It’s what some are starting to call “a digital wealth management revolution.”
Advances in digital technologies have made it possible for new financial tech companies to pop up in the wealth management space, challenging traditional advisory models.
One has to look no further than the amount of money being pumped into these startups to see this.
Investment in financial technology tripled between 2008 and 2013 from $928 million to $2.97 billion and is expected to double again to between $6 billion and $8 billion by 2018, according to a report by Accenture. The first quarter of 2014 was the most active on record, with $1.7 billion invested globally. Investment in financial technology in the United States alone could reach $4.7 billion annually by 2018, reports Accenture.
“The big story today is the wrath of upstarts who are entering the retail financial services space who are using digital technology to create great customer experience at a lower cost than incumbents can,” said Bill Doyle, vice president and principal analyst at Forrester Research, during a new webinar, “Understanding The Digital Wealth Management Revolution” provided by Xignite, a cloud-based market data provider based in San Mateo, California.
Doyle pointed to companies like Betterment, LearnVest, Wealthfront and Jemstep as examples of growing upstarts. Adding that three digital investment managers now have more than $2 billion in assets under management— AssetBuilder with $635 million as of April 14, Betterment with $500 million as of April 14 and Wealthfront with $1 billion as of June 14.
“In a wealth management industry that’s measured in trillions of dollars, these digital investment managers are still tiny, but they’re establishing a foothold in a managed accounts market that has been dominated by advisor-based firms like Ameriprise and Raymond James,” Doyle said during his webinar presentation.
This is driven in part by consumers becoming increasingly digitally savvy, creating what Doyle is calling “a mobile mind shift.”
More than a quarter of U.S. adults have made the mobile mind shift, and Doyle said this will continue to rise as more older adults connect with more devices.
“The shifted customers expect that any desired information or service is going to be available on any device at their moment of need,” Doyle said. “They judge firms on their ability to deliver.”
Interactions where in-person communication would once have been preferred, such as advisor meetings with clients, are now happening online.
Doyle said consumers turn to digital channels first to research products, and once they’ve made a decision on an investment product, they transact digitally because it’s easier. He added that clients choose to stay in touch through digital channels because it’s better; they would prefer digital documents over paper.
And millennials, by nature, are digitally astute. Andy Rachleff, executive chairman of the automated investment service provider Wealthfront, credits millennials for the birth of his firm.
“There’s an enormous population of clients that is currently not served by the investment management industry, and they are the millennial generation,” Rachleff said in the webinar. “That’s because the average account size for millennials does not meet the required minimum of the existing suppliers.”
Collectively, Rachleff added, the millennial generation has more than $2 trillion of investable assets, expected to grow to $7 trillion over the next five years.
“In total, this generation is likely to have more assets to manage than the baby boomer generation and there are going to be many more of them,” he said.
The thing about millennials is they “have very different interests in what they want from an investment management solution than what their parents want.”
Rachleff said they want something automated, passive and low-cost.
“In other words, they want an automated investment service,” he said.
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Andrew Harrer/Bloomberg via Getty Images BERLIN and MILAN -- Fiat Chrysler has denied a magazine report saying it's in merger talks with Volkswagen, while the German carmaker said it had no takeovers on its agenda. Germany's Manager Magazin said Thursday Volkswagen Chairman Ferdinand Piech had held talks with the owners of Fiat Chrysler about buying all or part of the group that was formed this year from the merger of Italian and U.S. carmakers. The magazine cited unnamed company sources. However, a VW spokesman said Europe's biggest carmaker was focused on delivering improvements at its existing operations. "There are currently no [merger and acquisition] projects on the agenda," he said. "We are now focusing on boosting efficiency across the group." The Agnelli family's holding firm Exor, which owns a 30 percent stake in Fiat Chrysler, denied any talks had taken place, as did Fiat Chrysler. Shares in Fiat Chrysler jumped 5 percent to 7.98 euros on the report, but had retreated to stand up 2.2 percent by 1352 GMT (9:52 a.m. Eastern time). VW's stock was 1.8 percent lower. VW Chief Executive Officer Martin Winterkorn said in March the carmaker, though hoarding almost 18 billion euros ($24 billion) in cash, had no plans to expand the group through acquisitions as it was focusing on integrating its 12 brand network. VW has since sealed a 6.7 billion euro buyout of minority shareholders at Swedish truck division Scania to forge a long-planned alliance of its truck brands. The report could suggest "diverging views" between VW's management and the supervisory board about the carmaker's future course, said Arndt Ellinghorst, a London-based analyst at investment researchers ISI Group, at a time when Winterkorn, 67, and Piech, 77, are soon likely to face a debate over succession. Rather than talking about further expansion, top managers at VW -- concerned that profitability gains aren't keeping pace with the company's steadily growing size -- have been pushing a new efficiency program that includes 5 billion euros of cost cuts per year at the core passenger car brand. Earlier this month, VW also denied a report it was planning a bid for U.S. truck maker Paccar next year. Interested In Assets "The risks from integrating Italian plants and managing a U.S. business are material and we do not believe that the potential benefits justify the risks," Ellinghorst wrote in a note to clients. A person familiar with the situation told Reuters that VW would more likely bid for Fiat assets such as Magnetti or Alfa Romeo rather than the entire company. A member of VW's supervisory board, which oversees the management board, said the 20 member panel had at no point of time had any discussions about a purchase of Fiat. Still, Piech and Winterkorn have repeatedly expressed interest in Alfa Romeo despite rebuttals from Fiat CEO Sergio Marchionne. Manager Magazin said VW was hoping to use Chrysler's U.S. distribution network to help solve its own problems in the world's No. 2 auto market where flagging sales of the VW brand in January sparked the ouster of VW's regional chief. However, VW's U.S. troubles "are more image and pricing problems and not so much problems of distribution and manufacturing," an auto analyst said. "Buying Chrysler would not really help VW." Fiat took full control of Chrysler at the start of 2014, creating the world's No. 7 auto group, and plans to list the merged Fiat Chrysler Automobiles in New York later this year. Chief Executive Officer Sergio Marchionne has said he wants Fiat Chrysler to follow bigger rivals such as VW by building global brands and strengthening its position in the fast-growing and high-margin market for premium cars. The company is counting on its founding merger and a U.S. listing to help foot the bill for its 48 billion euro plan to grow net profit fivefold and sales by 60 percent by 2018. While rumors of a potential Agnelli family exit have surfaced over the years in Italian press, Exor has repeatedly said the stake remained a strategic investment for the family. Manager Magazin also said VW and Fiat Chrysler's owners were far from reaching an agreement about a possible price. -. MSRP: $26,495 Resale value retained after five years: 50.5 percent Even under Fiat (FIATY) ownership, some elements of Dodge's mouth-breathing, knuckle-dragging, He-Man-Woman-Haters-Club approach to auto sales managed to survive. The built-by-car-guys-for-car-guys Challenger and its rebooted muscle car aesthetic still lingers to lure meatheads who value racing stripes and rims over, oh, just about any other element of their vehicle. Ordinarily, that alone wouldn't make one of these vehicles worth a second look five years from now -- even among the most superficial gearheads. But Fiat helped the Challenger smarten up a little bit by coupling a 305-horsepower V6 engine or 375-horsepower 5.7-liter V8 Hemi with loads of interior space, real-time touchscreen navigation, traffic updates, Bluetooth connectivity, Sirius (SIRI) XM satellite radio, keyless entry/starter and a whole lot of Harman Kardon audio upgrades.
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J. Scott Applewhite/AP WASHINGTON -- The U.S. government ran a monthly budget surplus in June, putting it on course to record the lowest annual deficit since 2008. The Treasury Department said Friday that its June surplus totaled $71 billion, following a $130 billion deficit in May. The government also ran a surplus in June 2013, bolstered by dividends from Fannie Mae, the mortgage giant under federal conservatorship for the past six years. For the first nine months of this budget year, the deficit totals $366 billion, down 28 percent from the same period in 2013. Tax receipts are up 8 percent compared to the prior year-to-date, while spending has increased 1 percent. The Congressional Budget Office is forecasting a deficit of $492 billion for the full budget year ending Sept. 30. That would be the narrowest gap since 2008. In 2008, the government recorded a deficit of $458.6 billion, which was the record high for deficits up to that time. But with the outbreak of the recession, deficits soared to unprecedented levels, exceeding $1 trillion for four consecutive years. Tax revenues fell during that period, while government boosted spending in an attempt to stabilize the financial system and provide relief to people who had lost jobs. The yearly deficit peaked at $1.4 trillion in 2009 during the worst of the financial crisis. It gradually fell from there, plunging to $680.2 billion last year. Over the next decade, CBO is projecting that the deficits will total $7.6 trillion. The deficit will fall to $469 billion in 2015 before rising again and topping $1 trillion annually starting in 2023, according to the CBO. Spending on the government's major benefit programs, including Social Security and Medicare, will drive those increases as more baby boomers retire. Republicans have accused President Barack Obama of failing to propose significant cost cuts to reduce soaring entitlement costs. Democrats counter that Republicans would rather impose sharp cuts on needed government programs than impose higher taxes on the wealthy. Neither side is expected to make major concessions in this congressional election year. But the budget wars of the past three years have subsided at least for a brief time. An agreement was reached in December on the broad outlines for spending over the next two years. The agreement will allow Washington to avoid the gridlock that culminated in October's 16-day partial shutdown of the government. The budget cease-fire also includes legislation that will suspend the government's borrowing limit through March 15 of next year. That puts off another battle over raising the debt ceiling until a new Congress takes office in January.
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