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Vonnegut: Financial Advice's Digital Disruption
By NORB VONNEGUT
May 1, 2014 9:50 a.m. ET
Here's my thesis: Just as Amazon turned publishing upside down, an online competitor will do the same thing to financial advisers. To explore that, I visited several wealth management websites. Robo-advisers charge from zero to 50 basis points, depending on assets under management. The low cost makes them formidable competitors. But what about the quality of their advice?
I completed a handful of asset-allocation surveys. The questions were surprisingly similar. What would I do, for example, if I lost 20% of my portfolio during turbulent markets? Would I 1) sell stocks, 2) buy stocks, or 3) ride it out?
Ernest Hemingway once said, "The best way to find out if you can trust somebody is to trust them." To paraphrase him, the best way to know what you will do if you lose 20% is to lose 20%.
Regrettably, I know. I'm still licking my wounds from the crash of 2008-2009. So I completed the questionnaires with the benefit of perfect hindsight.
The results really surprised me. There was so much "sameness" to the online forms, but the recommendations differed substantially.
One site created a portfolio with 40% allocated to fixed income. Another indicated that 11% was plenty. Some recommendations included an allocation to alternatives. Others didn't. U.S. equities varied from 25% to 48%.
"Ah-hah," I thought. There is no way to understand somebody's risk profile without the iterative, time-consuming process every adviser goes through with his or her clients. That is where advisers add value.
I called James Carlson, Chief Product Officer of Questis. His website asks eight questions and delivers portfolios within seconds. He would defend, I assumed, the new, new way of doing things.
Not quite.
"The robo-adviser isn't the solution," says Mr. Carlson. "You need the right balance of humans and algorithms." His company offers a hybrid model to clients. For Questis the questionnaires are a first cut at give-and-take dialogue, which leads to thoughtful, asset-allocation recommendations.
"Phew," I thought. "There will always be a place for financial advisers even if our compensation models come under pressure."
Not so fast.
Amazon changed publishing because it looked at the world in an unexpected way. E-readers, for example, revolutionized the way we think about books. What if an organization approaches investors with a tool other than questionnaires, something outside the box? Or compensation models based on a formula other than assets under management?
These questions led me to BidnessEtc.com, a hip new website that discusses individual stocks. The graphics look more like something you find in a comic-book store than a ho-hum-if-I-read-another-disclaimer-I'll-scream financial website.
I Skyped with Nadir Khan and Babar Din, the two founders, and asked if they plan to introduce asset-allocation or estate-planning tools on their website. BidnessEtc is based in Pakistan, but the founders built much of their financial expertise in U.S. equity markets.
Mr. Khan says BidnessEtc is rolling out a business search engine this week. It is curated by humans and targeted at investors.
Initially, the engine will focus on individual companies. But over time, it will broaden its reach to include "asset planning," "retirement planning," and "every possible vertical."
"There's a big problem in the wealth management industry," says Mr. Khan, "and that's visibility. That's why the fees are too high. If you give wealthy people discovery of those mechanisms, margins are going to zero." That is a huge thought. If the founders of BidnessEtc are right, wealth management as we know it will be over.
The new, new competitors are companies that empower investors to make financial decisions without financial advisers. Think this sounds like another the-sky-is-falling prediction from a do-it-yourselfer?
Maybe. But maybe it is the long game, a business strategy that will catch fire as baby boomers pass their wealth to the next generation.
Mr. Din of BidnessEtc says the world has changed. "Gen Y is living their lives on social media, mobile phones and gadgets and has higher interest in investing." The experience during the financial crisis has made them more prudent about "financial planning at a younger age than their parents."
Right now, BidnessEtc is pretty much the upstart, with lots of other online advice services getting more mainstream attention. But my take: The competitors we should fear the most are probably the ones we know the least.
Norb Vonnegut: Financial Advice's Digital Disruption - WSJ.com
Management-Profile-Bidness-Etc
Pakistan needs entrepreneurs, so i wish all the best to this start up.
Aeronaut
By NORB VONNEGUT
May 1, 2014 9:50 a.m. ET
Here's my thesis: Just as Amazon turned publishing upside down, an online competitor will do the same thing to financial advisers. To explore that, I visited several wealth management websites. Robo-advisers charge from zero to 50 basis points, depending on assets under management. The low cost makes them formidable competitors. But what about the quality of their advice?
I completed a handful of asset-allocation surveys. The questions were surprisingly similar. What would I do, for example, if I lost 20% of my portfolio during turbulent markets? Would I 1) sell stocks, 2) buy stocks, or 3) ride it out?
Ernest Hemingway once said, "The best way to find out if you can trust somebody is to trust them." To paraphrase him, the best way to know what you will do if you lose 20% is to lose 20%.
Regrettably, I know. I'm still licking my wounds from the crash of 2008-2009. So I completed the questionnaires with the benefit of perfect hindsight.
The results really surprised me. There was so much "sameness" to the online forms, but the recommendations differed substantially.
One site created a portfolio with 40% allocated to fixed income. Another indicated that 11% was plenty. Some recommendations included an allocation to alternatives. Others didn't. U.S. equities varied from 25% to 48%.
"Ah-hah," I thought. There is no way to understand somebody's risk profile without the iterative, time-consuming process every adviser goes through with his or her clients. That is where advisers add value.
I called James Carlson, Chief Product Officer of Questis. His website asks eight questions and delivers portfolios within seconds. He would defend, I assumed, the new, new way of doing things.
Not quite.
"The robo-adviser isn't the solution," says Mr. Carlson. "You need the right balance of humans and algorithms." His company offers a hybrid model to clients. For Questis the questionnaires are a first cut at give-and-take dialogue, which leads to thoughtful, asset-allocation recommendations.
"Phew," I thought. "There will always be a place for financial advisers even if our compensation models come under pressure."
Not so fast.
Amazon changed publishing because it looked at the world in an unexpected way. E-readers, for example, revolutionized the way we think about books. What if an organization approaches investors with a tool other than questionnaires, something outside the box? Or compensation models based on a formula other than assets under management?
These questions led me to BidnessEtc.com, a hip new website that discusses individual stocks. The graphics look more like something you find in a comic-book store than a ho-hum-if-I-read-another-disclaimer-I'll-scream financial website.
I Skyped with Nadir Khan and Babar Din, the two founders, and asked if they plan to introduce asset-allocation or estate-planning tools on their website. BidnessEtc is based in Pakistan, but the founders built much of their financial expertise in U.S. equity markets.
Mr. Khan says BidnessEtc is rolling out a business search engine this week. It is curated by humans and targeted at investors.
Initially, the engine will focus on individual companies. But over time, it will broaden its reach to include "asset planning," "retirement planning," and "every possible vertical."
"There's a big problem in the wealth management industry," says Mr. Khan, "and that's visibility. That's why the fees are too high. If you give wealthy people discovery of those mechanisms, margins are going to zero." That is a huge thought. If the founders of BidnessEtc are right, wealth management as we know it will be over.
The new, new competitors are companies that empower investors to make financial decisions without financial advisers. Think this sounds like another the-sky-is-falling prediction from a do-it-yourselfer?
Maybe. But maybe it is the long game, a business strategy that will catch fire as baby boomers pass their wealth to the next generation.
Mr. Din of BidnessEtc says the world has changed. "Gen Y is living their lives on social media, mobile phones and gadgets and has higher interest in investing." The experience during the financial crisis has made them more prudent about "financial planning at a younger age than their parents."
Right now, BidnessEtc is pretty much the upstart, with lots of other online advice services getting more mainstream attention. But my take: The competitors we should fear the most are probably the ones we know the least.
Norb Vonnegut: Financial Advice's Digital Disruption - WSJ.com
Management-Profile-Bidness-Etc
Pakistan needs entrepreneurs, so i wish all the best to this start up.
Aeronaut
