In the 1970s, Charles Schwab disrupted the advice industry by offering prices as low as $70 per trade, undercutting traditional Wall Street brokerage firms. Since then, Schwab has grown to over $2 trillion in assets, including its RIA business. Today, discount brokerages such as E*TRADE, Vanguard, and Fidelity are continuing to lure assets away from large, traditional Wall Street firms by appealing to customers who want lower fees or more control over their savings.
We may be at another turning point in the market following the financial crisis, as a wave of new startups is trying to redefine or refresh traditional models of wealth management. Their services are priced to sell, and traditional firms have not been able to deliver the same quality of customer experience as these startups, in part due to their inability to adapt their infrastructure quickly and their reliance on the slow pace of adoption of the new players and their offerings. Many of these emerging players cater to the "mass affluent" investors with $100,000 to $500,000 in investable assets, who the traditional private banks and retail brokerages have struggled to serve effectively.
While new fintech companies in the market serve various customer types and needs, we have observed a convergence in what these players offer. For example, SigFig initially offered customers the ability to aggregate their investments and monitor their portfolios, but has since expanded to include an automated investment management product to diversify its revenue stream. Covestor started out as a "peer platform," but has added features of a "holistic aide," offering a needs analysis that helps customers narrow down which investment managers are best suited to their needs. Learnvest has evolved from a "holistic aide" that connects investors with advisors to a "neo-traditional" offering, launching an institutional business serving asset managers.
The rise of these emerging players has served as a wake-up call for traditional wealth management firms. We believe that the best of the incumbent firms will figure out how to adapt their businesses to acknowledge the power of digital technologies and business models, while leveraging their brand and reputation, which continue to be critical in wealth management. In future articles, we will continue to track the progress of these disruptive models and assess their underlying economic rationale and sustainability.
Please note that nothing in this article is intended to be investment advice. Investment in the stock market involves a risk of loss, and past performance is no guarantee of future returns.
Nothing herein is intended to be investment advice. Investment in the stock market involves risk of loss. Past performance is no guarantee of future returns.