FinTech, Robo-Advisors & “Robo-Brokers”

by Greg Barrett

FinTech aka Financial Technology is the term used to describe the plethora of new technology platforms that are disrupting the financial industry. (Lending Tree, Square, Mint, Personal Capital, Venmo, Kickstarter etc.) Until recently finance has been dominated by a few powerful Wall Street firms that have continued in their own, somewhat archaic ways. Banks and other institutions were slow to adopt technology not due to a lack of intelligence or savvy, but because they have always known that technology could replace or eliminate much of the value they provide customers.  Does this sound familiar?

It was only a matter of time techies in T-shirts would take aim and disrupt such a huge and profitable industry. FinTech started to stir the pot about ten years ago, but really started to gain momentum around 2013. From payments to wealth management, to peer-to-peer lending, to crowdfunding, a new generation is taking aim at the heart of the industry.

Despite the fact that many very successful and promising companies have began disrupting the industry, they have barely made a dent in the overall market. Believe it or not, FinTech relies on traditional finance as much as it challenges it.

FinTech Robo-Advisors
Robo-advisors, like Wealthfront, FutureAdvisor, and Betterment, are the recipients of a lot of VC money. These platforms are geared for those who are looking to manage their own investments, not for those currently working with a human advisor.  The robo-advisor industry, still in it’s infancy, can claim just under $20 billion dollars under management, a small fraction of the $24 trillion in US retirement assets. What’s interesting to note is that Vanguard and Schwab are feeling the heat so much so that they have launched their own automated advice platforms.

Robot hand ordering on a laptop keyboard an exchange trade. Robot trading system is a computer trading program that automatically submits trades to an exchange without any human interventions. Depth of field with focus on finger.

The Ironic Truth regarding Trust
It’s interesting to note that many people, especially millennials, seem to trust giving their money to a one year old startup with a 25 year old CEO, than a traditional bank that has been in business for many years. Maybe it’s because we grew up during the financial collapse caused by traditional greedy bankers and lenders (among other things). Maybe it’s because it it is all automated then there is no salesperson there to single us out and screw us. Whatever it is, there is a trust in Silicon Valley startups far exceeding that of Wall Street.

My FinTech Usage
I use several FinTech products. I first began using Mint back in 2009 to track my expenses. As a starving college student, I used it out of curiosity.  I didn’t have spending problems at that time because I had no money to spend. In 2013, no longer a poor college student, I placed a decent amount of my savings into Wealthfront. They do almost everything a traditional financial advisor would do for me.  They allow you to set your portfolio based on your risk tolerance.  They invest primarily in low cost ETF’s, which you should do, unless you are Warren Buffet. The difference is that there are no annoying sales pitches and I pay .25% as opposed to 2.5%.  Personal Capital is another wealth management platform. Aimed at those that want to manage all the assets and finances in one place.  I link all of my bank accounts, credit cards, IRA’s, 401k’s, retirement accounts, Wealthfront etc.  I have also been happy with it because I can view all my financial information in one place, for free. They also provide their users with a human advisor for an additional charge. I use Venmo at least once a week to safely transfer money to friends.

So how does this apply to the commercial real estate industry. I predict that we will quickly see “robo-broker” platforms gaining market share. Yes, I just coined the term “robo-broker.”  Similar to the financial sector, the multi-sided platforms will be bringing together suppliers of real estate with users and buyers of real estate electronically.  We will see these platforms have their largest impact in office leasing transaction space, since small office spaces can be somewhat commoditized and because more and more businesses are looking for short-term and flexible space. I see a need for an automated platform to better connect occupiers of office space with suppliers of office space. Companies like Liquidspace, the Square Foot, hiRise, Spacelist, and others are already doing this. I’m sure we will see similar platforms disrupting other sides of the CRE industry as well.

We can learn from FinTech that there is a portion of our market that will eventually be serviced with automated platforms. Beginning with office leasing and data analysis, software platforms will have an a huge impact in positive ways.  Like the financial industry, I don’t think we will have to worry about them taking our jobs anytime soon.

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