Banks' collaborations with technology firms will benefit financial advisers

Why banks are finally coming around to working with fintech companies

Oct 11, 2016 @ 9:52 am

By Lowell Putnam

A recent CB Insights study highlighted some interesting numbers about the “fintech boom” that industry experts and journalists have been discussing over the past year or so.

CBI found that a large source of fintech growth has come from banks not only increasing adoption of non-proprietary technology internally, but also increasing the frequency and size of investments in outside tech firms.

The numbers are stark: fintech has seen an increase from $3.1 billion invested over 560 investments in 2013 to more than $14.4 billion over 775 investments in 2015.

This dramatic increase in investor appetite coincides with a strategic shift in the way that banks view and interact with fintech. After decades of increasing barriers to entry for non-proprietary technology, financial institutions have begun to lower their drawbridges and engage the fintech community in a more collaborative way.

When I speak with advisers about the fintech boom, the usual response I receive is, “that sounds great, but does this affect me?” I always answer, “absolutely.” But, to truly assess the impact that this collaboration between fintech and large institutions will have on the wealth management industry, we need to begin by assessing why this relationship is booming now.

(More: How I tackled tech when starting a new advisory firm)


Ever since Ebay's 2002 acquisition of PayPal for $1.5 billion, payments has remained the single largest sector within fintech; even as late as 2008 they were responsible for 70% of all fintech investments. However, in recent years the industry has diversified considerably, with startups running the gamut from crowdsourcing alternative investments to reinventing back-office record keeping via the blockchain. As fintech companies started to focus on areas that were core to the traditional banking business model (see Wealthfront and Betterment in wealth management or Sofi and CommonBond in direct lending), the banks began to see the value in engaging the fintech community more directly.

Rather than ignoring the traction that these startups have found (particularly among millennials), financial institutions have come to respect it. Earlier this year Credit Suisse and UBS announced plans to launch their own innovation lab, hoping to emulate the success of Barclays who founded their own accelerator back in 2013.

Meanwhile, other banks like Goldman Sachs and Citigroup have taken a different path, having found it easier to partner, invest, or outright purchase up-and-coming fintech companies.

(More: Merrill Lynch enters the robo-advisory business)


So why should advisers care what fintech companies the big banks are supporting? The bottom line is that collaboration between banks and fintech startups are directly affecting your client's financial experiences and expectations, so advisers need to find a way to get involved in the process.

Rather than sitting back and waiting to see what comes to market, I'd encourage advisers to become active participants in the fintech conversation. Offer to beta test new products, provide industry insight to young executives, and offer user feedback — in doing so you can help mold the next generation of fintech to better address both you and your clients' needs.

Advisers who join in the collaboration with fintech have a strategic advantage over their lagging peers as they're better equipped to identify early trends and adopt innovative products. In fact, this approach is already paying out dividends for some of the best advisers I know, as they offer “personal finance management” or “financial life planning” capabilities to their clients by leveraging off-the-shelf products developed in fintech. Some of these services are highly self-directed, allowing advisers to deepen relationships with digitally savvy clients with very little effort (the exact same strategy that banks are trying to adopt with their fintech-focused initiatives).

Advisers have the opportunity to outpace the banks when it comes to fintech adoption and collaboration. After all, adaptability is a fundamental skill for any adviser - markets are volatile, financial plans inevitably require adjustment, and client tastes will change. While the banks have taken an important first step towards a more collaborative future, advisers can be nimbler than the banking establishment. As these large financial organizations adjust their trajectory in favor of fintech partnership, there is a unique opportunity for strategically minded advisers to add to this momentum and exert influence on the direction of fintech.

Lowell Putnam is the co-founder and CEO of Quovo, the leading provider of account aggregation and data analytics for finance.


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