roboadvisor Archives

July 11, 2017August 30, 2017

Inside robo-adviser Wealthsimple’s content strategy

A visit to the online magazine of Canadian robo-adviser Wealthsimple can send a reader on a trajectory far beyond the usual tips and tricks that customers have come to expect from a bank or asset management company. Wealthsimple’s articles are targeted and edgy, with headlines such as “How to work in the gig economy and still save like a corporate lifer” or “How to blow your holiday bonus.” The articles go beyond just advice — interviews with popular personalities such as Anthony Bourdain and Kevin Bacon on personal struggles with money help humanize the personal finance experience.

“We don’t talk to people about oil prices and interest rates, we talk to people about interesting stories about money — we do a series of money diaries where we interview celebrities and interesting people to help break down the taboo of talking about money,” said CEO Mike Katchen.

Wealthsimple joins a league of brands that tell stories without the need to constantly link to a line of products and services. Other finance companies have also opted for organic storytelling, including Charles Schwab, whose magazines focus less on the nitty gritty of finance than the “shared values” that the brand has with its customers’ lifestyles. It’s an approach that’s worked for Wealthsimple, whose content has been cited as a credible source by mainstream media outlets, including stories from Business Insider, Money, CNBC and MarketWatch. The site gets 300,000 page views a month, according to the company.

Wealthsimple’s branded content shop is an in-house operation run by 10 full-time employees and headed by former GQ editorial director Devin Friedman. The team also includes two Wieden+Kennedy alumni, the agency known for its work for Nike. As Tearsheet reported in February, Wealthsimple’s move to bring in design talent is a trend among financial advisory companies seeking to add a human touch to customers’ experience with money. Katchen said the target audience is professionals between 30 and 45.

“It’s about how to create a brand that resonates with a younger audience and speaks to them in terms they understand,” he said. “The classic example is the person who knows investing is something they should be doing, but they don’t have the time or interest in doing it themselves.”

To marketers who develop branded content for banks and finance companies, Wealthsimple may be onto something.

“When you go there [Wealthsimple’s website], there’s a cohesive editorial feel to it, which I think really helps them as they are expanding to a new market,” said Michael Grimes, svp of editorial strategy at Hill Holliday, the lead creative agency for Bank of America. “If you look at their imagery, they could have taken stock photos, but a lot of them are hand-drawn illustrations or treated photos — everything feels like it’s coming from same place editorially, and it has the same visual identity as a magazine.”

Grimes said customers are less likely to shy away from branded content if it’s seen as useful and the information is accurate.

“People want solid, accurate information,” he said. “If brands have the bench and the access to expertise to give that information, that gives them a leg up.”

In the competitive market for millennial investors, content that’s not seen as useful can easily turn off customers, said one analyst.

“We see a saturated market of ‘tips and tricks,’ ‘five things you need to know about,'” said Jeff Baker, director of digital marketing for content marketing agency Brafton. “People want to read in-depth pieces of actual use cases of things that worked and things that didn’t.”

Wealthsimple, founded in 2014, hopes its approach to digital marketing, combined with traditional advertising and Facebook ads, will give it a needed push as it expands to new markets. The company, which is backed by a CA$100 million ($77 million) investment from Power Financial, expanded to the U.S. in February of this year and plans to launch in the U.K. this fall. Despite the challenges of growing the company’s reach in new markets, Katchen said there’s room for more players.

“We’re not building a business to solve the problem for early adopters only — we’re in the business to solve the problem that investing is complicated for the average person,” he said. “We’re trying to create a lifestyle brand around financial services that’s broadly relevant to the masses out there, and that’s informed our strategy and given us confidence that the market is wide open for a player like us.”

Image: Money Diaries series from Wealthsimple’s online magazine, courtesy of Wealthsimple

May 23, 2017May 23, 2017

Work with a purpose: Why millennials leave big finance

When Chrissy Celaya finished her degree in personal financial planning at Texas Tech six years ago, she said ethics drew her to a career in the field.

“I wanted to to help people,” she said. “Finance plays such a big role in everybody’s life, so if you can ensure people can be financially secure for the future, it’s helpful in so many different ways.”

After two years working at USAA and a year-long stint working at a language institute in Spain, Celaya moved to New York to work at Merrill Lynch. But after a year at the industry giant, Celaya, who is now 27, said she didn’t think the culture was a fit.

“I had to sell certain products because they generated money for the organization, and that was a huge turn off for me, so when I started to learn about automated investing, it was a no brainer for me to go back to an organization that had the client’s interests at the forefront,” she said.

Celaya said she switched to Betterment, a startup that offers automated investing tools and employs human advisers. Her move to a smaller firm that aligns with her values is not atypical of millennials, who, according to recent research, pay close attention to a company’s mission.

“Millennials want their work to have a purpose, they want to feel they contribute something to the world and they want to be proud of their employer,” read PricewaterhouseCoopers’ 2016 Global CEO Survey.

The values focus, combined with millennials’ lack of loyalty to a single employer — a recent Deloitte survey found that 38 percent intend to leave their current position within two years — is rattling the financial advisory industry, a field where the average age of an adviser is 50 and continues to climb.

The talent problem in the financial advisory industry
Experts note that legacy firms are having trouble holding onto talent.

“The concern with legacy firms is less of a talent war and it’s much more about talent replenishment,” said Michael Spellacy, senior partner of asset management and leader of global wealth management at PricewaterhouseCoopers. “Attached to that, the innovators in the landscape have upended the financial adviser value proposition — there’s been a shift from active management to passive management with the proliferation of artificial intelligence to help guide the financial advisers.”

Younger, technologically-savvy advisers are less likely to trust the big firms that they perceive don’t have the customer’s interest at heart. For at least one veteran who mentors up-and-comers, it’s an often-cited complaint from younger advisers.

“Every single week they contact me,” said Paul Pagnato, who worked 19 years at Merrill Lynch before opening his own firm a year ago. “Having a sense of focus and having a sense of mission meaning in their work environment is absolutely critical.” Merrill Lynch declined to comment for this story.

The culture question
The attraction to startups is driven by more than just open co-working spaces and ping pong tables. Startups can be perceived as more open to the development of new ideas, notes one young industry watcher who has worked in the field for six years.

“There are three core issues major players have: one would just be the slow decision cycle of the corporate environment where it’s hard to do innovative or disruptive things, on top of that there’s regulation, and the demographics of these companies can sometimes be off-putting to young talent,” said Grant Easterbrook, 27, founder of Dream Forward Financial, a 401(k) startup.

Previously, Easterbrook said, people working in finance would pivot to other industries if they weren’t satisfied, but with the growth of financial technology companies, they can use their skills while pursuing other goals within the startup sphere.

“Millennials care about impact and social good — a lot of the traditional players make money with hidden fee structures, and even with startups that aren’t doing impact investing in the traditional sense [investing for social causes over returns or profits], there’s more of a feel-good, social-good kind of vibe,” he said.

For Celaya, not having to upsell customers products and services was a big motivator to move to a startup.

“I didn’t like the idea of having to cold call and sell products [the customer didn’t need] and wanted the flexibility to do the planning the way I wanted to do it,” she said.

Incumbents respond
At least one major industry player said it’s changing the way it’s organized to help attract and keep millennials. Newark, New Jersey-based Prudential Financial, which has a large investment management practice, has developed an in-house customer office that’s designed to be an innovation lab for young talent.

“We have garage doors, ping-pong tables and a very open workspace that allows for more collaboration and that has a very different feel to it,” said Chrissy Toskos, vice president of human resources at Prudential who is charge of campus recruiting. “The [young] talent is very tech-savvy with more agile ways of working, and we’re inviting them to be involved and advance in our culture.”

The company said it’s also offering perks like student loan repayment assistance, subsidized healthy food, on-site fitness facilities and volunteer opportunities. When asked if the moves are in response to a flight of millennials, Toskos said they are a natural evolution of the company’s organizational strategy.

“It’s something born out of where we want to go and how we want to be perceived in the market,” she said.

In the startup sphere, at least one founder feels the skill set and mindset required to work in a startup is more aligned with where the industry is going.

“We look for people that are problem-solvers and people that can execute,” said Herbert Moore, 34, co-founder of WiseBanyan, a platform that offers largely automated investing tools, with the support of financial advisers. “In asset management, a lot of the skill sets people are learning in larger firms aren’t quite as relevant to what we’re doing right now because we’ve sought to automate those functions.”

What motivates the best employees, said Moore, is a commitment to a longer-term mission.

“No one’s going to choose a job just for a free lunch — what you see in the best people is a desire to do something meaningful.”

September 23, 2016September 27, 2016

[podcast] Autonomous Research’s Lex Sokolin on the 4 waves of roboadvisors

I’m joined this week by Lex Sokolin. He’s a self-described futurist and entrepreneur focused on the next generation of financial services. He’s now the global director of fintech research at Autonomous Research, a research firm for the financial sector. Previously, he led product design and corporate development as COO at Vanare, a wealth management platform built on roboadvisor DNA. He was founder and CEO of NestEgg, a roboadvisor that pioneered online wealth management in partnership with financial advisors.

Subscribe: iTunes I SoundCloud

We talk about the changes happening in the financial services space and the types of opportunities for incumbent and upstart financial firms willing to do the hard work. Lex’s entrepreneurial story takes us through his four-wave framework for the evolution of roboadvisors. Pay attention to what he says about the next stage for the industry and what it means for the ETF industry, as well.

Below are highlights, edited for clarity, from the episode.

Investment opportunity in financial services

A slew of new ETFs have recently launched that provide investors with broad and general exposure to the publicly-traded side of fintech. This is a good start for investors to access the space, but it doesn’t really connect to the bigger opportunity.

“There’s a tectonic plate moment where media, technology and finance are colliding together and making life interesting for people in finance for a long time. I’m focused on what startups are doing and determining the key causes to the symptoms we’re seeing. Robo advice, digitization, and chatbots are all symptoms and the underlying causes are things like generational and behavioral shifts of millennials and the wealth they’re inheriting, or the development of core technology from artificial intelligence to the consumer web.”

Incumbent firms as fintech players

Becoming a technology company is more than just putting a new veneer on a corporation. It requires a new injection of spirit and it is possible that larger, incumbent financial players can redefine themselves in the technology world.

“Culture is a real core element to address. If you think about financial services companies, the business, finance, and sales guys were always paid the most and the IT department was two floors down. The brown shirts and brown ties were always a cost. If you look at companies like Google and Apple, the technologists are the rock stars. They’re the ones getting paid millions of dollars and sales are the guys downstairs. What’s happening now is both of these animals are coming to drink from the same water.”

July 12, 2016July 13, 2016

A race to the bottom: Can roboadvisors build real businesses?

Sometimes, when you win, you lose. Venture investors are betting that this generation of software-driven investment firms will be the future. That may be, but the future is going to be very expensive for roboadvisors. In a race to acquire assets, robos may be setting themselves up for a harsh reality.

Wealthfront and Betterment are the two leading upstart roboadvisors in the US when viewed by levels of AUM. Collectively, these two firms have less than $10 billion in AUM. They’ve built very slick platforms that have resonated well with millennials, who would rather automate their portfolio management than have to deal with a financial advisor. These platforms generally provide basic plain-vanilla portfolio managment, tax-optimizing rebalancing strategies, and are dirt cheap (fees typically start at 25 bps and go down as account sizes go up).

Not every roboadvisor is the same — some, like those offered by some of the incumbent brokers and asset managemers provide a hybrid offering that weaves in connecting with an advisor at some point. But the value proposition to customers is the same: low fees and a set-and-forget interface.

Roboadvisors have become the rally monkeys for fintech. If new software-enabled tools can change the way money is managed and suck out excess cost from the system, every part of finance can be disrupted, the thinking goes. Wealthfront and Betterment have also raised hundreds of millions of dollars of venture capital. It looks like they’ll need every penny as a recent report demonstrates just how unprofitable these firms are.

Untenable business models

The average UK robo account would have to be invested for nearly 11 years to reach break-even, according to Alan Miller, author of Fintech Folly: The Sense and Sensibilities of UK Robo Advice. Miller, a UK asset manager, drilled down into how expensive it was to acquire new accounts for these startup financial advisors. The report found that the average UK robo-adviser receives revenue of just £147.50 pa per account, but had to deal with a cost of acquisition that was at least £180 pa per account.

Those numbers may prove to be way low, too. Other online financial firms, like online brokers, marketplace lenders, and equity crowdfunding platforms, regularly pay significantly more to acquire their customers, but also see higher total lifetime value.

“We were shocked at how unviable these business models are,” he wrote Tradestreaming via email. “Even using incredibly generous assumptions regarding their costs, which are in some cases up to 18x the level we assumed, it would still take 11 years just to make a penny, by which time many of their clients will be long gone based on the average retention period of three years we discovered; as would their financial backers.”

Scale, sure, but at what cost?

As roboadvisors are software firms at their core, perhaps they scale well. Wealthfront’s CEO, Adam Nash, has always compared his firm’s growth to that of another great innovator, Charles Schwab. And in fact, at least for the first few years of its young life, Wealthfront grew faster than Schwab, reaching $1 billion in just two years, while it took Schwab 6. With a growth trajectory this steep, maybe it isn’t far-fetched to see early robo leaders getting to $100 billion or $1 trillion under management.

Wealthfront's AUM growth — Wealthfront’s AUM growth

Miller isn’t so certain. He estimates that the employee costs alone at one of the UK’s largest roboadvisers were £817 per account/year. So, all in all, between acquisition and HR costs, roboadvisors spend a total of £2,794 over the life of a client life (even excluding all the non-staff related costs). If after three years, a robo only earns £499, well, Houston, we have a problem. Miller thinks this upside-down cost structure, and potential regulatory problems, may derail the robo train.

Miller’s investment firm, SCM Direct, offers 6 different ETF portfolios, so he competes with robos. Nevertheless, he’s transparent about fees and provides a clear description of how much a customer should expect to pay working with his firm. The UK investment manager charges 1.13% per year which includes management, custodial, ETF, and trading fees.

Channel vs. standalone robos

It’s expensive to build a standalone asset manager. Incumbent firms recognize that and a few of them, like Blackrock, Invesco, TIAA, and Goldman Sachs have acquired startups in the space. They’re planning on using these firms as distribution channels for their own ETFs. Clients of these firms will have their choice of flavors to choose from.

And that’s the point. Roboadvisors aren’t a new business, per se. They’re a new way to deliver advice and product, one that’s cheaper and more automated than previous models for the investor. The other side of this coin is that the robo trend exerts downward pressure on management fees. This will kill off some of the smaller roboadvisors who don’t find a way to profitably scale or tap deep pockets of an investor willing to fund such expensive growth.

Meanwhile, the infatuation with robos continues but apart from Miller, no one seems to be asking the hard questions of roboadvisors. “We have been just as surprised by the response to the report which has only been partially covered in the trade press, especially adviser focussed titles,” he said. “There’s been no coverage in the financial pages of national media titles, given the serious issues our report raises,” he said.

Roboadvisory is here to stay, while roboadvisors may not be.

Photo credit: A Train via VisualHunt / CC BY-ND

June 15, 2016March 16, 2017

The future of roboadvisory, as seen by a top fintech investment bank

It happens in every industry technology enters — in big markets like finance, the opportunities are so vast that new disruptive entrants receive a level of hype that way outstrips their current situation. Money pours in, valuations go up and then, as Gartner describes via its firm’s hype cycle methodology, this peak of inflated expectations crashes and becomes a trough of disillusionment.

2015 was a year of super high hopes for the robos. Standalone asset managers like Wealthfront and Betterment were seen poised to take over the world, set to become the next Goldman Sachs and JP Morgan. Somehow, though, too much lemonade was drunk and everyone seemed to overlook just how hard — and expensive — it is to acquire new customers as a stand-alone asset manager.

If last year was the peak of inflated expectations, 2016 is turning out to be the year that robos get their shit together. Sure, some of the top firms are raising more money and some smaller ones have gotten taken out, but it seems expectations are getting realigned and realistic, as the hard work of building these businesses begins in earnest.

FT Partners, a boutique fintech investment banking firm headed by Steve McLaughlin, has essentially owned the transactions in the roboadvisor space. The firm recently published a 141 page presentation on digital wealth management and we pulled out just some of the salient features for you below.

Robos are next step in passive investing evolution

The story and excitement about roboadvisory isn’t just a tech story — it also has to do with another general trend in investing: the move away from active fund management to passive forms of investing. Over the past several years, money has flowed directly out of actively managed mutual funds and into their lower priced, mainly-indexed cousins, exchange traded funds. Large money managers are abandoning trying to beat their benchmarks and moving their portfolios into passively-managed strategies, as evidenced by the fact that over one third of all managed money is now in ETFs or other index products, up from 20% in 2009.

In The Insider, 60 Minutes’ Mike Wallace interviews Jeffrey Wigand, a Big Tobacco industry insider who turns informant. “That’s what cigarettes are for: a delivery device for nicotine,” the informant said. “Put it in your mouth, light it up, and you’re gonna get your fix.” Similarly, because they’re cheap, easily managed, and ubiquitous, roboadvisors are a great distribution tool for ETFs, and that’s why firms like Schwab and Vanguard have launched different flavors of roboadvisor platforms — to help distribute their own ETF products.

Same technology, different target clients

Roboadvisory is a growing, crowded market. Startups and incumbent financial institutions’ offerings tend to blend together. Some are purely software-driven, while others are hybrid offerings, combining software with a human touch. So there’s not really that much differentiation on the outside packaging.

But when you begin to drill down on the largest players, it’s clear that their businesses are very different. Personal Capital has the highest average account size ($125,900) and Acorns, which, at its core, is an app to encourage millennials to save more, has the smallest account size ($156). Some robos target the mass affluent while others have moved downstream, to collect every nickel and dime its users can spare. It will be interesting to watch the different techniques robos employ to ramp their AUM. Future M&A activity will be very much predicated on roboadvisors’ client makeup and marketing chops.

By the look of things, M&A is just getting started

mergers and acquisitions of robo advisors

Of course, no banking slidedeck would be complete without a recent transactions slide. There have been a number of recent deals in which an incumbent asset manager acquired a roboadvisor. BlackRock, Invesco, and Goldman Sachs have chosen their racehorses by buying instead of building their own. Others incumbents, like Schwab and Vanguard, have built and launched their own robo offerings. FT Partners believes that as more capital flows into the space, there will be more M&A and partnerships to come in the space:

“A number of newer firms are likely to be acquired by larger organizations that are looking to add or deepen their digital wealth management capabilities while only a relatively small number of new consumer brands are likely to achieve the level of scale (and funding) they need to survive on their own over the long-term,” the firm wrote.

Photo credit: Arthur40A via Visual Hunt / CC BY-SA

May 16, 2016

High Five! The top 5 fintech stories we’re following today

[alert type=yellow ]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 newsletters .[/alert]

1. What’s the fuss about LendingClub?

The largest U.S. marketplace lender is in a whole lot of trouble. It’s unclear whether LendingClub’s current financial troubles are a result of the shady dealings of its (now ex-) CEO Renaud Laplanche or whether it’s a broader company issue. Either way, it’s a big deal. Here’s why.

2. How DailyWorth turned a newsletter into a roboadvisor for women

It’s a good time to be a woman investor. At DailyWorth, founder and CEO Amanda Steinberg is using the data amassed from her 7 year relationship with her 1 million newsletter subscribers to develop a roboadvisor to help women become smarter investors. DailyWorth’s wraparound roboadvisor service, which provides financial education, guidance, encouragement, and even some humor, is just one in a series of new fintech initiatives to empower women. To get your full girl power fix, read on about SHE: The ETF that trades on Female Empowerment, and Ellevest, Sallie Krawcheck’s new digital investment platform that wants to change how women manage their investment strategies.

3. Big banks stake fintech claims with patent application surge

Big banks are getting into the fintech frenzy by … filing patent applications. The prominent financial institutions are firing off patent applications on technology that has already been integrated into existing products, speculative products, and up and coming key technologies. Just how many patents are we talking about? Since 2013, big banks have filed a whopping 2,679 patents (at least!) in hot areas such as blockchain, analytics and cybersecurity, a surge of 83% from the prior three years. These patents, when granted, would allow big banks to protect their innovation investments. However, this tactic comes with a price. Many of the technologies that big banks are trying to patent are network-effect technology; the more walls big banks erect, the less these technologies are able to grow.

4. How Charles Schwab fought back against roboadvisors

In June 2014, roboadvisors and the startups launching them were looming large on the investment horizon. Instead of hiding its head in the sand, Charles Schwab decided to embrace this new technology by creating its own roboadvisor service, Schwab Intelligence Portfolios, within the year. Here’s how Schwab did it. By using questionnaires to gauge clients’ investment goals, risk comfort, and a number of other factors, Schwab Intelligence Portfolios matches clients with investment portfolios tailored to their individual investment profile. However, according to Michael Kitces, Schwab may have to make some adjustments to the service fairly soon, in order to comply with the upcoming DoL fiduciary rule.

5. Why it’ll be Visa and MasterCard – not tech start-ups – that truly disrupt banking

Credit cards hardly seem disruptive – maybe because they’ve been around since the Roaring Twenties. Nevertheless, Alexander Vityaz argues (persuasively, we think) that credit card companies are already leading a quiet revolution in the finance industry. Thanks to their global, digitalized presence, Visa and MasterCard are slowly transforming into banking corporations, leaving banks acting like subsidiaries of the credit card companies. At the end of this process, Vityaz sees banks becoming faceless utility providers, much like your electric or gas company.

Photo credit: Loozrboy via Visual hunt / CC BY-SA

May 13, 2016March 16, 2017

How DailyWorth turned a newsletter into a roboadvisor for women

DailyWorth launched WorthFM, roboadvisor for women

In the 7 years since she’s started DailyWorth, Amanda Steinberg has seen the word “ambitious” become a compliment when applied to women. That may be due to the success her newsletter has had in communicating personal finance concepts clearly and without jargon to one million subscribers.

And now, her firm is moving deliberately up the value chain with the launch of a new online investment advisory service called WorthFM. Building an investment platform seemed to be an obvious next step to service a strong and loyal personal finance audience.

In order to launch a roboadvisor and transition from being a financial content site to an investment service, DailyWorth followed a clear build and launch plan.

Know your audience

DailyWorth's MoneyType quiz — DailyWorth’s MoneyType quiz

Communicating with a million subscribers via a newsletter has given the firm a lot of data points to deal with when it comes to understanding their audience. DailyWorth’s audience is comprised of 5 different archetypes based on an individual’s relationship with money: the Visionary, Producer, Nurturer, Epicure, and Independent.

These categorizations are determined by the firm’s MoneyType quiz it offers new subscribers. Developed by Dr. Jennifer Leigh Selig, a depth psychologist and expert in Jungian archetypes, the MoneyType assessment not only helps subscribers understand themselves better but influences the way DailyWorth communicates with its audience.

It’s also the cornerstone upon which the firm’s new investment service was built. The WorthFM team wanted to make something from the ground-up that gives women a step-by-step guide to managing and growing their finances.

“E*trade and traditional wirehouses have done a great job taking tools designed for finance professionals and making them generally available to the public,” said Jordan Bastien, WorthFM’s director of business development. “But, we want our platform to speak to people about their emotional connections to money. There are lots of people out there who aren’t motivated by financial plans and charts. They want to understand how their finances enable them to take care of others or feel free.”

Test and iterate

Through its newsletter, the DailyWorth team has a lot of experience acquiring subscribers. When they thought about building and launching an investment service, they went straight to the source and polled their readers to test their appetite for a new service in a crowded niche — roboadvisory. The numbers spoke for themselves: 84% of respondents replied that they would be interested in opening an account.

When the marketers plumbed further, they became even more confident that DailyWorth subs were interested in migrating to the WorthFM platform. The average subscriber has over $200,000 in investable assets, yielding a potential $16 billion asset pipeline to market to.

But earlier in the company’s lifecycle, DailyWorth experimented with advertising investment services and the results weren’t particularly encouraging. Users would engage with sponsored material and click on through, but they just weren’t opening up accounts at partner sites like Vanguard. When the company asked users why, they responded that they just didn’t feel like the partners were speaking to them.

And that’s where the startup investment firm feels like it has a distinct advantage — it’s spent years learning to communicate with its predominantly female audience. The company knows how to talk to its users. In The Secret Shame of Middle Class Americans, nearly half of Americans would struggle to float $400 for an unexpected expense. Women, said Bastien, have been the locus for so much money shaming. “It’s not that our advice is different, we’re just delivering it differently,” she said.“We’re a materialistic culture that doesn’t like talking about money.”

WorthFM opened its beta trial just a few weeks ago to just a few thousand people and will be letting new people on to the platform from a waiting list that numbered 30,000 people.

Convert subscribers to investors

From its user research, DailyWorth understood that its subscriber base isn’t looking to max out their investments — they’re looking to maximize their total net worth. So, WorthFM was designed to address a broader focus than just portfolio management. It also addresses personal finance and debt reduction.

WorthFM defaults to create 3 separate accounts for each user, corresponding to short-term, mid-term, and long term financial goals. “We want to help create balance in our users’ financial lives,” said Bastien. “People really do need an emergency savings account.”

With this holistic view of money, the new roboadvisor developed a personalized feed within a user’s dashboard— a Google Now for money — that includes educational content, directions on what to do next, some humor, and encouragement. WorthFM continuously learns what motivates its users, finding a way to tap into that motivation with appropriate encouragement, all in an effort to grow user net worth, not just their investment portfolios.

The investment field has long been criticized that it’s failed women, who have been consistently growing their economic power. Building on DailyWorth’s success communicating complex financial concepts simply, WorthFM hopes it can build an investment advisor with the same ethos.

Photo credit: joiseyshowaa via VisualHunt.com / CC BY-SA

April 29, 2016

Is fintech really headed for a downturn?

corporate real estate financing big data

Is financial technology really deserving of the excitement surrounding it?

The easy answer is a clear “yes.” In terms of venture investment, the sector has exploded over the past four years, growing from $3 billion in 2012 to more than $19 billion in 2015 and $5.3 billion during Q1 2016 alone, a 67 percent increase over the same period last year.

As a result, the fintech world appears to be on a singular trajectory: ascendant. Roboadvisors are now estimated to manage about $19 billion in the United States alone. Marketplace lending is expected to reach $122 billion in originations by the year 2020, with some analysts predicting the sector could his $1 trillion by 2025. For at least the past 18 months, the news media has been flooded with stories and analysis about fintech startups “transforming” the finance industry.

Wall Street is paying attention

Even more significantly, finance industry incumbents like JP Morgan, Citi and Goldman Sachs have clearly taken notice, and have set technology on their radars: In March, JP Morgan Chase & Co. announced the establishment of an enormous, 125,000 square foot fintech hub on Manhattan’s West Side, and is expected to spend $3 billion on technology investments this year. Every major bank is working hard to study the use of blockchain technology. Goldman Sachs says it employs more engineers than Facebook. And the list goes on.

In short, there is plenty of reason to be optimistic for fintech professionals to feel confident about 2016 and the future.

Apple leads tech down

And yet, there are indications that the coming period could herald sobering times for the new darling of the technology world. Apple’s poor Q1, which marked the end of the company’s 13-year run of quarterly revenue growth, was not directly related to the finance world. But the company’s mobile payments platform Apple Pay has yet to offer meaningful revenue, and neither Apple Pay nor its android cousin, Samsung Pay, have had any real impact on the spending economy.

Furthrmore, the first quarter of the year saw a sharp drop in mergers and acquisitions over Q4 2015. And Tradestreaming has reported several times in recent weeks about a slowdown for marketplace lenders.

In addition, anecdotal evidence suggests that many working professionals have yet to connect to the world of technological finance. Asked whether new retirement savings tools meant anything to them, one Seattle, Washington couple told me they are not familiar with any online financial services and felt no need to move in that direction.

“It doesn’t really mean much to me,” said 44-year-old Becky Blixt. “My partner and I both have 401k plans with no fees. I’m not familiar with web services like NerdWallet but we don’t need to use an app like that because we have most of our investments with Fidelity. Because we have over a certain amount, we have free financial advising services with them. We meet with a guy twice a year and talk retirement and investments. So the online stuff isn’t really relevant for us.”

Wall Street not fully listening

And then there is the reaction from finance sector incuments. One individual active on Wall Street said that for whatever lip service JP Morgan, Goldman Sachs and others may pay to fintech upstarts, in reality those reactions are little more than media statements intended for public consumption, but with little intent of altering their core businesses.

Even worse, some analysts say Wall Street is openly disparaging of the startup industry.

“Innovation in US fintech is not rewarded. It is considered suspect,” writes John Biggs, the East Coast Editor of TechCrunch and former editor of Gizmodo in Why US fintech is a joke. “Sure, there are folks out there trying mightily to change the way things work, but they are not being rewarded. Sit down and talk with some old-guard financial types and you will see that improvements to their creaking ships are unwanted and seen as too difficult or frightening to implement.

“Amazing ideas – ideas that will pull the banking industry out of the coming doldrums – are suspect,” Biggs concludes.

The numbers indicate they are correct: For example, take just one area, roboadvisory. The $19 billion in roboadvisor AUM is a tiny fraction of the $1.7 trillion currently under management by JP Morgan alone. Even if the industry fulfills expectations to expand to $1 trillion in the next decade, it will remain a poor cousin in comparison to the Wall Street. From that perspective, one could argue that there is little reason for JP Morgan or Goldman Sachs management to lose sleep over the challenges presented by Betterment or Wealthfront.

Quickly growing up

None of which indicates, of course, the the fintech sector is in trouble. Rather, the current trends in the industry are more likely explained by the ancient proverb “all beginnings are hard”. Yes, the fintech industry has experienced expansive growth in recent years, but at the end of the day, the sector is still in its infancy, or at least in early childhood. PayPal, one of the earliest successful fintechs, was founded in 1998, less than 20 years ago. In contrast, the genesis of the London Stock Exchange dates back more than 300 years to 1698, when John Castaing first issued a detailed list of market prices called “The Course of The Exchange and Other Things”.

The coming period, then, will likely be a time of growth and maturity for the fintech industry. It remains to be seen how banks, asset management firms, credit card companies and other finance professions will respond to the challenges presented by fintech startups.

But it is clear that they will respond in some fashion, either by outsourcing services to technology companies, purchasing or licensing new technologies and services, or developing in-house solutions to serve customers and maximize profits. That process could mean a short term search for the right path forward, but in the long-term, it should lead to a more mature industry with the ability to maximize profits as well as to serve an ever-broadening clientele.

Photo credit: CJS*64 “Man with a camera” via VisualHunt / CC BY-ND

March 30, 2016July 6, 2016

WTF is a roboadvisor?

This is the first in a series of articles that explain, in plain English, new technology tools and platforms that are changing the face of finance. Check out other articles in this series here.

What is a roboadvisor?

A roboadvisor (also robo-advisor or robo-adviser, if your roll that way) is an investment advisor that provides automated portfolio management using software. Instead of a human investment advisor choosing how to allocate a portfolio, roboadvisors use algorithms.

Why is everyone obsessed with roboadvisors?

Well, if they’re as good (or better than) as human investors, the success of roboadvisors threatens the livelihood of registered investment advisors (RIAs) and stock brokers. Most roboadvisors charge around 0.25% per year on their clients’ assets, driving down fees in the investment management industry. Some don’t charge any fees. In an industry suffering a crisis of trust, many younger investors have shown they’d rather trust a website than a local financial advisor.

What kind of investment strategies do roboadvisors use?

Most roboadvisors provide portfolios comprised of a handful of exchange traded funds (ETFs). Robos frequently provide ongoing, automated portfolio rebalancing and some provide daily tax-loss selling. New roboadvisors have entered the market with more sophisticated investment strategies.

Schwab's roboadvisor: What's a roboadvisor? — Schwab’s investment questionnaire

Why would clients want to work with a roboadvisor?

Some of the pioneering roboadvisors focused their marketing on newly-minted millionaires who made their money working for technology companies. These people are as comfortable using an Internet-based service to manage their investments as they are using an app to order a taxi. Clients feel like the advice they receive from roboadvisors is unbiased and the fees low. Clients with smaller portfolios have complained that they don’t get the attention of their wealth managers and consequently, don’t get the same level of service larger clients get. Roboadvisors claim to provide the same service to all their clients.

Are roboadvisors succeeding?

It depends what you mean. Many of these firms are startups and have raised lots of venture capital to launch and acquire new clients. But in terms of assets under management, they still have just a tiny sliver of the entire asset management pie. Newer entrants to the roboadvisor market are owned by incumbent asset managers, like Vanguard and Schwab. In just a few months, these in-house solutions had more assets than all the other roboadvisors combined.

different roboadvisor portfolios: what's a roboadvisor? — from the WSJ

Are roboadvisors really fully automated?

Some, yes. Many robos are what experts call hybrid roboadvisors. These hybrids combine a significant amount of portfolio automation with a more traditional interaction with a professional, human advisor. Some human advisors have introduced their own roboadvisor offerings to complement their professional workforce.

So, it isn’t all-or-none when it comes to making a decision between a roboadvisor and human financial advisor?

Correct. There are companies that provide private-label software to traditional investment advisors so that they can launch their own roboadvisor products.

What do traditional asset managers think of roboadvisors?

That depends. Some have remained skeptical, choosing instead to wait and see how this all plays out. Others have developed their own offerings, like Vanguard and Schwab. BlackRock, for instance, acquired an independent roboadvisor. To date, there hasn’t been a lot of M&A in the space.

Photo credit: ell brown via Visual Hunt / CC BY

January 12, 2016

5 trends we’re tracking this week

1. Edward Jones launches mutual fund family, attracts more money last year than Fidelity, BlackRock and American Funds (BizJournals)

2. Schwab ‘robo adviser’ grows to $5.3 billion in its debut year (Reuters)

3. Will the Department of Labor’s Fiduciary Rule make Broker-Dealers irrelevant in 2016? (Michael Kitces)

4. Fidelity drops credit card partners AmEx, Bank of America, ending 12 year partnership that generated billions in fees (Reuters)

5. The Wall Street Journal is first business publication to get a spot on Snapchat Discover (NiemanLab)