Mar 04

Strategist: Startups Are Eating Wall Street’s Lunch When It Comes to Millennials and Money Management – Bloomberg Business

From robo-advisers to basic index funds, millennials have been a particularly difficult generation for wealth managers on Wall Street to understand.

According to a note from brokerage firm ConvergEx Inc., the current money management framework is never going to work for this age group and Silicon Valley with its plethora of fintech startups is reaping the benefits.

“Take it from a real life millennial: Wall Street’s existing money management business model is as relevant to my cohort as cable TV and land line phones. And no, we aren’t going to come around when we eventually have a few dollars to invest later in life,” said Jessica Rabe, research associate at the firm.

“The money management industry’s technical language and outdated practices do little to lure my generation in, let alone the steep investment minimums in the face of record student debt. While services from traditional banks fall short, there are a slew of fintech companies filling the void with relevant apps.”

As is Silicon Valley’s style, it stepped in to fill a gap in the marketplace, and here are a few startups that Rabe believes Wall Street could learn the most from.

Two that do the best in terms of what she calls “goals-based investment advice” are FinMason Inc. and iQuantifi Inc. The former is a free app that can help an investor understand how their portfolio might perform in different scenarios while also tracking retirement goal progress. The latter costs a mere $89 a year and can help when deciding how much to save for a specific goal and which funds might best help in doing that.

If someone is looking for trading that isn’t super complex when it comes to fees and general understanding of products, StashInvest and Kapitall Generation LLC are leading the pack, according to ConvergEx.

Stash will ask about current financial information as well as risk tolerance before giving suggestions on what to invest in. Kapitall is another trading platform, offering points for certain actions that are redeemable for commission-free trades.

Lastly, Acorns Advisers LLC and Clink Savings Inc. make it easy for users to save, even if it’s just investing your spare change into stocks. Acorns, for instance, will take the spare change from purchases made on credit and debit cards and put it into a portfolio. While it does cost $1 per month, students can use it for free.

Meanwhile, Clink acts similarly to the automatic contributions employees make to their 401(k) plans in that users can set up daily, weekly, or monthly contributions to a portfolio. There are currently no fees on Clink.

Taking all of this into account, Rabe said the biggest takeaways are that minimum investment thresholds might need to be lowered due to things like student loans, Wall Street should start speaking the language of millennials, and the process of money management needs to be seamless for those with a busy lifestyle.

Of course, millennials may change their tune if these startups begin raising prices or charging other sorts of fees once being cash-flow positive becomes more important than the current “growth at all costs” model. These firms also weren’t around during the great financial crisis, so it will be interesting to see how they perform during the next downturn. If portfolios start to go south, millennials might want to have a professional wealth manager on the other end of the phone to guide them through the downturn.

Still, Convergex is convinced of their worth.

“These are winning strategies because they help guide millennials through the investment process by catering to their current finances, needs, and interests,” concludes Rabe. “Banks should heed the ideas of these disruptive technologies in order to engage millennials now rather than later.”

Source: Strategist: Startups Are Eating Wall Street’s Lunch When It Comes to Millennials and Money Management – Bloomberg Business

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