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Fintech Report Card for January 2018

Riskalyze CEO Aaron Klein gives the thumbs up or thumbs down on the biggest pieces of news to hit advisor technology in the previous month.

Welcome to the January edition of the Riskalyze Fintech Review, where Riskalyze CEO Aaron Klein gives you the thumbs up or thumbs down on the biggest pieces of news to hit advisor technology in the last month. No matter your Risk Number, failing to read this piece may be the riskiest move of all!

Bono’s Private Investment Firm, the Rise Fund, Backing Acorns App in First Deal

What happened: The Rise Fund, a private investment firm co-founded by U2 lead singer Bono, is reportedly making its first foray into fintech by backing Acorns. The self-directed investing app, known for getting spare change into exchange-traded funds managed by Vanguard, BlackRock and others, has 2.7 million users and more than $500 million in assets under management. Bono helped start the Rise Fund last year with private equity firm TPG, raising $2 billion to focus on commercial projects with a social or environmental impact. Other celebrities to invest in Acorns include actor Ashton Kutcher and basketball star Kevin Durant.

Why it matters: Never thought I’d hear “Bono” and “fintech” in the same sentence. Acorns is an interesting app story because it’s helped people invest in tiny increments, essentially squirreling away small amounts of disposable income. For many users, it’s their first time investing. Will it ever be profitable? We’ll see—spare change means that 2.7 million users only adds up to half a billion in assets. But on the other hand, it also means that the hurdle to trust is a lot easier to leap, keeping user acquisition costs lower.

Merrill Lynch OKs Texting for Advisors

What happened: Merrill Lynch announced that it will add text messaging as part of a suite of new digital capabilities available to its almost 15,000 advisors. The broker/dealer partnered with Scottsdale, Ariz.-based CellTrust, which will manage, track and deliver the texts. The CellTrust SL2 Blackberry is as easy to use as any other messaging app. Advisors with Apple or Android phones simply download it, log in and message. All messages are time- and date-stamped, tracked, logged and archived. CellTrust allows users to assign a separate mobile business number, letting them receive calls and messages from clients without having to share their personal cellphone number. “Texting is just our latest investment in building our state-of-the-art digital capabilities—so that we can serve our clients when, where and how they want,” said Andy Sieg, head of Merrill Lynch Wealth Management.

Why it matters: We’d like to take a little bit of credit for this; after all, it was at last year’s Riskalyze Fearless Investing Summit that Redtail CEO Brian McLaughlin launched Redtail Speak, the compliant text messaging solution that kicked off the current craze of firms rolling out these capabilities for advisors (Securities America made a similar announcement a few weeks ago). But it just makes sense—the next generation barely checks their email. Texting is their native language.

Wealthfront Raises $75 Million in Funding

What happened: Wealthfront, one of the largest robo advisor platforms, just closed a $75 million round of funding. CEO Andy Rachleff claims the new round should be more than enough to see it through to becoming profitable. Led by Tiger Global Management, the funding will be used to push more aggressively in the investment management and banking spaces. “Wealthfront’s exclusively software-based model gives the company a superior approach to capture the younger, fast-growing market of investors,” said Lee Fixel, a partner at Tiger Global. “We’re excited to support continued growth of the business and help Wealthfront become to the millennial generation what Charles Schwab is to baby boomers.”

Why it matters: Let’s be blunt—Wealthfront is in deep trouble as a company, despite its growing piles of venture capital money. The fact is that it needs far stronger growth rates and vastly higher assets under management to ever make it to an initial public offering. If it can add more assets and cut costs, it might be able to eke out a profit—but that’s not the promised land. Venture capitalists won’t wait forever for their returns. You can’t help but wish Wealthfront the best, but it’s playing a very bad hand of cards.

WEX Health Partners with DailyVest for HSA Investing

What happened: WEX Health, a tech platform provider for managing healthcare finances mostly via workplace plans, partnered with DailyVest, an investment performance and reporting tech company for plan sponsors and 401(k) participants, to bring better investment reporting tools to participants in workplace Health Savings Accounts. According to WEX Health, the number of HSA accounts surpassed 21 million from June 2016 to June 2017, and hold about $42.7 billion in assets, while investment assets were up 44 percent, to $6.8 billion. With its tax-advantaged status and HSA investing on the rise, WEX Health hopes its partnership with DailyVest will enhance customer engagement.

Why it matters: With the inexorable rise in health care premiums, high-deductible health care plans and their companion HSA accounts are on the rise, but I have yet to meet a HSA account that didn’t have a truly awful user experience. This is a huge opportunity that few people are looking at—America’s health savers wish WEX huge success in this venture!

Vestwell Adds Morningstar Investment Management's Curated Funds

What happened: Vestwell, a digital retirement platform, announced that it would be offering a select list of investment options under Morningstar Investment Management LLC’s 3(21) fiduciary services program to Vestwell clients. The integration of Morningstar Investment Management services benefits financial advisors and plan sponsors by enabling them to create their own investment product lineup from menus of funds that have received the Morningstar seal of approval. “Equipping advisors and clients with a digital retirement experience that helps alleviate administrative and fiduciary burdens has been, and always will be, a top priority for Vestwell as we continue to expand our offering,” said Vestwell Founder and CEO Aaron Schumm.

Why it matters: Vestwell is one of the premier companies in this space. (Full disclosure: We partnered with them to launch our Retirement Solutions platform.) And adding Morningstar’s asset management and retirement fiduciary services is a smart move that is likely to win big plaudits from advisors. 

AARP Launches “Interview an Advisor” Tool

What happened: A free online tool launched by AARP and the North American Securities Administrators Association, called “Interview an Advisor,” is designed to take the guesswork and mystery out of the process of interviewing and hiring a financial advisor. “Many people can benefit from working with a financial professional, but they just don’t know where to start when it comes to selecting one,” said Joseph Borg, NASAA president and director of the Alabama Securities Commission, in a statement. The tool walks the user through a short series of suggested questions to ask a financial professional regarding the advisor’s qualifications, methods of compensation, and whether the advisor is required to act as a fiduciary.

Why it matters: Finding an advisor can be challenging, especially for older Americans, but it’s one of the most effective things they can do to achieve a happy retirement. I especially applaud AARP for its education on the fiduciary issue. I’m fully in favor of brokers being able to sell suitable financial products, but our industry should have to be upfront and honest about who is a fiduciary advisor and who is in sales.

AdvisorEngine Acquires Junxure CRM

What happened:  AdvisorEngine, the provider of digital advice technology for advisors, acquired Junxure, a client relationship management software for the wealth management industry, with 12,000 users and $600 billion in assets. The company said its users will not experience any change in service and will continue to be supported. As part of the transaction, WisdomTree pumped another $30 million of capital into AdvisorEngine, making it the largest shareholder.

Why it matters: Congrats to my friends Rich Cancro and Greg Friedman. Greg found a great home for his CRM labor of love, and Rich picked up a key asset in his quest to build the all-in-one platform. I don’t personally subscribe to the comprehensive advisor tech suite strategy, but time will tell if I’m right or wrong!

Vanguard Says It Will Never Launch Bitcoin Fund, and It’s Not Alone

What happened: “You will never see a fund from Vanguard on bitcoin. We tend to stay away from assets that don’t have underlying economic value. They don’t generate earnings or cash flows,” said Vanguard CEO Tim Buckley in an interview with CNBC. At the Inside ETFs Conference, there appeared to be plenty of interest, but little serious support, for a bitcoin exchange traded fund. Jan Van Eck, president and CEO of VanEck, says regulators can’t wring their hands for too long. “There are 15 million people invested [in this asset class], and it is [largely] unregulated,” he said. “What are the regulators going to do? Can we continue with unregulated exchanges? We are waiting.”

Why it matters: With the Securities Exchange Commission publicly questioning whether bitcoin has the stability to even be priced correctly in an exchange traded fund, it seems unlikely that crypto exposure is coming to a brokerage near you anytime soon. 

Startup Robinhood Will Offer Free Cryptocurrency Trading

What happened: Online zero-fee trading startup Robinhood plans to launch commission-free cryptocurrency trading, riding a wave of interest from retail investors for the new asset class. Starting in February, Robinhood customers will be able to buy bitcoin and ether, the two most popular virtual coins. The Palo Alto-based startup plans to add more cryptocurrencies over time. “For some individuals, we see cryptos are the first foray into financial services,” said Vlad Tenev, co-CEO and co-founder of Robinhood. At least initially, Robinhood’s new service will only be available in California, Massachusetts, Missouri, Montana and New Hampshire, where it has secured a money service business license. Founded in 2013, Robinhood was valued at $1.3 billion in its most recent round of venture capital funding in April.

Why it matters: Less than a day after this news broke, the waiting list was over 750,000 strong, a reflection of Robinhood’s strength among finance-interested millennials. Whether it turns out to be a good idea or the worst idea ever, it was a brilliant piece of marketing that capitalized on bitcoin-mania. Crypto fees are notoriously high, so I’ll be curious to see how Robinhood overcomes that sizeable challenge, or if they can at all. Even if this doesn’t work out, they probably added some users and buzz from this stunt.

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