We've written about it before, the financial industry is not the 'place to be anymore' for university talents. A good article was recently written by Techcrunch on this subject. It's not just the lower prestige of working on Wall Street, and it's not the money potential. The millennial generation simply prefers working in a fast moving organisational structure with rapid decision making. Millennials are also attracted to the 'impact' that their working environment has on the economy and business.
By now, it should be clear that the financial institutions can't beat or reverse these developments. And if you can't beat them, join them. Things are slowly changing in the take-up of Fintech. Most conferences have a topic discussing it or invite one of the successful Fintech entrepreneurs speak on the success of their business. And investments in Fintech start-ups are increasingly bankrolled by financial institutions.
A good example of why the financial industry should increasingly embrace Fintech instead of attempting to develop by itself is in automated asset management. The Netherlands was at the forefront of these developments with the roll-out of Alex Vermogensbeheer all the way back in 2008, a time when most of the current Fintech heroes were still popping pimples before their senior prom. Credit where credit's due, Alex Vermogensbeheer was pretty visionairy.
Fast forward seven years though and Alex is in stormy waters, showing poor returns, angry investors, an outflow of AUM (Q1 2015 2bn vs Q1 2014 2.5bn) and management lowering the growth expectations. It is interesting to compare that development to Betterment.com, a US 'robo-advisor' that was launched in 2010 as an independent start-up and now has over 2bn USD under management. It has received 105 million USD in venture capital with Northwestern Mutual as one of the 13 investors.The cost structure is also a striking difference. Betterment's fees go as low as 0.15% vs 1% at Alex and as far as I can see, there is no performance fee vs a 10% performance fee at Alex. Betterment is not available yet in Europe but that seems to be a matter of time. According to a brief conversation I had with Betterment's founder Jon Stein, there are still too many opportunities to explore in the home market. And, Europe has many different rules for investing, taxation and pension plans per country, making it difficult to launch such a project on a European scale.
What makes this interesting is to see how fast things can change. Alex and parent BinckBank were 'revolutionaries' 13 years ago. Now they are increasingly seen as part of the establishment and will increasingly come under fire by companies that are leaner and meaner (yes, I'm looking at you, DeGiro). So. if even the youngest of listed Dutch banks is being outpaced by Fintech start-ups, where does that leave the 'real' establishment? Not in a very good place yet. Listening to CEO's at conferences when asked about Fintech, you can sense some frustration. They feel disadvantaged as companies outside of the financial realm don't have the burden of legacy systems and less regulation.
Again, if you can't beat them, join them and for the financial Dino's of this world it probably means buying their way in. So, invest in Fintech start-ups like there is no tomorrow and let them do their thing without much interference. If not, there might actually not be a tomorrow.