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Fintech Firm Solves Number One Retirement Fear—Outliving Your Money

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Ken Henderson, a traveling Pickleball pro, has taped out two 22-by-40-foot courts on an East Harlem gym floor. Today, instead of the usual Florida retirees, he’s teaching a crew of youngish engineers, Web designers and financial planners who have taken the subway up from the Chelsea offices of their fintech startup to play the paddle sport many Baby Boomers favor because it requires less running than tennis and is easier on aging joints. One of the older players today is 41-year-old Rhian Horgan, the founder and CEO of Kindur. She has arranged the outing as a tongue-in-cheek way for her staff to get in touch with their inner Boomers—and their clientele.

In 2016, after 17 years with JPMorgan, Horgan ditched her business suits for jeans and reinvented herself as a fintech entrepreneur. She pitched Kindur as a one-stop digital financial advisor for those nearing or in retirement. It would manage clients’ investment portfolios using a basket of low-cost index ETFs (from Vanguard, BlackRock and Schwab); offer them advice on when to take Social Security; determine which of their retirement accounts to draw down first; and, in many cases, sell them a fixed annuity­—all with the goal of making sure they didn’t run out of money or pay more taxes than necessary during retirement. For simplicity, Kindur would even consolidate a client’s income sources into a monthly “retirement paycheck.”

But venture capitalists who have thrown hundreds of millions at a slew of robo-advisors and personal finance apps targeting Millennials were not wowed by Horgan or her pitchbook. “There was nothing in their portfolio targeting people ages 55 to 70,” she says. “It was a demographic they didn’t understand.”

Adding to her problems, Horgan believes, was her own identity. “I wasn’t viewed as investable. I was old for the industry, almost 40, didn’t have a cofounder, and I worked [previously] for a bank.” In addition, the notion of selling annuities online without high-pressure commissioned salesmen has been met with wide skepticism—from VCs and especially within the insurance industry itself.

After months of fruitlessly knocking on U.S. doors, Horgan found a believer at a fintech retreat in the French Alps. Anthemis, a London-based VC firm that was in on the first 2010 funding round of Betterment—the largest of the independent robo-advisors—agreed to lead a $1.25 million seed funding in September 2017, with billionaire Steve Cohen’s Point72 Ventures chipping in. Why mess with Boomers? “That’s where the money is,” answers Anthemis cofounder Sean Park, who sits on Kindur’s board.

Horgan hired an engineer, a designer, a general counsel (from Citi) and a few fellow financial wonks. They set up shop in a WeWork office. Across the hall, a sixtysomething woman was using WeWork’s online Meetup service to organize mah-jongg games, which gave them encouragement whenever naysayers suggested Boomers just weren’t that into the internet.

Still, their challenge was daunting: designing a “decumulation” or spend-down plan is more complicated (and requires more individualization and sets of calculations) than determining a proper asset allocation in the accumulation or saving phase. Yet to retain a broad appeal, the look and feel of the site couldn’t be too wonky, they believed.

The result: Kindur’s site, which launched in April, takes a low-key approach to both the details and the sales pitch. After setting up a free account, you answer a handful of specific questions (age, recent salary, planned retirement date) and guesstimate your assets and current spending. You get a preliminary free plan providing spending, Social Security and other advice based on these guesstimates or by linking to your actual accounts.

Prospective customers can play with their assumptions (retire later? spend less?) and ask questions of Kindur’s “coaches” via phone or online chat. Turns out, Boomers love chatting online and half use Kindur’s smartphone app, instead of its website, Horgan reports.

So far, more than 1,000 potential clients have gotten free plans. It’s a slow sales process, so we don’t yet know how many of them will buy Kindur’s services. But those who do will transfer their IRAs and investment accounts to its platform (custodied by Apex Clearing) and be charged an annual management fee of 0.5% of investment assets.

One of the most closely watched parts of Horgan’s approach is her use of fixed annuities to ensure clients don’t outlive their money. In contrast to the complicated (and commission-heavy) variable annuities insurance salesmen pitch, these are relatively plain vanilla products: You hand over a lump of money—say, $100,000—and get a fixed monthly income beginning either now or at some date in the future. Some financial planners and policymakers argue fixed annuities are a good idea, particularly for those middle-class folks who have savings but no regular pensions (outside of Social Security) they can count on.

Not surprisingly, annuity sellers are aggressively pursuing the Boomers’ business. In fact, the Alliance for Lifetime Income, an industry group, is the sole sponsor of the Rolling Stones’ current concert tour—the one that was delayed by Mick Jagger’s heart surgery.

But the insurance industry is still resistant to selling annuities online. Complicating matters, Horgan wanted a custom-designed product that fit her vision of a good annuity. She interviewed more than 40 insurers to find one willing to work with her and finally teamed up with American Equity, a West Des Moines, Iowa-based $51 billion in assets company started just 24 years ago.

“We’re partnering with Kindur because it’s a distribution channel of the future,’’ says Ron Grensteiner, the president of American Equity Investment Life Insurance Co. “There’s a segment of the population now, and there will be even more so in the future, who want to do retirement planning digitally—and anonymously, to a certain degree.”

Horgan resolved to start Kindur after watching her own parents struggle to make sense of their retirement options. Her physician father and piano-teacher mother immigrated from Ireland when she was 9. Her dad worked at six different U.S. hospitals, accumulating six workplace retirement plans, as well as sundry other financial assets. Her mom, who died in late 2017, had two retirement accounts. “The list of accounts went on and on. They never had a financial advisor, and most of the info was in my dad’s head,’’ says Horgan, who has decorated Kindur’s offices with framed photos of parents—her own and those of her staff.

Before taking the Kindur site live, she raised another $10 million, including $1 million from Inspired Capital, a new fund run by billionaire Penny Pritzker and Alexa von Tobel, who founded Learnvest, a financial site for Millennial women. (It was acquired by Northwestern Mutual and later ended as a brand.) “She’s extremely ahead of the competition in recognizing what an opportunity this is,” says Von Tobel.

Not quite all the competition. United Income, a similar comprehensive online service aiming at the 50-to-70-year-old getting-organized-for-retirement crowd launched in September 2017 and already has $780 million in assets under management, with an average account size of $833,000. Unlike Horgan, founder Matt Fellowes didn’t have to fight the VCs’ anti-Boomer bias—he used his own and his family’s money, plus funds from Morningstar, which backed his first fintech startup, Hello Wallet, an automated budgeting and financial education tool aimed at Millennials.

United Income is a bit pricier. It charges 0.5% of assets a year for robo-only management and 0.8% for a “concierge service” with access to a personal financial advisor. And it doesn’t recommend annuities. Why not? Fellowes says fewer than 10% of his customers face an “essentials gap”—meaning their basic living expenses aren’t covered by Social Security and pensions—and he views bond ladders and other low-risk investment strategies as a more cost-effective method than annuities to fill such a gap.

How big a role annuities will ultimately play in Boomer retirements is still unclear.

What is clear, however, is that digital money management is not just for Millennials anymore.

In fact, the bigger challenge for Kindur, United Income and the inevitable similar startups to come may be that Boomers will simply opt to get their robo-advice from the established financial companies that helped them build their nest eggs in the first place.

Charles Schwab & Co.’s robo-human hybrid advice service, Schwab Intelligent Portfolios Premium, launched in 2017. It includes spend-down advice and costs just $300 up front, plus $30 a month. So far, two thirds of users are 50 or older.

And then there’s the blue whale of robo-human hybrids: Vanguard’s Personal Advisor Services, which launched in 2015 and charges 0.30% of assets (and less for those with $5 million or more under management).

 The Vanguard service not only allocates clients’ investments, but also offers advice on claiming Social Security and how much (and from which accounts) clients should spend in retirement. So far, 85% of Personal Advisor’s users are 50 or older, and it has grown to $130 billion in assets under management—way more than all the robo startups combined, no matter what age clients they serve.

I’m an associate editor on the Money team at Forbes based in Fairfield County, Connecticut, leading Forbes’ retirement coverage. I manage contributors who cover retirement and wealth management. Since I joined Forbes in 1997, my favorite stories have been on how people fuel their passions (historic preservation, open space, art, for example) by exploiting the tax code. I also get into the nitty-gritty of retirement account rules, estate planning and strategic charitable giving. My favorite Forbes business trip: to Plano, Ill. to report on the restoration of Ludwig Mies van der Rohe’s Farnsworth House, then owned by a British baron. Live well. Follow me on Twitter: http://www.twitter.com/ashleaebeling Send me an email: aebeling@forbes.com

Source: Fintech Firm Solves Number One Retirement Fear

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The Future Of Banking: Fintech Or Techfin – Jim Marous

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The banking industry is experiencing disruption at an increasing pace. Over the past few years, traditional financial institutions and non-traditional fintech firms have begun to understand that collaboration may be the best path to long-term growth. At the same time, big tech firms are offering financial services, creating techfin solutions.

The rationale for collaboration is the ability to bring strengths of both banks and fintech firms together to create an stronger entity than either unit could bring on their own. For most fintech organizations, the primary advantages are an innovation mindset, agility (speed to adjust), consumer-centric perspective, and an infrastructure built for digital. These are advantages that most legacy financial institutions don’t possess.

Alternatively, most banking institutions have scale, a stronger brand recognition and established trust. They also have adequate capital, knowledge of regulatory compliance and an established distribution network.

According to the World Fintech Report 2018 from Capgemini and LinkedIn, in collaboration with Efma, “Most successful fintech firms have focused on narrow functions or segments with high friction levels or those underserved by traditional financial institutions, but have struggled to profitably scale on their own. Traditional financial institutions have a vast customer base and deep pockets, but with legacy systems holding them back.”

The challenge will be the ability to establish an environment where collaboration can flourish as opposed to stifling the beneficiary attributes of either partner.

Fintech vs. Techfin

The difference between fintech and techfin is based on the origin of the underlying organization. Fintech usually references an organization where financial services are delivered through a better experience using digital technologies to reduce costs, increase revenue and remove friction.

A basic example of a fintech offering is the mobile banking services that most traditional banks offer. More commonly, fintech refers to non-traditional financial offerings such as PayPal, Zelle and Venmo in the U.S. and digital-only Starling Bank, Monzo and Revolut in the U.K.

Alternatively, techfin usually references a technology firm that finds a better way to deliver financial products as part of a broader offering of services. Examples of techfin companies include Google, Amazon, Facebook and Apple (GAFA) in the U.S. and Baidu, Alibaba & Tencent (BAT) in China.

A couple years ago, Jack Ma, technology visionary and co-founder and executive chairman of Alibaba Group, described the difference between Fintech and Techfin.

There are two big opportunities in the future financial industry. One is online banking, where all the financial institutions go online; the other is internet finance, which is purely led by outsiders.Jack Ma

In both instances, success of these organizations in finance will be based on the ability for the institution to collect and analyze massive data sets, learn from the insights to improve personalization and digital engagement in real-time, and expand offerings in response to consumer needs.

A New Competitive Landscape

Even with the best collaboration, the ability for legacy financial institutions to compete in the future banking ecosystem will be challenged by the techfin powerhouses. Built on digital platforms, these huge technology organizations are efficient and have already found ways to reduce operational costs and monetize their business models.

According to Bain, “Many of the tech giants possess the ingredients of success: digital prowess, large customer bases, organizations well versed in improving the customer experience, and ample leeway to extend their corporate brands into banking.” More concerning may be that some of these firms are generating a level of trust previously reserved only for traditional banks and credit unions.

As a result, an increasing percentage of consumers are willing to use financial products offered from these non-traditional firms – especially where the experience is superior to that offered by legacy organizations. A potential to shift revenues from other businesses (such as retail) to enhance banking offerings can completely change the competitive equilibrium.

It is expected that demand for products and services from fintech firms and large tech companies will only increase as more consumers become familiar with new digital offerings. This is especially true for younger consumers, who have grown up with digital devices.

More and more, people will get annoyed when they’re forced by bank policies and processes to use non-digital channels for everyday banking business. Traditional banking organizations cannot rely on providing checking accounts and loans only. Competitors are already eating away at significant parts of the banking value chain with the potential of limiting banks to becoming nothing more than utilities.

The future of the banking industry will depend on its ability to leverage the power of customer insight, advanced analytics and digital technology to provide services that help today’s tech-savvy customers manage their finances and better manage their daily lives.

As financial and technology organizations embrace a broader view of banking, offering both banking and non-banking services, the ultimate winner will be the consumer regardless of which provider they select.

 

 

 

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The Impact of Fintech on Investment Banking

Leon Saunders Calvert, Global Head of M&A and Capital Raising at Thomson Reuters explores to what an extent Fintech is now changing the Investment Banking industry.

New technologies, like machine learning/artificial intelligence, predictive behavioral analytics and data-driven marketing, will take the guesswork and habit out of financial decisions. “Learning” apps will not only learn the habits of users, often hidden to themselves, but will engage users in learning games to make their automatic, unconscious spending and saving decisions better.

The Fintech Landscape

Fintech startups received $17.4 billion in funding in 2016 and were on pace to surpass that sum as of late 2017, according to CB Insights, which counted 26 fintech unicorns globally valued at $83.8 billion. North American produces most of the fintech startups, with Asia following. Some of the most active areas of fintech innovation include or revolve around the following:

  • Cryptocurrency and digital cash
  • Blockchain technology, including Etherium, a distributed ledger technology (DLT) that maintain records on a network of computers, but has no central ledger.
  • Smart contracts, which utilize computer programs (often utilizing the blockchain) to automatically execute contracts between buyers and sellers.
  • Open banking, a concept that leans on the blockchain and posits that third-parties should have access to bank data to build applications that create a connected network of financial institutions and third-party providers. An example is the all-in-one money management tool Mint.
  • Insurtech, which seeks to use technology to simplify and streamline the insurance industry.
  • Regtech, which seeks to help financial service firms meet industry compliance rules, especially those covering Anti-Money Laundering and Know Your Customer protocols which fight fraud.
  • Robo-advisors, such as Betterment, utilize algorithms to automate investment advice to lower its cost and increase accessibility.
  • Unbanked/underbanked, services that seek to serve disadvantaged or low-income individuals who are ignored or underserved by traditional banks or mainstream financial services companies.
  • Cybersecurity, given the proliferation of cybercrime and the decentralized storage of data, cybersecurity and fintech are interlocked.

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Fintech Users

Who uses fintech? There are four broad categories: 1) B2B for banks and 2) their business clients; and 3) B2C for small businesses and 4) consumers. Trends toward mobile banking, increased information, data and more accurate analytics and decentralization of access will create opportunities for all four groups to interact in heretofore unprecedented ways.

Customers now expect seamless digital onboarding, rapid loan approvals, and free person-to-person payments – all innovations that FinTechs made popular. And while they may not dominate the industry today, FinTechs have succeeded as both standalone businesses and vital links in the financial services value chain,” a recent industry report by Deloitte and the World Economic Forum (WEB) stated.

According to Deloitte and the WEB, disruptive forces that have reshaped the FinTech industry include, but are certainly not limited to:

  • The growth of online shopping, which is expanding quickly at the expense of in-person shopping, leading to the dominance of online, cashless solutions for transactions.
  • A shifting balance of power that swings from banks and other financial services to those who own the customer experience. Banks are eliminating in-person services and looking to FinTech and large technology companies for other ways to engage customers.
  • New trading platforms that are collecting data to create an aggregated market view and using analytics to uncover trends.
  • Insurance products, which are becoming more tailored to customers who, in turn, are demanding coverage for specific locations, uses and timeframes. That’s driving insurers to collect and analyze additional data about their clients.
  • Artificial intelligence, which now plays a role in differentiating financial services products as it replaces complex human activities.
  • Transaction process improvement and middleware, both of which remain expensive. This is pushing traditional financial services firms to consider partnerships with marketplace lenders for FinTech solutions that don’t require a full infrastructure overhaul

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