With Bryan, I discussed global trends in wealth management, humans and robo components competing with one another, and expectations for the near future.> More details
DriveWealth: Investing in US Securities from All Around the World
|Clients||International financial institutions and investment advisors, individuals|
|Value proposition||For individuals:
Dollar-based investment; fractional shares; low-cost ($5.99) monthly subscription pricing plan.
For firms and advisors:
Support for RIAs and international wealth managers in optimizing their customers’ portfolios; fully disclosed and omnibus clearing solutions; API solutions to facilitate trading in US stocks.
|Top Executives||Robert Cortright, Chief Executive Officer
Has 30+ years of experience in financial services. Co-founder of Financial Labs LLC (was sold to Bank of America in 2006) and FX Solutions (merged with CityIndex London in 2008).
|Harry Temkin, Chief Information Officer
Before joining DriveWealth in 2015, gained 25+ years of experience in financial services, including working for Thomson Reuters.
To visit the DriveWealth office, I went to Chatham, a township about 20 miles east of New York City. It’s a typical picturesque American suburb with two-story houses, grass plots, and flowers.
Robert Cortright, the CEO, and Harry Temkin, the CIO, kindly met me and gave a tour of the company office. The office is neat, stylish, and no-frills, with a pleasant working atmosphere. I could see the company’s logo on every wall in the office. The first overall impression was that the company stands firmly on the ground and feels confident about its place in the market.
People in the company were friendly. Robert and Harry showed their enthusiasm for contributing to the WealthTech Club, so we went to one of the meeting rooms to talk about DriveWealth. What are the company’s products? What features and advantages do they offer? How are their platforms built and what is going to come next? Robert and Harry answered these and other questions.
DriveWealth Holdings, Inc. is the parent company of the following branches:
- DriveWealth, LLC – a global broker-dealer, member of FINRA and SIPC, regulated by SEC (US Securities and Exchange Commission).
- DriveWealth Technologies, LLC – a technology company that designs a mobile app for individuals and a cloud-based platform with API solutions to enable investment in the US stock market worldwide.
DriveWealth offers only securities that meet the following criteria:
- US exchange listed (OTC securities are not available).
- Market capitalization greater than $1 billion. If market capitalization is below $1 billion, then the three-month average daily dollar volume must be greater than $0.5 million.
- Exchange listed sponsored American Depositary Receipts (ADRs).
- Non-leveraged ETFs.
- Share price greater than $1.
Their partners are financial institutions and businesses from about 150 countries, including China, India, Australia, South Africa, and a number of countries from Southeast Asia and Latin America.
In 2017, DriveWealth has announced partnerships with the following companies:
- Invstr, a micro-investing game app.
Due to the partnership, Invstr members globally can purchase fractional shares of US stocks, ETFs, and ADRs.
- EasyEquities, Purple Group’s online investing platform, created to enable South Africans the ability to purchase US-listed stocks. The partnership has allowed DriveWealth to conquer another continent, in it’s hope to expand their services and solutions to all qualifying countries.
- CreditEase, a leading FinTech company in China.
Due to the partnership, DriveWealth has gained access to hundreds of millions of potential investors, and will act as the US broker partner for CreditEase’s ToumiRA (a robo-advisor available to Chinese investors).
- Stake, a regulated digital investment shop in Australia.
The partnership allows DriveWealth to break into the Australian landscape and, with Stake, to enable Australians to invest in US stocks, ETFs, and ADRs.
Infrastructure Backend for Wealth Management Products
DriveWealth aims to make it easy, affordable, and efficient for people around the world to invest in retail US stocks, ETFs, and ADRs. This is why the company is constantly developing international partnerships. Because its management has a background in Forex, they understand global markets and local regulations. This experience determines their policy.
Robert Cortright stated, “We partner with locally regulated entities that have an understanding of their regional regulations in terms of the financial service products to allow them to provide US equities to their customer base. We let our partners handle the marketing push into their respective market. They’re sitting on their GUI and we’re just the pipes on the backend powering the products.”
DriveWealth builds the infrastructure backend to support different types of wealth management products. According to the company’s CEO, their clients include the following types:
- Introducing brokers who want to offer US equity securities on their platform alongside of their local securities.
- Investment advisory firms that want to offer a digital-type product, particularly a robo-advisory product.
- Traditional advisers who advise their customers, provide a portfolio to them, and allow them make a choice as to whether to invest in it.
- Technology companies or E-commerce platforms that want to provide or introduce their clients to DriveWealth as the broker to offer access to trading inside of their platforms.
The company’s management is proud of the essential functionality they provide, fractional trading, which is extremely important considering that a significant portion of their customers are from countries with emerging markets. Harry Temkin explained, “We offer real-time fractional trading. We can trade securities down to a ten-thousandth of a share and accept notional based orders. This allows our partners to build very granular portfolios with small investment sizes, thus reducing any barriers to entry.”
To enable customers to buy fractional share products and through a low monthly subscription service, which reduces the commision for transactions almost to pennies a share, and this is where they feel the paradigm shift is coming. Robert emphasized that they are going to move away from commission-based transactional pricing to subscription-type pricing – customers will pay a small monthly subscription fee and will have a very low transaction cost. In this way, they may build diversified portfolios.
However, DriveWealth does not provide retail trading only; its platform allows large institutions to trade block orders using algorithmic trading. Nevertheless, the company’s most significant concern is the end investor.
Robert is definitely pleased with how their platform is evolving in terms of behavioral impacts and customization around the individual’s needs and wants.
“The system may ask the person many questions well beyond what’s their age, risk tolerance, and retirement goals. We’re starting to see goal-based investing and it’s going to power the platform in terms of real, specific individual interests.”
The platform not only builds customized portfolios, but also protects customers from certain regulatory issues. Harry explained:
- “We believe we are the only broker to offer real-time margin. We calculate clients’ excess buying power based on the market value of their leveraged securities throughout the day in real time. We’re calculating exactly how much leverage they’re using at any given time and as they approach points that could potentially put them into a call, the system dynamically cancels outstanding limit orders or reduces leverage.”
- “When we built real-time surveillance for good-faith violations and pattern day trades, we wanted to ensure that a customer could never trade themselves into a condition where they couldn’t trade anymore because of a violation. We wanted to build a system that would enable a new generation of investors from anywhere in the world to have economical and easy access to the US markets without worrying about rules and regulations, or the price of a stock. The technological combination of dollar based investing and real-time surveillance provides such an experience.”
To deposit their funds, customers may use international and local payment mechanisms, for example:
- Wire Transfers and charge cards (for some jurisdictions)
- ACH and Dwolla in the United States;
- SafetyPay in Latin America and Europe;
- TransferWise in Europe.
With regard to their competitors, Robert said, “We’re competing with the legacy-type clearing firms. What we’re trying to do is transform the cost and the affordability and the accessibility of retail robo advisory, and sophisticated wealth management type products at a cost most people can afford.”
From the Technology Side
DriveWealth considers itself to be a true digital broker. It offers a set of REST and FIX APIs. The APIs are conceived to do the following:
- Enable partners to build mobile applications based on the platform.
- Seamlessly onboard customers digitally.
- Help investment advisors to trade and report all those things using the platform.
- Pass pictures of customers’ documentation (passport, driver’s license, government ID, etc.).
- Allow customers to fund their account.
- Give customers access to their statements, transactional history, tax reporting, etc.
According to the company’s CIO, the whole system, and the APIs in particular, are developed using Java.
Harry said, “Our APIs are all JSON-based, they are designed to easily integrate with third parties. Our clients may build their own mobile applications, trading or wealth management systems. Our technology provides the piping to the marketplace and is designed to easily integrate with any of those pieces.”
To facilitate building mobile applications, the company is starting to create Software Development Kits (SDKs), which will make integration even easier than calling directly to the APIs. Sets of APIs that should be called one by one are wrapped up into one SDK; thus, making it easier to integrate.
The DriveWealth platform is hosted in the Amazon cloud, and makes it possible to work in a mobile environment anywhere in the world. Harry explained, “Our entire technology stack is dynamically scalable both horizontally and vertically from the standpoint of whether we were to scale up to a million customers or scale the other way to having to deal with hundreds of thousands of transactions.”
The company has private network connectivity to mainland Asia through ChinaCache. The CIO provided details on this, “If you try to run APIs or do anything on the Internet from China back to the United States, ping times are about 8,000 milliseconds. With private connectivity our ping times back to the US are 10 times faster.”
As a fully-carrying broker, DriveWealth facilitates it owns KYC (know your customer) and AML (anti money laundering) on its customers. According to Harry Temkin, to keep data secure the company uses all current encryption standards. In addition, being regulated by FINRA, they obey certain standards of data storage.
“We obviously take security and encryption very seriously. Content, particularly client information, is highly secure, and encrypted in the system. All of our APIs are SSL-encrypted.”
How the Software Development Process is Established
According to the company’s CIO, the software development team includes a dozen software developers. Different members of the team are responsible for a certain task, such as order gateways, REST endpoints, core development structure of the system, etc. “We’re a pretty flat organization. Everybody knows their roles. We are a very close core team that works very well together building next generation capabilities.”
The executive management team determines the priority of items that should be worked on over the next period; for example, over the course of a year. Most of the capabilities and enhancements to their Managed Account system were built based on clients’ needs and feedback. All partners of the company have a direct channel to the management team through Slack, so they communicate on a regular basis.
To develop and test the system, DriveWealth has a complete replica of the production system in user acceptance testing, where the company can simulate the production system with their clients. Harry explained, “It enables us to work on and test various aspects of the system without any impact on the production environment. We can push out fixes or enhancements to one or more of the systems without any impact to our customers. It also allows our clients to development to a sand-box environment.”
When working with documentation, the team uses GitHub, Trello, and Slack. They share information within the company and with the partners. The CIO of DriveWealth added,
“Documentation is a very important component of what we do. Almost everything that we construct is extremely well documented and is shared amongst the team and our partners.”
Harry is proud of how well all their APIs are documented. Their goal is to enable teams within the company to know exactly what was done in any piece of the code and reuse this knowledge as much as possible.
Plans for Future
Both Robert and Harry defined the company goal as building a very unique or sophisticated wealth management product that will make it easy:
- for financial companies and advisors to offer their customers diversified portfolios and, on the other hand, to influence the product functionality and usability; and
- for end investors to seamlessly trade US securities worldwide without the need to solve such issues as movement of world currencies to dollars and providing payments.
The CEO of DriveWealth said, “We’re going to be on the forefront of customization and, not only that, deliver obviously extensive newer products. We’re looking at any ways to help our clients. We’re working on a lot of different things and embedding them into our technology or APIs to make them very efficient for the client.”
WealthTech Club’s Conclusion
Both Robert and Harry are fascinating people. Their considerable expertise in wealth management has allowed them to create an extremely interesting product with a lot of useful features. They are both eager to make their product not only competitive, but the best on the market.
DriveWealth definitely has a clear niche and offers great and innovative opportunities to clients, including financial firms and advisors, as well as individuals, particularly millennials and other tech-savvy investors. The company’s mission is to enable people worldwide to put their money into US securities through the SaaS platform, and their solutions provide excellent prospects for investors from emerging markets.