Dave started his career in finance long before 2007 when the history of his own company—Portfolio Pathway, LLC—actually began. For instance, he worked at Pershing, where he oversaw the service, conversion and account-management teams. Then he got involved in technology specific to Pershing Advisor Solutions, where he saw many multi-custodian customers with efficient trade-ops and wondered if he could apply the same thing to the account operations. So his first idea was to build just that – a multi-custodian operations platform; however, due to the lack of available custodial integrations at the time, his business plan would have to shift. Dave then acquired a small portfolio management accounting system without any web presence and started to build other features on top of that. Today, Portfolio Pathway provides a cloud-based portfolio reporting, composite reporting, rebalancing, trading, and a billing system—all incorporated into one solution.
During the interview, Dave shared his thoughts about pricing pressures, integrations, competition on the market, global trends, and other industry phenomena.
Global industry trends
According to Dave, integrations do work, but not always that well. Now there is a larger offering of platforms that tend to provide all the features together; thus, at some point, there may be a slowdown in the integration world and people may start selecting actual platforms because they will have increasingly more end-to-end features. Such a situation may force standalone solutions to provide some separate value to their customers, while others will be shrunk by the stepped-up pricing pressure.
“The competition will continue to increase, the pricing will get squeezed, and they may look to add other features to expand their target base. But at some point we’ll have to offer other features, in which case people may come back to a more realistic suite of products.”
Dave thinks that the asset managers are just as important as the advisors; this is why he appreciates the idea of building tools for both the third-party manager and the advisor, because there is a natural connection between the two. Moreover, he highlights that the multiple-manager account functionality is rather underestimated and thinly represented on the market.
“Allowing multiple managers on a single account is what we have right now. Now, a lot of people claim they have this feature, but actually it is not so seamless.”
Overall, for the industry, Dave thinks it will become more and more important to provide information to end-clients.
“We’re going to continue to push more information out to clients […]. The people in their 20s and 30s want information.”
Dave also finds that it is becoming more and more expensive to be in this business. The cost of data, programmers, engineers, and salespeople has gone up in every aspect. It seems more advisable for him to acquire smaller companies than to build everything in-house because of the pricing pressure and volume game.
Are AI and blockchain just buzzwords?
Dave agrees that AI is certainly a buzzword right now, and its capabilities that people are talking about are some way from true AI. However, he states that a blend of AI and humans will be what makes this work well.
“I think AI is going to take some time. Its applications could be pretty useful out there. For example, if I’m a line manager I can use this AI to assist me in my portfolio management or my research. We run these algorithms that humans create, which can also lead to predictive analytics—for example, reporting—but a human still has to interpret that.”
As for the blockchain, Dave feels that some of the ways it works could be useful, but there are still regulatory hurdles with custodians. In his opinion, blockchain could potentially assist platforms with managing great volumes of data; however, it still retains a human element.
“Is blockchain useful? I think, in certain circumstances, it can be—for instance, in making volume easier to manage. However, structuring it properly needs a human behind it.”
Which model will prevail?
Dave says he is indifferent when it comes to active versus passive management. Costs may be higher for active managers, but they may perform better in some cases. His opinion is that the tools available should really allow for either, but the main problem is cost.
“A client I was at earlier today wants to rebalance frequently but is concerned about cost. And so, they use our solution to minimize trading volume. While that could be a mark against active management, technology can help limit unnecessary cost”
When asked whether there is a possibility that B2C solutions could replace B2B solutions and human financial advisors, Dave leans toward the opinion that the advisor will never really go away, just evolve a little bit. In general, he feels that B2C is a trend now and that will continue. Moreover, he states that there is a generational shift that will cause an increase in B2C popularity in the future. Still, he feels as though investing is more complicated than thinking.
“You put your money in a bank and then you get money out of the bank. It’s fairly simple. Investing is a little bit different—there are a lot of investment choices, asset classes, [and] frequency. So, I am on the side of a hybrid approach where there will be the technology but used by some person to assist [clients], or at least explain to them what they’re looking at.”
Nevertheless, Dave foresees that in order for advisors to stay in business they will need to change. For instance, advisory cost fees will be coming down and the role of the advisor may evolve. But still, he thinks there are plenty of people out there that are going to need help.
“I see that the major opinion is that the role of a financial advisor is shifting towards some educational role rather than just an operational role, being some kind of a psychologist for a client. And it’s especially relevant if the market goes down.”
Obviously, the industry will see vast changes in some five or ten years, and companies should come up with personal survival strategies. We believe that the ideas Dave shared in this interview will help to anticipate what changes one should expect and how to set the stage beforehand.
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.