By Vasyl Soloshchuk, CEO and Co-Owner at INSART
Matt Wolniewicz
President at Fi360
Since his youth, Matt has always been in investing. When he was in college, he worked on the floor of the Board of Trade, headquartered in Chicago, as a runner, taking orders and picks in the futures markets, which he feels was a pretty neat way to get started in the financial services space. He then spent a long time at Morningstar, an iconic Chicago company. Later he took an offer from Fi360. In 2017, Fi360 made it onto the Investment Analytics Tools list compiled by T3, industry’s most reputable source for market insights.
Thoughts on major trends
Matt highlights the following trends:
- On the industry level, the assets overall that are invested continue to rise. But at the same time, the absolute number of firms and advisors is actually shrinking. When you look at the impact of regulation and the cost of doing business, we are seeing fewer firms and advisors, but a larger pile of assets that are available for advisors to help investors with.
On a side note, another interesting thing is that broker dealers and advisors have never been under more scrutiny. With the Department of Labor introducing the Fiduciary Rule and redefining retirement, not only is there the traditional 401(k) or defined contribution (DC) plan, but also individual investors that are rolling money out of those plans into IRAs. That means that there is high legal and regulatory pressure in the space.
- The second trend is growth, not only in the amount of absolute assets, but also the demographics. Certainly in the United States you’ve got an aging population combined with DB (defined benefit) plans becoming rarer. More of the burden is put on individuals to make sure that they can retire in the way that they want. This puts more pressure on the individual and they have more assets at their disposal.
Back in the day, when there were only DB plans, the companies were in charge of investing. Today, even in the 401(k) space, the participant has choices to make. The growth in terms of the number of investors who are responsible for their own outcomes and the amount of money in question is significant.
- Third, a macro trend is the emerging importance of the advisor. There’s never been more need to provide guidance to the end investor than there is today. Not only do people have responsibility for taking control of their retirement savings, but we have more and more of a mobile workforce, meaning that people don’t work for one company for their entire life.
As people move, they end up with smaller amounts in their 401(k) plans that they need to do something with. At the end of the day, one of the key determinants of how successful people are in attaining the outcome they want is working with a professional advisor, whether that’s a person or more of a robo-advisor.
- The fourth trend again goes back to the fact that individuals are responsible for their own outcome; there’s definitely a greater degree of specialization within the advisor and asset-management space. Advisors have the ability to relate to customers and to add value in either a financial planning way, an investment selection way or an overall portfolio way. Thus, advisors are being asked to do more holistic planning than just selling products out to clients.
“Advisors, in order to be successful, have to be able to stand out and clearly articulate their value proposition when it comes to attracting high net worth investors.”
Industry shift
Think of the mobile workforce, those who are not completely committed, like they used to be, to employers for long periods of time. As they leave those firms, they’re in essence taking with them smaller amounts of retirement savings from several different employers.
They have two choices: a human advisor or a robo-advisor. The challenge or the opportunity is in figuring out how these best complement each other, because the challenges in life for somebody who’s 22, who has just graduated from college and doesn’t have any investable assets and most likely a lot of student debt, are a lot different compared to for somebody who’s in their 60s and thinking about retirement very close in time.
“[For older people,] trying to figure out how they’re going to not outlive their money is a much different situation than somebody with no or low assets but a lot of potential to earn money.”
The challenge in the industry is figuring out, first, for that person right out of school how he or she can be better served by a robo-advisor over a longer term. That person doesn’t have a lot of assets, so a human advisor is not that interested in working with them at that time. However, the advisor should be able to use technology to attract that individual to their firm. As that person grows and as life happens to them, they have children or get married, or buy a house or begin accumulating some wealth, the advisor can help them build a comprehensive financial plan.
Furthermore, the impact of technology is huge. For example, millennials don’t want to make phone calls, but they would rather do everything through their phone.
“At some point there has to be some convergence and really a place for human advisors and digital advisors.”
Benefits of big data analytics and artificial intelligence (AI)
If we went back three years, when the robo space was really exploding, there were probably between 40 and 60 different robo-platforms. Fast-forward to today, and there’s a couple of big firms that have been successful in going to investors but remaining private (e.g., Wealthfront and maybe Betterment). But there are other robos as well, or firms like Vanguard and Schwab that have launched their own robos.