Oftentimes, my love of innovation and my background in wealth management make me feel like on my own “Isle of Misfit Toys.” The two worlds simply do not intersect very often. But that is beginning to change.
A recent Wall Street Journal article examined how more and more investors are looking for investment advice online. This really raises the bar for traditional firms clinging to inflated and complex fee schedules and, often, a lousy client experience.
Last week, I attended the Finovate financial innovations conference in New York. This is the fifth or sixth Finovate I have attended and it always is a great place to examine some new trends in financial technology.
And personal finance is clearly an overwhelming trend.
Two of the seven firms, FutureAdvisor and LearnVest, highlighted in that Wall Street Journal article presented their latest technology at Finovate. The Finovate blog goes on to describe the success that those firms have had in raising capital:
Wealthfront - Raised $20M in March 2013
Personal Capital - Raised $25M in June 2013
Jemstep - Raised $6M in February 2012
FutureAdvisor - Raised $5M in August 2012
Betterment - Raised $10M in October 2012
SigFig - Raised $15M in July 2013
LearnVest - Raised $16.5 in July 2013
The game is changing. Capital is flowing to these new contenders, and advisers need to pay attention to these macrotrends:
1. Crowd-sourcing is here to stay
New to the Finovate stage this year was Motif, which doesn't want consumers to invest individual stocks online—they want them to invest in ideas. For $9.95 investors can buy a basket of 30 stocks in a no-fee customized, ETF-type bundle, based on any number of investment hypotheses, or motifs. (Dubbed 'ETF Killers' by Motley Fool). The company spent a year building 100 motifs, but there are now 15,000 crowd-sourced motifs available, or you can create your own. Motif was one of six presenters voted Best of Show by attendees. A year ago eToro presented their crowdsourced stock trade idea platform at Finovate, and the company is now reporting over 90 million trades.
Advisors role as the gatekeepers of asymmetrical information is already over, though some seem to refuse to believe it.
2. Advice is being democratized
LearnVest is offering advice from certified financial planners in an affordable bundle (from $89 to $399 a year), and FutureAdvisor provides personalized asset allocation and tax efficiency analysis and recommendations across investors' entire portfolios, including 401(k)s for $0 to $19 a month.
Technology continues to eat its way up the value chain that advisers have traditionally enjoyed. First it was low-cost stock trades, then access to more choices and professional models, and now the advice component is being credibly replaced by mass customization that provides a better client experience at a lower cost.
3. Advisers need to rethink their role in the value chain
The upshot of these and other trends is that advisers have to take a hard look at how they provide value to clients. I spoke to the CEO of one innovative company at Finovate, and he lamented the lack of interest in his product from investment advisers, despite the massive leverage it provides by automatically monitoring client portfolios for rebalancing, compliance, style drift and other metrics.
Those are the kinds of activities that advisers can and should leverage technology to perform so they can actually spend time with clients. It's not about picking stocks, it's about being that trusted adviser who can help clients understand, articulate and achieve their goals and stick with their plans to get there even when the market makes them greedy or fearful. That's a job still best suited for humans.
At least for now.
What do you think? How are you providing value to clients? Is technology your friend or your enemy? Join the conversation!
JP Nicols, CFP is the CEO of the research and innovation firm Clientific, and a partner at Bank Solutions Group. He writes about leadership, innovation and strategy for numerous industry publications, and on his blog at jpnicols.com