Brian is a very young and sociable representative of FinTech entrepreneurship, and it seems that he knows the investment industry inside out. Brian started his path in investment early and then majored in economics and math at Stanford University. Before starting his own business, he was an equity researcher at ValueAct Capital—a hedge fund in San Francisco—and did management consulting at L.E.K. Consulting. This exposure to the market gave Brian the idea to build an instrument for easy investment management. After one-and-a-half years of existence, Brian’s product has over 100,000 users and he has ambitious plans for its future.
In our conversation, we discussed the major trends affecting the industry overall and what industry changes to expect.
Digital interfaces will set the tone
According to Brian, conditions are currently suitable for running technological businesses in the financial sphere:
“I think [the industry] has been sort of walled off from the technology companies coming and driving that better user experience, until the last five years or so. […] The biggest trend is, you’re [going to] have companies that are primarily built on digital infrastructures.”
Brian described how he got the idea for M1 Finance: he noticed that over the last 20 years the services that people consume on a daily basis have skyrocketed. However, for some time the financial sphere was intact due to heavy regulations:
“I think that personal finance, or the management of money, is something that every single person has to do, but it’s so heavily regulated that it’s been protected [from] the innovation that has proliferated across all other consumer applications.”
Nevertheless, Brian explains that the sphere needs technological solutions. The instrument of the future, in his mind, has to be easily accessible when using either computers or mobile phones. Brian also admits that people now intend to manage their funds with digital interfaces, not with humans, because it is cheaper, trustworthy, and quick:
“It’s much easier to write a piece of software that can be distributed across hundreds of thousands, if not millions, of people, than to hire a person to service 100 people at a time. […] It’s going to be a robust capability that is a broader feature-set than what’s available while interacting with a human, and I think it’s [going to] be lower cost.”
However, Brian feels that users should make their own investment decisions on such a platform. This is why he thinks the instrument should be a digital interface, rather than a robo-advisor:
“A diet means nothing if there’s no compliance. A workout regimen means nothing if there’s no compliance. We think [that] engagement and ownership in what you own [will] massively increase compliance.”
Fractional investment value
Normally, fractional investment is important for platforms where users have a small account balance. Brian says that M1 Finance utilizes fractional investment, although the platform deals with high-net-worth individuals too.
“Even people with medium- to large-size accounts can benefit from fractional shares. It allows them to own a more diverse portfolio, own higher price securities, and systematically add to the entire portfolio in an easier fashion than they otherwise could.”
According to Brian, fractional shares give users more flexibility in what they want to invest and when:
“You can buy three shares [in Amazon] and have it be five percent of your total portfolio. And then, even if you have $100,000, what’s really difficult is if you want to invest $1,000 a month—how do you add to Amazon without having fractional shares?”
Considerations on the industry’s future
Among the major changes in the industry overall, Brian mentions massive cost compression on the investment-management side. He predicts that digital solutions will be much cheaper and that, as a result, regular companies will have to either significantly increase their options or decrease their pricing:
“Truthfully, I think the biggest systematic shift you’re [going to] see is the investing portion of the world is going to be massively driven to low cost.”
He admits, as well, that there should be more flow from cash into investment securities and, thus, more competitive pressure on banks and deposits:
“There’s a ton of money in checking and savings accounts—that’s just massively under-utilized capital. I think there are going to be tools that make it way more seamless and cost effective to basically swap between cash and assets of your choosing.”
Brian likes the idea of showing users a list of experts and their strategies to enhance their decision making:
“There’s interest or intrigue in what’s happening in the world—how do companies behave in that, what drives their results […] Most people don’t get excited about investing in a boring, bland portfolio allocation—that’s prudent.”
Brian adheres to the opinion that solutions should be combinations of digital and human effort. Generally, he expects that using robo-advisors and other automated instruments will eventually boom, although it might take a little time:
“It’s [going to] be more of a generational shift, where the automated robo-advisors [and] digital solutions are [going to] go from 1% market share to 40% market share over the next 20 years.”
He admits that digital solutions will put more competitive pressures on human solutions. However, they will also automate routine online investment tasks, which will make them cheaper and more accessible.
Interviewed by Vasyl Soloshchuk, CEO and co-owner at INSART, FinTech & Java engineering company. Vasyl is also the author of WealthTech Club, which conducts research into Fortune and Startup Robo-advisor and Wealth Management companies in terms of the technology ecosystem.