August 20, 2018

This year has been another crazy one. Robots and driverless cars (and Donald Trump) have plastered the headlines. Apple breached $1 trillion in market cap. The market has had more ups and downs than a 6 Flags roller coaster. Things are changing faster than ever before, and no industry has been left untouched by the Digital Era’s tsunami of innovation.

Part of this tsunami has been a shift in the way people manage their wealth. We’re seeing a massive movement away from traditional options like brokerage firms and stuffed mattresses and toward private management firms, artificial intelligence, and new investment options.

So what are people doing with their money?

Registered Investment Advisory (RIA) Firms

In the aftermath of the ‘08 crisis, faith in traditional financial institutions has continued to fall. As people look for alternatives, the private wealth management industry has grown considerably. According to the 2017 Schwab Benchmark Study, RIA firms saw new clients arrive at a rate of 13.6%, up from 9.6% in 2016. The Fiduciary Standard can explain a large part of that growth because it has restored something in the financial industry that was lost during the Great Recession: trust. The data alone backs up this trend. The growth can also be explained by people wanting a better relationship with their advisor.

Personal touch goes a long way when dealing with something as personal as finances. Advisors are good at the numbers side of finance, but they’re also in the business of developing long-lasting  relationships with their clients. Sensitive issues come up surrounding money. Being able to turn to someone that cares and understands not just the situation but also the broader context of your relationship is invaluable because it’s natural. Good relationships are the foundation of society, and a good financial plan is similarly built on relationships.

Robots & Artificial Intelligence (A.I)

As the world of the Jetsons continues to roll in, robots and A.I are now capable of managing money. Intelligent investment platforms like Wealthfront and Betterment have seen an influx of people park their wealth into automated baskets. Lower fees and a hands-off approach are attractive benefits for inexperienced investors who may not feel comfortable managing their money themselves.

Many people invest because they want to feel peace of mind. Managing money can be stressful, especially for someone that isn’t a professional financial advisor. Knowing that investments are being managed diligently by professionals can go a long way towards feeling that peace of mind that relieves the stress of investment management.

RobinHood

RobinHood is a mobile app that lets investors take trading into their own hands. With no commissions, investors are able to place up to three trades per day with no damage to their cost basis. I see people using this app in two different ways --  as an active trading investment account, and as a long-term alternative to a taxable account offered by the traditional custodians like Schwab, TD Ameritrade, and Fidelity. The no-commission approach offered by RobinHood puts brokerage and RIA firms under even more pressure, even amid already-falling prices.

Cryptocurrencies

The buzzword of 2017, cryptocurrencies have multiplied like amoeba as technology and awareness build. Cryptocurrencies (or cryptos, to sound savvy) are currencies backed by technology and computing power, as opposed to a material resource like gold or silver. Some, like Bitcoin, aim to store value in an encrypted data bit, while others seek to add value through providing a decentralized service, like data computation on multiple computers in different locations. While the mainstream is hesitant to adopt these technologies (and rightfully so), their current value lies in the general idea of their potential. We can expect to see a shift in their value as they become widely accepted and their usefulness is played out.

Technology is going to continue to grow. As it does, we’ll see more changes in the way we interact with our finances and each other. It’s just a tool, after all, and the better we get at using our tools, the better our quality of life will be.