Worth a listen/watch this weekend:
Many years ago, I had the pleasure of having lunch with Edmond Walters (founder of eMoney). We were discussing a very complex business challenge that I was trying to solve. Without hesitation, Edmond offered to help:
““Entrepreneurs need to help one another,” was Edmond’s rationale.”
With that, a complex problem that I had was immediately resolved, and the business took off.
In the spirit of entrepreneurship, and paying it forward, much as Edmond had done with me, I would like to begin sharing with the global advisor community the “robo-hack” that we have seen work.
“When I say work, I mean closed accounts.”
Joining me in this collaboration will be Bert-Jan Van Essen, CEO of Dragon Wealth.
In addition to being a phenomenal athlete (I pretend to ski/snowboard…he can compete), Bert was the CTO of Credit Suisse for APAC. Bert is now the CEO of Dragon Wealth, one of South East Asia’s leading FinTech companies. In other words, a significant grey haired FinTech war horse who has seen it all and who has a Dutch accent to boot.
Together, Bert and I have been collaborating on a number of robo-advisor FinTech initiatives worldwide.
The projects range from small advisory firms, family offices, insurance companies, and very large banks.
The characteristics range from plain vanilla robo-advisor implementations to, literally, Uber-Advisor direct fee paradigms (get ready USA, fees tied to assets are GONE. You can thank the Aussies for that one).
“ The technical applications are really quite cool. ”
Why?
Because SEAsian infrastructure makes the USA look like Stonehenge.
Mobile is ubiquitous in SEAsia, especially Singapore…it works EVERYWHERE. Literally, Skype video calls on speeding underground trains.
“We will be discussing the use of the blockchain for KYC processes (a-la Bitcoin). Digital wallets. Inbound marketing. Machine learning and artificial intelligence in client service (TRUE robo-advisors!), and much much more.”
Our blogs will be based on real implementations. Actual robo-advisor transitions and installs...old books of business transitioning to a new P&L that massively scales.
We will not pull punches. We'll have tough discussions with regards to things like actual client acquisition costs, do the hybrid robo-advisor platforms actually convert customers, active versus passive product offerings, and smart Beta.
“We’ll ask questions such as: Why can’t the robo-advisor be FREE? Why should anyone pay for wealth management OR trading?
”
We will encourage our followers to share and interact with one another. There is no need to compete as the pie is HUGE.
What makes our message different from anyone else worldwide with regards to robo-advisors?
“The variables for success for us are much more complex.
KYC/AML constraints, different regulatory regimes, vastly different investor behavior, currency risk, and two MASSIVE 800-lb gorillas: China and India.”
As I have had more and more robo-advisor discussions, I realized that we owed it to our colleagues and peers to show them exactly how we did it.
“ In other words, we want to provide you a “robo-hack””
We will be blunt. We will be honest. More importantly, we won’t be selling anything.
Why?
At the end of the day, you can buy the “calculator” (costs you money). You can read the instructions to implement the "calculator" (takes time) You can hire resources to staff the “calculator” (more money and time).
Our value add?
We’ll save you a lot of time and money. If it helps, we can provide you the resources to get to market a LOT faster.
Again, why would we do this?
Good question.
“If a robo-advisor works, it really is an arbitrage isn’t it?”
"I can acquire clients cheaper than you and close the business faster," say the robo-arbitrageurs!
“Right now, there are only four robo-advisors in the USA (not the VC backed ones) who are profitable and have figured this out (email me at ftroise@sohocap.com and I can share with you who they are).”
Why don’t you hear about them? They don’t want you to know the arbitrage. They don’t want to see you with a competitive marketing campaign.
These “phono-advisors” are winning the battle as everyone else burns through cash.
“But, in the spirit of entrepreneurship, and being a true FinTech partner, we think it’s time to level the playing field.”
So keep posted on this blog. Subscribe to follow us. And, in the interim, drop Edmond a line (click here) and tell him I said hello!
Finally, what's a free elephant? In the dot-com bubble, many companies gave away their technology for free. Problem was, nobody wanted it to begin with. So, like an "elephant," while free, no one wanted it. Hence the phrase: "free elephants."
The US Robo-Advisor “War” Is Over
“Who won?
The product platforms.
”
We had some head fakes by the custodians (which attracted the most vitriol), but the reality is that Vanguard, Blackrock, and Schwab, as product platforms, won.
And it makes total sense. The product platforms have every incentive for the robo channel to work. As long as it results in their products being sold.
“Where does that leave the remainder?”
For those robos wedded to products, they have effectively become VaRs for the product platforms. It’s a tough realization, but that’s reality.
Does Vanguard care that Wealthfront exists? Vanguard is ambivalent. Wealthfront feeds them, as does Betterment, and other robos.
Vanguard can wait, be a robo-advocate, and continue to be fed AUM from the VC capital feeding the burn rates at the robo-advisor firms.
What will the consumer do if the robo-advisor goes away? Nothing. If they used Vanguard/Blackrock both firms have robust transition teams to lateral the customer to their own robo-platform.
So Vanguard, Schwab, and Blackrock just have to wait. And, ironically, continue to be fed AUM by their “competition”.
“The remaining play? An active product platform becomes a robo-advisor.
But that would contradict a large part of the value proposition of low fees.”
I am personally curious what Dimensional Fund Advisors chooses to do now.
For the independent RIAs? That profession seems to be becoming a utility. I would expect M&A to step up as smart money leaves. Sadly, its very reminiscent of the dental industry and healthcare in general. Rolling back into a large firm will be the norm.
Selling now is a very rational decision for some firms.
“Would you want to be on the other side of these product behemoths in gathering new assets or competing for the consumer?”
I think not.
But I have my fingers crossed the robo-advisors survive to January 2016. Those SuperBowl ads would be great!
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My wife and I had the pleasure of another 50th birthday party this week. Capping a FULL week of business entertaining. So, suffice it to say, I am slightly worse for wear today.
That allows me to "borrow" some great thoughts from others this week. Whilst still sounding the alarm, hence the "dead horse" analogy, that we should all buckle up.
First, FinTech is wrapping up.
Folks in the industry were talking about the Blackrock-FutureAvisor deal at length. 50x is a big premium, however, Blackrock doesn't strike me as a cavalier firm wrt valuation. Cash + earnout seems more likely. Winterberg does an apt analysis here in his weekly video:
For the investment bankers out there, I found this presentation by Steve's team terrific. They banked the deal for Blackrock. Again, they know valuation (click here for the deck).
Second, the great unwind may be beginning.
What has me occupied this weekend? CHINA.
Why? They own a lot of our debt.
These two pieces on them and Saudi Arabia were fascinating synopsis' that encapsulated the talk of many prop desks this week.
“If China is selling, the US yield curve is TOAST”
Here is the link to the Saudi article about their cash reserves.
Here is the link to China's sale of US Treasuries.
Third, Trump.
From here, it looks like the US is prime for a demagogue. Sadly, he fits the bill. While I appreciate the mathematical reality that he will, and should, ultimately fade away...he is highlighting a side of America that is shameful.
Finally, speaking of 50th birthdays, how was it here in Singapore? Let me share that on my next post.
In the interim, enjoy the weekend!
First off, congrats to the team at FutureAdvisor. Blackrock Solutions will be a good home with a capital base to support their growth.
Their deal, in light of the Yodlee deal, now provide us all with the roadmap for the remaining robo-advisors. It basically boils down to the following:
- Go for IPO? If so, need to raise much more $$ to support the cash burn and/or B2C advertising. Dilution to founders will be drastic; OR
- Do they try to find a remaining strategic buyer for the technology? Not many left and buyers will be valuation sensitive; OR
- Do they re-position and become digital “fintech dev-shops”?
Given the landscape, there is a big push now for more VC funding. But the remainder of the year looks quite crowded. One or two of the larger robos should be able to raise funds.
Strategic buyers just got smarter about valuation for the robo space, so I garner we’ll see more “terms not disclosed”. Watch all robo-advisors not in the top-3 with regards to AUM.
The smaller robos will become dev-shops selling…forgive me…solutions (a-la-Blackrock).
One thing will be fascinating to watch:
What do the strategic investors do?
What does the Blackrock deal mean for Personal Capital? What will Citi do with Betterment? My guess is that they will follow the route of Learnvest.
Finally, I know the folks at FutureAdvisor and wish them well. Personally, I was actually looking forward to some exciting robo-advisor SuperBowl ads in 2016!
Maybe next time.
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