2 Tug-A-Wars and 3 trends in Digital wealth

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Abaka  conversational AI for financial advice

I took the rolling escalators to the Gallery at King`s Place where the annual Robo investing 2day conference takes place, thinking about

FFI

  • The frustration of the asset management professionals whose margins are squeezed and are forced to go after volume; while customers continue to doubt what value they add.

fees

Investors saved $5.5 billion in ETF and mutual fund fees, in 2018! A 6% decline in fees. Since 2000, the cost of fund investing has been cut in half!

  • The increasing Customer acquisition costs and Customer retention costs for the growing fintechs (from neobanks to `robo-advisors`) ranging around $300-$350.
  • The mounting Retirement burden for consumers and the increasing Gap of advice. In the UK there is one financial advisor for 163 baby boomers and this underserved gap is widening.
  • And most of all, where are we in the transformation of the Financial sector from a products sector to a 100% Advice sector? Advice being the last Man standing, as Gary V. has said and the only Service that platforms offering financial services can look to offer as their value proposition.

Paolo Sironi stressed several times on stage that the battle between growing Volume versus building Value, continues. `Battle` may not be the perfect term to capture what is actually happening in the market. On the one hand, incumbents continue to gather assets because that is what they are used to be doing and Fintechs are looking to acquire more users because this a KPI that VCs pay for. On the other hand, APIs, Open Banking, Baas, Saas, are dethroning one by one each differentiating factor in the Financial digital transformation race.

I would call this The Tension or the Tug-A-War between Volume and Value.

Devie Mohan stressed that user experience is no longer a differentiator. Even though the number of users in the robo space has tripled in the last two years, the reality is that a sustainable business can only be built with a platform and not with one cheaper, better, faster product-service. All this has led us to the current re-bundling phase that Digital wealth has shifted to.

Trends that Devie Mohan identified from Burnmark research, are an increasing demand for specialized assets.

  • Passion assets – for example, Rally RD (vintage cars), StockX (limited edition sneakers), Otis (collectibles) –
  • Sharia-compliant apps and products – for example, Yielders (crowdfunding), Algebra (Roboadvisor), Ummah (bank)
  • Crypto assets – for example, Coinbase, Binance, eToro

I would supplement these statistics with the observation that these are trends outside of China. They are happening while more traditional financial products are on the rise in China`s affluent population. From money market kind of accounts, bank deposits to real estate.

I close with the perspective that Lex Sokolin brought to the attention of the audience at the Robo investing event. He spoke about the rise of the emergence of Financial generics much like in the drug sector which naturally ties into where is value created and who is willing to pay for the non-generics. PSD2 and APIs are fuelling the creation of Financial generics and the battle is starting.

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 Sources

It’s never been cheaper to invest in the markets as asset managers slash fund fees by $5 billion – CNBC

Profile of newly rich shows preference for traditional investments – China Daily

 

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019. 

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post. 

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Notable Replies

  1. Robo funds have not been tested in a liquidity crisis. They were a minor part of business in 2008. If/when we have another iiquidity crisis, the robo funds and ETFs may exacerbate the crisis as they make trading so easy. We may have seen a preview of the next iiquidity crisis in the repo market this week.

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