Fintech and the democratization of investments
One of the most remarkable characteristics of this September’s FinovateFall 2014 conference in New York was the number of presenters focused on wealth management. Typically only a handful of WM firms dot the PFM and payments landscape, but this year nine of the 70 seven-minute demos concentrated directly on investments and financial planning. Presenters included established WM vendors (eMoney Advisor, which rolled out its EMX platform for advisors), well known disruptors such as Kapitall, and a few companies that seem to have just come out of the woodwork. The diversity of wealth management platforms and providers speaks to a trend at Finovate that has been gaining traction in the broader market: the democratization of investments. Democratizing firms posit that best-in-class ideas, managers and investments should be accessible to all investors, and not just to the rich alone. Firms such as HedgeCoVest and iBillionaire (platforms that allow investors to mirror the trades of hedge funds and billionaires, respectively) and Loyal3, which offers no fee access to IPOs, embody this line of thinking. So do the strategies of UK based firms like Algomi (bonds) and True Potential (micro payments), which undo trading obstacles for investors, while lowering the bar for entrance. The democratization of wealth management is also noteworthy in the traditionally advisor-driven financial planning space. While B2B vendors like eMoney Advisor seek to enhance advisor interaction with clients, iQuantifi offers financial planning services directly to individual investors, as does FlexScore, which throws in the added element of gamification or gaming. The idea here is that planning and investing should be fun. No firm at Finovate represented this quintessentially Millennial ideal more than Kapitall, an online brokerage firm that bills itself as a fusion of investing and gaming. Indeed, efforts to incorporate gaming into the historically sober wealth management business represent only one of the ways that fintech startups are seeking to capture underserved populations (i.e. democratization), target market inefficiencies (i.e. build a better mousetrap), or in the case of firms like Blooom, do both. The Kansas-based firm won a Best of Show award for its tools-based platform enabling entry level investors to better manage their 401k plans. Tellingly, while these firms tend to target opportunities created by local market inefficiencies, their ideas may have resonance in other markets as well. Investors in Australia, for example, have just as much a need for advice on their retirement savings as do Americans. The universal appeal of the ideas put forth by the fintech startups, combined with the inherent efficiency and scalability of their business models, suggests that real disruption in WM may have barely gotten started.