Technology to the rescue for advisors & wealth managers that have no time for Social media

Technology to the rescue for advisors & wealth managers that have no time for Social media

Technology to the rescue for advisors & wealth managers that have no time for Social media 800 533 Efi Pylarinou

Technology to the rescue for advisors & wealth managers that have no time for Social media

Changes in the ways we make Investment Decisions and manage our money, are undisputed. Even though Americans` trust in financial professionals remains fairly stable over the past two decades, what has changed considerably is how much they use the Internet for their investment decisions and how little mind control advertising has.

Despite these trends and even though Financial advisors have a dazzling technology offering to choose from that can automate several of their business processes, their broad marketing efforts are lagging considerably the trends mentioned above.

In the latest Broadridge study, the top line figures reported that 75% of financial advisors generate less than five leads per month from their website and only 37% of financial advisors report sourcing clients from Social media. The report covers in detail marketing strategies and shows that financial advisors are realizing that they need to meet clients and prospects wherever they are. Social media is already the second biggest item of marketing spend for them and 68% believe that Social media spend will increase going forward.

For financial advisors that continue to be challenged for time and have an overall reduced marketing budget due to the pandemic, it is valuable to find technologies that can address both of these issues.

Financial advisors and wealth managers need to establish a presence in social media. We all know how challenging and time-consuming this can be. However, technology like NLP and various AI algorithms that can identify the trending topics, the most shared articles, or look for relevant events based on portfolio holdings, is now available.

Financial advisors and wealth managers with several clients with diverse profiles and goals can use technology to personalize content distribution across various social media platforms and schedule it with a short, curated message. They can search for articles by topic of interest, for example, ESG, Technology, Retirement, The economy, Real estate, Cryptocurrencies, etc.

Financial advisors and wealth managers cannot afford to be absent from where the conversations are happening. Social media platforms like Linkedin, Twitter, Facebook, Reddit, and even TikTok, are where interesting conversations are happening. Financial advisors and wealth managers that keep their clients up to date with trends and topics of interest are less likely to lose them and in a better position to manage their emotional ups and downs around economic uncertainties.

Investors are on social media and technology can help financial advisors and wealth managers to meet them there. Using technology to efficiently contextualize content and distribute it is the only way. Sharing content daily or weekly, will depend on the client`s profile.

This kind of use of technology will eventually enable a feedback loop for financial advisors and wealth managers. Social media is where conversations happen and therefore financial advisors and wealth managers learn what is of top interest, concern, and the options being discussed.

Clout is a Fintech marketing solution that addresses several of these challenges for Financial advisors, wealth managers, and enterprise firms. Clout is born out of a family-focused on using technology and financial intelligence for the investment sector. Their focus is on finding scalable fintech solutions that best serve the end client — the investor — and designing such B2B solutions for those that serve investors.

As a content producer myself, a global Fintech influencer, and thus a heavy social media user, it was a pleasure to test out the clean, simple, intuitive Clout dashboard. I decided to use it only for the ESG thematic and just scheduled content for Twitter and tested the email functionality.

Clout Technology to the rescue for advisors & wealth managers that have no time for Social media

For marketing campaigns and ongoing client engagement, Clout can take away the intimidating tasks of what content, how to find it, how to personalize it, etc. for financial advisors and wealth managers. It even learns from your weekly content scheduling. Its built-in AI also curates additional content for consideration that is relevant based on client investments and past scheduling activities. A 1-click distribution across social media and email is powerful. And as we all love rankings and ratings, it provides detailed analytics of all scheduled activity and a Clout score.

Worth requesting a demo — here.

Disclaimer: Clout is a client and part of the Tifin group.

Financial Services

The Big Reshuffle of Financial Services Business Priorities

The Big Reshuffle of Financial Services Business Priorities 800 600 Efi Pylarinou

The Big Reshuffle of Financial Services Business Priorities

A reality check based on the latest Salesforce report

Customers’ concerns are pointing to low levels of impact and satisfaction from the up-to-date digitalization in financial services.

A recent Salesforce survey, “State of the Connected Customer,” reports that only 27% feel that the financial services industry is actually customer-centric, and only 23% think that the industry handled the pandemic well! At the same time, customer expectations post-pandemic are elevated.

Now, how disappointing is this market feedback after billions of dollars spent in funding Fintech innovations and with hundreds of Fintech unicorns globally?

Salesforce`s recent survey provides multiple insights around the reshuffling of priorities in financial services institutions (FSIs) globally. The 2,500 respondents (not all Salesforce customers) have changed their business priorities. The report compares the top 10 list of business priorities at the end of 2019[1] and the priority changes after the pandemic.[2]

Financial services Salesforce report

The biggest change is in de-prioritizing customer experience (CX), which used to be the top priority and seems to have dropped to number five. This means that services that improve customer experience like automating account transfers, portfolio optimization, or nearly instant claims processing, are less important than the implementation of new technology or the automation of various internal processes.

I am actually surprised mostly by the de-prioritization of “enhancing security” that is reported to have dropped by three places and is no longer in the top five business priorities. This led me to look into the differences in reshuffling across wealth management and retail banking and across various regions. This is important as the sector is in a re-bundling phase and wealth management and retail banking are two traditionally siloed areas with different digitalization maturity.

Financial services Salesforce report
Financial services Salesforce report

The reshuffling of business priorities in wealth management is more pronounced than in the retail banking sector. For example, in wealth management, three business priorities were moved (up or down) more than two positions. “Developing new products” went from second to fifth; “Improving customer experience” got downgraded from fifth to eighth, and “Automating processes” moved up the priority list from sixth to third. In retail banking, there were no changes of this magnitude.

The overall sizable downgrade of “Improving customer experience” reported initially for all FSIs, is attributed largely to the reshuffling in wealth management business priorities.

In wealth management, “enhancing security” remains the number two priority. Whereas, in retail banking it did drop two levels, barely making the cut for the top five business priorities.

The downgrade of “Improving customer experience” in wealth management, comes mainly from US traditional FSIs, whereas in the UK, it is the exact opposite. The survey shows that US traditional FSIs prioritize going forward “building customer trust” and ”New business models.” “Building customer trust” moved from being seventh to becoming the number one business priority. This is a stark contrast with UK/Irish traditional FSIs who are focusing after the pandemic on improving CX at the expense of “building customer trust.”

Financial services

US digital-first institutions reshuffled ”improving customer experience” in wealth management only one level (from #9 to #10). Again, in stark contrast with their UK homologs, who moved ”improving customer experience” in wealth management from eighth to second.

Digital-first institutions had been more focused on building customer trust, on partnerships, on new products and services.

There seems to be a major difference in priorities between traditional and digital-first FSIs. In the US, digital-first institutions pushed ”building customer trust” to the bottom of their priorities (from #1 to #9), whereas their traditional counterparts did the exact opposite (moved it from #7 to #1). Surprisingly, in the UK it is flipped.

Financial services Salesforce

The emphasis on “improving CX” in wealth management is clear in the UK.

The Salesforce report suggests that Autonomous finance a la Forrester- i.e. algorithm-driven financial services that make decisions or take action on a customer’s behalf — will be the main way that FSIs will fill in the CX gap that has emerged.

The survey documents a unanimous belief that autonomous finance will be the differentiating factor. These findings also justify that CX is no longer a differentiating factor.

Financial Services Salesforce

The post-pandemic reshuffling of priorities in FSIs reflects the convergence of technologies used in novel ways.

This article is sponsored by Salesforce. You can access the full report here that also includes the insurance sector. You can also read additional insights in `Lessons from Nearly 2,800 Financial Services Leaders on Resilience in the Face of Crisis`.

[1] The survey was conducted from mid-November through mid-December 2019 with responses from 1,400 leaders in insurance, retail banking, and wealth management across North America, Latin America, Europe, and Asia Pacific regions.

[2] The survey was conducted from late August through late September 2020 with responses from 1,360 leaders in the same sectors and geographies.

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Stripe has been aggressively investing in startups — 22 and growing

Stripe has been aggressively investing in startups — 22 and growing

Stripe has been aggressively investing in startups — 22 and growing 800 533 Efi Pylarinou

Stripe has been aggressively investing in startups — 22 and growing

Stripe is in the spotlight as they ranked high based on several criteria in the latest Forrester Wave report (along with the European Adyen). They are also in talks to raise additional funding at nearly double the current valuation (current $36Billion, expected $70billion).

Stripe raised $600million recently (Apri 2020) and if a fresh round materializes at the talked about valuation level of $70billion, they would be the world’s second-most valuable venture-backed company. If ByteDance divests its majority stake in TikTok by this Friday’s CFIUS deadline, then Stripe would become number one at $70billion.

4 different Digital asset categories in one wallet — The Bakkt App

4 different Digital asset categories in one wallet — The Bakkt App 800 767 Efi Pylarinou

4 different Digital asset categories in one wallet — The Bakkt App

Most Fintech grownups are either focused on retail or serving institutional clients. Today I want to highlight Fintechs that are focused both on serving institutional and business needs, and also retail needs. These Fintechs that aim to create unique ecosystems.

Square is one example with its core offering for merchants that is built around its square hardware for payments at point of sale, and a growing software suite. And it`s Cash App for end-consumers.

Coinbase is another one, with its institutional suite for trading cryptocurrencies and its landmark retail Coinbase app.

Both of these examples are fairly seasoned companies. Square was launched 11yrs ago and is already public (since 2015) and Coinbase is 8yrs old and close to going public even though it does not need it ($547million funding and a valuation of $8B).

Another one that I want to highlight is much younger and upcoming. Bakkt was founded in 2018 and is part of the Intercontinental Exchange (ICE). It has raised $482million already (Series B was $300million in March 2020) and has a valuation of just over $1billion.

Bakkt is in the exchange business with a focus on cryptocurrencies and digital assets. Its institutional offering includes custody and derivatives (futures for now and options) on cryptocurrencies. The current menu includes Bitcoin futures settled in cash and physically.

Its consumer offering is the Bakkt App that includes the capability to buy and sell cryptocurrencies and make payments, but also wallet capabilities for gift cards and loyalty points. And this is where the differentiation starts compared to other crypto wallets — exchange apps.

The institutional part of Bakkt is growing but has still a very small share (less than 2%) of the overall Crypto futures activity which remains mainly OTC (on exchanges like Okex, Binance, and Huobi). The retail app was beta tested with Starbucks app (as an alternative payment) in Spring. The big push on the eCommerce front is clear with the recent acquisition of Bridge2 solutions that ICE completed to support Bakkt App. ICE and Bakkt spent close to $300million to acquire Bridge2 solutions, a Saas loyalty program provider that is well established in the US.

Let me make it clear that the Bridge2 solutions have nothing to do with blockchain and tokenizing loyalty points. The fact that it is behind the scenes powering up the Bakkt App`s reward & loyalty points, does not mean it stores points on a ledger or enables p2p transactions between users.

What the Bakkt app enables end users is first to obtain a simplified and visual overview of their holdings, ranging from cash, cryptocurrencies, rewards and loyalty points, and in-game assets.

The second capability is to spend rewards and loyalty points (provided that Bakkt can grow a merchant network) so that they don’t go to waste (estimated market in the US is c. $160billion). For this functionality, Bakkt acts as an exchange of points into cash charging a small fee to users. End-users wouldn’t mind paying a small fee as long as they save themselves from wasting earned rewards. However, Bakkt needs to onboard merchants and convince them to join the Bakkt app.

The third capability is to send gift cards via an sms much like we send payments these days (in Switzerland where I reside, we use Twint). Also to view balances and spend gift cards.

For those thinking of ICE as an investment not only because it is a fee business with a significant positioning but also as an innovator, there are a few facts that make it look like a decent candidate.

ICE is already held in 185 ETFs and SPY is the ETF that is currently the biggest holder. reports that the top 5 ETFs with the largest exposure to ICE are

IAI (ishares of US broker-dealers), CWS (Advisor actively managed ETF), ARKF (Arkinvest Fintech ETF), BLOK (the Blockchain ETF), KOIN (Innovation Next Gen.).

Three of these five ETFs are more focused on innovation.

ARKF holds 3.5% in ICE and it is its 9th top holding just below Adyen.

BLOK holds 3.0% in ICE and it is its 8th top holding just below AMD.

KOIN does not include ICE in its top ten holdings. It is their 16th holding with a 2.82% allocation in their `portfolio`.

12 Thought Leaders Share Insights on Blockchain's Impact on Wealth & Asset Management

12 Thought Leaders Share Insights on Blockchain’s Impact on Wealth & Asset Management

12 Thought Leaders Share Insights on Blockchain’s Impact on Wealth & Asset Management 800 450 Efi Pylarinou

12 Thought Leaders Share Insights on Blockchain’s Impact on Wealth & Asset Management

Blockchain technology is powering up cutting-edge innovation and experimentation in wealth & asset management. We all acknowledge that digitalization is threatening traditional business models in finance and that it is unstoppable. These threats also present opportunities for wealth and asset managers.

We, The Wealth Mosaic, and I embarked on a journey to provide you with updates and insights on this trend which is evolving, and dynamic. We echo the views of thought leaders and various market players sharing evidence that Blockchain, has the potential to fundamentally change wealth and asset management, both by replacing the infrastructure in the management of existing asset classes and as the backbone for new alternative assets.

We started speaking to players and asking them `How Distributed ledger technology and Blockchain is currently reshaping wealth and asset management? Where is the industry today and how do they foresee things changing in the future?` Along with the products and services of the participants, this inaugural report includes a thought leader from each company that shares her/ his views on these questions.

Now is the time for the wealth and asset management industry to start preparing for the changes in business process and in investment products that are coming from the adoption of Blockchain technology. Surely, some of these will come later and some are already here. Regulation and mass scale adoption takes time. In the current environment, things happened slowly, gradually, but then Suddenly. So, keep learning, understanding the changes that are underway.

The report can be downloaded here. It includes, opinion pieces from ARK Investment Management, the manager of the first ETF that included Bitcoin in its holdings in 2015, and from MAMA, the Multichain Asset Managers Association, a trade association focused on the development of on-chain management.

In this report, we profile 10 solution providers from across the globe, with participants based in Switzerland, Liechtenstein, Luxembourg, the UAE. The companies are — Area2Invest, Chainalysis, Consensys, CrescoFin, DSENT, FiCAS, FundsDLT, Lykke, SEBA Bank, and Securrency.

As this is the first report on this topic it is by no means covering all the activity in the area as the space is evolving fast, with some subsectors maturing (e.g. custody), and other nascent ones emerging (e.g. DeFi — Decentralized Finance). Given the level of innovation in this area, we plan to publish updates and/or sequels to this report on an on-going basis and will make this an annual WealthTech Views report for the sector.

The Wealth Mosaic is the digital marketplace & intelligence resource for the global wealth management sector.Dr. Efi Pylarinou is an ex-Wall Street professional who has become a thought leader and recognized global influencer in Finance.

We hope you enjoy reading the report and look forward to hearing your thoughts. We are committed to building bridges between the old and the new economy. We believe in the fusion of technological innovations in financial markets, in ways that benefit the end customer and the entire ecosystem as a whole.

If you are a solution provider in this space and would like to feature in any of the updates, please do not hesitate to get in touch.

Efi Pylarinou

Founder, Efi Plyarinou Advisory

Simon Ramery

Co-founder, The Wealth Mosaic


Over 100 US SPACs raised over $40billion in 2020

Over 100 US SPACs raised over $40billion in 2020 800 533 Efi Pylarinou

Over 100 US SPACs raised over $40billion in 2020

SPAC Research reports that US companies have raised more than $40 billion through SPAC IPOs so far in 2020. Barron`s reported that in 2019, one in four IPOs was a SPAC, and they raised a total of $13.6 billion for 59 SPACs.

As of the 3rd week of September, there were over 100 SPAC offerings completed in the US through which $40+billion has been raised. This compares to triple the amount of dollars raised in 2018 and close to double the number of SPACs launched. The activity reported from SPAC research shows that there are several SPACs seeking targets and others that have found the private companies that they want to allocate their funds.

Spac Research

July was the month with the Mega-SPAC filing of $4billion. Bill Ackman’s Pershing Square Capital Management went public with a SPAC focused on the tech sector. The shares PSTH-UN launched at $20 and as of Friday`s Sep 18th close, they are $22.13. Let’s see if some Fintech ends up in this SPAC.

SPACs offer a faster way to market, avoiding several costs, and the undesirable price action following most IPOs and the prohibition to release financial information.

SPACs are a fast way for investors to access private companies.

It Has Been a Huge Week for SPAC IPOs. Here’s What You Missed. (Barron`s)

In July, there was also a Fintech focused SPAC IPO on NYSE worth $350million.

Let’s welcome and keep an eye on Fusion Acquisition Corp‘s (NYSE:FUSE.U).

A blank-check company that will focus on businesses in the Fintech or asset and wealth management sectors, with an enterprise value between $750 million to $3 billion. FUSE.U launched at $10 and is now at $10.20.

Hot SPAC Sector Meets Hot Fintech Sector in Fusion Acquisition Corp IPO (Crowdfundinsider)

Another fintech SPAC July noteworthy deal, is the Diginex reverse merger with SPAC 8i Enterprises Acquisition Corp ($JFK listing on Nasdaq). Diginex is a Hong Kong-based crypto and blockchain solutions tech firm. $JFK is a SPAC that raised $76+million in May 2019 and now is facilitating the US listing of HK based Diginex. Keep in mind that Diginex already operates its own crypto exchange called in Singapore under a payments restricted license. It also operates an over-the-counter (OTC) crypto trading desk, Diginex Access, and a “hot and cold” custodian, Digivault.

Crypto firm Diginex is listing on Nasdaq via a reverse merger (The Block)

The acronym SPAC is “Special purpose acquisition companies”. A SPAC goes public and raises money that are kept in a trust. The mandate of the SPAC is to go out hunting to acquire a private operating company (or companies) in a specific sector. It used to be a tech unicorn hunt in the old days.

Marc Rubinstein reports in his latest `SPAC the new black` that Bill Ackman`s latest SPAC structure has introduced novel terms. The basic terms of a SPAC (source) include investors receiving common stock and detachable warrants. The devil is always in the details of course, so the warrant details play a large role (whether they can be exercised before or after the acquisition). Kenneth Squire explains the details of the new $4billion SPAC structure in detail here. The main point is that Pershing Square, the SPAC sponsor, for the first time is not receiving any founders shares. So, Pershing Square will receive compensation only after SPAC shareholders receive a 20% return. In the usual SPAC structure, it is reverse, Pershing Square gets paid first and then the shareholders.

Bill Ackman and Tontine Holdings rewrite the terms for SPACs

Back in October 2017, I wrote about Fintech SPACs as Social Capital Hedosophia Holdings Corp. listed on NYSE in September IPOA.U) and raised $600million. In late 2019 IPOA.U merged with Virgin Galactic (SPCE), in October 2019 focused on human spaceflight.

The second Social Capital Hedosophia fund targeting US tech companies (IPOB.U) was launched this year at the end of April and raised $360million. This was just a week apart from the third fund from Chama IPOC.U.

IPOB.U launched at $10. It just announced a deal to merge with Opendoor, the fintech focused on real estate. Based on the terms announced, the SPAC will inject $414million into OpenDoor and another $600million will come from a group of investors that include major funds (e.g. Blackrock) and Chamath Palihapitiya himself.

The IPOB.U SPAC price has jumped as high as $19 and is settling around $16, as the deal is not finalized.

Back in 2017, I also mentioned the then only pure Fintech SPACs listed on Nasdaq, FNTC and FNTEU. They were both was managed by The Bancorp (TBBK).

FNTC listed on Feb 2015 and raised $100mil and one year later acquired CardConnect, a decade-old private payment processing firm with 60,000 merchants on its platform and over $17 billion in credit card transactions processed to date. The acquisition was based on a valuation of $350 million in cash ($180mil) and stock ($170mil).

FNTEU was listed in Jan 2017 again to acquire a financial technology business. In mid-2018 it merged with Intermex Holdings, a payments fintech focused on Latin America and the Caribbean (NASDAQ:IMXI),

The 2017 post NYSE & Nasdaq fueling the mini-boom in SPACs – The Bancorp leading Fintech SPACs

Robinhood continues to make headlines

Robinhood continues to make headlines

Robinhood continues to make headlines 800 480 Efi Pylarinou

Robinhood continues to make headlines

Robinhood just announced that it raised an additional $320million at the same valuation as the May $280million. This brings its Series F funding to $600 million and its post-money valuation to $8.6 billion.

Total funding since inception (2013) is $1.5billion

There isn’t another pure startup competitor of Robinhood in the US. We could look at Coinbase who is focused only on cryptocurrencies but has aa growing B2B offering in addition to their B2B offering. Coinbase has roughly one-third of the funding and a valuation of around $8billion. 

In a way, we could say that Robinhood has also a B2B business because their revenues from selling order flow (especially options) is growing (see details below).

We could also look at savings Fintechs like Acorns that have also been growing and benefiting during these transformational times similar to other savings and investing apps. Acorns have only raised $207million to date and its valuation is may be approaching the $1billion. 

As TechCrunch remarks, Robinhood has had growing pains this Spring and made headlines with less fortuitous news. 

2020 pain points included app crashes, first time disclosure of sizable order flow revenues (look at the details), and more. 

There is clear evidence that retail trading overall has been on the rise since 2019 and spike during Q1 2020. This is due to so much cash sitting around (M2 in the US is up 23% and we have to believe that some of it found its way into the stock market) and of course to what I have been calling the `Robinhood effect`. In plain words, the extreme commoditization of stock trading.

Scott Galloway is a clinical professor of marketing at NYU Stern university and a serial entrepreneur who has written a great article Robinhood Has Gamified Online Trading Into an Addiction Tech’s obsession with addiction will hurt us all. According to his estimates of the online trading activity rise (mostly based on the rise of account openings not the size of the trades or volume) it is clear that Robinhood is leading this trend. The increase for Robinhood is x3 times, Schwab is x1.6 times, TD Ameritrade is x2.5 times, and Etrade is x2.7 times.

Robinhood continues to make headlines

I have not found any figures that support the narrative floating around that retail trading has had a significant or even leading contribution to the stunning US stock market rally since its bottom in mid-March. 

The figures that we can report is that the order flow business was very strong in Q1 2020 and Robinhood`s revenues from selling order flow is leading the pack. 

Alphacution was the first to report Robinhood`s hidden revenue stream last year. I wrote about this last November in Zero-commission brokers selling order flow are the new intermediaries. Who will disrupt them?

Now, starting 2020 there has been a new disclosure requirement around order flow business practices. As a result, we have concrete figures in hand from the entire industry, incumbents and fintechs. 

Frank Chaparro reported in mid-June` New filing shows Robinhood brought in close to $100 million by offloading order flow in the first quarter`. So, Q1 revenues were $100million for Robinhood and Alphacution estimated $69miilion for the entire year of 2018. 

I have two problems with these increased figures. One is the lack of transparency in terms of the Robinhood`s business proposition and monetization strategy. The narrative that has been left floating for years, is that Robinhood makes money from margin accounts and interest on cash. No Robinhood manager contradicted that or presented proudly their growing order flow business. And of course, since everybody else does it (except Fidelity) why not Robinhood. And this is where the irony comes in. How is Robinhood different than incumbents?

The second problem I have is that the details of the order flow disclosures (see here) show clearly that most of these revenues come from option trades rather than plain vanilla stock order. Needless to say that option trading requires more education and sophistication and is riskier than plain vanilla stock trading. And again all this didn’t matter until it did. 

Sales of order flow from Robinhood`s option trades, outsize plain vanilla order flow revenues. 

In addition, back in December 2019 when Robinhood got fined by FINRA for violation of best execution practices, it didn’t matter. The question is when will it matter?

I rest my case, as I have always had a big question mark next to the value proposition of Robinhood. Evidently, it is around the democratization of retail trading. But I have always struggled to come up with a solid argument on `Why` is this kind needed. I have yet to answer it. I do understand the `Why` for fractional shares, I do understand micro-savings into investing, crowd investing, social trading, etc. and other nudges that over time develop better personal financial habits around investing.  

I also understand various DIY offerings but this Instagram like tool does not address any core financial need. We need to manage budgets, invest wisely, save, plan retirement. What big need is Robinhood and its future roadmap solving?

2020 will leave us with sad realizations around Instagram like capabilities for option trading and cynicism around trading bankrupt Hertz stock and the craze on Robinhood of the Electric vehicle stock NKLA. 

Robinhood`s founder has committed to take care of the issues around options trading. 

Commitments to Improving our Options Offering


That does not answer the customer need – WHY! 

AUM in Digital wealth is not the metric that lived up to expectations

AUM in Digital wealth is not the metric that lived up to expectations

AUM in Digital wealth is not the metric that lived up to expectations 800 533 Efi Pylarinou

AUM in Digital wealth is not the metric that lived up to expectations

From 2016, consulting practices put out their 5yr predictions on the growth of the Robo Advisor subsector, mainly focusing on the potential to gather assets.

It was the time when Vanguard was making its first leapfrogging attempts in a space that Betterment and Wealthfront had brought to market. Personal Capital was also shaping up the hybrid version of `digital investing`. Deloitte, CB insights, Aite Group, and others were predicting assets under management by 2020 (which at the time, seemed far away for all of us).

Predictions ranged between $ 2.2 trillion and $ 3.7 trillion in assets to be managed by Robo-Advisory services by 2020 and $16 trillion by 2025.

Permit me to take the mean of the range predicted for 2020 (trillions of USD are being transferred from the government to the `people` anyway as we speak) and round it up to $3 trillion for 2020.

2020 — Well we are in the second quarter of 2020 and we are just reaching $1 trillion. A recent report by BuyShares says we are heading to $987billion. So, we are at 1/3 the 2016 prediction even though the S&P500 is up 30+% and the Dow is up 28+%, since Jan 2017.

What is more remarkable is that the current 5yr outlook compiled by BuyShares and based on Statistica data, predicts that in less than 5yrs the AUM will grow x2.4 times, reaching $2.4trillion.

AUM in Digital wealth is not the metric that lived up to expectations

At first sight, it may seem to you an optimist outlook. It is actually, a heavily discounted view from that set out back in 2016 when the sector started attracting more VC investments and incumbents. The first predictions were from 0-$3trillion in less than 5yrs and then from $3trillion-$16 trillion in the second 5yr phase (x5+ times).

And now this study is saying, let’s cut the 5+ times growth rate in AUM to more than half. And let’s cut the AUM managed over the next 5yrs by 85% (we had said $16trillion and now we say $2.4trillion).

Let’s step back and look into the mirror as if it is 2025. Of course, digital onboarding and automated asset allocation offered currently via ETFs will be 100% an option everywhere and probably free.

The more interesting and meaningful question is about the evolution of the ETF market itself which has been the bread and butter of all the digital investing offerings (lumped under the `robo-advisor` umbrella be it with or without human advisory services); and whether artificial intelligence will actually transform digital investing.

1️⃣ Will `robo-advisors` continue to build their businesses mainly using ETFs? Their low-cost core value-add has been interchangeable seen as a win for passive investing and mainly via indices.

2️⃣ Will the 12% of the $4.7trillion ETF market (based on 2018 year-end data, see here) grow and to what extent?

3️⃣ Will active ETFs grow given the current macro environment? ANTs are just emerging and are a step back from the transparency trend and the zero-commission trend. ANTs are active non-transparent and on average their expense ratio is 70bps. Their position reporting is much better than mutual funds (quarterly). Their cost-adjusted and risk-adjusted-performance will have to be seen going forward. They are currently only 2% of the ETF space (see here).

4️⃣ Will artificial intelligence finally take over the asset allocation and the decision of switching between direct indexing or stock picking or momentum.

A few facts to consider:

1. The ETF space grew sustainably in 2019. Statistica reports $6.18trillion by year-end of 2019. That is a 30% increase. Of course, by the end of Q1 2020, the ETF global industry experienced a c. 16% drop ($5.4trillion) which was 100% due to the drop-in asset values. ETFs actually experienced in Q1 net inflows of c. $120billion. These were inflows during the major March selloff. Source

2. An update on my calculations of the assets under management by digital wealth services points to a c.30% increase (by 2019 year-end), which matches the ETF increase. Source

3. The actual role of artificial intelligence in all the Digital wealth offerings, is still minimal. Even the large incumbents with sizable digital wealth AUM, like Merill Edge or Vanguard, are still in the initial phase of digital transformation in wealth management. Vanguard actually has done very little on the needed digital integration front. Merill Lynch is probably ahead with its new CEW — Client Engagement Workstation — that integrates market data, client information, account servicing tools and some narrow artificial intelligence tools (chatbots).

For 2025, we should be making predictions of the extent that Artificial intelligence will be making better decisions for my asset allocation than I do, or my private banker, or my financial advisor, or my digital wealth service provider.

What has gone wrong in Fintech that pushed the original projections of $16trillion AUM in 2025, to $2.4trillion?

Where are the trillions of currencies that are being transferred, going to end up?

Isn’t the digital transformation of the mutual fund industry what will happen over the next 5yrs? Whether it is through DLT as an infrastructure of the mutual fund administration or by the tokenization of fund structures or the disintermediation of the European banks who dominate mutual fund distribution or all of the above? And won’t all this lead to an exponential growth of the `Digital wealth` AUM?

Humans and Machines in uncertainty

Our journey of Humans and Machines in managing Uncertainty — Part I

Our journey of Humans and Machines in managing Uncertainty — Part I 800 600 Efi Pylarinou

Our journey of Humans and Machines in managing Uncertainty — Part I

The conversation around the interaction between data, algorithms, and humans never stops.

Once again, A crisis like no other!

The COVID19 induced crisis, of course, provided us with an ideal setting to use more data, test and train algorithms, and experience our and their strengths and weaknesses in the investing arena.

Once again, A crisis like no other is actually the title of an AQR article at the end of March. The 20+yrs old quant king has suffered after a very difficult 2018 (the so-called Red October) which led to large outflows and over 1000 layoffs- Investors pull billions from quant king AQR as performance slumps — Financial News.

There has never been a better time to bring up the conversation on whether Data (fundamental, conventional and alternative) made a difference during this crisis. Did algorithms help and in what way? And what about the interaction of humans with Data and algorithms?

Fundamental macro data is essential, and this will never change. What can and should change is the time lag and that not all data sources are trustworthy. We need to build a real-time information system aggregating trustworthy data, that starts with fundamental data and extends to the currently coined `alternative data`. Eventually, we will get rid of the alternative data term, all together.

Lykke recently launched the Open Initiative project which is a competition with a CHF50k funding award. This is led by Richard Olsen (founder & CEO of Lykke), Christopher Giancarlo (Cofounder of the Digital Dollar and ex-Chairman of CFTC), and Ashkan Nikeghbali (Chair in Mathematics at UZH)

One of the four different thematics of the competition is focused on building a Real-time information system. Lykke proposes a Wikipedia like system (in certain aspects) with revenue streams built on Blockchain and accessed via APIs. This vision merits a separate article.

In May, as an advisor to AxessThinkTank the Geneva-based ecosystem with a vision of becoming a distributed knowledge hub, we embarked on the first step of a journey focused on `Humans and Machine to manage Uncertainty`[1]

I had the pleasure to moderate a 50 minutes digital discussion with a diverse group of experienced professionals that work as quants with data and algorithms focused on investing intelligently. Watching the recorded discussion will provide you with the full insights and color from each participant.

There was a consensus more or less than the demand for alternative data, as expected, spiked during this crisis because everybody needed to access the situation in real-time and needed real-time measures. Investors, traders, portfolio managers, pensions, who were already using some kind of alternative data, needed more and relied heavily on high-quality real-time data. The reliance on such alternative data and on actionable techniques to access exposures and make intelligent predictions, skyrocketed. New entrants in the alternative data space, flocked as they needed to manage risks and exposures.

The panelists uniformly confirmed the increased need to manage thematic and narrative risks. In plain words, humans needed to understand their exposure to airlines or to China during the crisis and in the new normal. They needed to ask the data and the machines what the impact of COVID19 would be in real estate. And on and on….

Humans continue to be in charge of narrating the topics of interest or at stake. The machines need to be able to offer actionable insights and forecasts.

There is an increasing need for real-time and continuous re-assessment of this kind of complexity through lots of high-quality real-time data of all sorts. Machine learning and adaptive trading algorithms that reflect and retrain gave confidence to humans in certain asset classes (e.g. commodities) during this highly uncertain period.

Building trust between humans and machines, has always been essential and will continue to be. The recent crisis was a painful but valuable experience that built more trust in humans as to what machines can currently do and with what inputs.

There has been an improvement in actionable techniques that allow humans to extract signals towards generating alpha by combining high-quality real-time data and adaptive algorithms. There has been a better and larger offering from providers, of data, insights, algorithms.

The panelists were from the following companies:

Ravenpack is a leading data analytics platform headquartered in Spain. I was using their free Coronavirus dashboard during the lockdown which had lots of alternative indicators (panic, media hype, fake news etc).

You can check out their research around sentiment impact and sentiment investment strategies — here. Ravenpack highlights that negative sentiment has more predictive power for asset prices than positive sentiment.

CueMacro, a UK based alternative data consulting practice. Saeed Amen, the founder of Cuemacro, is the co-author of the upcoming book on The Book of Alternative Data. It is a book covering ways of leveraging alternative information sources in the context of investing and risk management.

RAM is a macro hedge fund in Geneva that emphasizes the complexity and alpha generation potential of combining structured and unstructured data (see article here).

Macrosynergy is a UK macro hedge that is currently acting as a fiduciary quant house for long term institutional investors. They are combining fundamental data and insights with algorithmic trading.

Predictive Layer is a Swiss company focused on predictive Analytics and forecasting applications. Their algorithms adapted to this crisis and offered insights that only machine learning can produce in a timely fashion. Their value add was clear in the commodities space during this crisis.

The journey `Humans and Machine to manage Uncertainty` continues. Yves Carnazzola, the president of AxessThinkTank, and myself are leading this initiative in the spirit of building a distributed knowledge hub around this thematic.

This will include a variety of additional digital conversations around this thematic, surveys and storytelling landscape reports of the space. If you are a stakeholder in this space and would be interested in taking part in this journey with us, please email us so we can provide you with additional information and details.

[1] I have been a moderator in certain tracks of the Axess Think Tank biannual physical conferences

Challenges and opportunities — Big Data, Alternative Data and AI in Finance — January 2020

Challenges and opportunities — Diving deeper into alternative Risk premia — June 2019

Challenges and opportunities in Crypto investing — Spring 2018

Stash the robo-advisor with over $300million in total funding

Stash the robo-advisor with over $300million in total funding 800 533 Efi Pylarinou

Stash the robo-advisor with over $300million in total funding

The closing of the Motif and the timing of the $112million funding of Stash, have sparked interesting conversations.

Craig Iskowitz weaved a rich coverage of Motif`s story on May 1st with lots of data and back flashes on how Motif was perceived along its journey. 13 Roboadvisors That Might Become Victims of the COVID19 Crisis is a great read for anyone in wealth management. In the last part he shares a robo-advisor ranking in an effort to start thinking about who will not survive in these markets. The Ezra Group divided 38 providers into to three groups: Market Leaders, Up & Coming and Watch List.

I`ll just pick on the first group `The Market Leaders` only because it contains Stash who definitely has us all looking at why it was able to raise this large amount of funding (Series F) in these market conditions.

Craig includes in `The Market Leaders` the big old names of Vanguard and Schwab that are pure investing giants, along with micro-investing apps like Acorns and Stash and MoneyLion (which is more focused on banking and lending).

He makes a point about the large number of paying clients that these three apps are serving. 15+ million customers compared to 30 million Vanguard clients. These are numbers as of January 30, 2020. We have unofficial evidence already of a spike in account openings across all digital offerings. In the #ItzOnWealthTech Ep. 46: The Mad Rush into Digital Advice with Bill Capuzzi, Bill Capuzzi CEO of Apex Clearing mentioned that they saw a 200% increase in new account opening in March.

For Stash to stay on Craig`s list and to not disappoint their investors, they need to execute well on their re-bundling. They cannot afford to stay only in investing like Schwab and Vanguard. They already started their re-bundling in 2019 and effectively their roadmap to become a fuller stack. They used their Series E funding to partner with Green Dot`s Banking-as-a-Service and introduce a debit card. After one year they have acquired 750,000 banking customers and continue to pay up to acquire more.

Tearsheet reports that Stash reached $1 billion in AUM in February 2020, with 4 million customers on the platform (not clear how many are paying any subscription which ranges between $1-$9 per month with $0 minimum). On the Stash website, they report 4.3+ million customers. However, only 750,000+ are banking customers.

Meanwhile, most of the large standalone robo-advisors are also creating fuller stacks with personal finance offerings — saving accounts, debit cards. Betterment, Sofi, Acorns, and soon Wealthfront, are in the same game.

One of the Stash key recent investors is Lending Tree (unclear if they actually put in money or have a strategic partnership), so they must be planning to add credit to their services. With the dazzling choices of Baas and Saas offerings, there is no secret sauce for almost anything. The trick is the go-to-market strategy that can create network effects. And this is where maybe Stash has one first-mover advantage. Is the optional `Stock-Back` reward program that they also introduced last year something that has actually worked for them?

On May 1, Pulse 2.0 reported that `nearly $10 million Stock-Back rewards have been earned by Stash customers since the launch of the debit rewards program almost a year ago.`

Stash customers earn

`0.125% Stock-Back rewards on all of your everyday purchases and up to 5% Stock-Back rewards at certain merchants with Stock-Back bonuses`

If all $10million stock-back rewards were earned at 0.125%, then that translates to Stash having processed $8 billion in payments through their debit card. That is an average $10,000 per banking customer per annum. If all purchases were at the merchants with the special deals with Stash that gave clients an average of 2.5% stock-back, then it translates into $400million in payments and around $500 of purchases per customer.

Is all this worth the Stock-Back patent?

Stash keeps investing in their Stock-Back program. They introduced 200 more stocks for 2020. Their digital design allows them to change easily the amount of the reward and offer special deals for certain periods and target to different plans of subscription. For example in May, they increased their rewards for CVS, Netflix, Hulu, Spotify, Disney to stock-back rewards of 2% from the usual 0.125%. (Details here) Their picks obviously are the best way to build customer loyalty, as all these are top choices for most people during the lockdown. They also offered 3% for two Food delivery stocks, Seemless and Grubhub only for plus subscription customers.

This kind of customizable service is definitely Fintech innovation.

It would be good to know what percentage of Stash customers actually opt-in their Stock-back reward program. And then, what is the actual distribution of rewards that were paid out amongst the individual stocks like Amazon, Starbucks, Walmart, and the diversified fund which is paid out as a reward when you make purchases at merchants that are not publicly traded and on the Stash list.

Are business analytics of Stash customer behavior confirming that once a customer receives a reward in a stock, they actually become more familiar with the company and allocate more funds to invest in the company? This is the narrative that Stash is floating around as they report that they are seeing an increase in customer deposits. Stash is hinting that there are network effects from the Stock-Back Rewards into their investment business.

It is worth monitoring Stash to see

  • Number of Banking customers growth
  • Average account size growth
  • The Stock-Back reward program growth
  • What value there is in the Stock-Back patent they refer to
  • Any new smart credit offering

Nerdwallet April 2020 comparison shows that the customer acquisition cost for Stash is very high. They are still paying a lot to lure new customers.

Stash Robo-Advisor

The US standalone robo-advisory space is on a journey of rebundling. Stash is the youngest of those that have made a name already and has just become the most well-funded robo-advisor with over $300million total funding.

To keep things in perspective, I have ranked 6 US robo-advisors with their total funding (and one originally Canadian) by age.

Stash Robo-Advisor

An earlier version of this article appeared on Daily Fintech.

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