Two months after arriving at Harvard University, Simon Malian has begun refining a plan to create a virtual financial planning service and is considering developing a real estate investment tool to create a beach-head into the industry.
Malian, a Master of Science in computational science and engineering candidate in the Harvard School of Engineering and Applied Sciences – and the recipient of a scholarship from the Menzies Foundation – is using the resources of the Harvard Innovation Lab (i-Lab) to refine and commercialise his concepts.
The i-Lab is about a 25-minute walk from Harvard Square, past the John F Kennedy School of Government, across the bridge over the Charles River, and past the 30,000 seat Harvard Stadium, home to the Harvard Crimson college football team. The i-Lab was created in 2011 – reportedly after Mark Zuckerberg left Harvard, taking with him his ideas for Facebook, and it was decided that Harvard needed a facility to retain future Zuckerbergs and to attract new ones.
A tour of the 2700-square-metre i-Lab with Malian reveals a loose, relatively unstructured space, with a couple of dozen meeting rooms of various sizes – some behind sliding glass doors, some larger rooms – numerous workstations, and open-plan areas set aside for informal gatherings, playing video games and preparing and eating food (all provided free).
But there’s a tighter structure beneath the surface. Lawyers frequent the lab to give guidance and advice on issues like patents and intellectual property; and Malian’s supervisors have pushed him into conducting market research and focus groups, for example, as a first step to proving whether demand for his ideas actually even exists.
20 online sites
Malian has reviewed 20 online sites that purport to offer planning services to one degree or another. Some are more sophisticated than others, and some fulfil the planning promise better than others. But none really does what Malian thinks they should – or could.
“I’ve become convinced that at least I have a unique idea,” Malian says. But his concepts have also undergone a reality check.
“Rather than even providing advice, I’m going to provide more facts – so it will be, as I’ve mentioned before, more like the online financial planning textbook, where you provide various pieces of information about yourself, and this thing guides you thought the process of developing a financial plan, on your own, and there’s like a shopping cart where you select the strategies you want to do, and it lets you model the effects of that over time,” he says.
And just creating a virtual planning service will not be viable if no one uses it. Malian’s focus group work has found that budgeting and expense tracking are the first and second most-wanted features in an online service., followed b investment advice. Then comes “flexible and printable reports”, and a strong educational element to the website content.
“We haven’t yet reached financial advice,” he says. “The closest we get is at number six.”
The fundamental issue, Malian has found, is that people just don’t think about financial planning. And if they do think about it, they really don’t understand what it is – and they certainly don’t go looking online for it.
“Another challenge was to even get people to use it – people aren’t aware there’s virtual financial planning services,” he says.
Cultural shift
“This is what we’ve been speaking to with the advisers here. They were suggesting that even if you launch this thing…it’ll take 10 years to get a cultural shift, and then when you get the cultural shift someone like Google will take the market. Or someone like Apple.
“But essentially there’s an absence of effective marketing of virtual planning services. So in the marketplace people don’t even look for such things online, and even when they do, people discount it before even thinking about it.
“When I ask people if there are any good virtual financial planning services, they say no, I’ve never heard of one.
“So I don’t think there’s one; people around me don’t think there’s one; and what we’ve seen on the internet so far they’re not really providing financial planning. There’s nothing much.”
Malian’s solution – the hook to attract people to his website in the first place – is a real estate investment tool.
“My strongest case is to go hard on the real estate portion, and also provide financial planning as an overall sort of thing,” he says,
“A lot of people aren’t initially going to go for financial planning, but they will go for real estate investment, I think.
Full suite
“Mine will let you model how your real estate investments compare to others and it will include a full suite of real estate investment models,” he says.
“It will let you compare one property in [say] Chatswood against another property in [say] North Sydney. One may have a lower strata levy, one may have a higher strata levy; one may have higher levels of capital gain, one may have had lower levels. It will have a ‘walkability’ score – how close is it to train stations, you know? Things like that. Average rent in the area.
“You can then model which one you want to buy – so it’s kind of like [online stock research tool] Skaffold, but for property. And this will be integrated – and this is what I feel will be worth the subscription.”
Malian’s thinking has also evolved so that at least initially, a real estate investment site would provide a financial planning referral service.
“If they want financial advice proper – a proper plan with a proper adviser – then I can refer them…and get some kind of payoff, and [later] establish some advisers at the company,” he says.
“I was going to go more advanced and I was going to have this neural network that will provide you with advice, but then we realised that would cost a couple of million dollars to do and even if I tried to do it all myself I have too much coursework here. They keep me very busy with all these computational mathematics I have to do.”
The computational mathematician
The concept of the real estate investment solution appeals to the computational mathematician in Malian “because that’s just a bunch of algorithms and the person just shoves in their information and it provides statistics”.
“You always have to come back to it when you do your investment. The problem with the financial planning information, each day the laws change, the investment strategies change, and whatever; constant updating; and then for each market you have to do new stuff. So if I want to do it in the US it’s going to be completely different stuff…to Australia…to then the UK.”
Malian says that if people were to consider using a virtual financial planning service his research, has revealed that budgeting and expense tracking functions are an absolute must.
“The reason they like that is they feel that if they have to pay $100, even if the investment advice is useless, the budgeting has saved them the $100 – they will get their money back,” he says.
“And I’ve had an opportunity to work with the behavioural researchers at Harvard, and they’ve been explaining to me that the website as I initially thought about it, providing financial advice, is not something that people would actually return to. In their view, a person will come and visit the website, they will get the advice, and then why would they return? They may return in a year’s time. That doesn’t make a successful website.
“You need a person to return every day – so you need something like budgeting, where there’s constantly new information, where you can send them buzzing emails on their iPhones to encourage them to remember your website.”
Without the pressure
Another big drawcard would be the ability to enter information in to the system at their own pace, without the pressure of being in a planner’s office.
“They find it a bit confronting. They feel pressured,” Malian says.
“The second thing is, they feel it allows them to conduct ‘what if?’ analysis.
“With a computer they can click as many buttons as they want and no one is going to get upset with them. They also felt that the closing part of the investment part is less intimidating. They felt a lot of heat from advisers, once they get to the investment recommendations and the adviser is very pushy about following through with the plan. They felt that with the computer there’s less pressure, so they can have some time to think about it.”
Any virtual service would also need to offer a choice of payment models and offer a free trial period.
“They do not understand what on earth this thing can provide for them in the first place, and they’re not willing to part with money without seeing what’s available first,” he says.
“People prefer a subscription-based plan. They did not want to pay a big piece of money upfront; they want to pay little bits and pieces over a period of time.
“Then, acceptable pricing: for people who are willing to pre-pay, they’re willing to pay $100; for people who aren’t wanting to pay up front, they’re willing to pay something between $10 and $20 [a month].”
