The dynamic between traditional wealth management firms and the new crop of digital players doesn't have to be antagonistic.
Take the development of Motif Investing, an online broker that lets people invest in baskets of securities based on a particular 'motif' such as a personal cause.
The brokerage has garnered millions in financial support from Goldman Sachs and Chinese social networking giant Renren. Its board counts former SEC Chairman Arthur Levitt and former Microsoft executive John Connors from Ignition Partners.
Motif's retail business does compete with advisors in that it targets investors directly. And it espouses a culture of positive change and social impact, echoing the startup culture of Silicon Valley, where it is based, rather than Wall Street.
But it also has struck partnerships with traditional firms, including Pershing for custodial and brokerage services and with Pacific Life Insurance Co.'s Swell Investing in March to develop cause-driven investment portfolios that are to be traded through Motif.
And though it offers robo advisory services, Motif's co-founder and CEO Hardeep Walia stresses that it is not a robo advisor, but rather a firm offering a suite of services, including a platform for financial advisors, Motif Advisor, and a soon-to-launch institutional business targeting asset managers, insurers and other financial institutions, Motif Institutional.
Striking a balance between the emerging and traditional realms of investing is where the firm is finding its niche, Walia says.
"Digital wealth management is here and it is pretty disruptive," he says. "There are a lot of players chasing millennials, some of which have serious limitations. Many robo advisors are really robo allocators; they don’t really give you advice. We are helping people decide what they want to invest in and understand what they are investing in."
Motif Investing was founded on the belief that theme-based investing not only makes sense but that it can be highly rewarding, Walia says. "It’s not just about investing in what can yield the highest return, but also putting your money to work for the things that matter to you."
Motif clients invest in a collection of up to 30 stocks, bonds and ETFs based on a particular idea, insight, strategy, business vertical, event or trend. Once created, clients can share them via social media to earn commissions. There are no ongoing management fees; rather, investors pay $9.95 per motif. The company says clients have created 85,000 motifs in the first year.
The idea for Motif came during 2008, Walia says.
"The industry was in a pretty dark place. Investors lost trillions in net worth, but still had to pay billions in fees. I thought there had to be a better way. So, Motif Investing was created in part to make investing a positive experience again, not only for investors but for advisors as well."
This is why Walia embraces teaming with firms whom he regards as complimentary.
"Pacific Life and Motif Investing share a similar view. Motif Investing believes in empowering people to invest in ideas, trends, economic points of view, or personal values and beliefs. Pacific Life believes that you can invest both for growth and to support something you believe in, and that investing can not only improve your life, but also the lives of others.
"Pacific Life turned to us because they wanted to create an offering geared towards millennials that would deliver a very simple and low-cost way for clients to make cause-driven investing a part of their lives," he adds. "They also wanted to make sure that clients didn’t feel like they would be risking their financial futures by investing in this manner; so each motif is designed to move with the stock market.
"Swell was created 'to change the world of investing for good.' Although we operate in different ways, this statement very much resonates with me."
A sense of opportunity carries over into Walia's assessment of the investment industry as it evolves into a digital framework.
"On the innovation front, there is a ton happening, and it is driven by tectonic shifts in demographics," he says. "The industry has to assume that 80% of our customer base will change in 15-to-20 years due to wealth transfer and other factors. When things move, someone will lose money, and someone will gain money."
But though his firm is considered part of that new wave of tech disruptors, Walia dismisses the notion that robo advisors will swallow the market whole.
"The idea of robots winning over humans is silly," Walia says. "Financial advisors are providing high-tech and high-touch advice. Robo advisors are high-tech without being high-touch. Platforms like ours can make financial advisors’ job easier, although [online advisory platforms] will drive fee compression, and advisors need to be prepared for that.
"Right now a new digital wealth [management] model is evolving, and I see three elements of it: Advisor 2.0 innovations, Product 2.0, from a mutual fund to an ETF to what’s next, and there’s a lot of momentum behind Data 2.0. As you think about innovation, those are the three lenses I think about.
"When you look across value chain of financial services, you are seeing innovation across all aspects. A lot of these things are framed as millennial-targeted solutions, but you’re going to see people across the demographics spectrum consume these products, and advisors will have an important role to play.
"Advisors seem anxious, but more education is needed, and this technology can actually help them. It’s more of an opportunity than a threat for advisors … There are products that are going to span both self-directed and advisor-assisted investment. Everyone says are you active or passive, but many invest in both. There is also this blend between advisor-assisted and self-directed investment. PFM is one piece of the bigger innovation that is happening."
Picking up $40 million in funding from Renren -- its chairman and CEO Joe Chen sits on Motif's board as well -- and its partnership with Pershing will help the firm with its global ambitions, Walia says.
"We weren’t in fundraising mode, but we did want to work with an international partner who understands the international online market," Walia says regarding Renren and Chen. "We are going to be focusing on different geographies around the world this year. We’re looking at Hong Kong, for instance. We started as a retail broker, and we’re currently focused on taking the retail business global."
In addition to expanding into overseas markets, Walia explains the firm's strategy is to look at wealth from a generational perspective.
"We believe there is a wealth lifecycle. It starts with a newbie investor learning about investing. During peak professional years, investors are focused on accruing wealth, and many use advisors heavily during this period. Upon retirement, they look to pass along money to the next generation. We have a product for each stage of the cycle.
"Motif Autopilot is for millennials. We think of it as a robo advisor with a twist. Millennials care about what they’re invested in. We’re going to allow them to express their views and invest in a way that is consistent with their values.
"Motif Advisor allows advisors to build asset-allocation models. That platform allows the advisor to focus on the client, and we do everything else, which helps us to differentiate from competitors. Typically you’ll see 80% of a client’s portfolio invested in asset models and the other 20% in tactical-tilt models.
"For example, it would be crazy for you not to tilt your portfolio toward low oil prices in the current environment. That’s our core offering for registered investment advisors.
"For the last stage of the wealth lifecycle, we have Generation Connect. Say I’m a grandparent and I want to hand money to my children, but I want my advisor to be involved. This platform allows an advisor, the grandparent and a child or grandchild to have a conversation about investing and even build their own customized motifs.
"That’s our approach to wealth management, [former portfolio manager of Fidelity Investments’ Magellan Fund] Peter Lynch meets [founder and retired CEO of Vanguard] Jack Bogle -- not just tactical, but also strategic, making it relevant to what’s going on today."
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