We’ve long said that the digital wealth is finished. We don’t mean that it is dead, or that it’s fully adopted by the customer, or that the startups won (they haven’t). What we do mean is that the answer is fully known, and it is only time that will move us along the adoption curve for a solution that is now permanently part of the wealth management process. We have two data points on this from last week — Betterment and Vanguard.
In the latter case, Vanguard is partnering with German fintech company Raisin, which has 100,000 customers and €5b in assets. Raisin wasn’t yet an investment platform, but instead an international banking app. We’ll be self-indulgent and call it a neobank, one that integrates with savings products across Europe and allows customers to pick the best interest rate. The accounts are insured, and the financial institutions underneath are nothing more than widget manufacturers. This is bank-as-a-service, and we expect to see more of such apps after PSD2 is fully adopted. With the Vanguard partnership, the company will be adding roboadvisor capabilities built out of ETFs. Completing a financial product suite in such a way has been also done by N26, SoFi, and other fintechs that have customers but not enough revenue. So which roboadvisor wins here—startup or incumbent?
And the other example of how the lines are blurring and digital wealth is just wealth management, is Betterment. The company announced several features last week which suggest a re-engineering if some of its asset allocation and trading systems. At the B2C end, the firm is allowing its larger customers ($100k+) to tweak portfolio parameters while retaining the other benefits of the automated portfolio. This is useful for creating the impression of value (and price differentiation), as well as battle the perception that B2C robos are commoditized. But more importantly, this architecture change likely stems from the financial advisor side of the business. Betterment had an early lead in their advisor channel as a robo-TAMP (turnkey asset management platform), and was particularly effective with advisors that wanted to outsource their investment management. But, it’s capability was narrow — a channel for millennials rather than a digitization strategy. Companies like SigFig, FutureAdvisor, AdvisorEngine* and Jemstep have all been more advisor-accommodating. The new change allows advisors to tweak asset allocations. That is a "give" to traditional financial firms and their approach.
In each of these examples, a small step is taken towards the collision of different solutions into the same thing. Digital wealth is complete—we can see what it looks like in Raisin, in Betterment, at Vanguard, at Merrill Edge, at UBS, and Fidelity and many others. Independent advisors can rent the exact same thing for their clients too. And on the broader scale, we see not just digital wealth, but personal digital finance getting glued together into what may eventually resemble WeChat. A Frankenstein of payments, savings, investments (traditional and crypto), and retirement, with an overlayed AI financial assistant doing your bidding. This ain’t bad at all for the customer, but probably not so great for the robo venture investor.