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.

Interview with Betterment Co-Founder & COO

betterment logo

The FinTech Blog publisher, Michael Halloran, caught up recently with Eli Broverman, Co-Founder and COO of Betterment to talk about its recent success and find out what inspired him and Co-Founder Jon Stein to create Betterment.

eli brovermanMH: Eli, it’s been a couple of years since the two of us met at Morgan Stanley’s offices. There’s been a lot of growth at Betterment, but to begin can you share what inspired you and Jon to start Betterment?

EB: The “problem” in the financial industry inspired Betterment. The problem that we saw was companies were not thoughtful about how to deliver the best products or be aligned with their customers.

At Betterment, we want to be the obvious answer to the question “What should I do with my money?” There was no great option on how to invest the right way: automated, low cost, with a great user experience.

We built this company out of the need we saw in our personal lives. Friends would ask for recommendations wanting the same type of service we wanted and it did not exist – so we set out to build it.

MH: I know one of the big differences between you and some of the others out there is the way you chose to make a big upfront investments in what you built. Can you tell me more about that?

EB: Absolutely. When we started thinking about how to really rebuild the entire customer experience, we quickly realized that we needed to start from scratch. We could have just built an online-based advisor as a front end and sat on top of a legacy broker-dealer, but that would not offer the type of experience that we thought customers deserved.

MH: How hard was to build our your platform from scratch? What were the key challenges?

EB: The key challenge was time. It took us nearly two years to build the systems and receive SEC and FINRA approval. Betterment handles everything: trading, cash movements, statements, basis tracking, tax statements, and everything in between, so naturally it takes time.

MH: Can you share any key moments, when you felt like the Betterment team achieved a big breakthrough, in terms of getting the platform to be a MVP?

EB: We have had many moments where I feel the team made a big breakthrough. Launching at TechCrunch Disrupt was a moment neither of us will ever forget. Some of the most notable ones are when we surpassed $1 billion in assets and more than 50,000 customers

Betterment on Mac

MH: You’ve also been called the Apple of online investing.  Can you say more about how the team feels about user experience and the UX design process?

EB: At Betterment, delight is one of our core values. We have invested a lot of time and talent to make sure we provide the best experience for our customers, whether that is mobile or online.

Betterment UX page MH: Why do you think others, especially large companies in financial services, seem to fall short in terms of UX?

EB: Often times the traditional industry doesn’t want to deliver a clean, easy-to-use experience. By making things complicated, companies can make more money by overwhelming you with options. It can also be challenging for companies that just keep building on top of their legacy technology. The way their technology stack is structured, it can be nearly impossible for them to create a good experience without tearing it down and completely rebuilding.

MH: Can you share any big insight you gained from the process of building out your platform that might help others in other sectors of FinTech, who are just starting out?

EB: My biggest piece of advice would be to remain patient. Building in FinTech can be incredibly challenging and a slow process at the onset.

MH: How do you see the industry for online investment management unfolding in the next few years, e.g. in light of legacy players like Schwab rolling out Intelligent Portfolios?

EB: I think everyone has taken notice that there is an enormous demand for a product like ours. The category will definitely become more crowded which most people would consider a challenge, but we really only see opportunity. As more of these companies enter the space, people will research the various options and we are confident that we’ll come out on top with the best product on the market.

My biggest piece of advice would be to remain patient. Building in FinTech can be incredibly challenging and a slow process at the onset.

MH: How do you feel about being part of the NY tech / FinTech startup scene? Do you envision having other locations, or do you think you’ll stay focused on NY?

EB: We love being part of the NY tech/FinTech startup scene. There is incredible talent in this city and it is one of the core reasons we chose New York to start Betterment. We have no plans to open offices elsewhere at this time.

MH: How would you describe the culture at Betterment?

EB: Incredible, we pride ourselves in having a great culture. We have a very fun, hard-working team. It is a very open, transparent environment.

MH: What keeps you awake at night?

EB: I think about our customers nonstop and what the next thing should be that we build for them to continually improve their experience.

betterment mobile appsMH: Can you share anything about the future of Betterment?

EB: We are growing so fast at the moment and seeing so much opportunity! We will continue to grow the team and expand our current offering and advice.

MH: What is the number one suggestion you would give to any FinTech startup?

EB: Don’t rush the process when first starting out. Take your time and make sure that you have built the best possible product you can before launching.

MH: Thanks for sharing your “founder’s story” and best wishes for continued success.

Note: Betterment will be a host company for John Battelle’s NewCo NYC event in May, so engineers, product managers, designers (or any fan of Betterment) can visit NewCo’s site to sign up for to visit Betterment’s offices (seating is limited).

2015 Predictions


OK, I’ll admit it. I’m already over all the New Year predictions…. I’ve read thoughtful predictions that contradict themselves, such as ApplePay will not succeed (or that it will), so I’ve decided not to make a list of predictions.

What I’ll predict, however – pretty confidently – is that the year 2015 will bring a lot of exciting developments in FinTech.

It’s been difficult to be upbeat lately, with the negative news coming from the Middle East, the slowdown of European economy (and rise of the extremist parties there), hacking and security incidents, the chasm between left and right in the US.

But I’ve been reading Abundance, the book by founder of the X Prize, Peter Diamandis, co-authored by Steven Kottler, who wrote The Rise of Superman, on the science of high performance sports (and concept of entering a ‘flow state’).


One key take-away from the book was the inbuilt bias we have to see risks, and to focus on negative events, which drives both media (since we tend  to read bad news more than good news) and influences everything from politics to career decisions.

For instance, companies like LendingClub had successful IPO’s, and innovations like Apple Pay are unveiled in 2014, yet instead of focusing on the positive, VentureBeat publishes articles like “Are We in a FinTech Bubble?

Just because something like financial services technology is doing well as industry, doesn’t mean we need to be looking around the corner for bad news to come. Speaking personally, I’m excited to be living in such interesting times in San Francisco:

“We’re living through a tech revolution. We get to work with the most exciting companies in the world..” (Michael Grimes, Global Head of Tech Banking quoted in New York Times article of 2014)

During my time at the 2725 Sand Hill Road offices of Morgan Stanley, I was glad to interact, even briefly – since the bankers are always busy – with its pantheon of talent, such as bankers Dave Chen, Paul Kwan, Paul Chamberlain and Andy Kearns.

Returning to predictions, will ApplePay be successful in 2015 or not? I do think so, but as I’ve said, I believe we have a tendency to focus on winners vs. losers, and I really don’t think that’s the most important question of the new year (or even FinTech).

A16Z’s Benedict Evans was spot on last year calling for an end to the debate over whether iOS or Android will “win.” I think 2015 will be an amazing year for FinTech, whether ApplePay achieves rapid growth or not, is my prediction.

What excites me? As someone who worked early on in my career launching an online bank in the UK, I’ll always be looking to see what startups will be doing, but the ‘FinTech bubble’ article in VentureBeat gets it wrong, when it says since Millennials do not trust Banks, therefore startups will be favored to win over the incumbents in the long term.

Give me a customer-obsessed, strong value proposition incumbent – such as Vanguard or BlackRock – that has completely revolutionized investing, disrupted industry cost models, and create low-cost, superior investment products, anytime.

Vanguard      blackrock

I’d gladly do business with these incumbents – versus FinTech startup like Wonga, a much-hyped UK peer-to-peer lender that charges high interest rates to low-income borrowers…. and has been criticized by everyone in the press, even the Church of England, for what it does to those who are least advantaged in UK society.


Back in the US, Silicon-Valley’s Personal Capital is an innovator in wealth management, like Motif, plus I was impressed by CEO Bill Harris’s talk at The Future of Money in San Francisco last month.

But I was surprised by its hyping $1B in AUM after five years in business. Seriously? Morgan Stanley’s star advisors like Mark Curtis and Greg Vaughan manage $27B and $14B+ (see Barrons report) while the Firm manages $2 trillion for its clients. I do wonder if some of the startups will achieve sufficient scale. Their value proposition and execution need to be compelling.

Turning to lending, given the momentum from last year IPO of LendingClub and OnDeck, I will be keeping an eye on the plethora of interesting peer-to-peer lenders trying to make things better for people and businesses who need credit.

I’m a fan of Prosper, that show vision and execution, going after a new market, and trying to deliver something demonstrably better, through its pricing, product innovation and UX.


While I also respect how Prosper’s marketplace has made $2B in loans, I like even more its message of having empowered 250,000 borrowers, through better rates than banks and increased transparency. Take that, Wonga!


As for SoFi, based in the Presidio section of the city (right by LucasFilm’s offices), I like how they began as a way to reduce the interest rates paid on student loans by leveraging the power of alumni to give people a better deal. To me, it’s a solid innovation like affiliate marketing, when places like MBNA, a former consulting clients of mine, signed people up for credit cards based on  their membership in groups, passing on the savings derived from lower default rates and acquisition costs.

Today, SoFi is expanding into mortgage lending. While in US, mortgage rates are low now, just as gas prices have swung from high to low over the last two years, I think SoFi is smart to go after the huge mortgage market and diversity from student loans.

What else will be exciting in 2015? Workflow and connected services have my vote. I’ll address this in detail in a future post, but everything I see points to a more API and app-centric world of financial services beyond anything we’ve seen to date.

Here’s a glimpse… Last month, The Verge announced WorkFlow as one of the most exciting new apps to appear in the App Store. Essentially, it enables you to create customized workflows, using a simple drag-and-drop interface, so that you don’t need to follow repetitive, multi-step processes for multiple apps anymore, among other things.


Take the example of texting someone to let them know when you’ll be home. Using Workflow for iOS you can create a workflow to: 1) Open the Maps app; 2) Use app to see how long it will take for you to get home; 3) Open up your Messaging App (or email) and then text or write saying, “On my way. Be home in xx minutes” You can run it anytime using a single tap on your phone.

The possibilities are endless. The above use case is a simple example, but there are many in FinTech I can envision, i.e. you don’t want to open the online banking or brokerage app on your phone, but would like to check something, without multiple steps, using your fingerprint authorization and getting a quick summary of your balances and YTD time-weighted return.

Workflow screen shot

I sense innovation coming here, especially as providers like Yodlee, Intuit and others continue their focus on API’s and enabling developers using financial data. Using API’s and workflow, I see lots of cool solutions to be envisioned and built.

Here’s to an exciting future we all watch unfold in 2015!

FinTech: Who’s In vs. Out?

I think I speak for many when I point out that some of the lists of FinTech companies, such as the American Banker’s Top 100, well, just aren’t especially good examples of FinTech (see list).

Maybe I’m reflecting my SF/tech-centric view, but I’m not alone saying if you did a word association test with FinTech, most are more likely to mention companies like Square or Lending Club – and not IBM or TCS.

Square logo                      lending club logo

Yes – I know, IBM and TCS sell technology to banks. In fact, I negotiated the first core banking system license from TCS for use in U.S. at Morgan Stanley, and used to work as a strategy consultant at CapGemini, so I know that category well. I’ve also worked in Product Management teams launching online services, and new products. Partners are often pivotal to success.

But by saying FinTech is anyone who sells products or services to financial services companies — and including retailers and card/payments and Bitcoin – you may be technically correct, but it’s just too broad a category.

Those selling to banks, especially start up’s in New York and London, such as those helped by the accelerators like the FinTech Innovation Lab, do matter. I’ve attended the NY FinTech Lab’s final presentation, and Maria Gotsch does a superb job. In the UK, Ian Ellis of the London Enterprise Tech Meet Up, and leaders like Silicon Valley Bank and Level 37, are helping to create new technology jobs ithrough their engagement.

But selling services and products to banks is not my focus, which is leading technology-enabled apps, services or digital channel leaders for consumers and businesses. Money 20/20 says FinTech is “enabling payments and financial services innovation for connected commerce at the intersection of mobile, retail, marketing services, data and technology.”

I believe strongly that, by being too inclusive (e.g. including retail), you can define FinTech to the point of it being meaningless. In fact, as I tweeted, magazines like Forbes got it wrong: Pitney Bowes is not one of the FinTech leaders. But a big company, like Wells Fargo can still very much be a leader in FinTech.  As I noted, Wells Fargo is actually one of the world leaders from a UX and digital channels perspective.

But I intend to be a little exclusive with the FinTech definition and my scope. I think we are also right to give an bigger voice to the likes of Patrick Collison of Stripe, who spoke last week at the Technomy event on the future of payments and innovation, and maybe a little less to the likes of IBM, BCG and Fiserv.

There’s a lot to learn from start up’s – like Betterment, Personal Capital and Credit Karma – and big company disruptors, like Apple with Apple Pay, than speaking to the average executive at your typical bank or payment company.

credit karma             personal-capital-logo         betterment-logo-blue

I think it’s no coincidence that one of the bigger laughs at Money 20/20 came from a speaker who noted that while Apple Pay dominated a lot of the debates — and American Express and First Data sent their CEO’s to speak — no one senior had come to the FinTech conference from Apple.

The speaker went on say that Apple had apparently sent a couple of product managers to the event, although few had actually seen them, and boasted in jest that he’d in fact been lucky enough to shake one of their hands, telling the audience, “I still haven’t washed that hand.”

apple pay

Looking ahead, in early December I’ll be reporting live from Future of Money in San Francisco, and will be guest blogging on Yodlee’s blog as well as profiling them in light of their recent successful IPO, and recent positive analyst coverage.