Prior to starting her own family business, Cindy worked for a Chicago-based media company, as well as in the sales departments of several American magazines. Today, Cindy’s company offers subject-matter expertise to firms in the Banking and Financial Services sector, as well as media players. Along with providing consulting services, Fintegration owns the FintekNews brand, a daily newsletter on global FinTech sector updates that goes out to thousands of wealth managers worldwide.
During our interview, Cindy shared some insights about the industry on a scale, as well as what’s been trending recently. Along the way, we discussed how major players of the niche interact with each other, and what innovative FinTech products and services are being launched in the market.
Q: Please tell us more about your background. How are you related to the wealth-management industry? According to your observation, what trends have been prevailing in the wealth management niche in the past few years?
Cindy: On our site, http://finteknews.com/, we write about financial technology at large. One of the categories we write about is wealth management, WealthTech, and robo-advisors. To give you just a little bit of background: my husband is involved in the business with me., and is aa 30+ year track record as a trader and a hedge fund manager. I have about the same amount of experience in the media. I briefly left the media industry and joined my husband in fundraising 40 million dollars for the launch of a hedge fund he managed.
The reason we started FintekNews is that I missed media because that’s my long-time love and passion, and with my newfound financial background, I started consulting with some financial websites and I also noticed a massive trend occurring with financial technology. What I was finding was very interesting, and we did some consulting with a group that publishes a Bitcoin site. We became very interested in Bitcoin, blockchain, and in what was happening with algorithms in high-frequency trading. We were also observing growing trends in peer-to-peer and marketplace lending. Likewise, we were watching the robo-advisors trend occur and also observed how artificial intelligence was impacting the entire FinTech sector. We tried to find a single website in the United States that would cover all these topics, and we could not. We discovered a site in the UK and we found lots of sector-specific sites but none that covered the US the way we envisioned it should.
Ultimately, we ended up starting the site ourselves in July of last year. We write about all those things on any given day, and it varies at times based on what is really topical, but certainly the second part of our business is that we send a daily newsletter to approximately 200,000 wealth managers in the United States. That includes both wirehouse and independent advisors, and also encompass hedge funds and alternatives.
In terms of where it’s going, we find the whole robo-advisor trend very interesting. We absolutely feel that the trend has started and it won’t go back, even though many older wealth managers are very resistant to it. There’s no doubt that a lot of people who initially launched with a robo-platform are simply not going to make it because their fees are so compressed. We think that the whole market’s going to go through a shake-up and there’ll be maybe 10 major players at some point in time, instead of 100, because the fees are so compressed. They can only exist on venture capital money so long, and unless they hit a critical mass, they won’t make it.
The second thing is that we feel that the robo offerings are too simple. They don’t give the investor enough flexibility. There are two different focuses: either on index funds or ETFs. This is a massive trend occurring in investing in the United States, but other people want stocks or they want to invest in something on a peer-to-peer lending site and they want to encompass it in a single platform. However, the current robo-advisor platforms aren’t flexible enough to take all that in.
So I believe that the platforms will have to become more flexible in order to encompass other types of investments, rather than just the simple robo-strategy that they put in there. They’re going to have to raise their fees or they’re not going to make it. It just won’t work unless they get to a critical mass.
The other thing that we’re seeing (that I’m sure you’ve seen as well) is that some of these robos have to reintegrate humans into this. Thank God. There’s still a place for human beings and that’s because people are just a little too uncomfortable with putting their money in a robot without having some human touch other than a chatbot. I think it’s for the best.
Furthermore, we have talked to a number of FinTech startups. We had a great conversation with a young girl named Heather Holmes who started Genevity and there’s many other out there who are offering similar segmented pieces of wealth management.
“Millennials grew up watching their parents suffer in 2008 with the great recession in the United States. By investing earlier, they hope not to experience the things that their parents did.”
Q: New and innovative companies in WealthTech are becoming increasingly oriented to end investors and the B2C market. These companies enable direct investment. Why do you think more companies in this niche are focusing on this B2C market, and do you think that B2C will totally replace B2B wealth-management solutions?
Cindy: It won’t. I don’t think it can because there’s just going to be too many people, even millennials coming up, who want a human being. Millennials and Gen X are definitely more comfortable with technology than boomers such as myself, but I don’t think it will fully replace humans. I just think money is such a personal thing that people want to have the comfort of knowing that there’s an actual human helping them along. I think that there’s so much diversity in the way you can invest that it can be very confusing to tackle it on your own without an expert to advise you.
However, it is a super positive trend that millennials are even thinking about this and investing. Even through simple things like Acorns, where they’re putting excess spare change and starting to save through a simple app. I think that’s phenomenal. I love that trend.
Q: Continuing this topic, we mainly associate the wealth-management industry with a chance to secure somebody’s retirement; players in this niche used to be 30–40-year-olds and older. As you said, we have observed the potential audience becoming younger, and we have increasing numbers of millennials starting to invest early. Do you think this is happening because of technology (because we have more and more robo-advisors) or because of something else?
Cindy: Millennials grew up watching their parents suffer in 2008 with the great recession in the United States. So it’s a very different generation. They’ve seen a lot of pain. So I have hope that this generation is conservative investment-wise. By investing earlier, they hope not to experience the things that their parents did during that great recession, which still impacts millions of Americans. My parents went through the Great Depression, they were born by that time, and they had a very different viewpoint of the world people who have experienced a loss from an event such as the Great Depression or more recently the Great Recession are going to become a different type of investor.
I believe that millennials have been impacted by watching all that. I was just talking with my husband about this tiny house movement and what that all means. Many millennials don’t need as many possessions and typically are less interested in corporate careers that may suck out all their joy and their fun time. I think they are more comfortable with investing and holding money. They’re simply more adept at technology because they grew up with it in different ways than boomers and Gen Xs did. It makes perfect sense that they utilize these digital investing platforms.
However, I think as time progresses, they’ll still want interaction with humans. As you get older, you get more conservative. In 20, 30 years from now you’re not going to want to talk to a robot.
Q: We have large investment banks that have been doing wealth management for decades. Now we see FinTech companies who have started providing wealth-management services as well. These two are competitors in certain ways. Do you think they will partner with each other, or continue to compete? Maybe they will even merge. What do you think? Who will be more successful from your point of view: technological companies that have started providing wealth-management services, or big investment banks who decided to infuse robo-advisors in their operations?
Cindy: That’s a great question. I have two opinions on that. Number one, the younger generation doesn’t have relationships with these large investment banks. They’re also aware that the large investment banks caused the Great Recession. So larger investment banks have a credibility issue with the younger generation because they’re perceived as the evil holders of money that caused this giant crisis. They came out fine while the rest of the economy was not okay. I don’t know if they will have a major competitive advantage in the future, but one thing that I am sure about is they have the benefit of a lot of capital that can help them market and reach out to that client base.
Secondly, the younger players with the younger technology companies may be cooler. They may have created more of a vibe. They may connect with this audience more. However, they have to become profitable to continue to exist and not just rely on venture capital, and millennials have to get used to paying for services. Many FinTechs have very low fees and if they can’t build substantial client bases, they’ll simply go out of business at some point when the VC runs out.
Bottom line, we’ve seen this during the internet bubble from 1999 to 2002. I’m sure you experienced it in Ukraine as well. Many internet and e-commerce startups took lots of VC money but ultimately didn’t make it over time. I feel we’re in that exact same place now with FinTech and WealthTech per se. It’s going to be a combination of newcomers. Amazon was new during that time, so maybe one or two would slide through and make it, but there’s going to be those large legacy banks that can probably bring up the money in business.
“Engineers absolutely need to have a good understanding of marketing, and how to put a business plan together and think about what an investor may need in order to make that thing get out there and make a product that the world would want.”
Q: I also agree that it should be a certain mix because I see large banks having different initiatives to attract new FinTech companies and encourage a partnership with them, or maybe acquiring them, investing in them, or some venture firm focused on FinTech. Additionally, they are establishing innovation labs that are separate from their IT departments. These labs function as internal incubators within the bank but are still separate from the whole IT department horizontally. They are doing totally different things and trying to find some new use cases as well as the technology that can be applied in financial services.
In the WealthTech area, we can probably identify two groups of people. On the one hand, we have financial and business people with knowledge about the wealth-management portfolio and everything related to financial services. On the other is software engineers who are actually building the technology, creating software solutions for wealth management. Do you see any gaps between those two groups of people? Is it important for business people to have deeper knowledge and understanding of the technological part of the business, and vice versa? Should software development staff have more knowledge on capital markets in order to innovate further?
Cindy: This is not really a topic that we cover extensively on our website but, generally speaking, software developers definitely have to understand financing or they’re not going to be able to create a company that has relevance. My husband and I had a very interesting conversation with some kids at MIT. They are putting together a business plan for a payments company in the Philippines and they want to raise VC money. “We’ve done work with United Nations, and we’re all engineers. Here’s a 10-page business plan and we want a hundred thousand dollars.” They didn’t fully understand that they had to have capital projections, a better business plan, and a logo. You don’t just slap a 10-page paper together and then get $100,000 for a start-up.
So, by all means, engineers absolutely need to have a good understanding of marketing, and how to put a business plan together and think about what an investor may need in order to make that thing get out there and make a product that the world would want. Then design comes. You have to have solid backend technology, but you’ve also got to have a user-friendly interface and it’s got to make sense. I see so many FinTechs that drive me crazy. I’ll go to a website that looks interesting, but once you’re there, you really don’t know what they’re offering – what their value proposition is. One thing a company should do is explain clearly what they are offering right at the very top of their website (or app), and then you can scroll down to see their product offerings, but I don’t even see that a lot of times. It’s quite interesting.
The other perspective is a company that’s starting in financial technology and is run by a business person. They don’t have an understanding that the technology is driving everything right now. So you can’t have your head in the sand. If you’re coming from the business side, you’ve got to have a solid technology strategy partner and that’s why all these banks, like you said, are starting these innovation labs. They have core systems that are 20 years old and they’re trying to put digital platforms on top to make a better user experience, and it’s all complex and doesn’t work particularly well, so they look to these FinTech start-ups to innovate and help them solve legacy problems and move their companies into the future. So ultimately that’s a win-win for both.
“In five years wealth managers will need to be a whole lot smarter about financial technology. They will need to understand the ways to integrate it in order to meet their clients’ desires and needs for investing moving forward.”
Q: If we talk about the companies and the landscape of wealth management, could you please name a few firms in WealthTech and robo-advisory that you think are more innovative than others?
Cindy: Ironically, I really like what Schwab is doing because they are a huge brokerage with millions and millions of clients. They started with a robo and then quickly realized they needed a robo with a human. The problem was that the robo fees were compressed so they started a hybrid robo that integrates humans so that they can charge a higher price point.
We also saw the crisis Wells Fargo found themselves in a couple months ago: they were setting up too many accounts for people and charging them for accounts that people didn’t even know they had. It was a really huge scandal in the US. Now when we walk into their bank (FintekNews banks with them) and I think that, number one, they’re doing great things with their innovation lab; number two, you walk into the bank and you get people greeting you, which is nice, and then you run your chip into a reader and they pull up your account, make your deposit, and you’re one your way. Wells also was the first bank in the US to do wireless ATMs, which is quite innovative as well.
So those are two—Schwab and Wells Fargo—and they happen to be large legacy companies but I really admire that they seem to have found a way to put this all together.
Q: We talk a lot about blockchain technology. Right now it is more called distributed ledger technology. Many companies are trying to apply blockchain for different use cases in FinTech. The one that is successful is cryptocurrency, but we really haven’t seen other use cases – successful ones. Perhaps in a few years we will see something, but not right now. How can we apply blockchain for wealth management, and what use cases can you name?
Cindy: I might have to go on a tangent with that. We are very close with the Chicago Mercantile Exchange, and this isn’t a total answer; it’s a little bit sideways. The Chicago Mercantile Exchange are at the cutting edge internationally of utilizing blockchain. So we met with Sandra Ro, their head of digitization. They’re working on blockchain technology to track agricultural products. They also have a number of other innovative products they are working on. They’ve developed a futures product for Bitcoin that is not available in the United States at present, but is available in other markets. That is a game changer for trading Bitcoin because the latter is so volatile that by offering a derivatives product, you can substantially decrease the volatility and make it a more investible asset. So that’s a brilliant new directive they’ve developed in conjunction with CryptoFacilities of the UK.
Later this year, they’re also launching something called RMG, which is another cryptocoin backed by gold – physical gold held in a vault at the Royal Mint in the UK, and the Royal Mint is a 1,100-year-old company, so they must be doing something right.
Even though the application of blockchain in wealth management may not be here right this second, it’s going to be here. There’s a ton of companies that are developing, utilizing blockchain for brokerage transactions and even though it’s not here, it will be. An impact of it is that it’s going to cut out a lot of people’s jobs and it’s going to compress fees (a/k/a revenues) even more. It’s going to bring the price point down.
Q: Please can you share your vision on the further development of the wealth-management industry? What will a typical company in the niche look like in five years or so?
Cindy: They’re going to have to integrate more technology into their daily practice with their customers, and that’s the original reason we launched our website. We feel that one piece that’s dramatically impacting their day-to-day lives is the development of robo-advisors. A lot of wealth managers are being asked questions by millennial clients about investing in Ethereum or Bitcoin, and they’re like a deer in headlights. They don’t know what to do. We publish our website so that they understand what is happening and have a quick overview of what is going on with Bitcoin and Ethereum. We want to make sure that they understand what is going on with InsurTech: if they’re insurance brokers, they might lose their business to a brand new InsurTech product.
Then there are the peer-to-peer marketplaces. They have millennials who want to invest in a crowd-funding campaign. How can they advise them how to build this into an investment plan that is sensible? That’s the whole reason we started this thing because FinTech is huge. It’s impacting a lot of different pieces of business, but they ultimately go back to the end-user consumer, and wealth managers have to have an understanding of what is going on with these other pieces of financial technology or they’re going to be out of business.
So I think that in five years wealth managers will need to be a whole lot smarter about financial technology in the variety of different ways I have just described. They will need to understand the ways to integrate these different aspects in order to meet their clients’ desires and needs for investing moving forward.
Interviewed by Vasyl Soloshchuk, CEO and co-owner at INSART, FinTech & Java engineering company. Vasyl is also author of the WealthTech Club blog, which conducts research into Fortune and Startup Robo-advisor and Wealth Management companies in terms of the technology ecosystem.