The Paradox of Choice

I read an insightful article today addressing the paradox of choice many people encounter when starting to invest. I highly recommend reading it in its entirety here: https://www.cheerfulegg.com/2023/08/02/the-robo-advisor-choice-paradox/

I want to focus on this one part from the article, not to nitpick, but rather to delve into how this impacts our approach to product design:

From a business perspective, I get why robo-advisors have expanded their offerings. They earn razor-thin margins – as low as 0.3% in some cases – so they need scale in order to be profitable. Someone with a $100K portfolio, who might have paid $2K in annual fees to a financial advisor, would pay just $300 a year to Endowus. So robo-advisors can’t stick with just passive investors,?they’re trying to appeal to?all?investors?by increasing their offerings.

But as we outlined above, giving investors more choices could sometimes make them worse of. Beyond analysis paralysis, it also exposes newbie investors to the danger of dabbling in the whatever the latest hot fad is, like Gen AI or cleantech. Which as we know, almost never works out well for them.

As someone who works at Endowus , my perspective may be slightly biased, but I believe that offering a variety of investment options is not only beneficial but necessary for our clients.

Choice is good

Sure, for most clients, their primary investment is a long-term one like retirement. For them, our Core Flagship portfolio is probably the right choice.

However, that isn't the only financial need that people have. For example, what do you do once you have retired! You need a completely different kind of investment portfolio post-retirement compared to the one you need to get to retirement! Managing emergency funds is yet another example of a situation that demands a different solution. Thus, we created Endowus Income and Cash Smart to cater to these investment needs.

Paradox of Choice

But the article raises a valid point: how can we avoid overwhelming people with too many choices? The paradox of choice is real, but the solution isn't to simply remove options. Instead, it's to improve how we match client needs with the right choices.

This is where exceptional Product Design comes into play, and I'm delighted that the article’s author noticed our app's redesign to ease this process for our clients:

In the same way, I can see how Endowus nudges investors towards their “Flagship” Portfolio, comprising low-cost funds with a passive investing approach. Its placed prominently as the first option when you’re setting up your investment, and there’s a banner indicating that 70% of their clients investing in it, providing strong social proof. (They didn’t sponsor this post, I’m just a really big fan).

A big shout-out to Yu Siang Teo , Jihyun Kim , Isaac Lee , and the entire product-design team led by Vinod Raman , with robust support from Raja Jain , Harry, T. , and others on the engineering side, who made this possible.

Product Design Matters

Product Design is a never-ending journey of learning and evolving based on feedback. After shipping this change, data and feedback suggested that, while effective at highlighting the most relevant portfolios, this design might limit the discovery of our other solutions.

Solutions such as our Fund Smart platform. As the article puts it:

A quick glance at the Endowus?fund page?shows?190?funds for retail investors alone. You can pick funds in niche areas like mining, Shariah equities, or climate change. You can customize your own portfolios or pick from thematic ones.

If you include funds in other currencies and AI-only funds, we actually offer more than 400 funds in Singapore!

While this may seem overwhelming, it is just a small subset of the much, much bigger universe of funds out there in the market.?

The talented Investment team at Endowus led by Samuel Rhee , Hugh Chung , Sean Wong , Min Axthelm, CFA , spend considerable time and effort in screening the universe of funds for cost, performance, strategy, etc., to curate only the best funds for our clients.

Our goal in Product Engineering is to present the Fund Smart platform in a manner that helps clients find the right fund for their needs, without getting stymied by the paradox of choice.

That’s the fun product design challenge we are currently working on and hope to share the outcome with all of you in the coming months!

Yes.. LLMs...

Over the long term, we're excited about the potential of using Generative AI to tackle this paradox of choice. Led by my partner in crime Joo Lee , we are deep into experimenting with LLMs to see how they can help us better serve our clients in the future.

Because ultimately, it’s all about helping people invest better to live better.