2016 Predictions


Hello. It’s me. As we kick off 2016, look for consolidation as private companies are forced into the arms of larger players, along lines of last week’s purchase of Jemstep by Investco, or the acquisition of Yodlee by Envestnet, BillGuard’s purchase by Prosper or BlackRock’s acquisition of FutureAdvisor.

It’s incredible how much is written – still – on Robo’s being “on fire” when the facts are so different. Look for capitulation in 2016, among startups in the robo advisor category and continued dominance by a handful in the lending space.

Robo advisors are private, so it’s hard to know how much case they are going through but the themes of recent news (e.g. lowering investment limits) suggest we may see one of the bigger players disappear in 2016, if not 2017.

This development is not specific to digital wealth management, so consolidation and capitulation is my prediction for all areas of FinTech.

pac manIn 2016, look for consolidation within the most crowded areas (e.g. alternative lending, robo advisors) with too many ‘me too’ companies. Look also for some acceleration of Product innovation at bigger firms, as they try to respond to the to FinTech startups who’s captures headlines over the last few years.


Advisors: Where the Action Is

The real story is slow demise of the big name firms like Merrill Lynch and Morgan Stanley, as they lose top advisors and clients to RIA’s (not robo advisors).

Less covered by tech media, look for RIA’s to continue to take share from brokerage firms, even as firms like Morgan Stanley explore automated investment services.

What’s behind Morgan Stanley reportedly planning to introduce its own ‘robo advisor’ service is not competing with Betterment, but trying to stay relevant and nimble as it loses share to RIA’s that offer better services, products and technology.

FinTech industry followers are better served to listen to Michael Kitces and Bill Winterberg rather than read press releases from robo advisors.

Financial Data Comes to the Cloud

Is Market Data as exciting as marketplace lending or mobile payments? Maybe not, but it deserves attention, especially as one innovator, Xignite, behind Wealthfront, Betterment, Personal Capital, Motif and StockTwits –is looking to shake up an industry.


I recently sat down with the Founder & CEO of Xignite, Stephane Dubois, in San Mateo. He noted how robo advisors were among early clients of xIgnite, but that his target market now includes larger financial institutions.

I asked him whether xIgnite was like Stripe for the market data world? My rationale was Stripe has been successful in payments in part due to its focus on developer community.


Dubois saw the parallel, noting that xIgnite is focused on API’s, innovation and targets developers, while financial data incumbents (e.g. Thomson Reuters, Bloomberg, S&P) often seek to sell products, not delivering the actual data clients want.


But he emphasized Xignite targets both developers and businesses (both startup and larger companies at this point in the growth trajectory). As Dubois expressed it, xIgnite’s goal includes growing its business through enabling more responsive front-end tools for financial institutions, and helping it slash back-end costs.

Is Xignite the Stripe of the market data world?

From my experience at Morgan Stanley, I think there’s opportunity. Although there is a lot of focus on controlling market data expense, in light of reduced profits in many trading areas, executives such as Morgan Stanley’s Ken Brady are smart and strategic, looking to control expenditure but also enable the business.

Focus on the Apps, Not the Integration

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This illustration from xIgnite captures the essence of its value proposition and also highlights one issue for large financial institutions.

Banks do a good job managing their third-party expenditures and risk; teams focused on partners on Wall St. (ranging from Operations, Market Data, Tech Risk, Vendor Risk, Corporate Services, COO Teams). What big banks can learn from startups is to focus on the apps, not the integration (and using xIgnite can help with that approach).

Morgan Stanley legend Merritt Lutz jokes that in a post Dodd-Frank world, you can find a risk officer hiding under every desk on Wall Street. But the red tape on risk and expense  management, has slowed down execution. Clients using Morgan Stanley Online can’t see basic portfolio performance reporting online, in contrast to most of its competitors.

As a result, wealth management units of banks suffer from too long development cycles. Instead of navigating bureaucracies, expense approval and risk teams, developers should be able to focus on apps and the data they need to serve clients.

Bigger banks should be more API-centric approach and embrace Agile in order to enable faster time-to-market on Wall St. and compete with FinTech firms.


Final thoughts on 2016? I’m looking forward to incumbents moving faster, adopting API solutions like Xignite, during consolidation since as one executive from J.P. Morgan Chase said, ‘Do we really need 1,000 mobile wallet startups?’

I also don’t foresee any big IPO’s in the FinTech space, given the state of the markets, although SoFi and Stripe have all the right pieces in place. For now, I can see Financial Technology Partners being busy with lots of deals focused on the middle market.

2016 should offer a few surprises. I look forward to telling you about them.

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Weathering the Storm


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During all the recent stock market market volatility, I’ve been thinking about the long-running debate that tends to come up in the world of FinTech on the value of having an advisor.

Despite a drumbeat message to ‘ditch your advisor’ from robo advisors like Betterment and WealthFront, the reality is more and more are using advisors, who play a vital role at times like this.

While startups make a cost-comparison argument, research shows individuals working with an advisor often do better in terms of overall returns, in excess of fee difference.

futureadvisor logo

This week saw a watershed moment in the world of robo advisors, with acquisition by BlackRock of FutureAdvisor.

Rather than cover this topic, I encourage readers to check out the analysis by RIA Biz.

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Why Advisors?

There’s value in having a person to turn to and keep you on track. An advisor can help you plan for the future, control your emotions during times like these (e.g. market corrections) and as you enter different life stages, e.g. buying a house, planning for your kids’ education or preparing for retirement.

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A recent Q&A on Periscope hosted by Chris Sacca with long-time friend and financial guru based in Austin, Owen Brainard, made this very point.

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RIA’s vs. FA’s

Brainard, like other RIA’s, emphasized an argument that a big firm’s advisors only push product, and have a lower regulatory standard of suitability (i.e. putting clients in products that are suitable, but not necessarily in their best interest, or the so-called ‘fiduciary standard’).

Fees matter – but aren’t everything

While the regulatory issue is true, so-called warehouse advisors can serve clients well if you ensure the advisor is paid in a way that addresses conflicts (i.e. a wrap fee). But there’s been a lot of growth in the RIA segment, which I’ll address in a future post, since working with an advisor 100% who must be aligned with your interests makes a lot of sense.

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Starting Out

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If you’re a Millennial or don’t have a lot of assets, there’s nothing wrong with an app like RobinHood to buy stock (although I wish they would offer custodial accounts).

Or you can choose to set up a self-directed brokerage account at Schwab, Fidelity or any of the new-style automated investment services (many of which tend to invest you in low-cost ETF’s from the likes of Vanguard).

Screen Shot 2015-09-04 at 1.53.46 PMMarket vs. World Volatility

Despite the turbulent times in the stock market, it’s important to remember all the other issues we face around the world – especially the refugee crisis in this week’s headlines.

I encourage readers to be mindful for everything they have, even with the stock markets recent dips, and consider making a donation to UNICEF or a charity of their choice.

Here’s a short video from David Beckham on the current crisis in Syria:

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Please consider a donation to UNICEF or any organization helping those in need.

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Wealth Management

For progressive minded and tech savvy individuals, the new wealth and investment firms such as Future AdvisorWealthFront and Personal Capital are appealing choices for how to invest. Some of the discount brokers such as Schwab have reacted to these startups by rolling out new products, such as Schwab Intelligent Portfolios, that provide benefits of robo advisors, with the peace of mind of choosing a company that has been in business for much longer.

futureadvisorFor those who want to manage their own money, instead of using the robo advisors, startups like Robinhood offer a low-cost way to trade stocks. But I’ve found that self-directed investing has a number of drawbacks, including its complexity, potential for information overload, the lack of accountability for any advice you elect to follow, and the cost of your time.

Investing and managing money on your own may not be a great option unless you have an interest in the financial markets or the proper education or training.

But having somebody else do it has meant being kept in the dark about what you’re being charged. Fortunately, the new style of firms focused on investing provide some compelling alternatives to the traditional way of investing.

Old Way: Traditional Providers

Traditional money managers, in my view, suffer from inefficiency (e.g. paper-based systems, inefficient processes), don’t put average investor first (e.g. giving favorable treatment to big institutions) and often rely upon antiquated technology.

Beyond this, many big firms have become adept at nickel and diming their clients, making the fees hard to see and finding ways to make money (e.g. stock lending positions in their clients portfolios) that doesn’t benefit the client. The new rules proposed to hold brokers to a higher standard of care are no surprise, given the way the industry has tended to operate.

many big firms have become adept at nickel and diming their clients

Better Way: Money Management in the Digital Age

The good news for investors is there’s an innovative and progressive movement coming out of the FinTech industry that’s helping people do the things they need to do to invest successfully. And yet many consumers, investors and even long-established investment professionals are simply not yet aware of the potential for disruption.

For those who want to invest through a secure advisor, see it grow for the future at low costs and not have to deal with all the headaches and confusion in between, these new companies offer a solution that streamline processes and sidestep many of the problems of the past.

Tech Companies at the Core

hedgeableThese new digital wealth management companies, including so-called robo advisor firms plus innovators, such as Hedgeable that deliver automated investing with downside protection, are more like tech firms in terms of being lean, data-driven, nimble and looking more to the future and trying to fix the problems with current offerings versus traditional industry practices.

I’ve not included all types of firms (e.g. equity crowdfunding, or automated savings/investment firms, like Digits or Acorns), but below is a table of key companies.

Screen Shot 2015-05-07 at 3.03.05 PMThe software engineers, scientists, intellectuals and finance professionals who are building these firms have invented powerful digital platforms, in my view.

The methodologies and investment processes of the new digital wealth management companies work because they are based on proven, successful investing truths; over the long-term you will make money, if you invest early and often, stay diversified and keep the fees to a minimum.

Some of the innovative features these companies offer:

  • Analytical software that effortlessly create personally tailored portfolios and diversified investment plans based on financial needs, goals, time horizon and risk tolerance.
  • Clean user interface that organizes and displays investment data succinctly and intuitively and consolidates investment data in simple, easy to understand formats.
  • Online platforms and processes to make opening accounts fast and easy and helps create efficiency around tax considerations and money transfers when necessary.
  • Smart Phone apps that present organized access to financial data and display market and portfolio statistics with unprecedented clarity 24 hours a day.
  • Interactive knowledge sharing platforms that better educate those who want to learn more.
  • Low fees and incredible transparency around fees which provides clarity as to where clients’ money is going, how it is performing and how much it all costs.

sigfigThese companies offer a range of services to differentiate their offerings: SigFig brings a refreshing and scientific approach to investing via data-centric investment software. Wealthfront will manage your first $10k for at no cost, and provide an industry leading software service for understanding and minimizing taxes.

Personal Capital and FutureAdvisor investigate your investments, held elsewhere, and tell you fees you’re being charged by your bank or asset management company that you may not be aware of, given how opaque fee disclosure is in the industry.

Investing Tools

If you want to make your own decisions, companies will support you with their cutting edge platforms and let you create your own portfolios. Having a lean, highly functional and data packed platform where information is easily collected, organized and presented will only benefit your efforts.

Motif Investing offers an intuitive platform where you can design your own portfolio or basket of stocks based on your specific investment ideas, concepts and strategies which you can learn about by clicking through their impressive ‘Discover your Investing DNA’ feature.

lifeyieldEven if you’re with a traditional advisor, there are tools to help your advisor boost after-tax returns of your portfolio, since fees and tax-inefficiency hurt total returns. For instance, Boston-based FinTech firm, LifeYield enables advisors to increase returns by up to 33% through tax efficiency.

Tax efficiency, through so-called tax loss harvesting, has been around for a while, but many see the technology-led innovation of startups like Betterment pushing traditional providers, like Schwab, to offer this service to more customers.

Transformation in Wealth & Investment Management

The financial services industry remains ripe for transformation. By recognizing the problems of the past and using technology to correct them, the new style wealth managers offer a greater level of transparency, work more efficiently,  and offer low-cost, risk-adjusted, after-tax returns.

As this paradigm shift continues, the financial professionals who traditionally had better access to market data and investment ideas are being impacted, despite the fact that the scale of the new providers is still relatively small.

Although still small in terms of market share, traditional providers are being shown up for relatively weak user experience (UX), slower processes and higher fees. Most of all, startups are bringing new levels of transparency to fees and costs.

What’s Next?

Technology has undeniably benefited the consumer in myriad ways, considering its impact on everything from shopping to how we communicate with others. Now it’s past time for the investment world – along with investors – to catch up.

Schwab has already responded to the competitive threat. Companies like Fidelity are behind startups like FutureAdvisor and talking to startups like SoFi. The market share of rob advisors is very low, but I believe the future of wealth management is unwritten, and may depend upon the impact of those FinTech startups seeking a better financial future for all of us.

– Alex Hill

This week’s post on the FinTech Blog was written by Alex Hill, who worked in the financial services for more than ten years before leaving to pursue other interests, including the emerging FinTech industry.  Alex is based in San Francisco, where he is with a global FinTech organization, NewFinance.