We spoke to Sil Stroescu, head digital investing at the bank of Montreal and president of BMO investor line, to discuss the effects of COVID-19 on the digital investment space. BMO investor line self-directed is the online trading platform, which Mr. Stroescu has led over the past several years, where the platform allows clients to invest in stocks, mutual funds, ETF’s, as well as other financial assets.
UPTK: How would you explain your role as president of BMO Investor Line and what this entails?
Sil Stroescu: As president I have accountability over the digital investing services at the Bank of Montreal. On one end of the spectrum of services we provide a platform for our clients to be able to execute their transactions in a self-directed fashion. At the other end of the spectrum, we have our service called SmartFolio, which is in the robo advice category. And this is where you have professional portfolio managers that are managing the investments on the client's behalf and the client experience is all done through a digital interface. And then we have a hybrid solution in the middle, which we refer to as an advice direct. This is unique in Canada, and frankly, it was unique in North America when we started a few years ago. This is where you're able to invest on your own, make your own decisions, but you also have the benefit of advice which manifests in terms of a digital tool, where we provide you notifications on how to rebalance your portfolio to make sure it's still aligned with your goals, specific recommendations on what to buy, what to sell, to make sure that your portfolio is also properly diversified, how much of it to buy, how much of it to sell. So it's very specific and you're able to compliment that digital advice tool with a human advisor as well. [Digital investing] is a super exciting category to be in, especially at a time like this, where the adoption curves are accelerating.
In an article you published on LinkedIn titled “Exogenous Vibrations and Dancing with Disruption back in April, you shared a number of observations that BMO had made among its client base. In particular, you stated that transfer of funds are at an all-time high while generational divide in market investments is widening. Could you elaborate on both of these observations and given that it's observations were made in April, what has changed since?
Let me start off by saying that we're in the midst of a long wave of disruption. Similar to what we saw with the industrial revolution many, many decades ago, we are in the middle of a digital transformation right now. So I think it's important just to start off with that as a bit of a context to say digital transformation has been happening already in some industries.
What we've seen is really just an acceleration in the digital investing category and acceleration of that adoption curve. And what I was referencing back in April is that this wave is actually led by both existing and new clients. Those who are already investing digitally are consolidating more of their assets and bringing in more of their wealth and portfolio balances to invest digitally. And we're also seeing adoption from net new investors. We saw exponential growth in transactions from existing clients and an exponential growth in new client adoption year over year. Our hypothesis then was that we were in the middle of an inflection point for a digital adoption. I'd say that at this time in August, our hypothesis is being validated and we expect it to continue going forward. But the peak of that inflection did happen in the March/April and since then, we've seen the pace of growth normalized to a level which is slightly below the peak, but it's still much higher than the previous space of growth and the previous adoption curve. So that's where we are right now.
Regarding the generational divide, one of the myths that I've been debunking in conversations like this on digital banking and investing is that people believe that the younger generations tend to dominate [digital banking] and they're early adopters in those categories. I've been in digital banking for 20 years, and I can tell you that the adoption from the older generations is dominating the client base right now. Two thirds of our client base is actually over the age of 55. What we've seen since March is over indexing from an acquisition perspective and adoption perspective to younger generations. So about three quarters of the clients that have come on board since then are actually under 35. So this balance is off the distribution, just from a generational perspective.
In an interview with Bloomberg a couple of months ago, you stated how BMO observed record-breaking demand figures for digital banking. You explained how clients had more time on their hands to make informed and well-researched decisions which has fueled these numbers, but do you think these trends will continue once a vaccine arrives and we return to “normal” pre-COVID life? Or are these figures merely due to the unusual circumstances caused by the pandemic?
Let me just unpack it a little bit and talk about the pace of adoption that we've seen pre COVID. You’re always going to have some friction when you introduce new [product] categories and the subsequent impediments that cause friction. This prevented the pace of adoption from growing even faster pre COVID. And when you double click on that, people haven't the time they need to research their investment options. And it is difficult, frankly, to build a level of knowledge and confidence to build their own portfolios, build the emotional fortitude required with making the right investment decisions and sometimes going against the grain and then having the confidence to be able to rebalance, which emotionally takes a lot of strength and fortitude. These impediments were present before indeed since the pandemic had started, but people have had more time to do this research [due to the pandemic].
I'll highlight a few points here just to back up this notion of why there has been an inflection point and why the adoption curve will continue. So I don't think it's an event to your point. It's not an event that started when the pandemic started, then stops. I think a pandemic itself is an event that has a start date and an end date, but I think this will lead to sustainable behaviors.
I’m sure you have heard that it takes 30 days to build habits, right? And you have been working on these habits, whether it's exercising or eating healthier, since March. I think those habits lead to a macro wave of adoption during this digital period, so we’ve had more consumers adopting digital technologies and digital channels, including the [people] that were reluctant before. A lot of folks that were reluctant before COVID felt that they had to adopt digital channels. Now, that notion has actually shifted from “I have to” to “I prefer to”, because they've been exposed to the convenience of digital channels.
I think with more people being aware of what it's like to engage digitally and its simplicity, this wave will continue.
Certain demographics have struggled to adapt, as mentioned, to the increasingly digitized society that COVID-19 has brought upon. As a leader in the digital banking and investment sectors, what are the sorts of challenges that BMO has observed among its clients, and what has BMO InvestorLine done to cater to the changing needs of those who are struggling with the adoption of digitalization?
The [pandemic] has led some folks to make difficult choices. For smaller businesses that obviously don't have their clientele, like in the travel entertainment industry, for example, they're struggling a lot more for means which is outside of their control. This also applies to retail consumers. We've accommodated, both for our business clients as well as our retail clients, for access to government programs that have been put in place, as well as deferring mortgage payments just to help people from that necessity perspective.
So I'd say the spectrum of adjustments and services [that we provide] started off with those that were surprised by the pandemic and were in a financial situation that did not necessarily allow them to pivot. We then began to shift towards more income-based solutions for certain clients, protecting the wealth they created. In particular, for those that are already retired, they'd still need income. They still continue to depend on income from the wealth they generated and they're protecting their capital through this pandemic.
Regarding younger investors], we have to accommodate them by boosting access to the markets and the ability for them to invest and make snappy decisions, especially for those that are looking to take advantage of the volatility in the short term and trading in the short term.
There's no doubt that some demographics found it more difficult to adjust to digital channels, but I think what we're seeing more and more is a whole shift in consumer mindset, as they begin to realize the convenience of it.. So obviously it's not a hundred percent of the population, but if you think about the macro waves that are happening, there is definitely a higher pivot towards digital channels from a convenience perspective and less of that fear to embrace those new solutions.
Not only are there challenges on the client’s side, but on BMO’s side as well. Could you speak to some of the obstacles you have faced, both human and technical, amid these record-breaking times of digital adoption?
The biggest challenge was that we had to adapt immediately. Demand went to record levels within days, and the capacity obviously had some constraints as far as social distancing, since few people could work in the office while the majority worked remotely. So, the significant increase in demand with decreasing capacity was the first challenge we faced.
Coming into this, we made some deliberate decisions to increase the capacity of concurrent users. At one point [last year] we hit 85% of our capacity of concurrent users online, so we decided to buy some insurance by doubling our capacity. I’ll tell you that it felt like a heavy decision at the time hadn’t yet peaked [with the current capacity], but it turned out to be a really good decision because we hit 75% of our new capacity in March. Had we not made that expansion, we wouldn’t have been able to accommodate the surge in site traffic. Once the capacity issue was sorted, we had to navigate through password resets, for example. Folks that hadn't done business for a long time had forgotten their passwords which naturally happens to all of us as consumers. So we changed and redesigned the password reset process online to make it even simpler for us to be able to handle the increased volume.
We also had to make a number of decisions that appeared counterintuitive on the surface, and I’ll give a couple of examples. We believe that resource fluidity is a muscle that we built in the business, and we build it deliberately to be able to deal with these types of situations. We had an increase in demand about a year and a half ago due to this cannabis sector, so we realized that fluidity of our resources and elasticity to be able to adapt operationally toward the high demand was super important. The next challenge from a capacity perspective was our contact center. And what we saw was an increase of inquiries during regular trading hours. In the past, we were open from 8:00 AM to 8:00 PM and the bulk of the volume happened during the day. But since March, the volume during the day increased exponentially. And then we still saw an increase in the evening hours, but that was simply due to the fact that people couldn’t get through to us during the day and they would call back in the evening. So what we decided to do is reduce the hours of operation and get more of our talent to be able to answer the calls at peak demand times, realizing that some of the calls that were happening in the evening were simply coming in later because we couldn't get to them upfront.
So reducing the hours seems counterintuitive, but it led to actually much lower wait time on the phones doing the regular business hours when the peak demand was, and it was well received by our clients. At the same time, our agents we're answering inbound calls as well as emails. The email channel was getting a lot of activity (90% of enquiries were via email), so clients couldn't get through to us on the phone. So we decided to shut down the email channel and take that talent and dedicate it a hundred percent to our inbound calls, which allowed us to get to the client's inquiries faster. We also had a sales team that would also take inbound calls.
It seemed counterintuitive on the surface to remove our email channel open and to reduce operating hours, but it put us in a much better position to handle the peak demand where our clients wanted us and when they wanted to connect with us.
For young leaders and people who are managing teams, what are some of the strategies that you would encourage people just to think about when leading a team and making decisions?
I’ll start by saying that having the opportunity to lead right now is a privilege, and you have to be super grateful to have that. I see this as an amazing way to learn and to build my leadership muscle, which is something that we build throughout our careers. Just because you’ve had 20 years of leadership experience doesn't mean you know it all. It just means that you've got some things that you've learned and you still have a lot of things to learn.
Number two, I'm learning about myself such as how to set my own mindset through this. I'm learning how to lead people on my team, on my senior leadership team, as well as our broader business team. I spend time. Once a day, I set up virtual coffee chats like this to get in touch with businesses and people in industry. These one-on-one conversations are a great way to connect with people throughout the business and to share perspectives. So, take the time to connect, know yourself as a leader, and understand that this is a privilege to accelerate your ability to learn as a leader through this time.
Another important idea to think about is to have a good sense as to why you make certain decisions. Have the knowledge that you're not going to get them all right, but have the ability to pivot. Resource fluidity is key.
If I would give you a bit of a flag on what to watch out for, it’s that inertia is the enemy. Inertia can occur in two ways, with the first being inertia through paralysis and the second being analysis paralysis, which applies today. We see this as the case because you don't really have a lot of analytical trends to really understand [the situation] and to make well-informed decisions on what will transpire over the next six months. But it's also paralysis as a result of fear. We have to understand that if we make the wrong decision, we can still pivot. So watch out for that inertia in terms of paralysis and fear.
The second point is what I refer to as active inertia. Typically you're doing the same thing you were doing before, but it really doesn't apply in this new context. As a result, you feel good about the fact that you were active, but you're activating the same things that you were doing before in the old world. This gives you a sense of satisfaction because you’re doing something, but it’s not always effective. For example, maybe I want to hire more people so that we don’t have to change our 8am to 8pm hours of operation. The process itself takes about three months, so I'd probably feel good because I was actively trying to increase capacity, but it would be the wrong thing to do at a time like this. So again, have the confidence to make decisions, and understand that it's a privilege at a time like this amazing opportunity to learn. Have the fluidity to pivot when a decision doesn’t land the way you thought it would. And watch out for inertia, both in terms of paralysis, but more importantly, in terms of active inertia which gives you a false sense of activity.