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Fintech Report Card: February 2018

Below is the February edition of the Fintech Report Card, a monthly piece by Riskalyze CEO Aaron Klein originally published in

Robo Advisor Websites Crash During Stock Market Correction

What happened: The websites of two of the country’s biggest robo advisors, Wealthfront and Betterment, crashed when the S&P 500 Index sank 4 percent earlier in February. Complaints quickly spread across Twitter, Reddit and the rest of the internet from people who had trouble logging onto their accounts. Wealthfront acknowledged in a statement that its clients lost access to their accounts for “a short period of time” and said it’s working to ensure that “clients don’t experience this again.” Betterment didn’t immediately respond to requests for comment (perhaps they have a robo-PR firm operating on the same server). Back in June 2016, during the Brexit fallout, Betterment had told users that it instituted a “short delay in trading” to protect its users from a “potentially erratic market.” No such statement was issued by the company in this case.

Why it matters: On one hand you don’t want clients to react emotionally, but locking them out of their accounts entirely isn’t quite the message of reliability these services wanted to send. What it did was cement the impression that these firms aren’t there for clients when it really matters. Will they learn from this experience and fix the problems before the next market downdraft? And how badly will their fearful investors hurt themselves when they can log in and “bail out with a click” during plunging markets? Launches Robo Advisor ¯_(?)_/¯

What happened: partnered with tZERO Advisors, a registered investment advisor, to launch a robo advisor on its FinanceHub. The service is available to customers for $9.95 a month. The technology is powered by FusionIQ, a financial technology company with a proprietary algorithm for scoring stocks and exchange-traded funds. “This service introduces robo-advising investment management services to our millions of customers and continues Overstock’s commitment to bridging Wall Street and e-commerce,” said Patrick M. Byrne, founder and CEO.

Why it matters: If you asked everyone six months ago if a large e-commerce company was likely to jump in and try their hand at a self-directed investing service, most people would have said “yes, and I’d expect to have no fees as a prime member.” Turns out Overstock beat Amazon to the punch. This is a non-story for financial advisors, but seriously bad news for the robos who have to pay to acquire customers, rather than have a database of millions. Next up: Wealthfront starts selling half-off mattresses.

SS&C to Acquire DST Systems in $5.4 Billion Deal

What happened: SS&C, an active player in our industry through their ownership of Advent and the Black Diamond Wealth Platform, is acquiring DST Systems in a $5.4 billion deal, expanding its footprint in financial data and some of the critical plumbing that broker/dealers, asset managers and product manufacturers use to report on financial accounts.

Why it matters: SS&C has a track record of using acquisitions to expand their tech offerings. Is this a play to merge DST’s data with Advent’s wealth management software, à la the Envestnet + Yodlee deal back in 2015? Or is SS&C purely a financial buyer here and both companies will keep operating separately. Time will tell.

XY Planning Network Rolls Out AdvicePay for Fee-Only Advisors

What happened: The founders of the XY Planning Network launched the AdvicePay beta to XYPN members in 2016 and now has over 280 advisors live on the platform. AdvicePay allows advisors to bill and collect fees directly from a client’s credit card or bank account via Automated Clearing House transfers. Traditionally, fee-only advisors have had to file paper checks to clients on a recurring basis. “One of the biggest payment hurdles to fee-only advisors has been the hassle of asking clients to write out paper checks.” Says AdvicePay and XYPN co-founder Michael Kitces, “the cumbersome process made it difficult for firms to compete with the AUM model.” The service costs $50 per user per month, according to the firm’s website, with additional fees for transfers attached.

Why it matters: Confession: I’ve lost my checkbook and don’t know where it is. I either pay for things with my American Express, online bill pay or Square Cash. So let’s just say that getting paid just got a whole lot easier for fee-only advisors. It’ll be interesting to see if AdvicePay gets to keep this market to themselves, or if the other payment firms figure out the compliance and come roaring in to take their share.

Personal Capital Offering SRI

What happened: Personal Capital will screen U.S. equity holdings based on environmental, social and governance factors from Sustainalytics to determine best-in-class companies in each domestic peer group, at no extra charge for their clients. The company says sustainable, responsible and impact investing strategies retain the same features as Personal Capital’s core product—automatic portfolio management, tax loss harvesting, tax location and rebalancing. Craig Birk, executive vice president of portfolio management at Personal Capital, said the company is responding to a “surge of investor interest in aligning their money with their values.” Betterment and Wealthfront already offer SRI strategies to investors, citing high client demand.

Why it matters: SRI strategies have made regular news in the past year. According to a Morgan Stanley report last year, this type of investing grew 33 percent between 2014 and 2016, and I’m betting it accelerated in 2017. Investors, especially younger ones, have a deep interest in investing responsibly, and using the guidelines from Sustainlytics is a good rules-based approach.

LifeYield Announces Taxficient Score at T3

What happened: Financial advisors will have the ability to offer their clients a scoring mechanism to better understand the tax efficiency of their entire investment portfolio through LifeYield’s Taxficient Score. The Taxficient Score is based on a scale of zero to 100. A score of 100 indicates the household portfolio is optimally organized to minimize taxes. A lower score allows financial advisors to make portfolio adjustments that help clients minimize tax exposure. Most importantly, with LifeYield technology, financial advisors can look at all of an investor’s accounts in one place and suggest a coordinated household tax management approach.

Why it matters: With the new tax plan going into effect this year, LifeYield chose a good time to make a splash with their retail product. Riskalyze was happy to be the first integration for the Taxficient Score, and we think it’s a really interesting tool for maximizing household tax savings.

Stash App Raises $37.5 Million in Series D Funding

What happened: Stash, the micro-investing app, raised an additional $37.5 million in Series D funding in a round led by Union Square Ventures. That brings the total they’ve raised to $78 million, and their latest valuation is now $240 million, according to Business Insider. Like many others in this space, Stash aims to appeal to younger users and first-time investors, who are afraid of investing and uncomfortable using traditional tools. The company says it plans to use its new funding for further development of its own technology and data analytics, which will allow it to offer more personalization, educational tools and other new products. One such product in the works, Stash Retire, will be launched on mobile this summer.

Why it matters: Last month, we saw Bono’s private investment firm invest in Acorns, and now Stash gets a round of its own. Micro investing is an interesting development in fintech: the trust hurdle is low, so client acquisition costs are at least lower than those of the “big” robos. They’re bringing more people into the investing fold, some of whom may need an advisor one day.

On the other hand, a whopping $240 million valuation is a stratospheric number for this company. One has to assume that micro investing produces micro revenues. There is likely a ton of “structure” around the deal where the VCs get some multiple of their capital back before Stash’s founders and other investors see a penny. Stash probably needs $100 billion plus in assets to make good on these VC valuations.

Grove Raises $2.1 Million in Seed Funding

What happened: Grove, the fintech startup co-founded by Chris Hutchins and Chris Doyle, raised $2.1 million in seed funding led by First Round with participation from Lowercase Capital, SV Angel, Box Group and others. Grove’s mission is to provide a middle ground to investors between the traditional advisor, who gives good advice but requires too much in assets, and chatbots, high-tech tools but no personalized advice. Grove offers a yearly subscription and a dedicated CFP to help create an annual plan. Customers have access to tools to keep them on track, as well as access to investment tools if they choose through Grove Invest (at 0.25% AUM).

Why it matters: This model is a lot more interesting than the others we’ve seen. With a $600 annual subscription fee for access to a dedicated CFP, it’s easy to see how Grove can profitably acquire customers and then scale their revenues with AUM fees at 25 bps. I still don’t think it competes with mainline financial advice, but it could be the model that works for the segment with $25K to $250K of investable assets.

State of California and BondLink Launch New Bond Investor Platform

What happened: The State of California partnered with BondLink to launch a dedicated investor platform to provide additional transparency to municipal bond investors. The new website is part of the state’s enhanced disclosure efforts. The website consolidates the state’s credit data and documents, providing quick and easy access to bond ratings and other financial information. The tool is free and seeks to provide a more seamless online experience for both large institutional investors, as well as local bond investors, such as California residents.

Why it matters: With companies like Neighborly making strides with municipal bond tech, it makes sense that state sites would follow suit. The new website will provide more transparency and easier access to bond ratings, which means more people investing in California public works projects, which makes us native Californians big fans.

Aaron Klein is CEO at Riskalyze.

Editors note: The views expressed in this column are Aaron Klein’s, and do not necessarily reflect the opinions of

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