Every week at Tradestreaming, we’re tracking and analyzing the top trends impacting the finance industry. The following is a list of important things going on we think are worth paying attention to. For more in depth trendfollowing, subscribe to Tradestreaming’s weekly newsletter (published every Sunday).
1. What’s Goldman Sachs doing in online consumer lending? (Tradestreaming)
Tradestreaming Tearsheet: Watching fintech startups gain traction in lending and investing products, incumbent financial services giants like Goldman Sachs and Blackstone have decided to compete with the startups. Goldman Sachs has quietly been putting together a rather formidable offering in consumer lending. What’s the firm up to?
2. Financial Engines’ acquisition of The Mutual Fund Store a turning point in robo debate (InvestmentNews)
Tradestreaming Tearsheet: There’s ongoing discussion on whether online advisors can weather the client storm long term without real humans helping their clients. This deal is proof positive that online advice platforms may need human advisers to offer a full menu of financial planning services.
3. Bank of America working on own robo-advisor (Fortune)
Tradestreaming Tearsheet: Bank of America is joining the ever-increasing club of robo-advisors by building its own automated investment platform. Why partner with a robo-advisor like Betterment when you can just build one yourself and bring in billions a la Schwab?
4. Citi Creates Division Dedicated to Fintech (paymentweek)
Tradestreaming Tearsheet: Traditional banks are feeling pressured by all the new activity in lending/investing online (even if the startups are tiny relatively). New York banking giant Citi announced late last month that it would create a new division solely dedicated to financial technology.
5. The New Source of Innovation in Advisory Firms (ThinkAdvisor)
Tradestreaming Tearsheet: It’s getting harder and harder to grow an advisory firm. Here’s a hint: to succeed, it can’t just be the firm owner’s job.. Here are 7 steps to encourage employee engagement to get everyone in on the growth game. Growing an advisory business is definitely a team sport.
Goldman has ambitious plans to offer loans of a few thousand dollars to ordinary Americans and compete with Main Street banks and other lenders. Goldman Sachs has built its brand on handling the portfolios of the rich and powerful. For 146 years, the venerable bank has provided all kinds of financial services, including banking and investment management to thousands of clients– individuals and businesses — globally.
In June, Goldman Sachs communicated that it was further investing in its consumer lending business. Lending a few thousands dollars to a family to remodel a kitchen is a far way from underwriting top tech IPOs, but GS looks serious about investing in its consumer lending offering. Goldman can do this given the fact that it converted to being a consumer bank from an investment bank during the financial crisis — enabling it to take on deposits.
While its activities seem to be in the early planning stage, Goldman’s interest appears to center around providing small loans of a few thousand dollars to Main Street, pitting it competitively alongside consumer banks and marketplace lenders like Lending Club and Prosper. It doesn’t appear that the company intends to establish a marketplace around its lending product (like Lending Club), opting instead to lend off its own balance sheet. Further signaling its intentions to the market, GS hired Harit Talwar, Discover Financial’s former CMO, to head its consumer unit.
Then, in August, Goldman Sachs acquired GE Capital Bank’s online deposit platform. As part of the purchase, GS will take on $16 billion in deposits, made up of $8 billion in online-deposit accounts and $8 billion in brokered CDs. Dozens of employees were targeted with expertise in areas including marketing, credit and engineering, according to one of the people. Without the onus of maintaining local branches, the global bank is quickly putting the pieces together to be a serious competitor in online consumer banking.
Now, Goldman Sachs is trying to poach top management from its newly-found competitors in a market that’s quite competitive for talent. Lending Club’s recent IPO may still have senior leaders there locked up on selling shares and the recent performance of top firms like Prosper make for a competitive recruiting environment. “We have recruited talent from a wide array of industries to build a team with diverse experiences,”Andrew Williams, spokesman for Goldman Sachs said in a statement. According to Bloomberg Businessweek, GS is contacting senior level players at firms in New York and San Francisco and it appears to be having some success: according to employees’ LinkedIn profiles,individuals have joined Goldman Sach’s online lending group from Citigroup Inc., Barclays Plc, American Express Co. and Discover Financial Services.
Goldman Sachs is a technology firm
For years, GS has been trying to convince the public that at its heart, it’s a technology company. Numerous managers have emphasized that Goldman Sachs has more engineers than Facebook — from CEO, Lloyd Blankfein all the way down the ranks. From internally developed products and services to investing in rising fintech stars, GS is active. It’s one of the banking firms behind Symphony, a communications app that just raised $100M and is taking on secure messaging in financial markets and beyond — taking aim at Bloomberg’s sweet spot.
I know there’s a movement spearheaded by indexers, Bogleheads, Efficient Market Hypothesists, Random Walkers and just plain haters of vampire squid to hate everything Wall Street. This is not a post defending the barbarians at the gate or even the monkeys in charge of the business. Rather, I’m riffing on a more recent phenomenon I’m experiencing — that of the mainstream contrarian.
Just another sales pitch
Listen, with so much money at stake, Wall Street has brought opprobrium on itself with outsized returns, lavish lifestyles and bigger than life personalities. Cramming poor investment schemes and products down clients who should and shouldn’t know better has been a staple of the business for decades.
So, of course, it comes as no surprise that a lot of people have been looking for alternatives. Better ways of investing, saving and planning for their financial futures. And it comes as no surprise that a whole industry of products and services arose to supply these investors. From slick investment newsletters, communities of pundits punters like Seeking Alpha, talking heads on CNBC and even the ETF industry — all have merely taken the old Wall Street model and merely updated it.
Enter the mainstream contrarian.
So, instead of crappy structured products being sold hard by brokers, investors are left with hundreds of arcane ETFs without any real idea what to do with them. Buy and hold ’em? Well, that doesn’t really work for investors on the cusp — or in — retirement who need to actively generate income. Asset allocation? Well, who really knows what the right mix of risk and return is for anyone? 401(k)s? Well, those are being manipulated and forcibly rebalanced in a way that’s good for the mutual fund companies, bad for investors.
Evoluton, not revolution
We’ve taken the honorable pursuit of looking for better alternatives to Wall Street yet have merely replaced Wall Street with another manifestation of slick sales people taking advantage of unsuspecting investors. Investors eat up the anti-Wall Street pitch. That there is a better way.
And there is. But it can’t be sold; It has to be bought. It requires being intellectually honest and not just compliantly honest. It requires creating technologies, services, and platforms that say:
hey, the old way typically didn’t work. We have just one possible solution. But to be honest — we’re dealing with uncertainty. Nobody really knows the right way to do this. We believe ours is a good product/service but ultimately, we’re all in this together, trying to plan for a future which is ultimately unknowable.
I guess these aren’t really solutions as much as they are gamemplans. This way, this evolution (not, revolution) in financial services truly departs the old way. Otherwise, it’s just the Wall Street wolf dressed up in anti-wolf clothing.