Robo-advisors have not reduced the Cash Pile

It was four years ago that Schwab and Vanguard stepped into the robo-advisory market and leapfrogged the standalone top US robo advisors, Betterment, Wealthfront, and Personal Capital. SigFig was also a big contender at the time but has pivoted since into a predominately B2B business.

Anyone interested in reviewing the baby steps in grabbing market share and luring those holding cash to invest, can review a series of past posts[1].  Fintech startups and incumbents with low-cost investment asset allocation services, great customer onboarding, and relatively simple investment choices; have been trying to serve Unadvised Assets.

Current market snapshot

The top five robo advisors by AUM are 3 Fintechs and two incumbents. They have accumulated over $187 billion in AUM.

robo-advisors-with-the-most-aum-2019-750x375

Source: Robo-advisors With the Most Assets Under Management -2019

The growth has been double-digit, the kind that VCs like. Despite the fact that robo-advisors have clearly not lowered the customer acquisition cost (CAC) and ironically, in most cases have been deploying the same old-fashioned channels to acquire customers[2]; VCs have been generous in funding them. Just for the top three Fintech robo-advisors, Betterment, Wealthfront, and Personal Capital VCs have invested ($275, $204, $265) nearly $745million.

The market share (as measured by AUM) amongst the top 5 US robos, is 20%-80% between Fintechs and incumbents.

One of the metrics that I had chosen to follow from the very beginning of the robo-advisory trend, was Unadvised Assets – cash in physical wallets and in checking & savings accounts. For me, Unadvised Assets are a measure of the market opportunity for robo businesses. Deloitte reported in 2014 that in the US there were close to 13 trillion of such, unadvised assets.

Looking at the Q3 2018 U.S. Federal Reserve report[3] and recent Money data, from grandmothers to hedge funds holding cash, in overnight money market funds, to checking accounts and currency; I realize that

Robo-advisors have had none or negligible impact on Unadvised assets.

In the US, Unadvised assets continue their solid growth. In 2016, I had reported $13.4trillion and now we are looking at $14.5trillion. An 8+% growth over the past 3yrs.

Unadvised assets in the Euro area, have grown from a total of 10.3 trillion EUR to 11.8 trillion EUR – a 14+% growth over the past 3yrs.

In the UK, from 1.56trillion GBP to 2.4 trillion GBP – a 5+% growth over the past 3yrs.

Cash continues to be up for grabs, for robo-advisors, for P2P lenders, for crowdfunding platforms, and tokenization platforms.

When will Unadvised Assets shrink? Will the digitization of capital markets (with the rich variety of technologies and business models) overtake the trends in fiat monetary policy, public markets, and human behavioral psychology?

[1]Nov. 2015 Salivating for Unadvised assets: a videographic

March 2016 Digital Wealth management: a videographic update

Nov. 2016 Oh, the things you could do with the enormous Cash pile!

[2] Advertising, mailing services, cheap initial offers….

[3]https://www.federalreserve.gov/releases/z1/20181206/z1.pdf

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

 I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

`You Can Marcus`

Goldman Sachs is one to watch.

It is an example of how sticky a banking brand name is – It has shredded off scandals in the past and the recent Malaysian state-run fund scandal seems no different. Sack Goldmans – a 2010 slogan – did not stick.

Goldman Sachs is an example of how an incumbent builds a Fintech business positioned in the value stack below its established competence – an investment bank getting into retail banking and wealth management for mass affluent & the hoi polloi.

Goldman Sachs is an example of how an incumbent financial institution can grow Data pools by offering free access to its analytical tools SecDB – explained in my article in the 2018 WealthTech Book  `Empowering Asset Owners and the Buy Side`.

Goldman Sachs is an example of how an incumbent financial institution can grow Data pools by partnering with Apple on a credit card – Apple has 900 million devices and it is expected that the Apple Card will bring 21 million users to GS by year end[1].

Goldman Sachs is a publicly traded company that is trading right now below book value and there are more than enough GS analysts out there to get estimates on the revenues from the different GS `consumer banking` new initiatives.

For now, Goldman Sachs has been building up aggressively deposits (the usual way of offering above-market deposit rates when entering a new market). The 3yr old deposit business has accumulated now $46billion across the US and the UK! The expected growth is in the order of $10billion per year going forward.

Marcus has issued $5billion in personal loans. These are unsecured loans that naturally, may worry shareholders, who typically get nervous easily (even though this is crumbs when taken in context).

The credit card part of the Goldman Sachs business is newer and could also grow at double-digit annual rates. Goldman Sachs knows well that credit card lending gets favorable regulatory treatment – less capital is required against this kind of debt – and as long as this holds it is a win-win situation. Why? Simply because Goldman Sachs will get their hands on valuable data from retailers and their shoppers, in order to process the Apple credit card application.

Goldman Sachs hits two birds with one stone. It gets to issue consumer debt on a global scale with lighter capital requirements, and it gets to process new, valuable consumer data globally.

The Apple & Goldman Sachs card economic terms are not known. Even if they are not that juicy for Goldman Sachs and even though the GS logo is on the back of the Apple card; the consumer data access and processing from 40 countries that this brings to the table is invaluable.

The Apple & Goldman card will grow an important global data pool for Goldman Sachs to leverage in its planned WealthTech offering.

In case you haven’t noticed, Marcus has been moved into the Goldman Sachs asset management unit, which will be renamed the consumer and investment management division. The October 2018 memo says that Marcus has plans to “launch a broader wealth management offering.”

A global consumer outreach is being built in preparation of this broader wealth management offering. And for all those concerned about a growing unsecured loan book, Goldman has great risk management experience and could with great elegance securitize part of this debt, once there is enough to do so. Elizabeth Dilts and Anna Irrera, raise this point too in ` Goldman’s Apple pairing furthers bank’s mass market ambitions`.

Marcus is a brand whose heritage is in risk management and investment banking. They will use these competences to manage growth in their retail-focused wealth management offering. This is a huge advantage compared to Fintechs that started with unbundling a specific financial service (be it loans, or deposits, or investments) and is now, growing by rebundbling additional services (e.g. adding robo-advisors to loans, or deposits to trading, ect).

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

I have written about Marcus several times.

Just after the launch of Marcus in late 2016, Will Goldman become a verb? Watch the Marcus ads!

Just after the Marcus rebranding and UK launch in Fall 2018, Welcome Marcus to the rebranded Goldman asset mgt division and to the UK

Screen Shot 2019-04-25 at 10.01.03.png

I must however, confess that I have no idea how to interpret the new Marcus Campaign ‘You Can Money’.  Is this an example of new Fintech language? If you have other such rarities, please send them to me, as I collect them. Maybe we can tokenize them, with the hope that they become the next non-fungible craze.

[1] A Seeking Alpha article that includes several links, for anyone who wants to dive into more details https://seekingalpha.com/article/4251792-buy-goldman-sachs-apple-card

Sources: CNBC, Barrons, Financial Brand, Crowdfundinsider, The economist

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

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The `robos` in the front-office – takeaways from Swiss innovators


Watch the gap; between the Attention Economy and financial services.

 Market forces are fiercely at work to start closing this gap. I shared insights around this reality and ways that financial services players can participate successfully in this transformation, during my opening talk at the annual event by the Bank Innovation Competence Center[1], at Unil, HEC Lausanne. I also listened to different perspectives regarding `Les robots au front-office`.

Actual experiences and learnings from:

  • A Swiss private bank with a global outreach – Julius Bear
  • A Swiss online Bank with an in-house robo solution – Swissquote
  • A Swiss cantonal bank innovating through Fintech collaborations – BLKB/True Wealth B2B
  • A Swiss bank using chatbots – PostFinance/ELCA.

20190408_115830.jpg

Julius Baer, a 10yrold pure wealth manager[2], has already deployed a Digital Investment Advisory suite – called DIAS – in their Luxembourg operations and is in the process of adopting it in its home base. This is a technology stack deployed to empower the Relationships managers of JB so that they can focus on relationships, offer customized insights and reduce the burden of the ever-growing regulatory requirements.

Undoubtedly, the unbundling of financial services that have been instigated by standalone Fintechs, has essentially commoditized several aspects of financial services. Wrapping value-added advice around products and transactions is inevitable and that is what JB is aiming at. For now, and from JB`s experience, there has been no JB customer that has left from private banking to go to a standalone robo-advisor.

 Swissquote, the Swiss tech born online bank, has developed its own `robo` offering. Their heavily quantitative approach is well known from the suit of their financial products and services. An online automatic but discretionary approach to investing was a very natural extension of their successful e-trading business. One of their first learnings was that personalization is needed for the automation process. Through a close collaboration with Neuroprofiler, a Swiss-born behavioral finance risk profiler out of the Kickstart accelerator, they offer a dynamic automated risk profiling with gamification elements[3].

Swissquote`s robo is used by some of their end clients but also by asset managers and financial advisors that use the Swissquote technology. The two main learnings are that one of the main in-house uses of their robo capabilities, is from existing customers that leave cash in their accounts without doing anything. Think, for example, a customer using the Swissquote e-trading platform that has often cash that is not at work.

Evidence that robo-advisors can be of value-add to customers that leave cash sitting in their accounts due to inertia.

Swissquote is continuously improving their offering by experimenting with Big Data and AI that can enrich the interaction with customers beyond and in addition to their dynamic risk profiler. Think of an algorithm that sends an sms asking `Dear Efi, ahead of BREXIT, would you want to consider switching off the robo algorithm?`.

Digifolio, is the BLBK robo advisory offering powered by the B2B technology of True Wealth, a Swiss robo that also runs its own B2C offering. BLKB is the most innovative Swiss cantonal bank with an early online mortgage offering and a digital earthquake insurance offering. Digifolio was launched in the summer of 2017 (with a minimum requirement of 5k CHF). One of their main learnings up to now, is also that success can be clearly attributed to the effectiveness of Digifolio to move existing customers from cash in their account, into investing.

As early as 2015, I had introduced the concept of `Unadvised assets`[4] and since, have been looking at ways that Fintechs can `nudge` and grab the piles of cash.

3yrs ago, my 2min view

Digital Wealth management: a videographic update, March 2016

In addition to robos, Oh, the things you could do with the enormous Cash pile! November 2016, in which I looked at `competing` unbundled Fintech offerings.

Thanks to the market feedback shared at the BAICC event, I will be updating the `Unadvised Assets` perspective to check if there has been any noticeable impact on the cash pile possibly from rise automated investing offerings at the B2C and B2B2C level.

PostFinance, a Swiss financial service provider that has been investing in Fintechs for a while, has launched a text chatbot in collaboration with ELCA, a Swiss IT company. Postfinance is the first Swiss bank launching a customer-facing chatbot on its website. This is part of their business goal to offer 24/7 service with no queuing (as in the case of live online chatting with an `agent`) as one of the advantages of text chatbots is the simultaneous handling of requests.

The global chatbot market is expected to reach $1.23 billion by 2025according to a recent report by Grand View Research[5]. The challenges however to adopting chatbot technologies are not negligible. As ELCA explained, there needs to be a clearly defined business goal before designing a suitable chatbot, that of course, needs to be trained with the relevant content. Add to this, the complexity in the chatbot market because of the incompatible between text chatbot interfaces and voice user interfaces. In simple words, the language used and the content for training text chatbots is very different from that of voice chatbots. For example, in text chatbots often answers are provided in the form of links, which cannot work in voice chatbots.

Tech integration is always more complicated than it seems at the surface. Both because of legacy system integrations but also because experimentation maybe needed until the suitable product fit is determined in each use case. Pictet has been using chatbot technology internally, to modernize communication between the front office and compliance. This is a functionality that is also built behind the scenes of the JB DIAS system too.

[1] Agenda BAICC – EE – Seminar Robotics in FS – Agenda f (master). http://www.baicc.news/a-propos-baicc/

[2] JB separated in 2009 from its asset management business.

[3] Neurprofiler is a MiFIDII-compliant customer risk profiler for Financial Advisors.

[4] Salivating for Unadvised assets: a videographic, Nov. 2015

[5] https://www.techradar.com/news/support-agents-versus-conversational-chatbots

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Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Unadvised Assets ’16

Robo-advisory: Women, Freemium, and Subscriptions

subscription

Spring has brought lots of action even in the commoditized robo-advisory segment.

Three picks capture the flavor of the day in US robo-advisory.

  • Ellevest, the B2C standalone robo focused on women, raised $33million from a select group of investors[1].
  • Betterment, the hybrid standalone robo, drops account minimum for customized portfolios for retail clients too.
  • Charles Schwab adds a subscription-based financial planning offering (Not one size fits all).

Ellevest is in its 4th year and remains focused on empowering women. The offering includes a significant educational and coaching service for business women. What became clear from this recent funding round, is that the only viable part of the business is actually the HNW part. Ellevest Private Wealth Management is the premium service targeting HNW females and most of the capital raised will go into growing this business. This makes me believe that Ellevest doesn’t actually belong to the robo-advisory category but to the `Financial Wellness for Women in Business` category.

Betterment, on the other hand, has gone hybrid in two ways. Both in terms of offering a 100% DIY asset allocation service and with an advisor lite possibility; and having a B2C business parallel to a B2B business for financial advisors and for corporates (e.g. Uber). Financial advisors using the Betterment platform didn’t have an account minimum anyway. Now Betterment drops the 100k account minimum for individuals that want a customized portfolio allocation through the Betterment Flexible Portfolios offering. Their Premium service for 40bps now has no minimum. Betterment`s move comes in response to demand from existing retail clients to be able to customize their exposure in certain asset classes. The business decision of offering this flexibility at no cost, confirms that Customer is King and will remain so forever and ever.

Charles Schwab subscription service rhymes with Apple`s news service. For $30 a month, Schwab offers a financial planning package. Schwab Intelligent Portfolios Premium (rebranded name) is offered at $30 a month after a one-time $300 fee with a $25k minimum. Asset allocation is from a universe of 50+ ETFs, including a financial plan with a customized roadmap and unlimited one-to-one guidance from a CFP professional. Regulated financial-investment advice at $630 for the 1st year and $360 annually thereafter.

Schwab Intelligent Advisory (the original robo name) was at 28bps per annum 0.28% of assets.

Think of the 300,000 Schwab Intelligent Advisory accounts ($37 billion). Some will remain in the free, no-advisory offering. But a significant part will switch over to Schwab Intelligent Portfolios Premium and get advice. Evidently, any account with enough assets ($125k seems to be the magic number) will switch over.

What will this move do to the rest of the large players? When will Vanguard follow suit?

This is another discount brokerage moment in the investment industry. This is the subscription financial advice retail moment. Michael Kitces, the cofounder of XY planning Network XYPN, has deployed a successful subscription-based business for financial advisors, thus proving that it works at the B2B level. Now Schwab is pushing for a B2C implementation.

[1] Rethink Impact, PSP Growth, the Melinda Gates’s investment fund Pivotal Ventures; PayPal; Wynn Resorts co-founder Elaine Wynn; former Google and Alphabet chairman Eric Schmidt; former top aide to President Obama, Valerie Jarrett; and Mastercard. Source.

Sources: Schwab on Bloomberg; Betterment on FP; Schwab on ThinkAdvisor.

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Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

 I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Digitizing employee benefits towards Goal-based investing: the case of Moola.(JLT)

Gemma

Call it a hidden bias, or coincidence, the fact is that I have mentioned Moo.la the UK `robo` in three posts over the past 3 years. Gemma Godfrey, CEO and founder, is an ex-Goldman Sachs personality who was in the City A.M.’s Power 100 list the 2017  and was also chosen to join Arnold Schwarzenegger advisory on The Celebrity Apprentice (alongside Jessica Alba, Warren Buffett and YouTube celebrity Justine “iJustine” Ezarik).

In early 2016 as I was searching for robo-advisor actual performance, I spotted Moo.la as one of the promising female-led robo advisors along with  Sallie Krawcheck`s Ellevest. Call this another bias? Maybe, since Sallie and Gemma are both ex-Wall Street female leaders with significant investment experience. See here.

In late 2016. Moo.la was already included in the Top50 European Fintechs.

 In Feb 2018, I included Gemma in my monthly `Women and Fintech – The Feb. playlist of 10` for a very explicit reason.  Gemma’s venture was addressing the savings crisis problem in the UK. Her message was loud and clear and based on her belief that the domination of men in finance is a problem that can only be solved by us women becoming raw models for others.

In Spring 2018, Moo.la came across my path again as I met Paul McNamara, the CEO of Evalue, the sophisticated UK financial planning and advice software company. I could not resist sharing on DailyFintech Paul`s excitement on the launch of their API platform and their participation in the 2nd cohort of the FCA with a focus on regulated advice.

Moo.la was one of the Fintech partnership examples with Evalue that I reported. While Moo.la is a savings platform and one that caters to all those that are intimidated from the investment lingo and the confusing product choices; they wanted to offer their clients realistic, visual scenarios for the inexperienced to become comfortable with their investment choices. Evalue offered a piece of mind to Moo.la that behind the scenes, the scenario analysis was as sophisticated as it can get.

On the other hand, Gemma had made a business choice to offer a limited menu of investment choices. Three kinds of investment plans and one additional pure ethical portfolio. There is no `luxury` of customization and the focus is on offering comfort for the pre-designed investment choices. The philosophy behind this, is to focus on the customer experience which is mostly driven by emotional comfort or discomfort (leading to panic when least needed).

Four investment options that are well understood will work wonders for customers versus 44 investment options that are not well understood.

As Moo.la is not an investment advisor, Evalue`s software also makes sure that all is fully compliant. The limited menu also allows Moo.la to keep costs low. Savor Moo.la`s knowledge center with insights and education for all levels in a language that is natural.

Last summer, Moo.la was acquired by JLT Employee Benefits (JLT), one of the UK’s leading employee benefits providers. This acquisition should not be seen as a just another Fintech M&A transaction. It is actually a purposeful strategic ecosystem move, whose success should be measured beyond the dry numbers. First and foremost, Moo.la becomes part of a business (and running also standalone) that is in complete alignment with their philosophy. JLT’s strategy is focused on helping UK businesses deliver better performance through the improved financial, emotional and physical wellness of its people.

This acquisition is at the service of Goal-based investing.

Moo.la will also be integrated in JLT`s Benpal platform. Fintech from an angle of employee benefits in all industries is a great example of sustainable innovation. Robo services that are not just about the low cost but predominately about retentions, engagement and well being of the employees. BENPAL is an evolving next generation rewards and benefits platform that JLT offers its corporate clients. It is designed to help attract, retain, engage and reward the workforce. It allows employers to manage employee reward and benefit program in a digitalized era.

Last week Moo.la won the City of London’s ‘Best Goal-Based Investing Service’. We are already designing the world we have been dreaming of; slowly and steadily. An investment world that is not only about the monthly reports of our investments but also about our progress towards our goals

In this spirit:

Efi-Book-Review paolo1

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Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

 I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

High-quality Low-cost, Active Index investing

`Jack` Bogle passed away this past January. No matter what investment camp you belong to, he has undoubtedly impacted investment thinking, products, and services.

Last summer, Victor Hagahni and James White – Victor is the Founder and CIO of Elm Partners, and James is Elm’s CEO – wrote an article Is Vanguard More Rolls Royce, or Hyundai? that highlights an investment world particularity:

With most products and services – cars, doctors, food etc – better quality normally goes hand-in-hand with a higher price. Not so with investing.

They even quoted Bill McNabb, former CEO of the Vanguard Group saying:

`The whole cost argument from an investment perspective is counter-intuitive.` 

Listening to Bill McNabb`s short interview[1] at the 2019 Academic and Practitioner Symposium on Mutual Funds and ETFs, he makes a very important point that is not well understood.

Over the past ten years, we have transformed the investment management space into

A low-cost product space

It is NOT a transformation into

A passive beats active space

The growth of robo-advisory (apologies for the umbrella term) is Not about passive over active. Robo-advisory is about the widespread use of low-cost products. We live in a world that it is becoming more difficult to imagine high-cost investment products.

One of the best examples of low cost, active and passive management, is Elm Partners. 12bps, tax harvesting, portfolio construction based on economic fundamentals and other liquid risk premia in addition to equity market Beta.

Listen to Victor Hagahni and James White discuss with me their approach which is for accredited investors only. Their offering includes less than half a dozen investment programs and the possibility of SMAs. Elm Partners does not aim to do everything for everybody. Low cost and transparency, are paramount for their business.



You can also follow their quarterly reporting on Seeking Alpha, here. You can follow their thoughtful research here. You can savor Victor`s TEDx Talk Where are all the Billionaires? & Why should We Care?: where he uses the puzzle of the missing billionaires to help us understand why most investors fail to capture the returns offered by the market. This actually leads into the main reasoning for Elm Partners investment strategy, the so-called “Active Index Investing.”

[1] Former Chairman and CEO of Vanguard, Bill McNabb Discusses the Future of the Investment Industry from the 2019 Academic and Practitioner Symposium on Mutual Funds and ETFs. Presented by UVA Darden and the Investment Company Institute. https://www.youtube.com/watch?v=Z8UQvkKbFZo

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Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

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ReitBZ leads the way to Wall Street`s new tokenization business

 

Davos

The big pot is in securitizing illiquid conventional assets using blockchain technology.

First area of growth (where the Sharks have smelt blood) is Securitization of real estate.

 

 

IMG-20190123-WA0017

Wall Street will focus on Extracting Value from designing compliant structured products. Asset-backed digital assets will be the first big Shark attack, Real Estate specifically will have a desk on the WS trading floors much like mortgages and mortgaged-backed securities did.

Mark my words from my January talk at CryptomountainRocks Davos during WEF

 

ReitBZ

Reitbz is the first security token (STO) backed by a traditional investment bank.

$10 for one ReitBz token. No US or Brazilian citizens.  You can pay with Eth or USD pegged coined Gemini Dollar.

Banco Pactual (BTG) from Brazil is the first `Shark` that makes my Davos prediction true.  The next generation of structured products, asset-backed by illiquid real estate, is being designed as we speak in the labs of incumbent banks.

I am very excited because this comes from Brazil and not Manhattan or Canary Wharf real estate. Second, because ReitBZ is backed by distressed real estate that BTG Pactual has access to, as they have been a leading investor in Latam real estate for many years. They manage over $2billion and earned the Euromoney award for Best Real Estate investors in 2017 and 2018.

An Emerging Markets leader in real estate investing, issues,backs and manages the STO.

There is a niche focus on three categories:

  • Real estate foreclosures by developers who were denied financing post-construction.
  • Real estate returned by buyers that couldn’t afford a bank loan after construction.
  • Real estate owned by companies that filed for bankruptcy or judicial recovery

ReitBZ is a transparent structure to invest in deal flow that is not accessible easily.

The funds raised will not be held by the BTG but by a smart contract on the Ethereum protocol[1]. The management of the investment process (purchase, management of the assets, sale) will be done through Enforce, and entity that is 10yrs old. Blockchain technology reduces the costs of a traditional real estate investment fund substantially (custody, bookkeeping, fund admin, structuring etc). The exact savings, I guess will be reported once the structure is live. What is unclear to me, is whether these savings are higher than the tax benefits that investors enjoy through traditional REIT structures (which undoubtedly have much higher costs in structuring).

As the devil is always in the details, keep in mind that on the one hand the funds are kept in the smart contract but on the other hand all decisions are made by BTG/Enforce. They are looking to buy assets at a 30% to 40% discount and over an 18month period, they aim to restructure them and sell them. They estimate that the restructuring process involves 10% to 20% costs. Once the property is sold at a profit, the managers will decide to distribute on a prorated basis the profits via dividends, which will take the form of Airdrops.

Screen Shot 2019-03-04 at 09.54.01

You can read the white paper and the one pager on their site ReitBZ.io.

The fee structure for Enforce is in the White paper (p.18)

  • 1% on the funds allocated to buy a given Target Asset
  • 10% on the net collection arising from the sale of Target Assets (i.e. sale value, reduced by all costs related to the real estate, fees and taxes)
  • 30% performance fee on the amount exceeding a 15%/year post-tax hurdle rate of the Target Assets portfolio

An oscillation between centralization and decentralization is normal. Market forces will determine the sweet spot.

Look at the ReitBZ to realize the structure`s positioning. As in the conventional world, you should always read the covenants. I take this opportunity to highlight the Petro structure which is collateralized by Venezuelan oil resources. The question arises as to how the structure protects the investor to actually be able to access the collateral. Same questions arise for the ReitBZ structure. Real Estate in Brazil, of course, valued and traded in Brazilian Real,….

Cost savings for the investor in complex structures that pool illiquid assets are not that obvious. Again this is from experience from the financial engineering conventional world. All the setup costs may be lower for digital assets, but what about the fees of BTG/Pactual (seems to me borrowed from the old world much like the crypto hedge funds have done) and what about building in tax efficiencies? The truth is that we will need a few iterations of STO asset-backed structures to figure out how to optimize them.

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[1] The legal structure is in the Cayman Islands.

Sources: LATIN AMERICA’S BIGGEST INVESTMENT BANK LAUNCHES SECURITY TOKEN, Bicoinst

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Food and Finance blurring through technology

As technology blurs business lines and `forces` incumbents to get rid of silos, Wealth Management & Capital Markets become broader.

Wealth Management & Capital Markets are being re-imagined as we speak.

Stay with me in this transformation.

My vision of Wealth Management is a holistic service that surely includes the future of Food and how we eat.  We didn`t touch on this topic with Paolo Sironi, when we discussed the principles of the Theory of Financial Market Transparency (FMT) in `Sustainable Banking Innovation`. Limited (and irreversible) time constraints were the reason that I didn`t raise the issue, which otherwise would be a very suitable topic to discuss with the Italian thought leader @thespironi.

My belief is that Food, Finance, and Fun are essential domains to our health and wealth. So, we will soon add to budgeting, borrowing, insurance, investing, trading, all sorts of others non-conventional `assets` and services.

Vivek Gopalakrishnan, head of brand & communications Wealth Mgt at BNP Paribas in South East Asia,  shared a Reimagine food infographic about What and How we will be eating.

reimagine food

Source: DECODING THE FUTURE OF FOOD

The way I see the broadening of wealth management with Food is through AI algorithms that we will eventually trust, as we become convinced that they know us better than we know ourselves. Once this cultural shift happens, then food AI advisory will become ubiquitous. We will entrust the mathematics, the algorithms to advise us on Diversification, risk management, and investing around food.

All this will be 100% linked to our customized insurance policies naturally. It will also affect our risk appetite in financial investing as science will put us in more control of our life expectancy and Immortality will become in. Audrey de Grey, the renowned biomedical gerontologist, wants to increase human longevity to the point that death could become a thing of the past. Medical technology could soon be able to prevent us from falling sick. Yuval Noah Harari, also talks about the `Last Days of Death` in Homo Deus.

Even if this doesn’t happen in the next 50yrs, food AI advisory will happen and the best way will be to integrate these services with the advisory of today`s conventional assets in wealth management. My US dollars, my Canadian dollars, my euros, my Swiss francs[1], and my food consumption, risk management, diversification; all in one place.

In the US, the USDA issues a monthly report on what food should cost families nationwide, presented in four different priced plans: thrifty, low cost, moderate cost, and liberal. Food costs, as a % of income, have been declining dramatically in the US (not the case in emerging markets). Whether food costs are 10% or 40% of household incomes, the point is there is a huge opportunity to manage `what and how I eat`, and just looking at the food budget which misses the entire opportunity.

My vision is that there is no distinction between PFM, robo advisors, private banking for HNW and health. Our wealth and health have to be managed in one place. Ideally, lets deploy blockchain technology to manage our data in a `personal locker` fashion and then let’s outsource the processing and the insights from this data to the best algorithms that act in our interest and advise us on what to eat, what to buy, how to diversify, how to rebalance, what risks match our goals etc. Whether it is food or money.

Tokenization can also unlock value in this context by creating communities linked by incentives built-in the tokens, that share similar food habits and or financial goals.

Blockchain can protect us from the data monopoly slavery and enable us to unlock value.

Fintech can empower us as asset owners of these new values.

[1] These are my personal actual holdings since I have lived in each of these currency places and still hold accounts. Still looking for an aggregator to view and manage all these on a single dashboard. Fintech is not done.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Zooming out on Capital Markets and Wealth management

insights

A New Year doesn’t always necessarily mean a new mindset but it does allow us to reflect and zoom out.

Capital markets and wealth management, are being disrupted but we are still early in the journey.

In financial products, Price wars continue and zero-fee products keep growing.

In business models, ‘Go Big’ through volume and marketplace offerings continues to dominate; but beware.

The dream of decentralized Community building through blockchain Tech, has failed miserably for now.

The dream of unlocking value through accounting on DLT and automating liquidity through P2P networks, is gaining traction at the country level too.

Robo-advisors and neobanks, have been pushing prices down. Whether it is ETFs themselves, single stock trading, constructing or rebalancing portfolios, buying insurance, Currency exchange, remittances. Customer is king not only getting better UX but also pushing the Fidelities and the Blackrocks of the world to increase their zero-fee offerings. From zero-fee index funds, to zero-fee trading of single stocks. Robinhood and Vanguard have a huge effect on keeping the pricing war very much alive.

The oxymoron is that the dominant business model remains platforms and marketplaces that cross-sell and aim to keep the customer hoping to sell more and more. But as long as the focus is on the product, as the margins will keep diminishing, it will be a Catch22 game. Margins are not uniform but the tech-enabled price war will eventually squeeze them all down to zero.

Think of Robinhood who started off from freemium stock trading. Their growth has been hugely ‘subsidised’ by VCs – $539million over 5yrs – and now they went out offering checking and savings accounts (albeit screwing up on the pricing)[1].  Sofi who started in student loan refinancing, and went into mortgages, thereafter moved into wealth Management. Goldman Sachs, an incumbent investment bank, who went in and out of banking, then targeted retail customers through Marcus, a consumer loan fixed fee service; and is now moving Marcus to their investment unit.

Will a new business model emerge in 2019 that circumvents this investable Catch22 of going after ‘Growth’ only to sell financial products whose margins are going to zero, one after another? This is what will be on my radar screen for this year.

The other oxymoron that is evident both from 2017 and 2018, is that the current designs and implementations of blockchain technology (predominantly, cryptocurrencies) have failed in building communities natively. During the bull phase, this was masked as “the crypto community” had a growing number of cross-over[2] members. But the common thread was only FOMO and herding. During the bear phase, the “carrots” put out to design communities were IMHO “a disgrace”. Incentives like retail bounties, airdrops of all sorts, are no innovation. Using Telegram and 24/7 digital community managers, has been ineffective in building trust with the potential retail investors and being transparent post ICO with governance and financial reporting.

The good news is that DLT experimentation grew substantially during the crypto winter and even countries are stepping in. The motives are either to boost the local economy by creating a tech ecosystem – in a decentralized design there can be several players included instead of “a winner takes all” operation – or to transform the government in several areas like land registries, self-sovereign IDs, voting, health, education, capital markets ect.

Happy New Year for those that were still on vacation last week. Lots of exciting insights to share this year too.

[1] I’ll ignore their failure in executing. What fintech can learn from Robinhood’s ‘epic fail’ of launching checking accounts

[2] Cross-Over Buyers is a Wall Street term that refers to investors that buy into an asset class only to capture high returns in the short term; whereas typically they invest in another asset class in the long term.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

 

Marketplaces and gateways for financial advisors – Schwab’s approach

I’ve been a fan of  Bill Winterberg and his FPPad channel. If Alexa is in your Christmas shopping cart, you should know that Bill is on Alexa for you to listen while putting on makeup or shaving in the morning. Just say “Alexa, enable FPPad”.

In early November, Bill covered the Impact2018 annual event by Schwab for advisors. The Schwab Intelligent Portfolios, the infamous Schwab Robo-advisor, that we have covered on DailyFintech from the start of the robo movement, is not what was the focus at Impact2018. This is an annual event for advisors who are being empowered by brokers, custodians, tech companies, asset managers, and banks.  The sponsor of the Impact2018 FPPad interviews was Envestnet | Tamarac. As a side note (not an insignificant one) Blackrock invested in Envestnet by acquiring 4.9% of shares. The world’s largest asset manager buying a piece of one of the largest adviser technology providers. Add to that that Blackrock owns another 5% through its passive financial products.

 Charles Schwab in a way has it all. For the 100% DIY investor, there is Schwab’s brokerage arm and the free robo service (continuously criticized for the high cash allocation). In the middle, there is an automated investing management offering with a free personal finance guidance (with financial advisors) with only a $5,000 minimum balance requirement. And at the other end of the spectrum, a rich and improving marketplace for in-house (using Schwab as a custodian) and third-party advisors.   

Andrew Salesky is a 20yr Schwab veteran that now runs the Digital Advisor Solutions at Schwab. His vision is to transform Schwab into a Digital Services organization. He is focused on serving and empowering financial advisors, both those in-house but also with third parties in the Advisory space.

Schwab scores high when benchmarked as a Digital Services organization, for the in-house custodied part of the business.

First and foremost, they have mastered the Digital Account opening, which is now a completely paperless workflow for advisors which takes 5min to open an account (regular account, pension, or charitable). This electronic authorization, itself gives the end customer a great experience. The first impression always creates a predisposition, and Schwab has its advisors back covered in 80% of account opening cases. The remaining 20% is the so-called NIGO (Not in good order), which means incomplete or incorrectly filled applications; and Schwab is tackling this business opportunity by experimenting with technology that can serve electronically advisors’ customers in this case.

Second, the Schwab Advisor Portfolio Connect, is an all-in-one solution at no fee, that is simple and efficient. Its main advantage is an operationally efficient portfolio management solution. The magic happens behind the scenes, taking advantage of ‘custodial data direct’. Advisors using this service don’t need end of day downloads and reconciliations and creating performance reports, billing and other crucial reports because all is completely automated.

On top of these digital capabilities for all Schwab advisors, the Digital Advisors Solutions department is strategically positioning Schwab as a Marketplace and a Gateway for third party advisors. This is multifaceted.

First is the MarketSquare. I love the name by the way. It feels like Piazza San Marco or some such. Schwab advisors can research technology vendors and products to help them make better-informed buying decisions, see product ratings and reviews from peer advisors, who understand the specific needs of independent advisors. The MarketSquare is creating an advisor community and tech vendors compete for their attention.

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 Second is the OpenView Gateway: Third party advisors can enjoy secure, high-quality integrations, for example with Orion, Salesforce, Addepar, and at same time have access to Schwab data. These integrations combine the best of Schwab and third-party capabilities and include many of the major technology tools firms depend on, including CRM, portfolio management, financial planning, trading & rebalancing, risk analysis, and more.

Screen Shot 2018-12-10 at 8.22.07 AMScreen Shot 2018-12-10 at 8.22.16 AM

Several other tech vendors are in the pipeline to be listed on the OpenView Gateway. Advyzon a provider of CRM solutions, client reporting, billing, document management, and a client portal; and LifeYield allows advisors to get their ‘Taxficient Score’ for all their clients to measure their tax efficiency.  Reports can be shared directly with the clients to show where they are adding value.

 

Last week I took a look at Morgan Stanley’s “WealthDesk” rollout for its advisors which is an integration of Morgan Stanley’s Goal Planning System. In Incumbent Robo-advice platforms, software, products: A look through Morgan Stanley’s WealthDesk platform I highlighted the Machine learning support through “Next Best Action” tool.

Schwab’s approach is very different that Morgan Stanley’s. “WealthDesk” is the integrated toolbox that MS advisors operate their business on. Schwab allows for 3rd party advisors and in-house advisors more choices of vendors and in that respect each advisor can tailor their toolbox differently. The “WealthDesk” toolbox is not available for 3rd party advisors.

MS is focused on empowering and retaining its current advisory network of 16,000 advisors. Schwab is increasing its outreach through a marketplace approach that if successful, can become the app store for tech targeting advisors (with genius capability and a community tying them together).

The end customer will decide of course; Financial advisors are being served through Fintech vendors that offer them dazzling choices. The platform that can help advisors make smart choices for their toolbox, will be the winner.

MS claims that their integration is ahead of the curve. Schwab positions itself as hub that filters tech vendors continuously and offers integration a la carte plus peer reviews.

Stay tuned.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.