The wealth management industry is behind the digital curve compared to other parts of financial services. There aren’t any noteworthy innovations in financial assets subsequent to the subprime crisis, which tainted structured products.
ETFs are most certainly the only one item that has scaled and gained broad acceptance, especially in the US. Europe follows only because investment advice is delivered mainly through banks rather than financial advisors and because tax harvesting is not tackled systemically; and for Asia money market funds and structured products make more sense. The focus on costs due to the extended ZIRP environment and the tough macro environment which result in the reduction of expected returns, has been contributing to the ETF growth too. Robo-advisros are scaling in the US. The most recent numbers are showing Vanguard with $36 Billion; Schwab intelligent portfolios with $8billion and Betterment with $5billion.
I am in monitoring mode on two fronts in this space: (a) In the standalone robo-advisory space, I am watching to see whether there will be a way to scale the business (Betterment is the only evidence right now but it is VC backed and needs to prove the ROI); (b) Will there be an innovation disrupting the ETF bread & butter (low cost, tax efficient, intraday settle) and fueling the disintermediation of the investment management business model as we know it today?
I had taken an initial look at this second topic last October, in FinTech-Ing in ETF space: Growing AUM, shrinking fees, and crypto-currencies. Since then, the passive ETF segment continues to grow. BATs is empowering this in the US. Europe and Asia, however, remain stagnant on that front.
Low cost, active, the big threat to the value proposition of traditional asset managers and hedge fund managers; has been having serious distribution problems simply because that space is controlled by the Big guys. No Fintech has been able to penetrate the traditional distribution channel.
One way this may happen is once the incumbents decide to cannibalize their own business. I look for signs of this and found three.
From New York, Ark Invest the Fintech that is focused on creating thematic, transparent, active funds (which I have mentioned here) has sold a minority stake in American Beacon who is focused on selecting managers and acting as a sub-advisor.
From Canada, the technology company Aequitas Technology Solutions had launched late last year a Fintech platform, the Platform Traded Funds (PTF). The platform offers investors NO minimum access to low cost, actively managed funds which settle on the platform like exchange traded funds. Retail and financial advisors can use the platform. Aequitas claims that on top of the “no minimum” offer, savings are around 35% compared to traditional mutual funds. The first large provider that was on boarded is Invesco Canada. So, Invesco will offer all it actively traded products on the PTF platform.
An incumbent who is cannibalizing its business on many fronts. It launched a robo advisor which we mentioned in our Spring videographic update on the robo-advisor trends and now is moving into actively managed funds.
From the US, Eaton Vance launched NextShares earlier this year and the market is watching to see the success of this product, which is an actively managed, low cost wrapper (much like an ETF which is typically passive) with intraday liquidity and tax efficiencies but delayed disclosure of their holdings. There are three NextShare products for now, trading on NASDAQ.
- Global Income Builder NextShares
- Stock NextShares
- TABS 5-to-15 Year Laddered
Municipal Bond NextShares(EVLMC)
NextShares, recently became available on the UBS Financial Services which makes UBS, the second large firm embracing NextShares for their financial advisory network. UBS asset management is also expected to launch their actively managed wrapper after seeking approval from the SEC.
Interactive brokers is also embracing the Eaton Vance Nextshares but maybe launched their own too.
The move from Eaton Vance is significant because they are shifting towards becoming a platform by offering revenue sharing with other firms and accessing their financial advisory network. These moves are also empowering financial advisors with more tools that enable them to become low cost and efficient discretionary managers.
Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.