers and those who entrust us with seven-digit sums from the outset. But many test us first and then put in more money.
In your experience, what abilities do you need to get a fintech start-up up and running? You yourself are actually a lawyer.
That’s right, but I spent many years as a management consultant with banks. And a start-up like ours is a typical consultant project: multi-faceted and highly complex. You have to know your way around a vast range of disciplines. In our case, it also took a great deal of technical knowledge. We developed all the algorithms ourselves; nothing was bought in. That’s a totally different proposition to being the zillionth e-commerce platform. Not least, I also think it helps if you can bring a certain amount of life and professional experience to the table. We founders are both in our 40s.
Two “new contenders:” Whitebox founders Dr Birte Rothkopf (l.) and Salome Preiswerk
And what personality do you need as a founder?
Oh, the usual entrepreneurial virtues: courage, patience, stamina. The awareness that the first few years at least are no walk in the park. I feel it’s phoney, unauthentic, when young founders act as if everything’s fantastic all the time. There will always be times when things are tough; you just have to endure it.
I have virtually no private or social life, I earn less than I’ve ever done, and I’ve put all my money into our company.
Another thing to endure as a woman founder is being outnumbered: apparently 87 percent of founders are men.
Yes, but as a female consultant working in banking I was always in a dual minority role anyway. And I can appreciate why many women aren’t drawn by the testosterone-driven posturing among bankers. It’s much the same at some of the start-up trade fairs – at least during the day. In the evening, you see decorative companions who don’t exactly combat the cliché. But I personally never had the feeling that a negative decision concerning our company was because the two founders were women.
Is the “no walk in the park” phase of your company now over? In other words: are you now reaping the benefits of being your own boss?
No – I have virtually no private or social life, I earn less than I’ve ever done, and I’ve put all my money into our company. But founding a start-up is always a bet on the future. You wouldn’t do it without a vision of what it could be like later. Of course, I’m always delighted with our successes and I hope our work pays off – financially, but also in terms of work-life balance. But I haven’t set a deadline.