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Fintech Report Card: July 2018

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

Coinbase Acquisitions Could Create One of the First Digital Coin Securities

What happened: Coinbase, one of the most popular cryptocurrency platforms, will move forward with acquisitions that will allow it to become one of the first federally regulated venues for trading digital coins deemed to be securities. The U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority approved Coinbase’s purchase of Keystone Capital, Venovate Marketplace, and Digital Wealth. The acquisitions enable the firm to offer so-called security tokens, and also place the businesses under federal oversight. Coinbase has primarily been regulated by a patchwork of state authorities. The move provides Coinbase licenses to operate as a broker/dealer, an alternative trading system and a registered investment advisor.

Why it matters: Coinbase has been on a tear recently, consolidating key innovations in the cryptocurrency space and even building an institutional custody platform for crypto funds. To the extent that cryptocurrency becomes the future, Coinbase is poised to become the Charles Schwab of its era. 

Betterment Fined $400,000 by FINRA

What happened: Betterment, the popular robo advisor platform, was fined $400,000 by the Financial Industry Regulatory Authority for a variety of alleged violations that took place between 2012 and 2015. The alleged violations include window dressing, non-compliance with the Customer Protection Rule (including failure to segregate client-owned securities in a good control location) and improper books and recordkeeping pursuant to FINRA and SEC rules.

Why it matters: Not the best thing for a company’s image, but these violations occurred a long time ago when Betterment was a much smaller firm. They’ve invested in some high-level people to run compliance. You might say “robo compliance” wasn’t quite up to par! Those humans are useful for something after all.

Dynasty Financial Partners Adds “Max” Cash Tool to Platform

What happened: Dynasty Financial Partners announced that it is adding “Max” as a cash option to its network of firms. Max (really two services, MaxMyInterest.com and MaxForAdvisors.com), is a set of solutions from Six Trees Capital LLC, that makes it easy to spread a client’s cash holdings around to high-interest savings accounts. In a nutshell, Max can be linked to a primary checking account, in which case it serves as a cash sweep using the higher interest rates from online banks, or linked to a brokerage account, where it operates as a separately managed account for strategic cash allocations. The company claims its technology can achieve 170 basis points of arbitrage alpha from rates offered at brick-and-mortar banks.

Why it matters: It’s a great validation for Max when a firm like Dynasty makes it available to all of their advisors as an on-platform option.

Vanguard Goes After the Custodians, Killing Transaction Fees on Tons of ETFs

What happened: Starting in August, investors using Vanguard’s online brokerage platform will be able to trade all ETFs on a commission-free basis, including ETFs from rivals iShares, Schwab and State Street Global Advisors. “This is a significant move by Vanguard,” said Todd Rosenbluth, director of ETF and mutual fund research at CFRA. “Other brokerage firms, such as Schwab or TD Ameritrade, provide commission-free trades on a subset of ETFs, with the asset managers supplementing the cost savings.”

Why it matters: This is a pretty direct play for market share. Vanguard believes that if they can get the customers directly, they can convince them to gradually move their dollars over into Vanguard funds. The rub has always been that Vanguard wasn’t set up to provide the kind of support advisors need for institutional custody. Are transaction fees enough to turn client heads and influence advisor behavior? 

Fi360 Acquires Makers of FiRMPlus

What happened: Fi360 announced the acquisition of the Center for Fiduciary Management (CFFM), an investment management technology provider for retirement plan advisors. CFFM offers four flagship products, including FiRMPlus, an investment due diligence platform. “Fi360 is moving quickly to meet the growing needs of advisors within the independent, broker-dealer and wirehouse communities. The acquisition of CFFM  expands the platform we offer to our financial industry partners with additional tools and customization options to help them work effectively and efficiently while maintaining the fiduciary standards of loyalty and care,” said Bill Mueller, AIF, Chief Executive Officer of Fi360, in a prepared statement announcing the sale. The combined firms will service 55,000 investment professionals and over 120,000 retirement plans.

Why it matters: Congrats to our friends at Fi360, who are rapidly building out a hard-to-match platform for advisors to certify their due diligence on investment choices in retirement plans and fiduciary accounts. We’re big fans of the work they do to make our industry smarter and more investor-friendly.

CFA Exam Adds Crypto to 2019 Exams

What happened: CFA Institute is adding topics on cryptocurrencies and blockchain to its Level I and II curriculums for the first time next year. Material for the 2019 exams will be released in August, giving candidates their first opportunity to start logging a recommended 300 hours of study time. CFA added the topics, part of a new reading called “Fintech in Investment Management,” after industry participants showed surging interest in surveys and focus groups. The CFA material on crypto and blockchain will appear alongside other fintech subjects including artificial intelligence, machine learning, big data and automated trading.

Why it matters: You certainly can’t fault the CFA Institute for providing the education on a real topic that exists, but the idea of CFAs spending any substantial time thinking about arbitraging crypto is a tough one to swallow.

TD Ameritrade Launches $100,000 Fintech Competition

What happened: TD Ameritrade kicked off Innovation Quest, a crowdsourced fintech competition distributing a total of $100,000 in prizes for technology ideas designed for registered investment advisors. Entries will be judged on how the idea adds value to the lives of RIAs or their clients. Three finalists will receive $25,000 each to develop their ideas and will be flown to TD’s annual RIA conference in February for a final, in-person presentation. The winner receives an additional $25,000. The competition is open to all adults in the U.S.; interested applicants can submit entries online until September 15.

Why it matters: We love that our friends at TD Ameritrade are supporting innovation and creating new technology opportunities for advisors. With this competition for fintech startups, they’re putting their money where their mouth is.

BlackRock Announces AI and Robotics ETF

What happened: BlackRock announced the inception of its iShares Robotics and Artificial Intelligence ETF (IRBO), entering a crowded market of other AI and robotics funds. IRBO will charge $4.70 for every $1,000 invested in the fund, compared to other funds that charge anywhere from $6 to $9.50. “BlackRock is sort of like the big budget studio who you could argue comes in a little late or after the trend has been in place for a while,” said Eric Balchunas, senior ETF analyst for Bloomberg Intelligence. “The good news is that with this army of sales people out there, they now have a robotics option available and because it’s cheaper, it’s probably going to draw some investors.”

Why it matters: AI could be the most fundamentally transformative technology the world will experience over the next decade, so this is an important addition to an advisor’s toolbox. No word yet on whether the fund’s asset allocation will be created by either artificial intelligence or robots.

ImpactAssets Unveils Portfolio Directory of Impact Investments

What happened: ImpactAssets announced the roll-out of the Giving Fund Portfolio Directory, a listing of more than 300 “cutting-edge” impact investments. The online searchable directory represents $425 million in impact investments recommended by donors through the ImpactAssets Giving Fund. The Giving Fund Portfolio Directory allows investors to target their search by Women CEO/Co-Founder, geography, asset class, U.N. Sustainable Development Goals and other criteria. Investors can also focus in on different types of investment vehicles—whether as a direct investment, private equity fund or mutual fund—and target investments based on liquidity profiles. 

Why it matters: There is certainly a large segment of people for whom “investing in their values” has big appeal. Impact investing is still waiting for its proof point as a superior choice when it comes to returns, and it remains to be seen if a directory of cherry-picked opportunities will beat out broader funds that simply peel off “vice” holdings. Stay tuned.

Wealthfront Launches “Time Off” Planning Feature

What happened: Wealthfront is adding a new offering, Time Off for Travel, as part of its larger goals-based planning service, Path. The firm is addressing what they describe as an aspirational gap in financial planning; no longer is the American dream as simple as get married, buy a home, raise a family and retire. The tool shows the financial impact of reduced income on retirement, college savings, and home purchase plans. Investors can also evaluate the affordability of different budgets and the length of their travels by modifying housing plans and accounting for possible income while on the road.

Why it matters: You’ve got to give it to Wealthfront—they’re sticking to their strategy, despite sky-high customer acquisition costs for their self-directed investing service. If they can’t figure out how to profitably grow (preferably, without tripling their revenue from hidden fees), a lot of their employees may need to utilize this “time off” feature.

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