Wealth management firms looking to build a single digital platform that can serve all of a client’s needs -- in other words, just about everyone in the industry -- should start paying closer to attention to a Silicon Valley fintech that's quietly becoming a financial services juggernaut.
SoFi Technologies Inc. was founded as Social Finance in 2011 by a team of Stanford Business School graduates to provide more affordable ways to repay student debt. In 2015, it became the first U.S.-based fintech to receive a $1 billion funding round, and in 2019 it closed another $500 million.
SoFi used a special purpose acquisition company to go public in 2021, and when it reported earnings this month, it revealed it had grown to 4.3 million customers.
I decided to take a closer look at SoFi when I noticed its relatively new checking and savings product (SoFi received approval for a national bank charter in January) was advertising an interest rate of 1.8% in July following the Federal Reserve's rate hike. It was one of the highest, if not the highest return available in an FDIC-insured account from anyone in the market.
Full disclosure: I did end up opening a checking and savings account with SoFi.
Turns out I wasn’t alone. SoFi reported that deposits grew 135% during the second quarter to $2.7 billion and that business has accelerated with rising interest rates. Now it's offering a full 2% interest on all cash held in a checking or savings accounts.
But once on SoFi’s website, I was astonished at just how many products the company now offers. Beyond banking and its original student loan refinancing, SoFi now provides mortgages, personal loans, employee benefits, insurance, self-directed investing, cryptocurrency trading and a robo-adviser, which Condor Capital Wealth Management named the best overall robo-adviser in its recent Robo Report.
Self-directed trading is commission-free and the robo-adviser charges no management fee. Account minimums are just $1 and portfolios consist of low-cost ETFs that outperform those of most other automated investing services, according to Condor Capital's research. Assets are custodied with Apex Clearing Corp., which supports a fully digital account opening process.
SoFi began recruiting human financial advisers in 2017, and all customers can schedule a financial planning session for no additional charge. It has also borrowed ideas from other robo-advisers, such as Acorns' strategy of automatically rounding up purchases made on debit or credit cards to make micro-deposits in a bank or brokerage account.
But for a company that owns the name of a stadium for two NFL franchises in Los Angeles and just hosted the Super Bowl (which the Los Angeles Rams won, no less), SoFi may still be flying under the radar. I asked several of my more financially savvy peers if they’re familiar with SoFi, and all of them said they only know about the student loan business.
I’d venture that many in wealth management are equally unfamiliar with what the San Francisco-based fintech is building. Granted, its overall footprint in wealth management is small -- its most recently filed form ADV indicates it manages just $642 million in assets -- but who else can offer this depth and breadth of financial services from a single, mobile-first platform?
The modern battle for assets is no longer just about adviser head count or even the number of clients, but about providing a one-stop-shop for all of a person’s financial needs. Integration is the name of the game -- not just connecting pieces of technology, but also of services to increase wallet share.
Banks are ramping up wealth management capabilities and using existing customers as a built-in pipeline, while registered investment advisers and independent broker-dealers are adding banking services. Everyone wants to bring in held-away accounts, at a minimum by getting more visibility via data feeds or even by going so far as to add technology that lets advisers actually manage those accounts.
It makes perfect sense. Why let assets go elsewhere when you can use technology to service them all from a single digital hub? It’s the strategy guiding Morgan Stanley’s growing tech ecosystem, and it’s the same strategy guiding tech road maps across wirehouses, banks, broker-dealers, TAMPs, custodians and tech vendors.
SoFi isn’t without its faults. Its human advisers are only available over the phone and they mostly adhere to a rehearsed script, which won’t appeal to investors looking for a more personal relationship. They're also limited to basic financial planning questions and weren't able to provide specific recommendations, such as if I should roll a 401(k) from a previous employer over to an IRA, Roth IRA or InvestmentNews’ 401(k). They also couldn’t recommend what to do with another brokerage account I’m not longer happy with other, than advise me to speak with a tax professional. The company didn't respond to multiple requests for a comment.
Like other fintech startups, SoFi has also had trouble with regulators. In 2018, the fintech settled charges with the Federal Trade Commission that it made false claims about how much money consumers could save by refinancing student loans. And in 2021, SoFi paid $300,000 to settle charges with the Securities and Exchange Commission that it violated its fiduciary duties by not properly disclosing that it was putting customers in proprietary ETFs.
Still, talking about providing “comprehensive financial wellness” has proven much easier than actually doing so. Many have called it the holy grail of adviser technology, and if SoFi doesn't yet have it, it may be closer on the quest than anyone else.
If I was running a traditional wealth management firm hoping to reach the next generation of investors, I’d be taking notes from the fintech out of San Francisco.
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