The Continued Shift in Financial Advisor Technology

This post is a continuation from my original in 2019. I’ll quickly cover my initial hypothesis and provide any updates, then move into what I believe may be coming down the pipeline in this exciting space. If you haven’t read the initial post, it may be worth quickly pursuing that first.

  • VC investments have hit a 5 year low in WealthTech businesses (even more for FinTech).
    • Since 2019, the tides have flipped. 2020 was also a low year and can be attributed (but not limited) to the global pandemic. Yet Q1 of 2021 alone saw greater capital distribution than all of 2020 combined – coming in at $5.6BN.
    • Of the 86 deals that took place, nine were over $100M. You can attribute the large influx of capital distribution to those nine figure deals, as well as the capital being deployed into retail investing platforms. A large number of new scale PFMs captured capital.
  • There’s a resurgence in the utilization of Turnkey Asset Management Platforms (TAMPs) that originated 25+ years ago.
    • Since 2019 I would say that there has been a slight consolidation in the TAMP market. Assets still continued to stack, but since the original post, Orion has merged with Brinker Capital, forming $40BN in managed assets. AssetMark announced its $145M purchase of Voyant; Envestnet acquired Harvest Savings; Orion acquired HiddenLevers; and SEI acquired what must be Oranj’s tech platform.
  • FAs are changing the way they manage clients and their assets.
    • The largest difference on this is that Covid happened shortly after I posted. This has made the way that FAs interact with clients much different. Most notably, by leveraging video conference capabilities. But this not only was palpable for FAs and their clients, but just about every human who was in some sort of professional setting. Early movements out of this were companies like Verizon quickly buying up the BlueJeans for $500M.
    • Fee compression continue across the board (which is not new), and differing products continue to sprout. Most notably in digital assets. Companies like OnRamp who help FAs navigate the digital asset space for their clients.
  • There’s a select number of companies targeting FA pain-points who are growing quickly.
    • This is more difficult to track, as companies do not state their metrics publicly. But the growth of companies that continue to build in a white-label / multi-tenant product offering continues. Flows continue to be deployed as well. Companies like InvestSuite for white labeling, Bambu for APIs, and then LiveOak (who DocuSign acquired) continue to grow and offer pain point specific solutions.
  • Non-traditional tech offerings are now being successfully targeted and used by FAs.
    • I haven’t seen much movement in adoption beyond the technologies being leveraged to conduct business in a virtual manner. Although, I do not believe that FAs have had the luxury to experiment beyond what’s necessary given how dramatic the pandemic hit us all. The ways we all work changed, and mastering that became center. Although, newer and easier tools like Lexion for CLM and other tooling suites are likely to help execute internal operations.

What’s of particular interest to me these days is the defi space and the applications it can be leveraged against in the world that traditional financial services reigns. Some are the following when it pertains to the advisor space:

  1. DeFi crypto index funds
    1. Providers like Bitwise offer an index or basket of protocol tokens. FAs can access these newer types of vehicles if ease of access and diversification is what they are seeking. More types of these are being created annually as well. But time will tell when it comes to mass adoption or just niche; as well as if this is what’s best for clients.
  2. Central Bank Digital Currencies
    1. CBDCs are an entry point that FAs can focus on for both access to and education for programmable money. The fed is exploring a digital dollar, and as with any CBDC, the supply as well as control is different than your traditional digital asset.
  3. Digital asset loans
    1. A large number of individuals hold digital assets. Not everyone is open about it yet. But financial advisors would/ should know if their clients have any – and therefore they have an opportunity to help clients loan our their crypto. Companies like HES are targeting the space and trying to be enablers for most any industry and target.
  4. Education (a must)
    1. The worse thing an FI or anyone org can do it be poorly versed in this space. A client will purchase digital assets regardless, and servicing that client properly is what matters. There are a few licenses being pushed as ‘certs’, but those hold less value than the weight of the paper being printed on. What I’d recommend is to begin reading voraciously. Below are a few papers to get started:
      1. But how does Bitcoin actually work
      2. Etherum in 25 minutes
      1. Death of the firm
      2. The myth of the irrational token holder

Some sources I read for this post:

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