Fintechs chasing the Unadvised assets that are up for grabs

By Efi Pylarinou

billion dollars…

hundred billion dollars…

Eight hundred billion dollars…

One TRILLION dollars…

The last time I was hassling in my head with trillions, was when blogging about yet another US debt ceiling rise in 2011. If you are a visual thinker there are dollar stacked images of the one million millions, so you get a sense of a trillion.

Switzerland had 2 trillion of assets under management (AUM) by the end of last year. Holding the first place worldwide and followed by the UK and the US. Deloitte’s recent report states:

“The market volume growth is driven mainly by capital market performance, not net new client assets. Overall, international wealth management centers experienced an outflow of 23% client assets, while Switzerland lost 7% of assets. And there are further challenging news: The overall profit margin for Switzerland has decreased to an estimated level of 24 bps in 2014 (against 40 bps in 2008). Daniel Kobler comments: “Swiss providers face some challenges on both revenue realization and sustainable cost management.”

Around the main stage, newcomers are threatening to grab a piece of the pie: robo-advisors of all sorts, generation 1.0, 2.0, or 3.0; passive or active; purely automated or hybrid; investment advisors or financial planners; from those targeting unbanked retailers to those working with independent advisors.

How large is the pie? Which pie? What are the revenues and profit margin specs? Don’t get me wrong, I am not thinking of launching some type of robo-service but simply thinking out loud with back of the envelope calculations that “show and tell” about this business.

Pick a napkin and start sketching, use squares for billions and balloons for trillions for AUM with wealth managers.

So, 2 balloons for entire Switzerland. One balloon and 4 squares for the US.

Assuming the profit margin proposed by Deloitte of 24bps for Switzerland, that means profits of nearly 5 squares (4.8bil).

I am not sure what profit margin applies to the US, but you get the idea for the pie of “assets that are taken care of from a wealth manager”. These are like the kids that go to private schools.

Now, lets look at the kids that go to public school (which of course is the large part of the market). Those are the assets that are invested, probably in some mutual fund, but are unadvised. Figures from the US are reported to be close to 13 Balloons (13 trillion)!

And then the kids that don’t go to school. Those are the assets that sit around in cash – looking for a number.

What I am wondering on this long long day of summer solstice, is who will win this “up for grabs” pack of balloons. In the US alone, it is close to 15 Balloons and 13 of them are really “up for grabs”.

Those salivating are not the traditional wealth managers but the Fintechs that are being funded handsomely from the VCs. Wealthfront, Betterment, and Personal Capital – just to name a few – have already gotten $100million (100 Dots lets say, a Dot for $1 million) in funding each. Wealthfront has accumulated in 3 years, 2 squares AUM ($2billion). How to get to a balloon at least? Because, with 2 squares under the roof and fees of 25bps, you can only show revenues of 5 Dots. How are you going to produce some meaningful revenues (per year)? Lets say, at least the quarterly revenues of Lending Club, which are close to 70 Dots. You need to accumulate 28 Squares (x14 of AUM). And to reach and match the projected annual revenues of Lending Club, you would need 112 squares AUM.

Personal Capital, who is a hybrid robo-advisor, manages 1 square AUM but with a considerably higher fee of 89bps. So, revenues are close to 9 Dots.

Vanguard who manages 3 balloons in total, has already 17 Squares under the roof of their hybrid Robo advisor. 10 Squares were moved from their old business and 7 were new monies. With 30bps fees, they can show 51 squares of revenues from their robo-advisor business.

More than 15 Balloons are floating around the US and are “up for grabs”

I see one or two “Vanguards” and two-three Fintechs sharing the Balloons. Consolidation will come. The Fintechs that will emerge as standalone robo-advisors will have 2-3 Balloons AUM (2-3 Trillion each) and their models will become hybrid so that their fees are not flat across the board at 25-30bps. I foresee a weighted average of fees settling around 75bps.


  1. The Vanguards, JP Morgans, BofA, E*trades etc have established relationships with the influence peddlers that direct large chunks of money – so they have an AUM acquisition cost advantage over the newer FinTech investment firms. Further – nothing is stopping the established players from sitting back and cherry-picking the UX and other business advantages that FinTech is using to attract assets at the granular level. Simply put – the established players are going to make it very expensive for the newbies to come onto their turf and steal their relationships. I lean towards thinking that FinTech (investment oriented) ROI figures will not be as rich as other “disruptive” endeavors the SC VC are used to. While not exactly apples-to-apples, a history of the last 30-40 years of the retail futures industry would be a good read for believers in the high volume, low-cost, low-margin business model of some of the new players in the investment space.

  2. Good question raised. Would have been great if the author had not used balloons/squares etc. and just used plain numbers. It adds another layer of abstraction and makes it sound like people don’t understand billions or trillions.

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