15 Nov 2016 6 fintech firms transforming the way consumers invest
It is safe to say that, traditionally, wealth management hasn’t been a particularly accessible industry for banking customers. To most even the term ‘wealth management’ brings to mind images of bronzed billionaires sipping champagne on lavish yachts rather than the idea of easily accessible financial services products. Yet these are exactly what many fintech firms are helping create in the wealth management space. The shift to towards digital banking has allowed a growing number of technologically-enabled and innovative players to democratise the wealth management space, making access to lucrative returns on savings and investments available to all.
Wealthfront, Lufax, Wealth Migrate, Robinhood, Crowdcube and Motif are 6 companies in the wealth management fintech space helping to make this happen.
One of the players at the forefront of the democratic revolution in wealth management is Wealthfront, a US-based platform whose aim, according to CEO Adam Nash, is to provide all their customers, regardless of assets, with the level of service and customisation formerly reserved for the ultra-wealthy. They provide a broad range of flexible and accessible globally diversified portfolios of index funds, along with tax-loss harvesting advice at rock bottom rates – just a 0.25% annual advisory fee, with the first $10,000 deposited managed for free.
How do they manage to make this service affordable? Wealthfront is a pioneer in the field of robo-advisors and they are able to pass savings straight onto their customers through providing personalised advice via automated and algorithmic means rather than through costly relationship managers. Wealthfront currently has $3 billion under management
Fintechs from Asia – and China in particular – have recorded astonishing growth in value and customer numbers and their performance in the wealth management space is no different. One of the most prominent of these is Lufax, an investment management and peer-to-peer lending platform focusing on matching borrowers with aspiring investors, and providing them with risk management expertise, financial asset trading information, and related investment consulting services.
Lufax leverages big data to provide this, utilising customer information to build market- leading risk assessment models to pass the advice generated onto customers, delivered through digital channels. Valued at $19 billion following its latest funding round in January, they are currently planning to float on the Shanghai Stock Exchange, with an IPO predicted for early 2017.
3. Wealth Migrate
Along with democratising access to wealth management services, fintech has also allowed investors of every level access to investments and assets around the globe, previously the preserve of the super-rich. South Africa’s Wealth Migrate combines both of these trends, providing an online portal and platform to allow its members access to exclusive real estate investment opportunities in prime markets across the world.
Wealth Migrate’s use of tech is based on providing transparency to a previously opaque industry, providing a single hub for real estate investors to manage their portfolios (which can range from multiple properties to just $100 of investment), and leveraging economies of scale, along thousands of investors to buy small pieces of huge property assets, and gain access to returns of up to 20% in the process. Wealth Migrate currently has $65 million in assets under management, and recently begun accepting investors from the UK and China.
Another effect of the democratisation of the wealth management space has been the emergence of trading platforms aimed at investors unwilling or unable to pay the large trading charge required by traditional online players. A number of these players have already carved out profitable niches for themselves, from passive investment platform Nutmeg to social trading platform E Toro. Although providing often innovative services to customers at low rates, none of these have yet fundamentally departed from traditional revenue models of charging a percentage on trades or investments.
So step forward Robinhood. A California based fintech start-up with $66 million in funding; Robinhood is attempting to redefine the wealth management revenue model by allowing their customers to trade stocks with no fees. Generating revenue is not yet a central part of Robinhood’s business plan (they are attempting to follow the Amazon model of undercutting rivals and forcing them out of the market). But, they have recently begun to offer paid margin accounts to supplement their funding. There has been huge demand for Robinhood’s services within the US, with a waiting list of 500,000 people as of March 2015. The market Robinhood serves is also overwhelmingly young, with 80% of the firm’s customers being under 30, demonstrating the ability of fintech to broaden the appeal of wealth management to new demographics.
The democratisation of the wealth management space is not only taking the form of increased accessibility to investment products, but also allowing smaller investors greater control over what they invest in. Crowdcube is an investment crowdfunding platform, where investors of any size can handpick the business they want to back and invest in. Companies trade investment for equity, which crowd funders then receive depending on their percentage contribution to achieving the funding target. The average investment sought it around £440,000 and, when successful, the amount is raised by an average of around 250 investors.
Based in the UK, Crowdcube was the first investment crowdfunding platform of its type. Success stories include Camden Town Brewery, which was acquired by AB InBev just 8 months after its raise on crowdcube, and Monzo, which recently raised £1 million in just 96 seconds. Crowdcube has raised £192 million of crowdfunding to date.
Along with crowdfunding platforms, the customisation of investment that has gone hand in hand with the democratisation of the space has also allowed investors to tailor investment in more popular stock and assets, tailored to their own interests, with increasing ease. Motif, an investment platform specialising in creating and offering tracker funds geared towards investment in a certain industry or asset class is a key example of this. Founded in the USA in 2010, Motif has raised $120 million from investors to date.
Along with Motif’s self built products, ranging from baskets of stocks related to the clean energy and IT industries to more playful products such as their ‘Lots of Likes’ basket, which weights investors money towards the companies with the most total likes on Facebook, Motif also encourages investor customisation. Any investor can create a basket of stocks, or a ‘motif’ and offer it to any other investor on the platform, with 18,000 user created bundles created thus far. Motif also combines this customisation with democratisation, charging only $9.95 to invest in tracker, a fraction of the costs charged by traditional investment management companies.