Fintech isn't just for kids

Technology vendors see opportunity in building tools for older investors

Jan 17, 2019 @ 2:00 pm

By Ryan W. Neal

Financial advice firms need to embrace digital technology to reach next-gen investors and attract young advisers, but that doesn't mean fintech is just for kids.

Existing technology vendors and startups are recognizing an opportunity to innovate the way in which advisers serve older clients nearing or in retirement, a market that could be even more profitable than coveted millennials.

As Orion Advisor Services' CEO Eric Clarke recently pointed out, the baby-boom generation holds a collective $26.2 trillion in investable assets compared to $1.6 trillion held by millennials. Tiburon Strategic Advisors expects baby boomer's wealth to grow to $40.7 trillion by 2027, while millennials are expected to amass just $10.5 trillion by the same year.

Modern health care and medicine are enabling people to live longer than ever, meaning older generations will hold on to their wealth longer. Greater longevity also means an increased demand for help making retirement savings last longer.

But Rob Foregger, co-founder of NextCapital, a firm that provides digital retirement technology to large financial institutions, said the initial fear and hype around robo-advisers led the industry to overcompensate and focus too much on millennials at the expense of older and wealthier generations, especially when as many as 10,000 baby boomers retire every day.

"I don't think it was a bad idea to focus on millennials; I just felt like the effort versus the opportunity at the time was over-indexed," Mr. Foregger said.

Now he sees "more sober and holistic thinking" at financial institutions when it comes to technology. Instead of deploying something exclusively for millennials, firms want to offer a unified technology platform for all clients and then provide segmented services.

NextCapital, for example, provides advice that spans across a client's financial lifecycle — from early saving to rolling over an account to personalized decumulation.

Another example is MoneyGuide, which recently launched an "Elite" version of its financial planning software with features to help advisers with estate planning, retirement income and annuities.

"Everybody is going to want to have a digital advice platform," Mr. Foregger said. "It's like saying [older people] are not going to want an iPhone."

Rhian Horgan, a former managing director at JPMorgan Asset Management, sees this as an opportunity for a new digital adviser. Her company, Kindur, is built to help baby boomers navigate modern retirement with advice on savings, spending and health-care costs.

Kindur's core service is the conversion of various savings and retirement accounts into a regular paycheck for retirees. Part of that check is guaranteed, drawing from Social Security and fixed annuities. For discretionary spending, Kindur draws from retirement and brokerage accounts.

(More: A global call to modernize retirement systems)

The idea came to Ms. Horgan, Kindur's founder and CEO, from her helping her own father figure out retirement and realizing how complicated her parents' finances were.

"Most of his wealth was tied up in home and retirement accounts, and he never had a financial adviser," Ms. Horgan said. "A lot of the information was in his head. There was no one place to go."

Kindur closed a $9 million Series A round of funding in December, bringing its total funding to $10.3 million. The direct-to-consumer retirement robo will go live in late February, Ms. Horgan said.

Kindur won't be the only robo-adviser dedicated to serving retiree assets. The startup will compete with firms like United Income and DreamForward.

Even Betterment, often pegged as a paragon of millennial-focused fintech, offers retirement income portfolios and automated withdrawals for older investors. According to vice president of communications, Joe Ziemer, 30% of Betterment's business comes from customers above age 50.

"At the end of the day, there's certainly a desire for a better user experience and automated tools that should just apply to everybody," Mr. Ziemer said. "The older demographic doesn't get enough credit for their use of technology."

That bias may be responsible for much of fintech development and marketing being targeted toward attracting young people. According to a Financial Industry Regulatory Authority Inc. report on digital investment advice, the majority of providers don't independently address decumulation.

(More:Boomers still loom large in the future — but don't count millennials out)

"There's a huge underestimation by the fintech community on how digital savvy boomers are," Ms. Horgan said. "We solve the problems we understand, and if you're a 21- or 22-year-old engineer, you start thinking about creating apps for splitting bills or transferring money between friends."

While startups may have ignored decumulation, Technology Tools for Today president Joel Bruckenstein said retirement income and planning have remained a technology focus over the last decade. He also doesn't expect the industry's emphasis on millennials to change anytime soon.

Mr. Bruckenstein said he sees a convergence as more people recognize that people want access to digital technology regardless of their age.

"There's always been this assumption that older clients … are okay with the way we've done things historically, whereas the next generation wants a different experience," Mr. Bruckenstein said. "Everybody wants a simpler, more client-driven experience, whether they are young or old."

If startups can get passed their own biases, they could recognize there's a "bigger pot of gold" by serving retirees than millennials, said Mr. Bruckenstein. But this is old news for advisers, he said.

"Firms in the industry have known all along that, still, the majority of the money out there is not in 20-somethings," Mr. Bruckenstein said. "Twenty-somethings don't have a multimillion dollar IRA."

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