WealthTech Insights #18 with Priya Malani: Psychology and Therapy in Financial Planning

Vasyl Soloshchuk

Priya Malani
Continuing our series of interviews with insiders of the wealth-management industry, I speak with Priya Malani, founder of Stash Wealth, a financial planning firm for H.E.N.R.Y.s™ (High Earners, Not Rich Yet).

Priya Malani
Founding Partner at Stash Wealth.

After years of working on Wall Street, Priya left to work with millennials, who are largely ignored by traditional financial firms. Stash Wealth provides high-touch financial advice and guidance, traditionally reserved for the wealthy. In addition to running Stash, she serves as the Resident Financial Expert for Refinery29, and speaks regularly at universities and businesses around the country.

In the interview, Priya shares her ideas about robo-advising solutions and what approaches each generation uses to select a financial advisor. She also names the companies she feels are most innovative and describes the challenge of identifying clients’ risk tolerance and how to find solutions suited to that tolerance.

Q: Could you please introduce yourself and tell us what you do in wealth management, and how you came to the wealth-management industry?

Priya: My name is Priya Malani, founder of Stash Wealth. We’re a financial planning firm for H.E.N.R.Y.s. We provide a level of hand-holding and support to our clients that is otherwise only available to high-net-worth and ultra-high-net-worth clients on Wall Street.

I started working at Merrill Lynch in 2003, in the wealth-management space, and later moved on to work in capital markets. During my time at Merrill Lynch, I saw a very obvious hole in the market—that being service and support to the subsect of the millennial generation that we focus on, H.E.N.R.Y.s.

H.E.N.R.Y. High Earners Not Rich Yet

It is an obvious truth that the sooner you start getting your financial life in order, the more successful you’ll be. I, along with my partner, felt that this demographic needed to be addressed. As far as we could see, they were ignored by Wall Street.

Q: What kind of trends in wealth management you see, and especially with the focus on the millennials, and the focus on your solution?

Priya: There’s obviously a huge trend towards the robo solution, but we have also found that the majority of the populations still wants access to real humans and not just a call center – real people to discuss their options with. While technology is important to them, so is the human interaction and human connection.

The ugly truth is that in order to get the attention of a financial advisor on Wall Street, you have to have half a million dollars. And even if you have half a million dollars, you’re what I call a “D-list” client, you’re no one. They may give you attention around your investment portfolio, but not your entire financial life.

That is where Stash Wealth really steps up and says, “Your investments are just one piece of your entire financial life, we want to provide support around all aspects of personal finance, in addition to the asset piece”—which is obviously important, and highly misunderstood. A lot of education needs to happen, and we offer that. A lot of hand-holding is needed, and we do that as well.

 

“80% of what we do in financial planning is psychology and therapy.”

 

Q: The term “robo-advice” is used pretty broadly. In your opinion, what should the definition for robo-advice, for robo-advisory solutions, be? What kind of capabilities should robo solutions have?

Priya: When I think of robo-advisors I think of the Betterment and Wealthfronts of the world. Those are the ones that have come to the forefront and have done a really good job filling a hole in the marketplace. What they offer is goal-centric investment solutions and it’s something that a robo can do well. In general however, and perhaps more important, is that these robos are forcing us to acknowledge that asset management is becoming increasingly commoditized and raising awareness that we need to address comprehensive planning in order to maintain a desirable value prop.

But as we all agree, the robo solution is limited. Technology can only go so far when you’re dealing with human emotion. When you talk to the builders of the robo technology, even they admit its limitations. It’s very difficult to solve for the more nuanced aspects of emotion that inevitably arise when dealing with personal finance. Robos can’t understand and solve for the human psychology that sometimes causes us to be our own worst enemy and make poor choices. Often times we are educating the client and helping them navigate their emotional side, just as much as their rational, logical side.

Q: There are several types of robo-advisory solutions; some are B2C (for example, Betterment), while others are B2B or hybrid solutions. Do you provide a more hybrid model for your clients?

Priya: Stash Wealth offers a human-first hybrid solution. Smart technology compliments our conversations, it does not replace them.

Stash Wealth

Q: Do you think future robo-advisory solutions will totally replace the human financial advisor within the process?

Priya: 80% of what we do in financial planning is psychology and therapy. The best financial planners can think on the fly and navigate through their client’s biases or emotions to help them reach stronger, smarter decisions. I don’t believe that level of sophisticated technology will exist in my lifetime.

 

“To ask a client what their risk tolerance is, is to do them a disservice. Because if they don’t understand how their answer could affect their plan, it is very unfair.”

 

Q: Different generations use wealth-management solutions in different ways. What kind of difference, if any, do you see between millennials and the greatest generation in terms of managing their wealth, and especially using some kind of technology for that?

Priya: For obviously reasons, millennials are a lot quicker to test and more importantly trust technology, compared with older generations. We have an inherent trust in technology because we’ve grown up around it. We’re also very comfortable with googling our way to conclusions and doing our own due diligence. For example, we may trust Yelp reviews to tell us about a good financial advisor, while the older generation might turn to friends they trust.

Another trend that we see is that older generations are more comfortable paying for financial expertise, whereas millennials look for the free option first. They test the options, and if they don’t work for them or they want more, they are willing to upgrade.

Q: Let’s talk about risk tolerance. We have some kind of questionnaire; based on the answers, we can calculate the risk tolerance of users, and based on this, a financial advisor provides a predefined portfolio strategy. Do you think this approach is efficient? Could using big data analytics help financial advisors in identifying the risk tolerance for users?

Priya: We do not believe in risk tolerance questionnaires at Stash. To ask a client what their risk tolerance is, is to do them a disservice. Because if they don’t understand how their answer could affect their plan, it is very unfair. We help clients understand risk on a spectrum of time.

Betterment is doing this. In fact they don’t give their clients a risk tolerance questionnaire; instead, they asking about goals.

I guess what might be a better experience would be once you’ve given the client the risk tolerance questionnaire, to be able to say to them, “Here are the trade-offs that your proposed risk tolerance would lead to. Are you okay with these trade-offs?” That helps to present the information in a more tangible, educational manner.

Q: What should we use instead?

Priya: I think goals-based investment planning is a better option for the millennial generation – they are young and they have time. Most of us acknowledge that passive goals-based investing has a very strong case for those with mid and long term time horizons, which our clients do.

Q: We focus on two major groups of experts, financial advisors and software people. Sometimes we see a gap between business people, who understand the market, and software development people, who develop the technology but maybe don’t understand the business part well. How can the gap be closed?

Priya: The internet is totally changing this divide. Back in the day, smart people who were facing an industry problem but didn’t know how to create the technology solution didn’t have anywhere to go. Now there are a million sites where you can search for and hire a development team to help you affordably build a solution.

internet

This has already happened a lot in the financial services space. Advisor-built CRMs, advisor-built financial planning software, etc. In fact, there’s been an explosion of solutions in the FinTech space in the past few years and I think there will be some consolidation and the best products will rise to the top. That’s just part for the course with these things. I think the next five or six years or so are going to see a lot of consolidation.

Q: Could you name some companies in the WealthTech space that you think are very good innovators, and explain why?

Priya: I’m impressed with Vestwell. They are revolutionizing the 401K space, which is a big space for financial advisors who are managing plans for small and mid-size companies. There’re so many inefficiencies – it’s a big administrative headache. I think the founder, Aaron Schumm, is really smart. He’s not only a founder who really understands the problem, but actually has a software background as well.

Other companies I’m a fan of include Robust Wealth, CapitalOne360, and Digit and Debitize.

Also Finhabits. They’re trying to bring holistic wealth-planning to the Spanish-speaking community in the United States. I think they’re a very beautiful, elegant solution, from what I know about them. That’s another one that I have my eye on.

Q: Could you share your views about the future of the wealth-management industry? What do you think will happen in five years? What kinds of companies will survive?

Priya: I think the future is a hybrid future, that’s pretty obvious by now. Any place in which we can use technology to bring efficiency without compromising value or service will be part of the solution five years from now.

We can’t outsource the human and emotional component of financial planning and wealth management, but there’s a lot of clean-up that technology can bring to:

  • data gathering,
  • maintenance of documents,
  • the investing piece, which is already well underway,
  • the personal finance management space—integrating the Mint.com functionality into the wealth-management experience.

For most of the millennial clientele it’s not just about the big picture, but it’s day-to-day stuff that they want to manage and keep an eye on, too.


Interviewed by Vasyl Soloshchuk, CEO and co-owner at INSART, FinTech & Java engineering company. Vasyl is also author of the WealthTech Club blog, which conducts research into Fortune and Startup Robo-advisor and Wealth Management companies in terms of the technology ecosystem.