Fintech driven market structure changes may explain how the stock market is behaving at the macro level.

Sometimes you have to go into the engine room to see where and how fast  the ocean liner is going. It is not enough to know what the Fed is doing in the captain’s tower. Fed stimulus is obviously a big macro driver, but there are also other factors. Today’s stock market may remind you […]

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Model portfolios remain a non-transparent part of asset-management

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019. Model portfolios in the investment world are nothing new. They have been around for a long time and have always been unregulated. No model portfolio provider is required to report any or all of its model portfolios allocations, performance, or costs. In […]

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A selection of 7 themes on ETFs and robo-advisors

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.  A mini digital detox in August, may reboot and upgrade my operating system. In this post, I am sharing a selection from this year`s posts focused on ETFs (a 50yrs old innovation) and robo-advisors.   Fintech contribution 2020 started with a healthy […]

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Scalable Capital: from Digital investing to Deposit accounts and Brokerage services

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.  Fintech funding and activity for investing solutions is remarkably healthy given the macroeconomic conditions. The Stash ($112million in April 2020) and Robinhood ($280million in May 2020 and $320million in July) sizable funding rounds and the acquisition of Personal Capital by Empower Retirement […]

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The revised pessimistic projection for Digital wealth AUM does not make sense

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

Consulting practices call for 5yr predictions on all sorts of topics. The so-called Robo Advisor subsector in investing has not escaped these studies.

Back in 2016, was when Vanguard was making its first leapfrogging attempts in a space that Betterment and Wealthfront had brought to market. Personal Capital was also shaping up the hybrid version of `digital investing`. Deloitte, CB insights, Aite Group and others were predicting assets under management by 2020 (which at the time, seemed far away for all of us).

Predictions ranged between $ 2.2 trillion and $ 3.7 trillion in assets to be managed by Robo-Advisory services by 2020 and $16 trillion by 2025.

Permit me to take the mean of the range predicted for 2020 (trillions of USD are being transferred from the government to the `people` anyway as we speak) and round it up to $3 trillion for 2020.

2020 – Well we are in the second quarter of 2020 and we are just reaching $1 trillion. Urs Bolt, highlighted the latest report by BuyShares that says we are heading to $987billion. So, we are at 1/3 the 2016 prediction even though the S&P500 is up 30+% and the Dow is up 28+%, since Jan 2017.

 

What is more remarkable is that the current 5yr outlook compiled by BuyShares and based on Statistica data, predicts that in less than 5yrs the AUM will grow x2.4 times, reaching $2.4trillion (Statistica).

Screen Shot 2020-06-15 at 11.13.33Screen Shot 2020-06-15 at 11.13.47

At first site, it may seem to you an optimist outlook. However, it is actually a heavily discounted view from that set out back in 2016 when the sector started attracting more VC investments and incumbents. The first predictions were from 0-$3trillion in less than 5yrs and then from $3trillion-$16 trillion in the second 5yr phase (x5+ times).

And now this study is saying,

let’s cut the 5+ times growth rate in AUM to more than half. And let’s cut the AUM managed over the next 5yrs by 85% (we had said $16trillion and now we say $2.4trillion).

Let’s step back and look into the mirror as if it is 2025. Of course, digital onboarding and automated asset allocation offered currently via ETFs will be 100% an option everywhere and probably free.

The more interesting and meaningful question is about the evolution of the ETF market itself which has been the bread and butter of all the digital investing offerings (lumped under the `robo-advisor` umbrella be it with or without human advisory services); and whether artificial intelligence will actually transform digital investing.

1⃣ Will `robo-advisors` continue to build their businesses mainly using ETFs? Their low-cost core value-add has been interchangeable seen as a win for passive investing and mainly via indices.

2⃣ Will the 12% of the $4.7trillion ETF market (based on 2018 year-end data, see here) grow and to what extent?

3⃣ Will active ETFs grow given the current macro environment? ANTs are just emerging and are a step back from the transparency trend and the zero-commission trend. ANTs are active non-transparent and on average their expense ratio is 70bps. Their position reporting is much better than mutual funds (quarterly). Their cost-adjusted and risk-adjusted-performance will have to be seen going forward. They are currently only 2% of the ETF space (see here).

4⃣  Will artificial intelligence finally take over the asset allocation and the decision of switching between direct indexing or stock picking or momentum.

A few facts to consider:

  1. The ETF space grew sustainably in 2019. Statistica reports $6.18trillion by year end of 2019. That is a 30% increase. Of course, by the end of Q1 2020, the ETF global industry experienced a c. 16% drop ($5.4trillion) which was 100% due to the drop-in asset values. ETFs actually experienced in Q1 net inflows of c. $120billion. These were inflows during the major March selloff. Source
  2. An update on my calculations of the assets under management by digital wealth services points to a c.30% increase (by 2019 year-end), which matches the ETF increase. Source
  3. The actual role of artificial intelligence in all the Digital wealth offerings, is still minimal. Even the large incumbents with sizable digital wealth AUM, like Merill Edge or Vanguard, are still in the initial phase of digital transformation in wealth management. Vanguard actually has done very little on the needed digital integration front. Merill Lynch is probably ahead with its new CEW – Client Engagement Workstation – that integrates market data, client information, account servicing tools and some narrow artificial intelligence tools (chatbots).

For 2025, we should be making predictions of the extent that Artificial intelligence will be making better decisions for my asset allocation than I do, or my private banker, or my financial advisor, or my digital wealth service provider.

What has gone wrong in Fintech that pushed the original projections of $16trillion AUM in 2025, to $2.4trillion?

Where are the trillions of currencies that are being transferred, going to end up?

Isn’t the digital transformation of the mutual fund industry what will happen over the next 5yrs? Whether it is through DLT as an infrastructure of the mutual fund administration or by the tokenization of fund structures or the disintermediation of the European banks who dominate mutual fund distribution or all of the above? And wont all this lead to an exponential growth of the `Digital wealth` AUM?

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The next generation of re-bundling with embedded finance is on its way

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Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019. 

The rebundling of scattered digital financial services is underway at different stages in the various subsectors. Rob advisors adding consumer banking services, digital lending platforms adding investment offerings, mobile-only banks adding insurance and investment services, and on and on. Embedded finance (sorry Ron Shevlin for using this buzz word), platformification of banking, or creating an Asian Internet of Finance Western edition; in one form or another these trends are unstoppable. By now, they are the normal.

So what does the next generation of re-bundling look like and has it started already?

Last January, I wrote a post that seemed very much out there (and to some maybe it still sounds awkward) that looked at the existing silo between Food and Finance.

Food and Finance blurring through technology

With the COVID-19 lockdowns still fresh in our minds, managing uncertainty, enhancing our immune system, and the connection between our finances and our health (physical and mental) are very clear.

The current setting makes it very easy to understand Paolo Sironi`s dense FMT theory. Just focus on the main underpinning of FMT: Finance is about managing uncertainty. Of course, this is not reversable. Meaning managing uncertainty is not only about finances. Our physical and mental health are a big part of dealing with uncertainty. In my earlier piece I took the scientific views of biomedical gerontologists and of philosophers who foresee `the last days of death` and linked them to what Hippocrates and the Chinese have been preaching for centuries:

Food could become our best medicine

The research and innovation on this front, is already underway. At the upcoming Decoding the nature of future conference in Paris (Fall 2020), several important topics will be discussed. I zoom into the big topic of linking Food with Health and the trends around customized products for the future. AlimAvenir, a French specialist in the food innovation, has published a study addressing four main big topics

  1. Feeding 9.8 billion people in 2050: alternative proteins?
  2. The kitchen of the future: digitally assisted home cooking or robots?
  3. Food and health: are customized products the future?
  4. Transparency, traceability and future imperatives

Under the 3rd topic, of my interest, they look at customized food, the role of microbiota in certain pathologies that are big issues (like obesity, diabetes, gastro diseases etc). They conclude that smart IOT devices will allow advancements in this direction. They see growth in preventative medicine.

They also see reducing uncertainty, repricing financial contracts based on genetic data. They suggest that this decade will also force us to decide on how genetic data is shared. Technology aims to improve our genetic data (in this framework through customized food) so that a mortgage provider (be it a bank, or a non-bank) can customize the tenor of the mortgage accordingly. With better or improving genetic data, the tenor of the mortgage can lengthen.

Customized food can improve genetic data which in turn can improve conditions in financial contracts.  

I am starting to see a world of programmable financial contracts whose clauses are cryptographically linked to our genetic data.

In turn this data is dynamic with customized food being one of the ways we can improve it. Rejuv the spinoff from SingularityNet is one example of this kind of innovation. It is built on the Singularity Net protocol which is a decentralized protocol for benevolent AI agents (see previous post here). Rejuv connects individual health data securely, with researchers, clinics and the AI agents, to improve health via lifestyle adjustments. Tokens are used to reward members.

The silos between customized food and finance, are starting to blur in these new ways. The triangular connection I see, is now the broader Longevity sector to finance. In addition to customized food as medicine to improve genetic data, we can foresee precision, preventative, personalizes, and participatory medicine – the so called P4 – linking to finance.

Managing uncertainty in life is first about improving our physical and mental health. So starting with that as the core offering and creating a marketplace with analytics and services that improve diagnosis, prognosis, and suggest customized `journeys` (treatments), looks like the way a 2030 financial platform-ecosystem should look like.

Managing health uncertainty, advising and optimizing that aspect of our life bundled with debit, credit, insurance, and investments, is the way to go.

Customized health and wellness journeys improve our longevity (length and quality of life) which leads to a more pressing need to manage jointly our finances.

 One example of innovation in this direction is the Longevity Bank, soon to be launched, by longevity scientist experts. I met Dmitry Kaminsky, cofounder of Longevity Bank, in Davos and included the initiative (No. 33) in `Celebrating the WEF 50th anniversary with 50 bytes from Davos 2020`. Their motto is Health is the New Wealth.

The challenging link between genetic data, health data, financial data and corresponding analytics on each of these areas, is the next re-bundling wave. The opportunity is big and the complexity is breathtaking.

Margaretta Colangelo and Dmitry Kaminsky, the authors of the Longevity Industry book, call the Longevity industry, the Biggest and Most complex industry in human history. I think this statement will have no challengers. Yet we are marching towards a rebundling with finance.

Stay tuned.

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Funding from the crowd, VCs, or Angels

CB-Insights funding

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

Funding is on everybody`s mind, especially for early-stage companies with no significant customer base. Will this time be different than in other market downturns?

Crowdfunding limits in the US are increased

The SEC increased the amount that companies can raise through crowdfunding. SEC is has proposing to increase the limit from $1million to $5million for accredited investors and to revise the calculation of investment limits for non-accredited investors (allowing them to allocate a greater percentage of their net worth). Of course, it will take time to be able to tell the impact. When will the appetite kick in at the current lower valuations.

Rosenblatt Securities research from last Fall, shows the expected impact on Fintech valuations at various stages affecting heavily the unicorns. For earlier stage startups the average expected impact is expected to be around 20% (1/3 of the unicorn impact).

Screen Shot 2020-05-18 at 10.47.22

B2B Fintech offerings, mostly Saas, are the ones that are getting traction from the new Fintech funds are raised now. Over 50% of investors claimed (before the crisis) that they would be opportunistic in their approach especially in sectors whose valuations were overblown.

New funds looking for great Fintech deals

New VC funds with an exclusive or partial Fintech focus are being raised as we speak but shyly of course.

FIS one of the leading financial vendor providers, is salivating on the opportunities that can be found in these market conditions and launched in late April a new $150million fintech fund. They already made their first investment in Flutterwave, the Nigerian payments fintech who raised $35mil Series B. FIS was familiar with Flutterwave as they had a business partnership established in January.

What is noteworthy is the interest in Nigeria and Africa in general. The SEC has also allowed Nigerian enterprises of all sizes that are more than 2yrs old to access the US crowdfunding portals.

FINTOP Capital closed its second Fintech FINTOP Fund II which was oversubscribed and raised $126 million. The first fund was raised in 2016 ($50million) and brags for two exits: DealCloud sold to Intapp in 2018 (both in the institutional Saas sector of capital markets), and Solovis (a cloud-based multi-asset class portfolio management, analytics and reporting technology platform, for institutional investors) which was sold to Nasdaq this March of this year. This second fund already has holdings in Trovata (automating cash mgt), Vouchr (mobile UX in payments), myDigitalOffice (digital back office hospitality solutions), FinMkt (consumer financing), Decusoft (Saas compensation mgt).

RTP Global announced a fund to invest into early-stage technology companies in FinTech and Software-as-a-Service (SaaS). The new fund is $650 million. Its previous fund was $200million (raised in 2017). See more here.

Angels slowdown and startup job marketplaces are one-sided

AngelList a platform that has innovated in the angel investing space through its syndicates and recently announced layoffs without sharing specific details.

It is already 10yrs old and has roughly $1.8 billion assets under management and several funds. Five years ago it also launched a job business with an app. Right now it lists over 130k tech jobs for 100k companies. Fintechs like Stripe and Affirm have been part of the AngelList job talent ecosystem. Of course, now it will be a one-sided market similar to the challenges faced in the lending market, where demand for loans far exceeds supply.

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Are Robo-advisors with no hedging gear, suitable for the 21st century?

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Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

I`ve been waiting for the quarterly Backend Benchmarking Robo Report, to gain insights into the US digital advisory market that is the largest by many metrics (AUM, # standalone fintechs, # incumbent offerings, years in the market, types of offerings). In the first quarter of 2020 on the `positive` side, we have seen a large funding of $112 for Stash which claims to have crossed the $1billion AUM and 4.5million customers. The race is on amongst standalone robo advisors to build a full stack offering that can include investing and banking services. Stash for example, the micro-investing fintech, has already added a debit card through Green Dot (see more about Stash here). Betterment, Acorns, Sofi, and soon Wealthfront have debit cards for their saving accounts.

On the other end of the spectrum, we have Vanguard the incumbent that has the lion`s share in AUM – $148Billion – and remains a pure investment platform showing no signs of integrating any personal finance tools to its offering.

Investment accounts + saving accounts + debit cards – the new normal for standalone robo-advisors

This is clearly where we are heading to. Robo-advisors like Betterment or Acorns, that were investment offerings first, need to keep their earlier customers who moved their savings to them for a better, cheaper, hassle-free investment service. Other more recent customers may not care so much about robo-advisor performance because their reason to move may have been a high-interest rate savings account, fully digital with a branchless experience. WealthFront for example, is a strong believer of branchless banking and has a vision of Self-driving money.

As I look at the performance comparison from the Q1 2020 performance Backend Benchmarking Robo Report, I am reminded of what Paolo Sironi says repeatedly, `we humans are not rational`. Vanguard has accumulated $148billion AUM without being the top performer over the 4year period of the report. SigFig, Fidelity Go, and Axos Invest (ex WiseBanyan) are the long-term top performers.

What was more striking to me was the top performer during the March stock market debacle. A new kind of robo-advisor, Titan Invest, that was launched just 2yrs ago was identified as the top performer based on its relative performance to its benchmark.

Titan invest, is a different kind of robo advisor that has accumulated $75million and charges 1% in fees. It is an all-equity investing platform (100% equity) whose bread and butter is not low-cost ETFs but individual stocks. It banks off hedge funds and copies some of the hedge fund techniques. However, Titan has no minimum investment requirement and is open to any US retail investor.

Titan filters individual stocks from the major holdings of hedge funds and creates personalized portfolios of 20-30 stocks based on the risk profiling of its clients. Some of its holdings (reported in its blog) include Amazon, Microsoft, and Netflix (up during Q1) and TransDigm and Credit Acceptance (big losers in Q1). In late February, Titan started shorting the S&P 500 appropriately for each portfolio and was therefore able to reduce its drawdown.

The Robo report, reports that in March the Titan Flagship fund returned 8.02%, in a period where the S&P 500 was down 13.79%.

Titan performance

Screen Shot 2020-05-11 at 10.24.44Titan was the only robo-advisor that beat the S&P 500 and its benchmark.

Titan admits that this the first time they use a personalized hedge. Their stock selection combines a quantitative filtering of common hedge fund holdings (based on different measures) and a subsequent fundamental and event analysis.

In their recent Q1 2020 investment letter, they also mentioned that in mid-February they initiated a position in Uber, as they think that the company is in the early stages of a powerful transformation. (see more here)

Titan Invest is a Ycombinator child. No VC investment. $2.5million seed round. It follows an actively managed approach.

The market will show whether active management of this style, pays off. It will also decide whether using hedges to protect portfolios from sharp drawdowns, will become more mainstream.

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Will Stash stay on Craig`s list as a market leader?

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Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

The closing of the Motif and the $112million funding of Stash, have sparked interesting conversations. It is clear that there was affection in the market for Motif. Maybe towards the founder or because they started with an innovation that didn’t catch on (Motifs never became a household name) or because they persisted for nearly 10 years or because maybe their timing kept being wrong. Too many pivots whose timing didn’t work out, like launching an offering for advisors and an institutional offering with structured products around 2017. See more in my post from 2 weeks ago, Digitization in the brokerage business is shrewd – Motif investing is closing

Craig Iskowitz weaved a rich coverage of Motif`s story on May 1st with lots of data and back flashes on how Motif was perceived along its journey. 13 Roboadvisors That Might Become Victims of the COVID19 Crisis is a great read for anyone in wealth management. In the last part, he shares a robo-advisor ranking in an effort to start thinking about who will not survive in these markets. The Ezra Group divided 38 providers into to three groups: Market Leaders, Up & Coming, and Watch List.

I`ll just pick on the first group `The Market Leaders` only because it contains Stash who definitely has us all looking at why it was able to raise this large amount of funding (Series F) in these market conditions.

Craig includes in `The Market Leaders` the big old names of Vanguard and Schwab that are pure investing giants, along with micro-investing apps like Acorns and Stash and MoneyLion (which is more focused on banking and lending).

He makes a point about the large number of paying clients that these three apps are serving. 15+ million customers compared to 30 million Vanguard clients. These are numbers as of January 30, 2020. This month we should be getting updated numbers as Q1 2020 from Backend Benchmarking which will definitely show an increase, as we have unofficial evidence already of a spike in account openings across all digital offerings. In the #ItzOnWealthTech Ep. 46: The Mad Rush into Digital Advice with Bill Capuzzi, Bill Capuzzi CEO of Apex Clearing mentioned that they saw a 200% increase in new account opening in March.

For Stash to stay on Craig`s list and to not disappoint their investors, they need to execute well on their re-bundling. They cannot afford to stay only in investing like Schwab and Vanguard. They already started their re-bundling in 2019 and effectively their roadmap to becoming a fuller stack. They used their Series E funding to partner with Green Dot`s Banking-as-a-Service and introduce a debit card. After one year they have acquired 750,000 banking customers and continue to pay up to acquire more (see Tearsheet sources below).

With Lending Tree as one of its key recent investors, they must be planning to add credit to their services. With the dazzling choices of Baas and Saas offerings, there is no secret sauce for almost anything. The trick is the go-to-market strategy that can create network effects. And this is where maybe Stash has a first-mover advantage. Is the optional `Stock-Back` reward program that they also introduced last year something that has actually worked for them?

On May 1, Pulse 2.0 reported that `nearly $10 million Stock-Back rewards have been earned by Stash customers since the launch of the debit rewards program almost a year ago.`

 Stash customers earn `0.125% Stock-Back rewards on all of your everyday purchases and up to 5% Stock-Back rewards at certain merchants with Stock-Back bonuses`.

If all $10million stock-back rewards were earned at 0.125%, then that translates to Stash having processed $8 billion in payments through their debit card. That is an average $10,000 per banking customer per annum. If all purchases were at merchants included in the Stock-Back deal offering clients an average of 2.5% stock-back, then it translates into $400million in payments and around $500 of purchases per customer.                        Is all this worth the Stock-Back patent?

Stash actually keeps investing in it Stock-Back program. They introduced 200 more stocks for 2020. Their digital design allows them to change easily the amount of the reward and offer special deals for certain periods and target different groups of subscribers. For example in May, they increased their rewards for CVS, Netflix, Hulu, Spotify, Disney to stock-back rewards of 2% from the usual 0.125%. (Details here). Their picks obviously are the best way to build customer loyalty, as all these are top choices for most people during the lockdown. They also offered 3% for two food delivery stocks, Seemless and Grubhub only for plus subscription customers.                                                                                         This kind of customizable service is definitely Fintech innovation.

It would be good to know what percentage of Stash customers actually opt-in the Stash Stock-back reward program. And then, what is the actual distribution of rewards that were paid out amongst the individual stocks like Amazon, Starbucks, Walmart, and the diversified fund which is paid out as a reward when you make purchases at merchants that are not publicly traded and on the Stash list.

Are business analytics of Stash customer behavior confirming that once a customer receives a reward in a stock of a company whose products or services they consume, they actually become more familiar with the company and allocate more investment funds to the company? This is the narrative that Stash is floating around as they report that they are seeing an increase in customer deposits. Stash is hinting that there are network effects from the Stock-Back Rewards into their investment business.

It is worth monitoring Stash to see

  • Number of Banking customers growth
  • Average account size growth through follow-on investments
  • The Stock-Back reward program growth
  • Follow-on investments of stocks in the Stock-Back program
  • What value there is in the Stock-Back patent they refer to
  • Any new smart credit offering

Sources-

Tearsheet reports that Stash reached $1 billion in AUM in February 2020, with 4 million customers on the platform (not clear how many are paying any subscription which ranges between $1-$9 per month with $0 minimum). However, only 750,000+ are banking customers.

Nerdwallet April 2020 comparison shows that the customer acquisition cost for Stash is very high. They are still paying a lot to lure new customers.

Screen Shot 2020-05-04 at 12.24.08

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Digitization in the brokerage business is shrewd – Motif investing is closing

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

MOTIF Investing, one of the earliest innovators in the digital investing space in the US, is shutting down. Apparently, the communication hasn’t been that great, as some advisors found out from a tweet. Motif portfolios will be moved over to Folio Investing that has been competing with Motif.

At Daily Fintech we started covering Motif as early as 2014. The company is 10yrs old and its retail arm `Motif Investing` allowed DIY investors to invest in customized thematic portfolios for $9.95. It was not a social trading platform. It was a regulated broker-dealer in the US whose product offering was low cost but active, as individuals could change weights in each Motif.

In mid 2017, I had picked and covered the `Digital Dollars` Motif that had a 30% one year performance. It was an example of a thematic, fully transparent and customizable motif, with a fintech focus. In that post I was comparing alternative structured product offering exposure to the same thematic.

`What is more important is that Motif offers an optimization algo that allows users to take stocks that can be considered players in the mobile payments space (which are 26 US listed stocks) and optimize (holdings and weights). This is a great tool for DIY thematic investing.` excerpt from my 2017 post

 Motif Capital was the other part of the Motif business launched in 2016 as an investment advisor of all institutional dealings. Through that business, Goldman Sachs had a partnership with Motif, which created in 2019 thematic indices and ETFs, the Goldman Sachs Motif Next Wave of Innovation ETFs.

Screen Shot 2020-04-20 at 09.58.20 

In 2015, Motif had also struck a unique deal with JP Morgan, through which it would offer Pre-IPO access to retail. A strategic investment happened but unfortunately, the market never saw anything actually happen.

Motif was clearly a fascinating early innovator. They even added direct indexing, fractional investing capabilities, and a growing offering with ESG thematics. Seems like they were doing everything right.

They were backed by Goldman Sachs, JP Morgan, the UK based VC is Balderton Capital and the Chinese social network company Renren Inc.

Screen Shot 2020-04-20 at 10.06.16

Source: Crunchbase

Motif had raised $126million over the past 10yrs. When I spoke to them in 2016, they were already concerned about a Chinese copycat site MotifInvesting.net that had launched with the same even dashboard. And of course, about being leapfrogged by incumbents.

Fast forward to today, and the Robinhood effect killed them.

Folio Investing (a 20yr player) had already `copied` Motif Investing with their Ready-to-Go-Folios and a much cheaper price. Motif had to fold its business and investors using the unlimited plan will be getting a very similar offering with a 30% lower subscription.

`Investors will be transferred to a Folio Investing Unlimited plan by May 20 and charged $19.95 per month, a discounted fee from the usual $29 negotiated by Motif. ` Source

The sentiment in most online media is one of sadness, as an innovator is killed or stopped because of the price wars. WealthManagement reported that As of late March, Motif Investing’s wholly-owned subsidiary, Motif Capital Management, had $868 million in assets under management, according to regulatory filings.

Motif`s data-driven business that was behind the customized indices and the white papers around investment themes, will also suffer from this sad event.

The vision that Motif had to expand to China, the birthplace of Techfin, will not become reality.

The brokerage business is in danger to stop innovating, simply because commissions have gone to zero and the Schwab`s of the world have caught up with fractional ownership offerings, direct indexing, low cost financial advice and more.

Some say that Motif never found a product market fit. I say, that Motif was in the low-cost active space during a time that low cost passive outperformed. And it was not bought out 3-4 yrs ago from a large broker, like Interactive Brokers bought Covestor in 2015.

Notes: InvestorJunkie review of the Folio investing product and pricing

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