Financial planners pride themselves on managing every aspect of a client’s financial life.
But technology will soon provide advisors the ability to temper their clients' emotions too, says Mark Casady, former chief executive of LPL Financial.
He's bullish enough about such fintech that he's invested in Vestigo Ventures, a venture capital fund founded by business partner David Blundin to help fintech startups solve financial planning problems like streamlining back-end operations, onboarding clients or dealing with compliance issues.
Casady and Blundin invested $5 million, and the fund recently closed at almost $60 million. Casady says the fintech firms with the most upside are the ones that help clients manage their emotions.
“It used to be enough to say, ‘Let me tell you why I’m a superior planner,’” Casady told Financial Planning. “But, technology has wiped away most of that competitive advantage.”
The Cambridge, Massachusetts-based fund is investing in companies that are deploying blockchain and big data to improve operational structures with the ultimate goal of partnering with incumbents or becoming profitable enough for sale. The fund has invested in eight companies so far: Digital Assets Data, LifeYield, Micronotes, Mirador, Netcapital, Student Loan Genius, TowerIQ and Vestmark, according to company data.
“Incumbents in financial services need to drive down costs and vastly improve the customer experience in order to remain relevant and prosper amid this wave of change,” Casady says.
But, Vestigo has plenty of competition. U.S. fintech investments are expected to top last year’s levels, according to KPMG’s
“There’s more VC flow available than opportunities to invest,” says KPMG’s director of financial service Safwan Zaheer, “a sign of tremendous growth in the space.”
Financial Planning spoke with Casady about what fintech startups are making the most noise and where he would place a bet on the future of digital wealth management. The following interview has been edited for length and clarity.
Which firms have the most upside?
What we’re looking for are companies that are generally partnering with incumbents — with banks and asset managers, basically a B2B model — to solve a very specific problem. Stuff like know-your-client issues or some sort of processing functions or investment-related needs. The answers typically involve AI.
For example, TowerIQ is helping insurance agents work with commercial accounts. The company mines for data, and after they get a number of clients, starts to get a picture of what the market looks like. That information becomes very valuable as an asset. They gather that data together and talk to companies who want to use it.
Another company, Micronotes, is helping banks identify consumers that are already customers of the bank, who want to buy a new car or are adding on to their house. By looking at data about customer activity and using predictive AI, the technology identifies if the client is taking on activity that looks like he might be interested in adding on to his home in the next six months. The next time he signs on to check his account balance, there’s a simple, one-question survey to see if he’s interested. That’s actionable insight for bankers to reach out to clients.
What do you see evolving in the fintech industry in the next two to three years?
It’s going to be about the emotion of money and less on the management of money. Clients can get investment management very cheaply — and clients understand that. It used to be enough to say, ‘Let me tell you why I’m a superior planner.’ But, technology has wiped away most of that competitive advantage. At LPL, the best advisors that had the highest growth patterns, with the most satisfied clients as measured by JD Power, basically who are doing it right, were the advisors that actually engaged clients around the meaning of money.
So, what is the meaning of money?
If you’re trying to retire when you’re 60 and you need $5 million to do that, let’s talk about how we get to the goal — not the mechanics. You need help to save more, or change your spending habits and to do something in terms of taking on more risk. The main thing an advisor is selling is not the return — although that’s very important. It’s satisfaction and stress relief.
I’m not the least bit emotional about managing your money, but highly emotional about mine. It’s human nature to have an reaction when the market goes up or goes down, and when it goes up, we’re too optimistic and when it goes down, we’re too pessimistic. We all know the stories of tough markets, like 2008, and advisors did an amazing job with clients to stick through it. It’s about the emotion of money.
Which firms will be the big winners?
The financial services market is huge and sometimes people forget that. Some people want the financial part to be with a financial planner and the banking part to be with a banking institution. That’s a whole segment of the population. Others just want the convenience of being able to do everything in one place. The size of the financial services environment in the U.S. is huge. There will be multiple business models that will be able to succeed.
