Pershing, courting digital wealth managers, teams with Motif

Online broker says it can help advisers attract and keep younger clients

Jan 27, 2015 @ 6:42 am

By Trevor Hunnicutt

Pershing is partnering with Motif Investing Inc. as the online brokerage start-up looks to expand its services for financial advisers in the U.S. and extend its reach internationally, an executive from the custodian said Monday.

“A lot of people talk about the threat of digital. We don't really see it as a threat; we see it as an opportunity for our industry to serve more investors, serve them more efficiently and provide them with a service,” said James Crowley, who oversees Pershing's broker-dealer business in the Americas and Asia. “We're working with Motif as well as a few other firms [in the space]."

Mr. Crowley declined to specify any other firms, but Pershing, a unit of BNY Mellon Co., is known to have a number of other digital wealth managers among its clients, including Personal Capital Corp., which uses both human advisers and technology.

(More: Service firms race to help advisers create digital platforms)

“We have an industry that is quite challenged with serving small accounts,” Mr. Crowley said. “One element of having a digital solution is to service small accounts with the expectation that through this unique experience and through time these small accounts will become larger accounts."

He said Pershing would provide Motif clearing and custodial brokerage services in the U.S. and abroad, along with consulting on how and where to expand. Apex Clearing Corp., a firm that has enjoyed success with similar online offerings, was Motif's previous service provider, according to Motif executives. (Apex did not respond to a request for comment after business hours.)

Digital wealth management offerings, also called “robo-advisers,” have taken center stage in wealth management.

At the Inside ETFs industry conference this week in Hollywood, Fla., top executives from research firm ETF.com predicted that robo-advisers would further push down already-compressed trading commissions and advisory fees. Trading commissions are an important source of revenue for Pershing and its broker-dealer clients, and asset-based fees a primary source of revenue for most financial advisers working in the U.S.

The executives, Dave Nadig and Matt Hougan, said advisers who could grow assets faster than competitors or specialize successfully &mdash in conjunction with digital offerings — would thrive in the future.

Motif pitches itself as a help to advisers looking to deepen relationships with digital-native investors, who stand to inherit the vast wealth accumulated by older investors.

The company's platform lets users create, share, buy and sell baskets of stocks or exchange-traded funds, called “motifs,” which comprise a group of ideas-based investments. For example, the “Frack Attack” motif gives investors exposure to companies with hydraulic fracturing operations, while the “Vanity Flair” motif focuses on the consumer beauty and personal care market. Users can earn royalties every time someone buys their motif.

Hardeep Walia, a former Microsoft Corp. executive who co-founded Motif, declined to disclose specific numbers around the platform's growth. As of last May, the advisory platform hosted 10 registered investment advisers with another 100 RIAs in the process of getting on board the platform, he told InvestmentNews at the time. Mr. Walia did say the firm's clients have built 100,000 motifs and that the firm has raised $126 million, "most of it we haven't spent."

The investment strategies used by many online managed-account platforms are based on questionnaires that create asset allocations for investors.

Mr. Walia, who has long courted the business of advisers, has argued that those platforms — which he calls “robo-allocators” — don't offer true guidance.

Motif announced flat-fee pricing on its trading and re-balancing platform for advisers last year after being voted as a best-of-show winner at the technology conference FinovateSpring 2014 in San Diego last year.

“It's a way for you to hold on to your existing book of business,” Mr. Walia said. “We've seen a lot of people talk about intergenerational wealth transfer, but we didn't see anybody going to tackle this problem."

Motif announced last week $40 million in new financing from Renren, a Chinese social-networking platform. Motif's prior investors include JPMorgan Chase & Co. and the Goldman Sachs Group Inc.

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