Asset Management (Industry I like)

Enterprise Solutions for Asset Management: Includes wealth management, credit/lending/mortgages, estate planning, tax planning and capital raising.

Summary: Millennials are starting to invest money and they are cheap, but want an effective solution. Financial institutions are getting pressure because of their high fees especially recently because passive vehicles have done so well. This is a difficult industry to be disrupted by technology because of the amount of regulations that companies can’t just come in and set up shop. Wealth managers have $69 trillion in assets, of which millennials hold $1 trillion.

The history of buying stocks began with brokers who suggested actively trading so they could get commissions. Then portfolio theory came out and people realized buying/holding was a strong approach rather than actively trading. Schwab then came along and allowed people to do this and with it low-cost passive ETFs/Mutual Funds gained popularity. Now wealth managers are charging high fees, which has opened to the door for lower cost (somewhat) active managers to look after peoples money, which millennials are gravitating toward.

Some large institutions have taken note of this trend such as Vanguard and Schwab who have started their own low-cost Robo-adivsors have already surpassed all of the upstarts combined. Vanguard alone has $50 billion in AUM in it’s Robo-advisor, although it is important to note that a substantial portion was from their pre-existing portfolio’s being shifted.

The benefit of these large institutions is they have a desire to get access to these asset management upstarts and as a result have been paying significant premiums as compared to M&A in other spaces. This premium is due to the sticky nature of financial products, the reoccurring revenue they generate and the opportunity of offering these new clients additional products from the large institutions themselves.

Internal Inefficiency

  1. Analysts do so much redundant work across the country at all the banks I have worked at through my jobs. Prospecting clients is always tasked to analysts and is never ending and done manually through typing names into a system and putting a yes or no on a form.
  2. Analysts also end up manually calculating numbers, which are eventually shown to the client even when they are not checked all the time. These numbers include performance, ratios and bench-marking.
  3. Account opening and document process is always painfully slow and results in clients being upset with something going wrong or not being properly opened.


  1. Industry started with expensive brokers, then Schwab made it cheap, then management fees became expensive and now Robo-advisors are coming up to lower cost again so the industry will have to create low cost alternatives.
  2. There are a lot of people involved to do simple things that Robo-advisors seem to be able to do automatically. All of the people have high paying salaries, which means they will never really be able to compete.
  3. The more assets means the cheaper it becomes so I believe wealthy people will continue to use real advisers and not trust Robo-advisors, but systems must be improved to lower cost to general public

Fragmented Businesses

  1. There are obviously major players in the space (big banks), but all of the systems these companies use are outdated, proprietary, sometimes inaccurate and slow.
  2. There needs to be a standard reporting system that banks use so consumers trust the accuracy of what they are being told and can verify it against appropriate benchmarks.
  3. Addepar is the only major player in the space making an impact, but I believe there are other opportunities to encompass other parts of asset management besides what Addepar has done.

Robo-advisors: Wealthfront, Betterment, Personal Capital, FutureAdvisor, Stash Invest, Hedgeable, M1 Finance, Nutmeg

Social Networks: Openfolio, Estimize, Upgrade Capital, Harvest Exchange, Sumzero

Retail Portfolio Management: Sigfig, Motif, Robinhood

Alternative Investments: Cadre, Wealth Migrate, Verdad

Capital Markets & Risk Management: Trumid, Stratifi, Quantopian, AQ Metrics


Conclusion: The space peaked in invested capital and companies backed in 2015 and looks to be starting a decline. Although money invested is slowing down I still believe there are strong investment opportunities in the space. I believe that in the future people will want a combination of people and Robo-advisors, so the portfolio can be managed efficiently, but there will be a person to ask questions. Overlooked parts of asset management including estate planning and complex credit structures will be opportunities for new investment.

I believe that the private bank business model is effective and if it were modernized with technology, lowering its cost, that it could prove dominant in the space. Currently it is only available to high net worth individuals, but the general population would definitely benefit from all the advice offered by a private bank. An effective application could be implemented at RIA’s and regional banks allowing for increased product offerings with low prices.

So what companies would I invest in? Big, Medium, Small…

Big: Addepar – It is doing what is necessary in the space and will certainly be around for many years as a leader in the space.

Medium: Nutmeg – It is doing what Wealthfront and Betterment are doing with a much lower valuation. It also promotes retirement investing and it provides tips for taking advantage of government programs.

Small: Clearbanc – It is targeting entrepreneurs as there financial hub and I believe it could build many more features with a strong user base and eventually own the entire financial picture of a person or entity.


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