To capitalize on rapidly changing client demands and capture a new generation of investors, Motif Investing CEO Hardeep Walia says the industry has to develop a new model for investing and wealth management. And he's starting with his company.
Motif is shifting gears, launching a new financial plan subscription service aimed at millennials and acknowledging plans to launch a robo adviser.
"We're going to pivot out of our trading roots and we're going to go into wealth," Walia says. "We have a set of innovations, and we're tying them all together in a macro wealth management experience."
Central to its strategy is bringing the subscription model to wealth management, Walia says, adding the firm is responding to how millennial investors, born between the late 1970s and the early 2000s, want to invest and pay for advice.
"What you're going to see is us do more innovative things," Walia says. "The business model for most online brokers has been the transaction fee; the business model for advisers has been basis points. We're trying to say, 'No, you don't need to pay basis points.'
"We're moving to a subscription economy," Walia adds. "There are subscriptions for almost anything — music services, healthcare — why not investing?"
WEALTH MANAGEMENT SHIFT
The firm's rebranded offering, Motif BLUE, will offer investment plans with a starting flat monthly fee of $5 for basic trading with a single motif — the firm's unique thematic baskets of securities.
It will also offer two other tiers of subscription plans, with a standard account for $10 that will soon feature unlimited motif investments, one commission-free trade, market reports and auto rebalancing, and a $20 monthly account for traders and HNW clients with additional commission-free trades.
The firm's shift comes in response to demand from its millennial customer base, which represents 40% of its 300,000 users, and is now its fastest growing segment, Walia says.
"We had to solve the business model, because many don’t have a lot of money, and when you're taking $250 out of every paycheck to put into a motif, and we're taking $10 every time, that’s a sizable transaction," Walia says.
"This subscription solves a very big problem for our customers if you only have smaller dollar denominations. You can try one of those new online sites which are rounding up fractions and putting it away. But if you look under the hood, they're charging 60 basis points for an S&P 500 index. We thought we could do better."
Input from Motif's younger clients was one driving force: Make it simple, make it cheap and provide help, they said.
"Right now we're purely self-directed," he says. "As you can imagine, we're going to build a robo. But it won't be like anything you've ever seen. One of the reasons we never built a robo is because if big incumbents can in five months build a robo and in five weeks have more share than the entire industry, that’s not innovation. We've always tried to build products that are really hard for other people to clone."
Motif’s digital advice service will be rolled out within months, Walia says, but did not give a specific launch date.
Motif has partnered strategically with larger players in wealth management, most notably Goldman Sachs, which added its own investment into the $126.5 million the Silicon Valley-based firm has raised to date.
Goldman Sachs offers Motif's indices through structured investments for its clients. Other partnerships include one to provide digital tools to U.S. Bank’s Ascent Private Capital Management advisers, and a deal between its institutional offering, Motif Capital, and Global Atlantic to offer thematic insurance trust mutual funds.
Still, it has been on the edges of digital wealth management while other independent startups and traditional brands have established their own robo advice offerings. Among startups, Betterment has gathered the largest pool of assets with close to $6 billion, while Vanguard's Personal Advisor Services now manages close to $40 billion.
"We've always had a smaller share of wallet than everybody else," Walia acknowledges. According to its latest filing with the SEC, Motif's institutional arm manages $119 million.
But he is quick to challenge the notion as to whether robos provide wealth advice.
"They want everyone on the planet to buy a basket of 10 ETFs, and the only thing that differs is the weighting methodology," he says. "I take the same questionnaire on different robos and get vastly different answers. My problems have been around the confidence they give people. To me there are a lot of frailties in the robo advisory world."
‘AN INTERESTING TWIST’
Industry analysts complimented Motif for trying to strike a different path.
"A constant criticism I'll hear is that most of these robos offer cookie cutter products, that everyone is put into the same basket of ETFs and there is not enough variety," says Sean McDermott, senior analyst in consulting services at Corporate Insight. "It sounds like Motif's approach is a departure from that, and points to a wider trend. More firms will try to tinker with the robo approach to offer products outside of ETFs."
There's room for innovative wealth management platforms to attract millennial investors, says Chip Roame, managing partner for industry consulting firm Tiburon Strategic Advisors.
"Motif has a unique thematic focus to investing," Roame says. "I thought that would catch on with millennials. Maybe the millennials targeted like thematic investing but need some advice to apply it, and hence this would be the first thematic focused robo adviser. An interesting twist."
Focusing on millennials as a group is a practical strategy for differentiation, he adds.
"Wealthfront seems focused on Silicon Valley, with plenty of tech millennials there too. Betterment seems focused on building its brand and expanding channels. Personal Capital seems focused on more full service, including adding video, and targeting a bit more wealth. If Motif is saying millennials plus themes, that sounds logical to me."
Offering a new pricing model could be part of that appeal, McDermott adds.
"It will be interesting to see how that plays out," McDermott says. "That will resonate with millennials, who are constantly asking for simplicity and transparency."