FinTech Central Recap: The Changing Face of Wealth Management

[Updated 3/4/16, 12 pm. See below.] Opportunities are increasing, thanks to technology and new federal regulations, for the layperson to get into the investing game—but a few hurdles remain before the broad masses can fully participate.

That was one of the takeaways from last night’s FinTech Central panel hosted by early-stage venture firm Canaan Partners at WeWork Chelsea in New York.

The session brought together Jonathan Stein, CEO and founder of Betterment; Rory Eakin, founder and COO of CircleUp; and John Gardner, CFO and co-founder of LearnVest, which was acquired last March by Northwestern Mutual.

Michael Gilroy, investor with Canaan Partners, moderated. His firm hosts these quarterly gatherings for investors and entrepreneurs from the fintech community. The audience drew out a who’s who from New York’s fintech scene, including Jane Barratt, CEO of GoldBean.

[Betterment restated the figures cited by Stein.] Naturally, there was plenty of talk of how emerging platforms have created new approaches to wealth management. Betterment, Stein said, is an automated investing service that has some 140,000 customers and $3.6 billion under management. “We’re changing the way people think about their money,” he said.

In the eight years since Betterment was founded, Stein said, more peers, including banks, have adopted similar advisory models in their wealth management services, rather than leaving the customer to figure everything out for themselves.

Even with a different dynamic coming into play for investing, not everyone is participating. Out of more than 300 million Americans, Stein said, only about one quarter of the population invests. “Half the population is in debt,” he said. “Of the remaining half, half of them don’t have enough savings to really think about investing. It’s actually probably better off for them to just put it into a bank account and not lose it.”

He said he would like to see everyone putting money away early to invest, but the reality is most people have not been given the right kind of advice and tools to do so. “[Investing] ends up being a product for the wealthy,” he said, though Stein clarified that this can mean college-educated professionals with careers that allow them to set money aside.

Demystifying the world of financial planning for the average person was an early objective for LearnVest, Gardner said. The company is a subscription-based financial planning business, which he said started in 2009 after the nuclear winter of the financial crisis. But simply giving people more access to invest (or possibly lose) their savings was not enough. LearnVest also helps them address their financial goals. “What we realized was there was a huge problem with consumer debt,” Gardner said. “People didn’t have enough saved up for retirement.”

Rory Eakin, founder and COO of CircleUp (photo by João-Pierre S. Ruth.)

Rory Eakin, founder and COO of CircleUp (photo by João-Pierre S. Ruth.)

More options for investing are in the offing thanks to newer federal regulations and laws. When the JOBS Act allowed companies to announce they were raising capital, Eakin said it opened more opportunities in the private markets. His company, CircleUp, is a marketplace for private investing in high-growth companies. “We seek to create a more open and transparent market,” he said.

Investing in private companies is a largely untapped opportunity compared with putting money into the fewer than 5,000 publicly traded companies on the Nasdaq or the New York Stock Exchange, he said. It can also give the private companies a more streamlined way to raise cash. “In the private market, the cost of capital for the 28 million small businesses across the country has been very, very high,” Eakin said. Various intermediaries, he said, can stand between institutions and the businesses looking for capital, taking a cut along the way.

John Gardner, CFO and co-founder of LearnVest (photo by João-Pierre S. Ruth.)

John Gardner, CFO and co-founder of LearnVest (photo by João-Pierre S. Ruth.)

The ever-changing regulatory landscape could be a windfall for Betterment, and ostensibly its customers. Stein said a federal rule to be implemented this year will preclude providers of advice on retirement accounts, such as IRAs and 401Ks, from making money on commission from those assets. That falls in line with how his company operates. “It’s a big shift,” Stein said. “It’s like the biggest thing in financial services in 30 or 40 years.”

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