Hatch Invest (Hatch) is KiwiWealth’s digital investing platform, which allows you to invest in US shares. They’ve grown rapidly since their launch in late 2018, reflecting the demand for investing in big-name brands and how much they’ve simplified the sign-up process, which is no small feat.

However, there are also problems. The thousand-pound gorilla in the room is their US broker, DriveWealth. Historically, they’ve been opaque, inconsistent, and restrictive. Hatch is also more expensive and doesn’t offer many features of the top US brokers that Kiwis can access, so it’s fair to say they may not be for everyone.

The good news is that there are solutions to the challenges they face, which aren’t insignificant. The forthcoming “Charlie Schwab behemoth” that threatens to disrupt investing is one of them.

Key features at a glance

  • Access to +2500 US shares, +800 ETFs, +270 American deposit receipts
  • No minimums to start investing
  • $8 to $3 per trade (for fractional shares)
  • Exchange rate fee of 0.5% of the current market rate
  • Fractional shares
  • Owned by KiwiWealth

Strengths

-They provide partial direct access to US shares normally out of reach. Hatch can claim to be the first New Zealand-based provider to provide low-cost access to a range of US shares.

-They’ve done some great work to help you sort out your tax liability with Sharesight. They’ve made things easier than they otherwise would be. Tax for some folks isn’t fun – much like impaling yourself with an ice axe on Mount Ruapehu (I’ve done that and I’m not doing it again).

-Getting started is simple. You don’t have to print and complete forms as you do with some international brokers. It’s easy to set up an account online and invest. Again, that’s something they’ve done very well.

Weaknesses/Threats

-Hatch aims to provide world-class opportunities, but it’s a stretch of the imagination to say their broker, DriveWealth, is as classy.  DriveWealth doesn’t allow you to self-direct. You have to go with their worldview, which is a limitation. The US securities DriveWealth has allowed Hatch customers to access represents around 22% of stocks and 36% of all ETFs available on TD Ameritrade.

-DriveWealth’s worldview seems to be a source of the problem. In the past, their security selection policy has been unclear, as is evident in how they approach newly launched ETFs. They sometimes don’t seem to apply their criteria rigorously, approving securities that don’t fit their own criteria. Worse still, they haven’t disclosed how they came up with their own criteria. They’ve implicitly assumed investors don’t care, which is difficult to comprehend. To top it off, their communication when it comes to requests for shares and notification of newly added shares on Hatch hasn’t been great.

-DriveWealth’s focus is important to mention in this context. They seem to be about acquiring then onboarding business clients globally, like Bamboo and Chaka in Nigeria or HDFC Securities in India. The question here is: has their focus on B2B sales come at a trade-off? From my perspective, it’s difficult to see their commitment to things relevant to retail investors like providing transparency, choice, consistency or new product features. One of the reasons why I left Hatch for TD Ameritrade was because I felt there was too much uncertainty over DriveWealth. I’m not comfortable with them. However, I would encourage investors not to take my word for it, but to ask questions and make up their own mind.

-The relationship with KiwiWealth. How Hatch works with KiwiWealth is the question.  Anecdotal evidence suggests there’s plenty room for improvement. There’s a few examples that make me say this. Here’s two of them.

    1. The way they’ve positioned their megatrends to help classify shares lacks the analytical rigour you would expect from a wealth manager. It’s hard to see the economic rationale for some of their choices of trends.
    2.  Last year they published a blog post promoting the virtues of indexing just after KiwiWealth promoted a white paper on the risks of passive management. This channel conflict situation risks confusing customers and could cause brand damage for KiwiWealth if done repeatedly.

-There’s a lack of features, including dividend reinvestment plans, stop loss, alerts, news notifications and research reports. They’re a start-up, so they don’t have the scale. That’s a problem. Other much bigger and more established platforms have the scale to provide all the digital bells and whistles you can think. The comparison I’ve done of TD Ameritrade versus Hatch Invest shows some significant differences when it comes to investment choices, product features and costs.

-They’re expensive compared to some US brokers. Charles Schwab, TD Ameritrade, Interactive Brokers, Wells Fargo and Merill are zero trading commissions, and some of them offer more products and features like dividend reinvestment plans, research reports, margin trading, apps, and advanced searching (e.g, TD Ameritrade).

-The Charlie Schwab behemoth. The Schwab/TD Ameritrade merger could seriously disrupt the investing world, just like Netflix in TV or Amazon in retail. My view is that they will go global with their offer – something their combined scale and expertise would allow them to do. Charles could soon be in charge.

Opportunities

In order, these are:

-Do simple sh*t well! Great customer experiences in wealth management are about doing lots of small things very well. Here are three such things.

  1. Improve the reporting to show an investors asset allocation – the most important decision an investor can make. It’s suggested they allow investors to add off-platform securities so they get an overall picture of where their money is invested.
  2. Enhance the performance reporting. Allow investors to choose their own timeframe to work out their personalised rate of return, and provide an option for adding a benchmark so they can look at relative performance. Better still, allow investors to download their performance data so they can do their own analytics. This would help empower investors.
  3. Change the platform so you can search by asset class – global shares, US shares, emerging markets, bonds, etc. This will help customers make use of Hatch from an asset allocation perspective. I think they’ve perhaps undersold their product here. Hatch provides exposure to many assets other than US shares through American depositary receipts and many exchange traded funds, but that benefit isn’t as obvious as it could be.

-Find a new, quality broker to provide unrestricted access to the US market. Self-directed investing is about making your own choices, not making choices according to DriveWealth’s view of the world. Ideally, a replacement broker should be able to provide access to all securities in the US as well as over-the-counter American depositary receipts. This would enable investors to access many more opportunities from around the globe – Tencent, Nestle, Airbus and Heineken are great examples.

-Provide access to New Zealand and Australian-managed funds. This would enable investors to have a more diversified asset allocation than they do through Hatch. It would also help meet the needs of many investors who have a disposition towards domestic shares. Adding managed funds may also be a lot easier than adding the NZX or the ASX to their platform.

– Create personalised investor experiences through automation and behavioural analytics. Hatch is 100% digital. They must have all kinds of data such as login frequencies, share searches, number of holdings, type of shares held, active trading patterns, time on site, etc. The way I see it, the task is to turn that data into insight so that it’s possible to deliver personalised content across channels (without providing advice, of course). For example, rather than sending one weekly update email to customers, each customer gets their own email with content that reflects their individual situation and behaviours.

Why suggest this? The wealth industry is dry, stiff and impersonal. Too many providers are focussed on what they can’t say, not what they can say. The jargon and the one-size-fits-all approach to content has one inescapable consequence: Kiwis are more likely to be marginalised than empowered. There is, therefore, a huge opportunity for mass disruption. As TrueAccord has shown in the US with debt collection, it’s very possible to disrupt a stale industry through machine learning, analytics, and a behavioural finance approach to content.

 

 

The above is my opinion. It is not intended to act as personal financial advice. It does not take into you account your financial objectives, situation and needs. It is strongly recommended you seek financial advice from an Authorised Financial Adviser in making a decision to invest.