The Shift In Financial Advisor Tech

There’s an interesting startup -> scaleup company trend happening in the financial advisor (FA) space. With it we’re going to start and see more pre-growth to growth stage companies becoming integrators and offering bespoke products that will be acquired early in their journey to growth. On the flip side, there will be less single product offerings marketed to FAs. The acquirers are going to either be large incumbents or the WealthTech/ FinTech platforms who already have loyal FA bases. At the moment, it’s an even playing field. It’s also important to remember that it’s much easier to offer a new product than convince a customer to switch from an existing one they’re already using.These interesting trends are converging to make a niche playing field:

1. VC investments have hit a 5 year low in WealthTech businesses (even more for FinTech). This isn’t surprising, especially when it comes to any WealthTech or FinTech business targeting FAs. The addressable market is only around 300k in the US. A majority of the startups targeting FA’s won’t become unicorns or decacorns; a majority will fold, the others will be sold between $10’s to $100’s of millions, or continually run as profitable businesses. Also, WealthTech and some specific (and complicated to pin) FinTechs are also choosing not to relinquish equity and take on debt instead. This is seen through the growth of not only Silicon Valley Bank, but also Brex and even ClearBanc.
2. There’s a resurgence in the utilization of Turnkey Asset Management Platforms (TAMPs) that originated 25+ years ago. These are platforms which provides investment models (another high growth area) through a marketplace (think Craigslist circa ’05) that FAs can choose to essentially be a one stop shop for clients, as well as other relevant technology. It’s interesting to note that this name is dated and doesn’t capture what the platforms are now capable of. Some people have been calling them DAMPs, Digital Asset Management Platforms, but this also sounds… wet.
3. FAs are changing the way they manage clients and their assets. There’s a movement towards individual FAs paying for more bespoke value-add capabilities (client facing) and less, say, portfolio construction (which is becoming a commodity).
4. There’s a select number of companies targeting FA pain-points who are growing quickly, amassing large amounts of clients through their white-label, multi-tenant product offerings and amassing either large buckets of advisors or some AUA, or both.
5. Non-traditional tech offerings are now being successfully targeted and used by FAs, which works perfectly. Technology solutions bleed into many user bases. For example, encrypted email that the advisor can use to send material to their clients. Currently the FA needs to have a client portal when they share sensitive information, or even send information from. But offering a service that allows the FA to simply encrypt an email to a client allows them to directly access their information. This is done without creating a username or password and accessing another app or landing page removes a step. Zix, supported through the acquisition of Erado and Greenfield Data is a good example of this capability and how they are one of the growth companies acquiring bespoke offerings tailored toward users. They’re creating a mini bespoke marketplace.

The movement of VC investment dollars into WealthTech SaaS based companies has dropped to a 5 year low, according to the most recent CB Insights report.

It’s important to note that all of these movements point to an unbundling of services (to bundle or not to bundle…) and also a change in money movements. People are still building great companies, the exciting job is finding the gems who others haven’t yet. FA’s are acting in a certain way and the firms are listening (startups to incumbents).