Daily Fintech Conversations

Voices Chasing fintech Pokémon: The industry’s robo adviser obsession

As I read the article with this title by Min Zhang, the CEO of Totum Wealth, there were alot of insightful parts that are worthwhile reading.

Totum Wealth, is based in California and offers a tool for financial advisors to serve their client wealth management needs holistically. Which means taking into account all the human factors that are part of life and therefore cant be treated as “exogneous” to Wealth creation.

Back to the article about the robo-adviser obession; I pick the following excerpt:

“If I was running a financial institution, I would be collecting fintech Pokémon left and right. Valuations have fallen since the LearnVest deal. Most financial institutions’ core business is not focused on developing technology or UX expertise; in fact, most are terrible at it. The alternative, gradually becoming obsolete, is dire. Expect the deal flow to continue.”

So is the M&A robo-advisory trend that will continue?
Or
Will B2B robo-advisory dominate; i.e. the trend we are monitoring in the topic The US B2B roboadvisors are powering ahead?

Is Europe and Asia not playing Fintech Pokémon in robo-advisory?

I don’t agree on the"PokemonGo" route in robo-advisory. People want to be serious when manging their savings. Fun, food or love are good ingredients to success, but unfortunately weallth management has little to do with any of them.
The M&A trend will continue for sure, since the scalability, transparency and affordability brought by digital wealth management are happening already and partnering or buying is the smartest option for most incumbents.
That is particularly true for asset managers (where most deals have happened already) since the huge cost of “human distribution” of mutual funds (my calculation is over eur 50 bn a year in Europe alone!!) and the cost for supposedly active management give a lot of room for digital platforms. And better margins for mangers versus distribution.

1 Like

@serena.torielli could you please clarify what you mean when referring to “human disruption of mutual funds”?

@Efi I wrote distribution, not disruption! Dr. Sigmund Freud would have a say on that! That’s so cool :slight_smile:

2 Likes

For sure, Freud would reccomend I change my glasses (at least) because I am wanting to see “Disruption” everywhere.

2 Likes

Anyway this is one of the best lapsus eve. I would call it a “fintech lapsus”

1 Like

Interesting article, especially about the unit economics of acquiring users and lifetime revenue. Most of my friends in US use some robo advisor, and largely because they don’t want to spend the time and effort involved in building a financial plan / balanced portfolio. From discussions it becomes apparent that it is no substitute, and almost every time they’ve switched to buying Vanguard ETFs directly.

Personally, I think the only value add robo advisors provide is the user interface and ease of use, but it comes at the cost of finding that you havent invested for your goals much later, or having no idea what to do in a market downturn. The robos dont run any funds either, and are similar to Spotify/ Pandora. They market someone’s product and collect fees. When the product owner can keep cutting prices and squeeze you, its hard to see how independent robos can compete with Vanguard/Fidelity. Either they have to launch their own passive index funds, or offer something extra.

Like Amazon opening some retail stores, the final outcome is likely to be some kind of blend of human financial advisors as the interface, with most of the allocation and execution done by robos.

2 Likes

You will see the disruption in the MF distribution when MiFID II arrives! No worry Efi your brain just made a leap forward…
I do not think the MF industry or its distributors have realized the far reaching impact.
It will be similar as the DOL ruling is changing distribution and advise of retirement linked products in the US.