Financial planners take pride in managing all aspects of a client’s financial life by investing in fintechs.
But technology will soon give advisors the ability to temper their clients’ emotions as well, says Mark Casady, former managing director of LPL Financial.
He’s optimistic enough about such a fintech that he has invested in Vestigo Ventures, a venture capital fund founded by his business partner David Blundin to help fintech startups solve financial planning challenges such as streamlining companies. back-end operations, customer onboarding or handling compliance issues.
Casady and Blundin invested $ 5 million and the fund recently closed at almost $ 60 million. Casady says the most promising fintech companies are those that help customers deal with their emotions.
“Previously it was enough to say, ‘Let me tell you why I’m a senior planner,’” Casady said Financial planning. “But, technology has erased most of that competitive advantage.”
The Cambridge, Massachusetts-based fund invests in companies that deploy blockchain and big data to improve operational structures with the ultimate goal of partnering with incumbents or becoming profitable enough to sell. The fund has so far invested in eight companies: Digital Assets Data, LifeYield, Micronotes, Mirador, Netcapital, Student Loan Genius, TowerIQ and Vestmark, according to company data.
“Incumbent financial services operators need to cut costs and dramatically improve the customer experience in order to stay relevant and thrive in the midst of this wave of change,” says Casady.
But, Vestigo has a lot of competition. U.S. fintech investments expected to surpass last year’s levels, says KPMG Pulse of Fintech study. Funding topped $ 14 billion out of 427 deals in the first quarter of 2018, supported by an increase in venture capital funding that topped $ 5 billion, according to the study.
“There are more venture capital flows available than investment opportunities,” says KPMG CFO Safwan Zaheer, “a sign of tremendous growth in the space”.
Financial planning spoke with Casady about the fintech startups that make the most noise and where he would bet on the future of digital wealth management. The following interview has been edited for length and clarity.
Which companies have the most strengths?
What we’re looking for are companies that typically partner with incumbents – with banks and asset managers, basically a B2B model – to solve a very specific problem. Stuff like KYC issues or some sort of processing functions or investment needs. The answers usually involve AI.
For example, TowerIQ helps insurance agents work with commercial accounts. The company searches for data, and after securing a number of customers, begins to get a feel for what the market looks like. This information becomes a very valuable asset. They bring this data together and talk to companies that want to use it.
Another company, Micronotes, helps banks identify consumers who are already customers of the bank, want to buy a new car or expand their home. By examining data on customer activity and using predictive AI, the technology identifies if the customer is undertaking an activity that appears to want to add to their home in the next six months. The next time they log in to check their account balance, there will be a simple one-question survey to see if they are interested. It’s actionable insight for bankers to reach out to customers.
What do you see evolving in the fintech industry over the next two to three years?
It will be about the emotion of money and less about money management. Customers can benefit from managing their investments very cheaply, and they know it. It used to be enough to say, “Let me tell you why I’m a senior planner. But, technology has erased most of that competitive advantage. At LPL, the best advisors who had the highest growth patterns, with the most satisfied customers as measured by JD Power, doing it right, were the advisors who actually engaged customers around the meaning of the ‘silver.
So what is the meaning of money?
If you’re trying to retire at 60 and need $ 5 million to do it, let’s talk about how we get there – not the mechanics. You need help saving more, or changing your spending habits and taking steps to take more risk. The main thing an advisor sells is not the return, although that is very important. It is satisfaction and stress relief.
I am not the least bit moved by the management of your money, but very moved by mine. It’s human nature to have a reaction when the market goes up or down, and when it goes up we are too optimistic and when it goes down we are too pessimistic. We all know the stories of tough markets like 2008, and the advisors have done an incredible job with clients to keep it up. It is about the emotion of money.
Which companies will be the big winners?
The financial services market is huge and people sometimes forget it. Some people want the financial part to be with a financial planner and the banking part with a banking institution. It’s a whole segment of the population. Others just want to be able to do it all in one place. The size of the financial services environment in the United States is enormous. There will be several business models that can be successful.