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WealthTech Insights #52 with Sherrie Grabot. American Dream Shake-Up — A Growing Number of Mainstream Citizens Need Financial Advice

What made Americans change their mindset, and why advisory platforms should care.
Interview with Sherrie Grabot, GuidedChoice

 

Is the American Dream concept still relevant? Observations from current investors at the GuidedChoice digital wealth-management platform show that the new generation of Americans seem to be pursuing new goals when it comes to managing capital. Today, most people are saving so as to be able to pay off debts, and that will probably turn an increasing number of mainstream Americans on to digital-advice and wealth-management platforms. It’s time to ensure the platforms are ready to cater to this new layer of the market.

Know your client by sight

Today, more and more millennials who have bought homes are now depressed over their decision. For instance, getting out of debt is almost impossible for people on the east and western coasts of the US as mortgages there tend to be very high. At that point, households understand they need professional financial advice to find a way to combine multiple investment goals and set the right priorities.

“It’s mainstream America that wants financial freedom, while high-net-worth America already has it. People don’t know whether they should save or pay off debts first. At the same time, most Americans don’t have advisors as they don’t know who to trust.”

The new objective is closely connected to the definition of financial freedom. While previously this meant having everything that a household may need, now financial freedom for Americans entails making choices not based on money, but based on lifestyle and what they want to do. There’s a trend of speeding up changes, such as switching jobs once every five years instead of 10, which also affects the definition of financial freedom.

“Around 40+ [-year-old] people think of it in terms of traditional retirement, while millennials don’t really know what retirement is. So, the new financial objective is paying in cash, saving before buying things.”

The population groups that now need financial advice include women, Hispanics, African American, Asians, etc. The households of these groups tend to be very fragmented in their retirement accounts. Also, they typically need advisors to help in so many areas, even setting aside mortgages and pensions—such as taxes, inflation rates, etc. Meanwhile, they don’t want to dive into investing, they want to get advice in the “Just give me the answer and let me go” manner.

“It’s like when I fly Southwest Airlines. I don’t want to get on the plane and have the pilot explain to me how the plane works.”

These are all reasons why digital-advice platforms can no longer look to traditional means to meet people’s needs in wealth management.

The focus on advice

According to Sherrie and her colleagues, we stand on the verge of a hard transition in the industry built on collecting assets. While RIAs and digital platforms put their focus on asset management and technical means of fund accumulation, it’s now worth paying more attention to the advice itself. Moreover, the new mindset will change the game and probably cause a shift in legislation.

“The US legislation has always been set up for the American Dream, e.g. buy a home and retire. Companies will need to figure out how to maintain legacy systems and make them work for everybody.”

Nevertheless, any highly regulated environment is hard to disrupt. Being one of the two most regulated US environments, financial services will change slowly. However, changes are necessary and inevitable. Also, evolutions will be required in the technological core of modern WealthTech solutions.

“Today, robo-advisors are fairly simplistic in their technology and approach. The real challenge is integrating the legacy. In B2B it’s especially hard to operate with the legacy as the companies have their own strategies and [make] changes slowly.”

The bottom line

The upward market is going downstream, back to the “little folks,” which constitute the vast majority of American society. This is unusual for traditional wealth-management digital platforms, which are normally focused on serving the affluent public. Still, the shift is near at hand, forcing advisory platforms to adopt new audiences and find ways to reach them.

About

Sherrie Grabot is a long-standing wealth-management expert focused on retirement plans and employee benefit programs. She’s CEO at GuidedChoice, which provides goal-based portfolio management software that offers efficient retirement-planning strategies designed by a team of acknowledged experts in economic science. Notably, analytics on the GuidedChoice investment side are brought by Dr. Harry Markowitz, a recipient of the 1989 John von Neumann Theory Prize and the 1990 Nobel Memorial Prize in Economic Sciences, and his handpicked team of experts that form the Investment Committee.

Sherrie Grabot

 

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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.

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