Disruptors turn into Followers

This past week, Betterment, one of the early adopters in the robo-advice industry, announced that they were offering Financial Advisors as a part of their service. In essence, a hybrid approach.

On the face of it, many would think that this would cause us anxiety or possibly feel like a right hook to our solution at Wela. Contrary to this notion, it actually has provided a great deal of joy and a sense of satisfaction to us. The news shows us that our competition is validating our unique hybrid solution.

The problem within Wealth Management: From day one, our mission at Wela has been to solve the real problem within the wealth management space:

How can we utilize technology to effectively deliver a personalized and holistic financial solution to the mass market with a dedicated financial advisor for each customer?

For the record, I think that the founders of Betterment are brilliant. They have forced the entire financial services world to look at how they utilize technology and the result has been incredible. They awoke an industry that has historically been stodgy and slow to innovate (from a technology standpoint). And for that, I am impressed by what they have created.

Staying True: While many of the robo-solutions sprinted out of the gate, gobbling up hundreds of millions of Venture Capital (“VC”) dollars to create solutions that didn't solve the true problem, we stayed true to building a truly disruptive solution within the industry. Many of the early investment dollars went to these companies which created an elegant asset allocation tool. It was a new way to invest as opposed to being a new way to get financial advice.

As the early years of this "disruption" went on, we spent a lot of time talking to investors and advisors about our solution. We continued to emphasize that the robo model wasn't the solution to the core problem and that the true solution would be a hybrid model that utilized human advisors and innovative technology to solve the real problem in the wealth management industry. And it was our belief that the solution was being able to serve more customers, effectively, and with a personalized approach. The reason we had this belief is that we were born from a company that has 20+ years of experience implementing the traditional way of doing business. We knew what we were trying to solve for and had the hands-on experience to help create that solution.

But many investors turned us away and said "good luck, but you ain't one of them." The companies offering a robo-solution had raised boat loads of money and had the backing of VCs and were deemed the disruptors. We were the dreamers and the outsiders.

 Profits and Losses vs. Customers: But this news shows that our vision is the right way to solve the problem. What Betterment has done is provided us validation, but they have not created the solution.

They have raised over $200 million in VC funding at a relatively high valuation multiple based on their revenue. They have also been building their business for quite some time and many of the VCs are probably eager to get a payout. They need a silver bullet and they need it fast.

The recent news about them offering a human advice model may be their attempt at that silver bullet. But all it provides is a band-aid. The solution provides for customers with certain asset levels to make one call per year or if you have more money you have access to a team (call center) to call whenever you want. At Wela, we don’t believe that's the most effective way to help individuals navigate tough times in the market or uncertainties in their life. Instead, we believe it comes from building a relationship through consistent communication with a dedicated advisor or solution that gets to know you.

The problem with companies that raise too much money before they become profitable is that they create elevated valuations. With elevated valuations comes the pressure to be profitable. At some point, the focus turns more towards the profits and losses and the way to pay out investors as opposed to putting attention towards the customer, the technology and the innovation that truly creates a unique and differentiated solution.

What Betterment has done is follow in the footsteps of other long standing financial firms like Vanguard and Schwab. This is particularly interesting because these are the companies that they said they were planning to disrupt. And now, they find themselves following as opposed to disrupting.

Looking Forward: Our focus continues to be on creating a holistic financial solution that takes our industry experience of actually dealing with families and their financial situation and merging that with a technology solution that improves individuals lives. A solution that enables individuals to make more informed financial decisions. And all the while, they have access to a dedicated advisor who understands their situation and is ready to help answer more complex planning questions as they arise.

The solution we are building is unique in the space, it's not just a call center with fancy technology. The early disruptors are now validating our approach and solution. But they don't have the ability to execute on it because the goals of the company have turned from customer-oriented to investor-oriented.

And the beauty of our situation is that we are about 18 months away from being profitable. We haven't taken an abundance of VC funding and because of this, our attention can continue on how to innovate within our product as opposed to within our P&L. That's a comforting feeling to me and it should be to our followers, users, and customers.