wealth tech trends to watch -...
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2018 Wealth Tech Trends To Watch
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W I T H I N 2 4 H O U R S
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@cbinsights@lcdavis1225
#fintech
J O I N T H E C O N V E R S A T I O N O N T W I T T E R
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W H O W E A R E
The technology market intelligence platform.CB Insights software lets you predict, discuss, and communicate emerging technology trends using data in ways that are beyond human cognition. We are a leader in the Expert Automation & Augmentation Software (EAAS) space.
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T R U S T E D B Y T H E W O R L D ’ S L E A D I N G C O M P A N I E S
“We use CB Insights to find emerging trends and interesting companies that might signal a shift in
technology or require us to reallocate resources.”
Beti Cung, Corporate Strategy, Microsoft
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The Disruption of Financial Services
The Future of Fintech is an exclusive gathering of the world's largest financial institutions, best fintech startups, and most active venture investors.
New York, NYJune 19-21, 2018
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Lindsay Davis
Lindsay Davis is an intelligence analyst at CB Insights where she researches emerging technology trends in fintech, capital markets tech, wealth tech, and regtech. Bloomberg, The New York Times, The Financial Times, and Thomson Reuters. She presented her analysis at Nikkei's Reg Summit and Money 20/20.
Prior to joining CB Insights, she worked at the Depository Trust and Clearing Corporation (DTCC) as an internal auditor where she most recently lead coverage of the enterprise risk management group including operations, vendor, credit, market, & liquidity risk.
Lindsay is a graduate of the University of Florida and holds a Bachelor's in Economics, a minor in Chinese, and a Master’s in International Business from the Warrington School of Business.
Most popular analyses by Lindsay:
Wealth Managers Beware: Emerging Fintechs Are Coming For Retirement Planning Next
The Rise of Robo-Advisors: Betterment, Wealthfront, Stash, and Acorns
Fintech Trends to Watch in 2018
@Lcdavis1225 | [email protected]
Tech Industry Analyst
A B O U T T H E A N A L Y S T
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Contents
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3 9
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Why now: macro economic drivers
Why you should care
Trends to watch in 2018
Wealth tech moves beyond robo-advisors
Wealth management software becomes ‘risk-on’
Impact investing strategies widen the market for investors
5 2
5 8
6 8
7 5
8 0
Micro-investing attracts an untapped market
The latest battleground in China fintech is wealth management
Wealth management infrastructure investing will increase
Incumbents get ahead of the next wave of wealth tech
Could cryptos be the next diversification tool?
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What are we analyzing in Wealth Tech?Included: Startups that offer technology-enabled tools for active and passive wealth management for retail investors and advisors.
Pain points they are addressing include:
• Digitizing manual work flows & reporting
• Automating investment advisory & allocations
• Centralizing client life cycle management and tools to assess & forecast risks
Excluded: Personal expense management and monitoring tools, tools specific to investment banks, and high-frequency trading platforms.
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Why now? A few macro-economic drivers
M A S S I V E D E M O G R A P H I C S H I F T S
Startups are creating next-gen wealth management platforms for the next generation of investors and retirees to get ahead of the ‘retirement crisis.’
C O M P E T I T I V E F O R C E S T H R E A T E N P R O F I T S
Tech has reduced the costs of servicing portfolios and driven downward pressure on industry fees.
M A R K E T S & E C O N O M Y
Current bull market conditions have increased investor sentiment and willingness to invest. However, industry concerns over market volatility are raising fresh concerns over tech’s ability to weather a market correction.
1 2 3
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Why now? A few macro-economic drivers
M A S S I V E D E M O G R A P H I C S H I F T S
Startups are creating next-gen wealth management platforms for the next generation of investors and retirees to get ahead of the ‘retirement crisis.’
C O M P E T I T I V E F O R C E S T H R E A T E N P R O F I T S
Tech has reduced the costs of servicing portfolios and driven downward pressure on industry fees.
M A R K E T S & E C O N O M Y
Current bull market conditions have increased investor sentiment and willingness to invest. However, industry concerns over market volatility are raising fresh concerns over tech’s ability to weather a market correction.
1 2 3
1212
71 Retired Baby Boomers
1 Financial Advisor
I N 2 0 1 6 T H E R E W E R E A P P R O X I M A T E L Y
P E R
*As of 2/25/18
1313
163 Retired Baby Boomers
1 Financial Advisor
I N 2 0 2 5 T H E R E C O U L D B E
P E R
*As of 2/25/18
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Boomers are retiring at a rate of 10,000 per day
Source: Mauldin Economics & BLS expected *If forecasted conditions hold and mortality is flat
T H E A G I N G P O P U L A T I O N O U T N U M B E R S A D V I S O R S 7 1 : 1
Expected number of Baby Boomers over age 65 2012 – 2030 (M)
201619M retired boomers
265,455 advisors 71:1 boomer-to-advisor ratio
2025* 51M retired boomers
312,300 advisors163:1 boomer-to-advisor ratio
~19M
~51M
Total 76MBaby Boomers
15Source: U.S BLS Employment Projections
In 2025, advisors will be outnumbered by Boomers 163:1.
Key drivers:
• Longer lifespans
• Sunsetting pensions plans
• Shrinking entitlements
Personal Financial Advisors jobs are growing more than double the average occupationPercent change in employment, projected 2016 - 2026
*By 2026, PF advisory jobs are projected to hit 312,300
*
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Why now? A few macro-economic drivers
M A S S I V E D E M O G R A P H I C S H I F T S
Startups are creating next-gen wealth management platforms for the next generation of investors and retirees to get ahead of the ‘retirement crisis.’
C O M P E T I T I V E F O R C E S T H R E A T E N P R O F I T S
Tech has reduced the costs of servicing portfolios and driven downward pressure on industry fees.
M A R K E T S & E C O N O M Y
Current bull market conditions have increased investor sentiment and willingness to invest. However, industry concerns over market volatility are raising fresh concerns over tech’s ability to weather a market correction.
1 2 3
1717
Robo-advisors charge a fixed annual
‘wrap fee’and are lowering the barriers to new entrants
$50,000Average minimum deposit
requirement for wealth managers
$0 The minimum deposit
requirement from select robos
vs.
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Startups undercut incumbents with transparent fees
Source: WSJ
VS.
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Fee compression is driving massive inflows to low-fee ETFs
Source: Bloomberg
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Revenue & profit margins are shrinking
In 2016, strong markets helped boost global assets under management (AUM) 7% year-over-year to $69T.
Despite growth, profits and revenue earned by advisors dipped for the first time since 2008.
Downward pressure is largely driven by:
• Passive management is increasing
• Fee compression
Source: BCG
21Source: Deloitte
Advisors can use a robo-advisor to cut account minimums in half.
Cutting costs is one way advisors could recover shrinking margins.
In addition to cost savings, robos also indirectly boost business by attracting a new cohort of customers that were previously excluded.
Required AUM to cover costs per advisorPercent change in employment, projected 2016 – 2026 (Euro M)
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Why now? A few macro-economic drivers
M A S S I V E D E M O G R A P H I C S H I F T S
Startups are creating next-gen wealth management platforms for the next generation of investors and retirees to get ahead of the ‘retirement crisis.’
C O M P E T I T I V E F O R C E S T H R E A T E N P R O F I T S
Tech has reduced the costs of servicing portfolios and driven downward pressure on industry fees.
M A R K E T S & E C O N O M Y
Current bull market conditions have increased investor sentiment and willingness to invest. However, industry concerns over market volatility are raising fresh concerns over tech’s ability to weather a market correction.
1 2 3
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Robo-advisors have only seen a bull marketNasdaq Composite Index 1972 - 2018
Source: FRED
The earliest robos Betterment & Wealthfront launched
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Recent volatility is a reminder there are no silver bullets
Source: Fred
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…Even robo-advisors are at risk in a correctionTECHNOLOGY OUTAGES CAUSED BACKLASH ROBOS BLOGGED TO CALM INVESTOR FEARS
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Digital interfaces are acquiring your
customers and entering new markets to scale.
Customers are taking their finances into their own hands
with digital tools without your ‘advisory.’
Software is automating your customers’
end-to-end experience.
B E Q U I C K . O R B E A U T O M A T E D .
You’re fighting a multi-front digital war
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Wealth tech insurgents are digitizing all aspects of the customer journey
Note: Market map as of Q2’17 and is not exhaustive of all companies operating in the category
There’s no shortage of digital insurgents to keep you up at night.
• They’re iterating repeatedly to lower fees & acquire customers.
• To compete, advisors can partner with B2B startups, build in-house, or buy a competitor.
• Or do nothing and risk a similar fate when faced with first robo-advisors …
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Stash has grown to 1.7M clients. 86% of users continue to be first-time investors
February 12, 2018 |
Robos are cranking up the heat under advisors in 2018
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“Customer experience is chief among the areas where traditional financial institutions have fallen short.
70% of millennials would rather visit their dentists than their bankers.”
Harit Talwar
Head of Marcus at Goldman Sachs
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L O O K I N G A H E A D
Trends to watch in 2018
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What we’re looking forward to in 2018
Emerging wealth management technologies to watch
New customers & markets to target
New incumbent competitive strategies
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T H E M E I :
Emerging wealth management technologies to watch
3333
Digitization is spreading to retirement assets
# 1 W E A L T H T E C H M O V E S B E Y O N D R O B O - A D V I S O R S
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Up next: digitizing the 20% of assets held in 401(k)s
In retirement assets$27.25T
$7.68T
$5.28T
Held in defined contribution plans
Held in 401(k) defined contribution plans
Sources: Investment Company Institute Q3’17 Data
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401(k) plans are underutilized by employees
$5.28THeld in 401(k)s
Of workers contribute to a company-sponsored 401(k) plan
~41%
Workers participate in 401(k)s
54MPlans hold 401(k) assets
550,000
Workers are employed by companies that offer a 401(k)
4:5
Sources: US Department of Labor, Bureau of Labor Statistics, & Employee Benefits Security Administration
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401(k)s as a percentage of total annual retirement savings are increasing
401(k)s are projected to grow as a percentage of retirement savings as more employers cut pensions from their benefits offering.
83% 81%
17%19%
2007 2017
Source: Investment Company Institute
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Select startups focused on optimizing retirement savings
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Focus: B2B platform for small and medium sized business (SMBs) and startups to offer employees ESRAs.
Disclosed Funding: $14.62M
Select Investors: Wing Venture CapitalFundersClub, Great Oaks Venture Capital, Slow Ventures, and Y Combinator
Focus: B2C & select B2B portfolio management software for Employer Sponsored Retirement Accounts (ESRA).
Disclosed Funding: $13.9M
Select Investors: Allianz Life Ventures, Nationwide Ventures, QED Investors, TTV Capital
Focus: B2C software that helps investors by unveiling hidden fees and making alternative recommendations.
Disclosed Funding: $12.3M
Select Investors: Blumberg Capital, Collaborative Fund, Horizons Ventures
Focus: B2B platform for small- and medium-sized business (SMBs) to offer employees ESRAs.
Disclosed Funding: $34.3M
Select Investors: Foundation Capital and Ribbit Capital
Focus: B2B SaaS platform for 401 (k) administration for SMBs.
Disclosed Funding: $24M
Select Investors: FelicisVentures, NEA, 500 Startups, Red Swan Ventures
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$2,000 $500 $158 $99 $1.1
Blooom Forusall Guidline Captain401 Vault
*AUM as of a January 2018 press release
Blooom leads AUM among fintech startups focused on retirement savings As reported by the company on its latest ADV filing with the SEC on 2/1/18 ($M)
*
3939
The industry focuses resources on preventing the risk management
‘time-bomb’ from exploding
# 2 W E A L T H M A N A G E M E N T S O F T W A R E B E C O M E S ‘ R I S K - O N ’
4040
“The risk-profiling tools used by advisers are a ‘ticking time-bomb.’”
Rory Percival
2011 FSA Report
Regulator at the FCA
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Wealth tech market map: enterprise providersOn the B2B side, wealth tech startups are helping firms cut costs by
• Automating manual processes
• Streamlining asset allocation
• Centralizing portfolio management
42
B2B wealth tech startups help advisors meet new regulatory demands
B2B software providers are in high demand as regulatory pressure increases.
Risk management software has seen the most adoption across the industry in the wake of new compliance requirements & rules.
This includes the hotly contested fiduciary standard that was delayed until July 2019.
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New risk assessment tools are growing quickly in a short amount of time
Source: Financial Planning Tech Survey, 2017
Launched in 2012, Riskalyze is already the leading independent risk management vendor.
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Riskalyze is expanding to retirement transitions to grow risk software coverage
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Riskalyze’s core quantitative risk assessment software assigns a proprietary ‘Risk Number’ to objectively pinpoint advisor’s risk appetite (rather than returns).
In 2018, Riskalyze is partnering with Vestwell to provide retirement investors with tools to monitor allocations and record investment sentiment.
$23.5M Disclosed funding
Select Investors:FTV Capital
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T H E M E I I :
New customers & markets to target
4646
Principles-based investing picks up
# 3 I M P A C T I N V E S T I N G S T R A T E G I E S W I D E N T H E M A R K E T F O R I N V E S T O R S
47
Social concerns are impacting investing decisions
Source: CB Insights Trends
I N V E S T O R S W A N T R E T U R N S T H A T A L I G N W I T H T H E I R P R I N C I P L E S
48Source: 2016 GSIR
In 2016, global sustainable investment assets reached $22.9T.
GSI is up 25% year-over-year.
Strategies that intentionally exclude certain sectors, companies, or practices are the most popular.
The fastest growing strategies were impact/community, up 146% YOY.
Exclusionary strategies are the largest while impact investing is growing the fastest.
2014 & 2016 ($T)
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With $30T from the ‘great wealth transfer,’ millennials can save the planet just in time for brunch
Millennials are 2X more likely to make sustainable investments than the average investor.
Source: Survey conducted by Morgan Stanley
86%
Are "very Interested" or "interested" in sustainable investing
75%
Think their investments can influence climate change
61%
Have made at least 1 sustainable investment action in the last year
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Motif is a B2C & B2B brokerage with a focus on impact investing. Motif Impact Portfolios align investors’ financial goals with their values with a competitive 0.25% annual fee.
I M P A C T I N V E S T M E N T S T R A T E G I E S G I V E I N V E S T O R S C O N S C I E N C E C H O I C E S
Funding: $126M
Valuation: $413.2M
Select Investors: BaldertonCapital, Foundation Capital, Goldman Sachs Principal Strategic Investments, J.P. Morgan Chase & Co., & Norwest Venture Partners
CORPORATE WHITE-LABEL PARTNERSHIPS
IMPACT INVESTMENTS
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E T H I C A L I N V E S T I N G P L A T F O R M S P R O M O T E S P E C I A L I N T E R E S T S
Funding: $12M
Select Investors: BECO Capital and Cue Ball Capital
Wahed is a B2C halal-focused investment platform that is focused on serving Islamic investors. The firm only invests in Shari’ah compliant products that are approved by an Ethical Review Board. Wrap fees vary by AUM and range from .99% - .29% anually.
5252
The next macrowealth tech trend is
micro
# 4 M I C R O - I N V E S T I N G A T T R A C T S A N U N T A P P E D M A R K E T
53
70% of the population falls in categories A & B and are underserved by the traditional AUM model
A. <$40,000 B. $40,000 - $100,000 C. >$100,000
Source: The Federal Reserve & U.S Census
54
Fed shows retirement priorities vary by income
Source: The Federal Reserve
Wealth disparity skews priorities:
• Retirement is the top priority for top-tier households by annual income
• Short-term concerns are the top priority for bottom-tier households by annual income
Among those who are saving, investors revealed that they lack confidence in their ability to manage their retirement investments.
55
First wave: micro-investing robo-advisorsMicro-investing is a robo-advisorsy model that builds investor savings through small, incremental investments on a pre-scheduled or ad hoc basis and invests that savings to help them build wealth gradually.
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First wave: micro-investing Micro-investing robo-advisors use different business models and distribution channels to attract unbanked & underbanked populations, creating a new cohort of investors.
Educational Content Strategy
57
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The next generation of micro-robos are global
Focus: B2C app that rounds up the digital spare change from transactions and invest it into 3 tracker funds within a Stocks & Shares ISA.
Disclosed Funding: $4.75M
Select Investors: Oxford Capital Partners, and Samos Investments
Focus: B2C app that rounds up the digital spare change from
Disclosed Funding: $2.53M
Select Investors: Blumberg Capital, Collaborative Fund, Horizons Ventures
Focus: B2C & B2B white-label mobile app for automated micro-investments based on spending-based investments
Disclosed Funding: N/A
Select Investors: Angel investors
5858
Wealth management will become the hottest fintech sector in China
# 5 T H E L A T E S T B A T T L E G R O U N D I N C H I N A F I N T E C H I S W E A L T H M A N A G E M E N T
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Share of population age 65 and overSelect countries 2014 & projected 2050
Source US Census International Database & Fivethirtyeight
The retirement crisis is a global issue.
Countries around the world are facing their own ‘retirement crisis’ equivalent.
While market forces vary, the prescribed actions need overlap.
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The opportunity: total individual investable assets in China grew to $26T in 2016
Source: Bain and China Merchants Bank, China Private Wealth Report
$4T $6T $10T $13T $17T $26T
2006 2008 2010 2012 2014 2016
61
China could overtake the US in retirement assets
In US retirement assets as of Q3’17$27.25T
$26T In China individual investable assets as of Q4’17
62Data as of December 14, 2017
$140B AUM $233B AUM
JPMorgan US Government Money Market Fund Yu'e Bao
In 2017, Ant Financial’s Yu’e Bao became the largest money market fund in the world.
INTERNET GIANTS ARE ALREADY MOVING IN
63
Tencent leads $146M to Chinese stock-trading app
June 13, 2017 |
Tencent has gradually expanded into wealth management
64
Startups are engineering new models of engaging with consumers in China
Source: 36kr
J A N E 7
The Shanghai-based startup counts 300,000 WeChat users who access its educational video content about wealth management
and investing.
T A L I C A I
The startup manages a female-focused wealth management community with more than 1 million registered users, along with
tools and wealth management products.
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Startups are providing third-party wealth managers with technology
Source: 36kr
While China’s wealth management industry is still underdeveloped, some startups like NewBanker are hoping to provide technology products for independent wealth management
agencies to help with acquisition costs, regulatory rules, and product development.
6666
“We are seeing the Chinese wealth management industry go through profound changes. It is moving from fixed-income investments to equity investment, from short-term speculation to long-term investment, from China-focused investment to global opportunities, from investing
into single products, single opportunity to comprehensive risk management and comprehensive asset allocation, from managing this generation’s wealth to thinking about
succession planning and inheritance.”
A S C H I N A ’ S W E A L T H M A N A G E M E N T I N D U S T R Y U N D E R G O E S A P A R A D I G M S H I F T , I T W I L L N E E D M O R E C O M P R E H E N S I V E S O L U T I O N S
Ning Tang
Founder and CEO, CreditEase
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T H E M E I I I :
New incumbent competitive strategies
6868
Wealth management infrastructure becomes a focus area for
investment
# 6 W E A L T H M A N A G E M E N T I N F R A S T R U C T U R E I N V E S T I N G W I L L I N C R E A S E
69Source: TD Ameritrade, 2018 RIA Sentiment Survey
RIAs project they will increase spending on technology in 2018.
RIAs increased technology spending by 31%, more than any other area in 2017.
Focus areas in 2018:
Digitizing core functions
Not on the radar:
Robo-advisors or apps
RIA’s top tech investments considerations in 2018 are all related to core services, not innovation
70
To overhaul infrastructure, advisors need to:
R E P L A C E L E G A C Y I N F R A S T R U C T U R E
Incumbents still rely heavily on servers and struggle to migrate to the cloud. Startups can help migrate services to the cloud to eliminate costs.
C E N T R A L I Z E D I S P A R A T E C U S T O M E R D A T A
Marrying disparate databases is a pain point across the financial services industry. Startups here are taking a pick-and-shovel approach to offer developers tools to help both advisors and startups centralize customer data and services.
I N V E S T I N H I R I N G T E C H N I C A L T A L E N T
Startups leveraging APIs help developers increase their time to market with new financial products and services, and reduce development costs.
1 2 3
71
Ohpen is a cloud-based core banking infrastructure software provider based in the Netherlands.
Out-of-the-box solutions are entering the market to alleviate the burden of switching from legacy servers to cloud and provide a sleek UX.
S T A R T U P S A R E O P E N I N G T H E D O O R F O R M I G R A T I O N T O T H E C L O U D
Last Funding
$31M Series C // Q1’18
S E L E C T C U S T O M E R S
Select Investors
Amerborgh
VS.
72
Quovo is a data platform that leverages a
robust suite of APIs & modular applications to aggregate financial data across 13,000+ financial institutions.
C E N T R A L I Z I N G C U S T O M E R S D I S S I P A T E F I N A N C I A L D A T A W I T H O P E N A P I ’ S
Last Funding
$10M Series B-II // Q2’17
S E L E C T C U S T O M E R S
Select Investors
F-Prime Capital, FinTech Collective, Long Light Capital, Napier Park Global Capital
73
Goldman Sachs open jobs as of (9/14/17)Goldman is one example of firms ramping hiring for technology jobs.
Of note, Goldman is hiring for engineers to build out its own robo-advisory platform.
74
Morgan Stanley & J.P.Morgan are seeking fintech talent to build out new products
&
.25% - .50% annual feeor
$2.50 - $5.00 per $1,000
7575
Incumbents will embrace new wealth tech business model
# 7 I N C U M B E N T S G E T A H E A D O F T H E N E X T W A V E O F W E A L T H T E C H
7676
“We have no robo-advisor plans and are committed to supporting advisors with the
technology & services they need to be successful. We don’t believe [robo-advisors]
will replace competent, caring advice.”
John Carson
April 21, 2015
President, Raymond James
77
To keep up, some incumbents invested in startupsT H E F U T U R E O F W E A L T H M A N A G E M E N T ?
Lines represent equity investment rounds
Q1’12 – Q4’17 (11/14/17)
78
Access Investing
LAUNCHED
Now, many initially skeptical wealth managers have a robo-advisor strategy
WHITE-LABEL
2018 UNDER DEVELOPMENT
79
Today’s growing wealth techs areas could be the next opportunities for incumbents
ROBO-RETIREMENT
MICRO INVESTING
IMPACT INVESTING
PRIOR M&A
8080
Wealth management experiments with cryptos
# 8 C O U L D C R Y P T O S B E T H E N E X T D I V E R S I F I C A T I O N T O O L ?
81
Robo-advisors shoot down bitcoin rumors, while incumbents are experimenting with use cases
T R A D I N G P L A C E S
VS.
+
82
Exchanges have shown there’s a growing interest in crypto investing.Coinbase has served as a massive on ramp for retail investors to get into the crypto markets.
Sources: Coinbase, Alistair Milne
Coinbase attracts speculators in meteoric year
Number of users, January 2013 – November 2017
83
Robinhood crossed over to crypto investing & investors rushed in at record rates
R O B I N H O O D L O O K S T O C R Y P T O S T O G R O W T H E I R 3 M + B R O K E R A G E A C C O U N T S
AFTER 1 DAY
WITHIN 1 HOUR:
AFTER 5 DAYS
84
Bitwise Investments launched a passively managed index fund comprised of the top 10 cryptocurrencies by market capitalization.
While it is not an ETF and limited, it could be an early indication that there is an addressable market for passively managed crypto funds.
B I T W I S E L A U N C H E S A C R Y P T O C U R R E N C Y I N D E X F U N D F O R A C C R E D I T E D I N V E S T O R S
$4M Disclosed
Select Investors: Blockchain Capital, Khosla Ventures, General Catalyst
8585
“Avoid bitcoin like the plague. Did I make myself clear? Bitcoin may well go to
$20,000, but that won’t prove I’m wrong. When it gets back to $100, we’ll talk.”
Jack Bogle
Founder & former CEO of Vanguard
86
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