2016's Top FinTech Predictions

Coming into the 2015 year-end I thought several notes would be of value relative to what I, and my colleagues, have seen this year in FinTech that warrants focus going into 2016.  As a prelude, let me begin with this quote:  "Remember, in a death-match, Dragons Eat Unicorns."

That said, and in no particular order:

• Blockchain will be the FinTech darling of 2016, and one of the least understood by the masses…until they buy a house using it. If you don’t know Ripple you should.
• The strategic FinTech CEO will emerge. The new CEO leaders will be the ones who horizontally integrate their organization’s respective business silos (i.e. equity trading). Watch Australia's banks for the FinTech trailblazers. Also, get familiar with Fidor ASAP.
• Australia will lead the way down a few FinTech fronts.  While not a FinTech pure-play,  Atlassian was just the start of the realization of how far ahead the Aussies really are in technology.
• Smart Beta will continue to grow as an asset class/category as more and more successful retail implementations occur.  Here's the horse we have in the race.
• Payments will be a battle of the goliaths. Unless you have something that no one has thought of before, save your money and just sit back andwatch (literally).
• The romance of virtual advice (“Robo-advisors”) will have dramatically subsided. 2016 will witness robo consolidation, especially B2C, as VC capital dries up.  
• There will be a significant uptick in B2B robo-advisor implementations. This will be due in large part to the ubiquity of APIs. Look for the brands to emerge as the B2C market leaders (i.e. Schwab, Vanguard, etc.) and for the custodians, product platforms, and BDs to implement enterprise ready solutions for their advisors.
• Picks and shovels will become sexy again in wealth management.  Watch Morningstar carefully.
• Wealth management will bifurcate with premium fees associated with larger complex relationships. Conversely, fees will decline significantly for the mass affluent globally. Look to 0.50% as the new “norm”. Models like the USA’s XY Planning Network should proliferate globally as the profession standardizes around planning services and pricing.
• There will be substantial consolidation of smaller US based RIAs (sub $100 million) due to higher year-over-year regulatory costs
• Look for the “Uber of financial advisors” to emerge. Not in the USA, but Australia (I cannot share/link this company due to our NDA).
• Free trading, and its availability will become the norm in 2016.Lead horse?  Robinhood.  Following this activity, we expect to see a re-birth of social trading and its associated data. (FYI: Several social trading platforms are for sale at deep discounts now and might be worth a look again. Contact us if interested.)
• As markets continue to trade sideways, and more pension systems remain under water, governments and regulators globally will become more involved in following the lead of Australia’s Superannuation system and model
• Regrettably, defaults will slow some of the activity in the P2P debt space. But, outside of some headline risk, the larger P2P players will continue to grow.  Watch the big data credit scoring companies.
• The SEC will revisit its decision on crowd funding for non-accredited investors. The fiduciary standard they set is too lax.
• One regulator (most likely Singapore) will lead the global innovation charge and set the regulatory tempo globally. Hong Kong will immediately follow.
• Mobile/telecom companies will become the new “banks”. Look for this to be led out of China, Korea, and India.
• FinTech technology will continue to be led by Silicon Valley, but the successful implementation will be led by Asia's giants via Alibaba and Tencent.  

“Remember, in a death-match, Dragons Eat Unicorns”

 My advice? If you are a small institution, sell. If you are a large firm, innovate yourself out of business (look to Aviva as a model for constructive disruption), and acquire the small innovators. If possible, move to Asia immediately...Singapore and Hong Kong are your beach heads.

From a user experience standpoint, remember: the innovation is the removal of the legacy process. Think how Uber removed the payment experience…there is none. That was the innovation.

Lastly, as I begin my second holiday season in Singapore, I want to send my very best to everyone worldwide whom I have had the opportunity to work with in 2015. Your insights, honest feedback, and global perspective were invaluable. I wish you and your families the very best this holiday season and I look forward to our collaboration in 2016!

Frank Troise is one of South East Asia's leading voices on FinTech. He is an active advisor to many of Asia’s leading financial firms, start-ups and technology firms. He is the founder of SoHo Capital LLC a US-based Registered Investment Advisor and holding company. 

Mr. Troise has over twenty years of experience managing multi-billion dollar portfolios for corporations, endowments, foundations, and high net worth individuals.

Mr. Troise’s research, work op-eds, and career have been published in The Economist, Institutional Investor, The Wall Street Journal, Barrons, The Sacramento Bee, The Pacific Coast Business Times, Noozhawk, Derivatives Weekly, Pension & Investments, and Investment News. His investment letter has over 12,000 accredited readers and he is a frequent commentator on CNBC in the USA and Asia regarding market strategy for Squawk on the Street, The New Retirement Series, Power Lunch, and Street Signs.

He is married, has two young children and recently relocated with his family to Singapore. He is extending his family office experience to South East Asian families. He is originally from New York and remains a devoted (frustrated) Yankees fan. He has an MBA in Finance from New York University and a B.S. in Managerial Economics from Carnegie Mellon University.

The Fiduciary Hypocrisy

I like all of the talk regarding fiduciaries.

Especially in light of the number of senior citizens who are in deep trouble right now.

“How does one explain a fiduciary to a retiree?
”

Think about it.  The DJIA should be somewhere between 22,000 to 26,000 if we use 8% returns from either the high or low in 2007.

So, that means everyone is WAY below their retirement target.  REALLY way below.

That means we would need a level of unprecedented market returns to get back to "whole".  That is not going to happen.

Are any fiduciaries telling retirees that?  Or are they simply collecting fees?

As a fiduciary, what is your primary mission?

According to Wikipedia, a fiduciary:

“In a fiduciary relationship, one person, in a position of vulnerability, justifiably vests confidence, good faith, reliance, and trust in another whose aid, advice or protection is sought in some matter.; [2] In such a relation good conscience requires the fiduciary to act at all times for the sole benefit and interest of the one who trusts.”

Let's go back to the retiree.  

They expected 8% per annum in equities.  That's gone.

Let's look at the yield curve: Ten Year Treasuries at 2.26%.  Not good.

So there is no other mathematical outcome that works for the fiduciary to explain, other than to terminate themselves.

Think about that for a second.

Under ANY asset allocation scenario using "prudent man" measures, the fiduciary is GUARANTEEING that the retiree cannot make their goal.

All of the old "100 minus your age" formulas get tossed in the garbage.

The TRUE fiduciary would tell their client that they have to take more risk.  BUT that violates every tenet of a fiduciary.

“Imagine telling a senior citizen that they need to take more equity risk?”

Ironically, and mathematically, that is what has to happen.  But a true fiduciary cannot do that.

So, a true fiduciary is in a lose/lose.

“One last point. In light of the return numbers reflected above...what does that make a robo-advisor?”

*I am personally curious who can reply to this in a manner that their compliance departments will allow*

My Next Puzzle to Solve

Over the past several years I have written a LOT about the global pension crisis.

We tend to not talk about it now, but the days of 8% returns are long gone. People much smarter than me, like Warren Buffett, have talked extensively about this dilemma for retirees.

Which means retirees only have three options:

1. Take more risk
2. Save more
3. Retire later

Now, I won’t dive into these three at all. But, I personally believe they highlight a key fiduciary dilemma:

In a market of low equity and fixed income returns, what are the elderly to do?

“My focus is how I can make a difference.”

Hopefully in a very substantive way. Ironically in a very simple way:

“Eliminate all fund management fees.”

That’s it. No more management fees.

How? Replicate the funds. 24/7. And provide that fund information to everyone. 24/7.

Imagine if every investor knew every day what their funds held?

“100% transparency.
100% liquidity.
100% ownership.”

That is the puzzle I am solving now via “Replicas”.

I want to give everyone worldwide back 100% of their fund management fees. It may not solve every problem. Would it mean less risk? Maybe more savings? Or maybe earlier retirement?

Yes. That is what motivates me. It is a simple, elegant way to solve a global problem.

“Just give the fund management fees back.”

Join me now as we prepare to launch in 2016.

Become one of the Beta users of Replicas today.

Click here to join our waiting list!

FinTech: The Price of Change

I had the opportunity to speak recently at The American Chamber of Commerce in Singapore where I found myself using a simple analogy.

The banks run the highway. It is a utility that we all need and trust.

The government makes sure that there are no potholes on the highway. They ensure the trust.

We simply engage in commerce along that highway. Goods. Services. Priced accordingly.

“So what is FinTech?”

Are “payments” new, or simply another form of delivery on that highway?

Is the same true for P2P debt?

Or, what about wealth management?

Is any of FinTech truly new?

Or, as I would posit:

“Are we simply witnessing an explicit irreversible deflationary shift in our economy?”

The institutions will survive. The highway will continue. Potholes will be monitored.  Trust will be maintained.

“Commerce however is occurring faster and cheaper. Cheaper to the point of FREE.”

The institutions will survive…the resources and human capital to support them are what are truly at risk.

QUOTE of the week:  Disclaimer alert.  I am stealing this from a Google employee who chooses to remain anonymous:  "The revolution in payments wasn't mobile.  The revolution was removing the payment experience completely (a-la-Uber)."  Borrow this at your leisure!

The A-I-M of the Robo-Advisor

As a kickoff to our series on digital wealth, I thought we would start with one of the hardest problems: how to do it.

When looking at the digital wealth space (colloquially known as “robo-advisors”) there are three key objectives that must be achieved. Internally, we refer to these as “The A-I-M of the Robo-Advisor.” They are as follows:

1. Acquisition
2. Interaction
3. Monetization

When looking at the digital wealth landscape it becomes much easier to evaluate when using this A-I-M paradigm.

Let’s quickly break them down by B2C and B2B.

The B2C robo-advisors are trying to achieve all three objectives. They need toAcquire the customer, Interact with them, and then ultimately Monetize them. They are meant to be a complete end-to-end solution.

But, what about the hybrid robo-advisors? Or, rather those providing a B2B solution?

Their objectives are slightly different.

The KEY assumption is that “acquisition” is occurring elsewhere, and/or has already been accomplished (i.e. the customer may have an existing loan with the bank). This is a critical economic and mathematical challenge to solve that most advisors are ill equipped to handle.

So, to start this series, I am going to focus on the first key objective: Acquisition.

I will begin by asking a question:

“What does it cost to acquire a client?”

More specifically, what does it cost to acquire a specific type of client (broken down by AUM)?

In fact, I would ask the B2B robo-advisors worldwide:

“What client acquisition costs should an advisor expect when implementing a robo-advisor solution?”

I open this up to everyone.  I would encourage input from other readers of this blog globally to share their thoughts.

I think the real $$ numbers (for those who are brave enough to share) will be surprising.

Lastly, for those of you who want to know the four firms who will not answer this question in a pubic forum (because they solved the math), feel free to email me directly at ftroise@sohocap.com.