Q: Let’s talk about risk tolerance. We have some kind of questionnaire; based on the answers, we can calculate the risk tolerance of users, and based on this, a financial advisor provides a predefined portfolio strategy. Do you think this approach is efficient? Could using big data analytics help financial advisors in identifying the risk tolerance for users?
Priya: We do not believe in risk tolerance questionnaires at Stash. To ask a client what their risk tolerance is, is to do them a disservice. Because if they don’t understand how their answer could affect their plan, it is very unfair. We help clients understand risk on a spectrum of time.
Betterment is doing this. In fact they don’t give their clients a risk tolerance questionnaire; instead, they asking about goals.
I guess what might be a better experience would be once you’ve given the client the risk tolerance questionnaire, to be able to say to them, “Here are the trade-offs that your proposed risk tolerance would lead to. Are you okay with these trade-offs?” That helps to present the information in a more tangible, educational manner.
Q: What should we use instead?
Priya:
I think goals-based investment planning is a better option for the millennial generation – they are young and they have time. Most of us acknowledge that passive goals-based investing has a very strong case for those with mid and long term time horizons, which our clients do.Q: We focus on two major groups of experts, financial advisors and software people. Sometimes we see a gap between business people, who understand the market, and software development people, who develop the technology but maybe don’t understand the business part well. How can the gap be closed?
Priya:
The internet is totally changing this divide. Back in the day, smart people who were facing an industry problem but didn’t know how to create the technology solution didn’t have anywhere to go. Now there are a million sites where you can search for and hire a development team to help you affordably build a solution.This has already happened a lot in the financial services space. Advisor-built CRMs, advisor-built financial planning software, etc. In fact, there’s been an explosion of solutions in the FinTech space in the past few years and I think there will be some consolidation and the best products will rise to the top. That’s just part for the course with these things. I think the next five or six years or so are going to see a lot of consolidation.
Q: Could you name some companies in the WealthTech space that you think are very good innovators, and explain why?
Priya:
I’m impressed with Vestwell. They are revolutionizing the 401K space, which is a big space for financial advisors who are managing plans for small and mid-size companies. There’re so many inefficiencies – it’s a big administrative headache. I think the founder, Aaron Schumm, is really smart. He’s not only a founder who really understands the problem, but actually has a software background as well.Other companies I’m a fan of include Robust Wealth, CapitalOne360, and Digit and Debitize.
Also Finhabits. They’re trying to bring holistic wealth-planning to the Spanish-speaking community in the United States. I think they’re a very beautiful, elegant solution, from what I know about them. That’s another one that I have my eye on.Q: Could you share your views about the future of the wealth-management industry? What do you think will happen in five years? What kinds of companies will survive?
Priya:
I think the future is a hybrid future, that’s pretty obvious by now. Any place in which we can use technology to bring efficiency without compromising value or service will be part of the solution five years from now.We can’t outsource the human and emotional component of financial planning and wealth management, but there’s a lot of clean-up that technology can bring to:
- data gathering,
- maintenance of documents,
- the investing piece, which is already well underway,
- the personal finance management space—integrating the Mint.com functionality into the wealth-management experience.
For most of the millennial clientele it’s not just about the big picture, but it’s day-to-day stuff that they want to manage and keep an eye on, too.
Interviewed by Vasyl Soloshchuk, CEO and co-owner at INSART, FinTech & Java engineering company. Vasyl is also author of the WealthTech Club blog, which conducts research into Fortune and Startup Robo-advisor and Wealth Management companies in terms of the technology ecosystem.