Insights from Marie Chandoha

Chief Executive Officer

Simplicity — What Clients Really Want

September 2017

Psychologist Barry Schwartz wrote a book in 2004 titled The Paradox of Choice. In it, he recognized that choice is critical to wellbeing, and to autonomy. Still, he argued that Americans have more choices than any group of people ever has before, yet we don’t seem to benefit from it.

Three years later, in 2007, Apple released its very first iPhone, and gave us things we didn’t even know we needed in a telephone. They did it with just one product. In maybe three colors, with a couple of different storage capacities.

That was just the beginning of course, but when you look back over the last ten years, Apple has kept things simple – a few products, a few choices, and a line around every Apple Store in the country with every product release since the first one.

If you are like me, you appreciate when the complexity has been removed from a purchasing decision.

Amazon helps us narrow choices through an algorithm that offers up a reduced array of options and complimentary products, simplifying the process. Blue Apron and Plated are just two of the meal delivery services that have simplified meal preparation by assembling fresh ingredients for you.

Weight Watchers continues to simplify nutritional tracking and weight loss, giving people the tools to meet their healthy living goals.

You can’t look at these examples of customers valuing simplicity without seeing the sheer disconnect between that and the financial services industry – asset management in particular.

In the asset management industry, I think we can do a better job of giving clients what they really want – simplicity in investing, a selection of a few, easy choices to make based on their goals. What clients really want is an outcome – they want the right products to help them achieve their investing goals.

I worry that the proliferation of products in asset management has reached a fever pitch. The sheer volume of products is overwhelming, even for sophisticated investors with research departments to evaluate funds.

There were 9,511 mutual funds in the United States last year. How many is too many? What number would be too few? When there are 9,511 of anything available, how do you pick? What if there were only 5,000 available, would that make it easier to choose? Probably not.

I haven’t even mentioned the number of ETFs. Growing at a record pace, there were nearly 2,000 ETFs in the United States last year.

Our recent focus groups with clients reiterated the same refrain. No matter what the client’s size or sophistication level what they said is this: there are too many products, too many categories, and too little differentiation.

The worst case for anyone is to not be invested at all, and when there are too many choices, it’s easy for the investor to freeze, to get lost in the myriad of choices and ultimately do nothing because they just aren’t sure what is best.

I think we could learn a thing or two from retailers. Reducing the products on the shelf, and cutting back on the products that aren’t gaining traction would serve this industry well.

Like every other industry, we need to exercise some product control discipline, and begin the work of eliminating complexity from a very complicated investment sphere. We must be thoughtful about what it takes to create a solution for clients based on their goals, their plans and their current portfolios.

I think the success of robo-advisors is a big wake up call for the asset management industry. If we really want to serve our clients, we need to start the march toward simplicity and stop overwhelming our clients with our own version of the paradox of choice.

Investing involves risk, including possible loss of principal.

Marie Chandoha
President and CEO, Charles Schwab Investment Management

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