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> This puzzled me that, for the past few years, YC has wanted so badly to invest in more or less traditional style wealth management companies. There seems to

> This puzzled me that, for the past few years, YC has wanted so badly to invest in more or less traditional style wealth management companies. There seems to be a strong belief in Silicon Valley that software is going to eat the fat margins in financial services and that there's all this potential for disruption. The problem is that software's been eating financial services for the past 30 years and the fat margins aren't always as fat as they seem once you factor in things like compliance costs (or the demand curve is far steeper than you expect it to be).

nickpsecurity 11y ago
Or once you factor in the profit motive and that the VC owners like margins & acquisition numbers to stay high. Quite a hard sell to convince investors to take higher risk on less money across the board. I'd never even attempt it.
bradleyjg 11y ago
Re: fat margins A lot of that margin goes to the front line troops (whatever you want to call them-- brokers, advisers, planners, etc.) These are and have traditionally been charismatic people who were relatively high touch. If you think of them as providing a service to customers than they look like a massive cost center and the businesses that employ them ripe for disruption. But if you look at them as a sales force the picture becomes much clearer. Morgan Stanley wealth management has Bob who plays pickup basketball on the weekend with a bunch of doctors. What does Wealthfront have -- an ad on Yahoo finance? My guess is that at some point these companies will pivot to trying to be the backend to a bunch of independents or small shops out there hitting the pavement. The customers will still end up with the 1-2% wrap, the robo-advisers will still end up with their .25% cut, but at least the customers won't be being put in high fee actively managed funds. So they'll be some improvement over the status quo.
- rgbrgb 11y ago
  So let's say Broker Bob's 200k of salary + expenses is buying you 10 doctors per year -- 20k per conversion. I'm pretty sure the cost per conversion for your ad on Yahoo Finance is going to be a lot cheaper than Bob's 20k.
- asift 11y ago
  >My guess is that at some point these companies will pivot to trying to be the backend to a bunch of independents or small shops out there hitting the pavement. It is already happening. See: Betterment Institutional, Schwab Institutional Intelligent Portfolios, and Motif Advisor

nickpsecurity 11y ago

Or once you factor in the profit motive and that the VC owners like margins & acquisition numbers to stay high. Quite a hard sell to convince investors to take higher risk on less money across the board. I'd never even attempt it.

bradleyjg 11y ago

Re: fat margins A lot of that margin goes to the front line troops (whatever you want to call them-- brokers, advisers, planners, etc.) These are and have traditionally been charismatic people who were relatively high touch. If you think of them as providing a service to customers than they look like a massive cost center and the businesses that employ them ripe for disruption. But if you look at them as a sales force the picture becomes much clearer. Morgan Stanley wealth management has Bob who plays pickup basketball on the weekend with a bunch of doctors. What does Wealthfront have -- an ad on Yahoo finance? My guess is that at some point these companies will pivot to trying to be the backend to a bunch of independents or small shops out there hitting the pavement. The customers will still end up with the 1-2% wrap, the robo-advisers will still end up with their .25% cut, but at least the customers won't be being put in high fee actively managed funds. So they'll be some improvement over the status quo.

rgbrgb 11y ago
So let's say Broker Bob's 200k of salary + expenses is buying you 10 doctors per year -- 20k per conversion. I'm pretty sure the cost per conversion for your ad on Yahoo Finance is going to be a lot cheaper than Bob's 20k.
asift 11y ago
>My guess is that at some point these companies will pivot to trying to be the backend to a bunch of independents or small shops out there hitting the pavement. It is already happening. See: Betterment Institutional, Schwab Institutional Intelligent Portfolios, and Motif Advisor