schapiro ken presentation final - fpa norcal · •crm. fpa norcal conference opportunities for...
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FPA NorCal ConferenceFPA NorCal Conference
DigitalAdvice
TheTransformativeEffectRoboandDigitalAdviceareHavingon
theIndustry
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FPA NorCal ConferenceFPA NorCal Conference
BiggestMisconception:WhyRobosarelikeHeli-Skiing
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FPA NorCal ConferenceFPA NorCal Conference
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FPA NorCal ConferenceFPA NorCal Conference
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FPA NorCal ConferenceFPA NorCal Conference
BiggestMisconception:WhyRobosarelikeHeli-Skiing
• RoboInvestingisLikeHeli-Skiing• Notcomplextradingalgorithms• Passiveindexstrategies• Most“robotic”partisonboarding
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FPA NorCal ConferenceFPA NorCal Conference
WhatisRobo-Advice• Providersofalgorithmicallydrivenautomatedfinancialadviceandinvestingservices
• Automatedaccountopening• Automatedrebalancingandtax-lossharvesting• PioneeredbyBettermentandWealthfront
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FPA NorCal ConferenceFPA NorCal Conference
Definitions
• PureorDigital-OnlyRobo:Aproductorofferingthatdoesnothavetheoptiontospeaktoliveadvisors• HybridRobo:Aservicethatcombinesdigitaladviceandtheabilitytospeakwithliveadvisors• IndependentRobo:Notanofferingfromanestablishedfinancialservicesfirm
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FPA NorCal ConferenceFPA NorCal Conference
GrowthofanIndustry
• Over$200BillioninAUM• Largefinancialinstitutionsaddingroboadviceproducts
• ManyofferingsYoYAUMgrowthatorabove100%
• Stilllessthan1%oftotalUShouseholdfinancialassets
• $1trillioninAUMby2020(AiteGroup)• WorldwideAdoption
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FPA NorCal ConferenceFPA NorCal Conference
TheMisconception#2:Onlylowassetandyoungclients
• Percentofclientsoverageof50:– VanguardPAS:~85%– SchwabIntelligentPortfolios:>50%– MerrillEdgeGuidedInvesting:>45%
• 40%ofPersonalCapital’sAUMisfromclientswithover$1millioninvestedthere
• Vanguardhasa$50kminimum• Dependsontherobo,someofferingsskewmuchlower(Acorns,WiseBanyan)
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FPA NorCal ConferenceFPA NorCal Conference
TheMisconception#3:Traditionaladviceclientsareflockingtorobos
• Attractionisstrongesttonew-to-investingclients– Firsttimeinvestors–Previouslyselfdirectedinvestors
• Robosaregainingmarketsharebyexpandingmarketsmorethanstealingsharefromtraditionaladvice
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FPA NorCal ConferenceFPA NorCal Conference
Transformativeeffect#1:Onboarding
• Mostinnovativeaspectofroboadvice
• Marketingdifferentiator• Costofcustomeracquisitionmuchloweratroboadviceproviders
• Currentadvisoronboardingprocessesareoutdated
• Clientparticipationinonboarding• Mostefficientprocessinindustry
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FPA NorCal ConferenceFPA NorCal Conference
Transformativeeffect#2:DigitalClientCommunication
• Clientcommunicationthroughpersonalizedemails
• A.I.basedonengagement– Eventdrivencommunication– Communicatingrightinformationatrighttime– Leadstobetterdecisionmaking– Adviceonhomepurchase,education,weddingsetc.
• Masscustomization=Efficiency• Modelsallowportfoliospecificcommunicationatscale
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FPA NorCal ConferenceFPA NorCal Conference
Transformativeeffect#3:PriceCompression
• Betterment–DigitalOnly:0.25%–Hybrid:0.40%
• Vanguard–Hybrid:0.30%
• Schwab–DigitalOnly0.00%–Hybrid:0.28%
• WiseBanyan–DigitalOnly:0.00%
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FPA NorCal ConferenceFPA NorCal Conference
Transformativeeffect#4:Branding• Shiftingpowerfromadvisorbrandtocompanybrand
• Youngroboinvestorsareattachedtothecompanybrand
• Robosarethenewestproprietaryproduct
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FPA NorCal ConferenceFPA NorCal Conference
BrandingCont.:DiscountBrokersvs.Wirehouses
• DiscountBrokershavemasteredbrandingtothecompany
• Atwirehousestheadvisorbrandisoftenstronger
• BrokerProtocol• Roboshelpbrandtothecompany
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FPA NorCal ConferenceFPA NorCal Conference
Transformativeeffect#5:EmergenceofHybridAdvisor
• VanguardPAShas~4timestheAUMasnextclosestRobo
• Strongtrendtowardshybridofferings
• Helpsrobossegmentmarkets• Investorscan“graduate”ifcomplexityofsituationchanges
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FPA NorCal ConferenceFPA NorCal Conference
Transformativeeffect#6:MarketSegmentation
• Differentinvestors=Differentneeds• Robosofferingdifferentlevelsofservice–Bettermentnowhasliveadvisors
• Clientscan“graduate”tohigherlevelsofserviceifsituationchanges• Helpsexplainrapidadoptionbyincumbents
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FPA NorCal ConferenceFPA NorCal Conference
Transformativeeffect#7:MarketExpansion
• Besttractionwithnew-to-investingandself-directedinvestors• Expandedaccessibilitytoprofessionaladvice• Impliesroboadvisorsareexpandingsizeofmarketforadvice• Meanslesscompetitionwithtraditionaladvicethanmany
believe
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FPA NorCal ConferenceFPA NorCal Conference
MarketExpansionCont.• TotalMarketofUSinvestors:~135MillionUSAdults• ~65millionadultswhohavelessthan$100kininvestable
assetsbutareinvestedinthemarket.– Adultswithlessthan$100kininvestableassetsmakeup71%of
theUSadultpopulationbutonly4%oftotalinvestableassets.• ~25millionadultswithatleast$500kininvestableassets
– Represents~80%oftotalhouseholdinvestableassets• ~70millionadultswithatleast$100kininvestableassets
– Represents~95%oftotalhouseholdinvestableassets
EstimatescreatedfromUSCensus,Gallup,andCerulliAssociatesdata
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FPA NorCal ConferenceFPA NorCal Conference
0%
10%
20%
30%
40%
50%
60%
70%
80%
>$20Million $10- $20Million $5-$10Million $2-$5Million $500k- $2Million $100k- $500k <$100kInvestableAssetsperHousehold
InvestableAssetsbyWealth
%ofTotalUSInvestableAssets %ofTotalUSHouseholds
MarketExpansionCont.
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FPA NorCal ConferenceFPA NorCal Conference
Transformativeeffect#8:VCbackeddisruption
• Buyingmarketsharewithoverlycompetitiveprices• Manyiterationsofroboproductsduetolargeupsideandscalability• Customeracquisitionscostsaslowas$20-$50butmoretypicallyinthe$100’s
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FPA NorCal ConferenceFPA NorCal Conference
TransformativeEffect#9:OnlineFiduciary/RIA
• Unprecedenteddefinitionoffiduciary• Transforminghowwethinkofadvisorsandtheroleoffiduciary
• Manyresponsibilitiesonclienttoprovideaccurateinformationandunderstandlimitationsofroboadvisors
• Digital-onlyonlinequestionnaireshavenotbeenstruckdownduetosuitabilityrequirements
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FPA NorCal ConferenceFPA NorCal Conference
TransformativeEffect#10:NonFinancialFirms
• Reducesbarriersofentryforprovidingadvice
• Needminimalcapitalmarketsoradvisorexpertisetolaunchadigitalonlyproduct
• Overstock.com• WillGoogleorAmazonfollow?
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FPA NorCal ConferenceFPA NorCal Conference
Transformativeeffect#11:AccountAggregation
• Notjustrobos:Banks,Fintech,etc.• Consolidatedfinancialpicture• Holisticadvice• Funnelassetstowardsadvisor• Increasedvisibility=Increasedopportunities–PossibletoleverageA.I.foropportunities
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FPA NorCal ConferenceFPA NorCal Conference
Transformativeeffect#12:ModelsandScale
• Modelsmakeportfolioconstructionscalable• Makesportfoliospecific,masscommunicationpossible
• Allowsrobostomassmarketandkeepminimalbackofficesupport
• Possibleforoneinvestmentcommitteetomanageinfiniteaccountsandclients
• Useofmodelsgrowinginotherareas(modelmarketplaces)
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FPA NorCal ConferenceFPA NorCal Conference
Transformativeeffect#13:Comparability
• Wideruseofmodelsopensthedoorforcomparisonsatmanager/advisorlevel– Accountscanprovideawindowintoadvisor’spractice
• Littletonoaccessibleperformancedataonadvisors
• LowadoptionratesofGIPS• Increasedtransparencyisgoodforclients• Transparencyandcomparabilitywillbringdisruption
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FPA NorCal ConferenceFPA NorCal Conference
ComparabilityCont.:BackEndBenchmarking&TheRoboReport
• Openedaccountsatlargestmostprominentroboadvisors
• Publishesperformanceandreviewsofservices
• Coveredin:WSJ,Barron's,Money,InvestmentNews,Kiplinger's,AAIIandmanymore
• BringstransparencytotheRoboadviceindustry
• SuperDisruptive
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FPA NorCal ConferenceFPA NorCal Conference
TheRoboReport
• Dispersionofassetallocations– Internationalrangesfrom20%toover50%– Largerdifferencesinfixedincome
• Valuetiltiscommon,growthtiltisrare• Typicallysimpleportfolios–Vanguardhasonly5ETFs
• Verylittletrading
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FPA NorCal ConferenceFPA NorCal Conference
TheRoboReport
• Schwabhasmostconsistentoutperformance• AcornsandWealthfronthavelaggedthegroup
• Leaderalmosttripledlaggardreturnsinfixedincomeovertwoyearperiod
• Equityperformancevarieswidelyquarterlybuthasrevertedtothemeanovertime
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FPA NorCal ConferenceFPA NorCal Conference
TheRoboReportRecentResults
• Diversityinfixedincomeportfolios(Global,High-Yield,etc.)
• Activestrategies/fundspostedstrong1stquarterresults
• AcornsandStashlargestnumberofclientsbutsmallestaccountsize
• VanguardandSchwabhavelargestAUMbutmanywereexistingcustomers
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FPA NorCal ConferenceFPA NorCal Conference
TheRoboReportRecentResults
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FPA NorCal ConferenceFPA NorCal Conference
OpportunitiesforTraditionalAdvisors:Efficiency
• Models–Possibletocustomizeonaperclientbasis
• Tradeordermanagementsystems• Transferofaccounts• Onboarding• Ismybusinessmodelscalable?
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FPA NorCal ConferenceFPA NorCal Conference
OpportunitiesforTraditionalAdvisers:DigitalCommunication
• Blogs• Massemails– Canbecustomizedbyportfolioorothergroups
• Reusablecontent• Articles• Onboardingprocess• CRM
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FPA NorCal ConferenceFPA NorCal Conference
OpportunitiesforTraditionalAdvisers:RoboAdoption
• WhiteLabelProviders:Betterment,Schwab,Jemstep,SigFig,FutureAdvisorandmore
• Ofteninvestmentoptionorotherrestrictions• Howdoesthisfitintomybusinessmodel?• Needtoachievescaleandamarketingplan• Fitexistingneedforyoungergenerationorlowassetsclients
• Possibletoexpandclientbase
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FPA NorCal ConferenceFPA NorCal Conference
OpportunitiesforTraditionalAdvisers:DefineandDefendValueProposition• 20/20/20BPSfor$2millionrelationship– PortfolioConstruction– FinancialPlanning– Relationship– Trendingdownwards
• HowdoIstanduptoVanguardsofferingwhichcosts30bps?
• Doyouofferplanning?• Whatothervalue-addservicesaboveandbeyondahybridrobodoyouoffer?
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FPA NorCal ConferenceFPA NorCal Conference
OpportunitiesforTraditionalAdvisers:Aggregation
• Holistic=Betteradvice• Visibility=Opportunities• Candifferentiateanadvisor• Abilitytostudydirectcompetition• Highvaluetoclients
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FPA NorCal ConferenceFPA NorCal Conference
WhereisRoboAdviceHeaded?• OnlyafewindependentRoboswillsurvive– Costofcustomeracquisitionandbrandrecognition– Needformassivescale– Increasedcompetition– Incumbentshavemorerevenuestreams
• Permanentfixtureofadvicelandscape• Furtherintegrationofdigitalandtraditionaladvice• Pricingpressureacrosstheindustry• Pressuretraditionaladvisorstobeefficientandprovidevalue
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FPA NorCal ConferenceFPA NorCal Conference
TheFutureofData
• Aggregationallowsforunprecedentedviewintoaclient’sfinanciallife• Alsoallowsaviewintooutsideadvisorsstrategiesetc.• Marriageofinvestingandtransactionaldata• Whoeverhasthemostdatawins
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FPA NorCal ConferenceFPA NorCal Conference
BeyondTheRoboReport:BackEndBenchmarking
• Developingapersonalfinanceappwiththegoalofbringingtransparencyacrossthefinancialservicesindustry
• Willleverageuseraccountstocrowdsourcedataonadvisors,services,andproducts
• Robustbenchmarking,planning,budgeting,performance,andsingleviewofuser’swholefinancialpicture
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FPA NorCal ConferenceFPA NorCal Conference
Returninsightsfromuserdatabacktothecommunity
– Peercomparisons• Performance• Investmentselection
– Advisorcomparisons• Fees• Performance• Strategies• Services
– Strategiestomodifyinvestorbehavior– Provideusertransparencyoffinancialservicesindustry
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FPA NorCal ConferenceFPA NorCal Conference
BeyondTheRoboReport:BackEndBenchmarking
• Disruptionthroughtransparency• Unbiasedthirdpartyopinionforinvestors• Arbiteroffinancialservicesindustry(nocustodyofassets)• Seekingfundingin3rd and4th quartersof2018