Alexey Sokolin is the 30-year-old partner and Chief Operating Officer of Vanare, the first platform to combine a Robo-Advisor with Traditional Wealth Management Services. Sokolin was previously Founder and Chief Executive Officer of NestEgg Wealth, a next-generation technology company and RIA that pioneered online wealth management in partnership with financial advisors, reaching new customers by automating financial advice online. NestEgg Wealth was acquired by Vanare in 2014. Sokolin is also a big proponent of the idea that wealth management advisors need to keep pace with technology as we are about to witness the largest wealth transfer in history, with some $59 Trillion moving from baby boomers to Gen X and millennials. In this interview he discusses the pros and cons of robo-advisors that offer automated financial services at a lower cost.
Vanare is a next-generation wealth management platform for growing financial firms. The platform supports managing client relationships through both traditional face-to-face advice and completely digital, low-touch interaction. In a single place, we provide a customizable Robo-advisor, CRM to analyze and track business development, Trading and Rebalancing, and Portfolio Management/Performance Reporting.
The strength of Vanare’s platform is its deep integration across wealth management functions, with a focus on serving clients at scale in both traditional and online channels. RIAs no longer have to choose between focusing on their existing practice and competing with Robo-advisors. Vanare’s combined platform empowers the advisor to seamlessly connect with clients through the channel that the clients prefer, whether digital or in-person, all while enabling the RIA to efficiently find and service more clients.
I have a background in wealth management strategy for large Wall Street firms, as well as experience working as a web designer, understanding how to build products for the consumer web. In 2010, when many regular investors had lost faith in their financial institutions, I founded NestEgg Wealth to help people get independent, accessible advice through technology. NestEgg was the first robo-advisor to consider incorporating financial planning and data aggregation into a democratized suite of wealth management tools, and the first to private label a robo-advisor offering to established financial institutions.
In 2013, I met Rich Cancro, CEO of Vanare. We immediately connected on a joint vision for the industry—helping RIAs understand and manage the technology innovation in the space with a platform that could support both traditional and digital business models together. Rich had deep experience creating enterprise-scale technology platforms for financial advisors, having built and managed such technology at Merrill Lynch, Bear Stearns and Pershing. Together, we have a unique view and ability to help advisors grow their businesses, benefit from the intergenerational wealth transfer, and create enterprise value.
The wealth management industry faces several challenges. First, there is a $60 trillion intergenerational wealth transfer that is in progress, from a generation that has traditionally relied on an in-person advisor relationship to a generation that expects much more of a technology-augmented experience. Advisors need to understand the millennials and engage with them on their own terms in order to preserve the household relationships that have been the cornerstone of the advisor business model.
Second, there is significant competitive pressure from consolidation. Independent RIAs are merging and being acquired in order to create multi-billion dollar AUM scale and efficiency. These larger companies benefit from the operational and technology practice management best practices, provided by companies like Vanare, which lead to superior growth. Lastly, online wealth managers, colloquially referred to as robo-advisors, are creating fee-compression and competing with the traditional financial advisor, utilizing ETF-based low-cost investment models powered by efficient technology.
Robo-advisors are both a threat and an opportunity. For the advisor that offers only commoditized beta-oriented investment management portfolios to the mass-affluent marketplace, robo-advisors are a direct competitor. They are backed by significant venture funding and are nimble in trying different business models and developing additional features. The direct-to-consumer offering of custodians like Schwab absolutely creates a competitive dynamic with the RIAs.
However, for the majority of advisors, robo-technology is a way to augment the practice to create larger businesses reaching more clients than ever before. Elements like online account opening can be used for a client of any size and complexity—everyone benefits from a better process. Similarly, proposal generation and financial planning, expressed through technology based on the advisor’s investment philosophy, can be applied across client segments and generations. RIAs are able to reach a new market segment, and serve the households they work with today in a deeper manner.
RIAs should communicate their values and mission to younger clients using the channels that younger clients prefer. An important distinction of a human relationship is getting along with someone, trusting their judgment, and having a business relationship develop into a friendship. Younger clients, just like older clients, are looking for the support and judgment of an expert. They expect that expert to use the very tools of the trade to help them achieve their goals—start saving for retirement, self-actualize and leave a mark on the world, build a better future for their children. Clients, regardless of their age, want to feel connected to their personal values and have their money work to achieve those values.
The key difference is that many younger clients do not communicate in the way that advisors have historically. They prefer on-demand immediate solutions, beautifully designed, and fully transparent. Instead of calling someone to provide them a market update, millennials receive dozens of articles about the market at the very moment the news breaks. As such, it is important for the advisor to find the right communication channel, and provide the right level of transparency to the client.
Millenials are more conservative financially than prior generations. First, they have gone through two severe market downturns – the Tech Bubble bust and the Great Recession. This taught them the concept of volatility early in their financial life, and led to more conservative risk profiles overall. Second, this generation has less trust for the large financial institutions of Wall Street, due to the collapse of the financial industry in 2008 and the fall of giants like Lehman Brothers, Bear Stearns and Merrill Lynch. A marble lobby no longer generates trust and comfort, but rather brings back memories of a difficult environment. Third, this generation is uniquely indebted and faces a much more uncertain economy than prior generations, despite working as hard to achieve the same standard of living: student debt is at a historic high and climbing, good schools no longer lead to job security, Social Security and Medicare are broken. The Millennials have developed skepticism about trusting the institutions of older generations.
On a bright note, Millennials are extremely entrepreneurial and self-sufficient. In an environment where the social safety net is no longer a guarantee, this generation has carved out a path building billion dollar companies, finding ways to communicate in entirely new ways, and relying on technology to make life easier and more human. Millennials are practical, but they are also dreamers, looking to innovation to give them financial safety and community.
Vanare combines the digital and traditional channels in an integrated platform, empowering the advisor to manage complex household relationships with different needs. We are the only platform built for the purpose of helping RIAs accomplish this transition of assets into a next-generation service model, while also satisfying and growing the existing business using efficient workflows and technology. We offer sophisticated performance reporting, trading and CRM with the ability to customize household views of the relationship, as well as a fully customizable, modern robo-advisor based on the RIA investment philosophy.
Investors are greatly benefiting from this transformation. First, clients with lower asset levels have unprecedented access to high quality, sophisticated investment advice that was not previously available to them, other than through a financial advisor. However, those advisors did not have a way to engage with such clients in a scalable way. With the new technology that we have developed, both parties face a much better value proposition.
Second, pricing for services is decreasing from over 150 basis points to 25 basis points for ETF-based passive asset management. Those products are further customized by risk tolerance and behavioral characteristics. That’s great for the client! Advisors will need to unbundle this asset management component of their services and automate it, thereby focusing on relationship management, financial planning and wealth and estate planning. That’s great for the advisor, because they will be able to truly grow their businesses based on value-added services that only they can deliver.
We should expect the space to evolve very quickly. Robo-advisors will add more sophisticated investment strategies, including hedging and alternatives, as well as financial planning and data aggregation capabilities. Traditional financial advisors will deepen the relationships they have with clients and should expect the number of individuals that they can economically serve to increase significantly, from 50 to 500 on average.
Smarter technology improvements, based on machine learning and neural networks, may also start to play a role in the wealth management space. An algorithm that reads a client’s social media presence and financial data feed may be able to provide a true and optimal view of that investor’s risk posture and financial needs. We expect to incorporate such tools into the existing advisor workflow and into self-directed tools to make advice generally more sophisticated and accurate. Further, the shift of assets toward younger generations will drive demand for such features and provide even more room for the industry to innovate.
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