Below is the December edition of the Fintech Report Card, a monthly piece by Riskalyze CEO Aaron Klein originally published in WealthManagement.com.
Robinhood Announces Checking and Savings, Backtracks 👎
What happened: The startup announced it would launch checking and savings accounts with an industry-leading interest rate of 3 percent with zero fees. Said accounts would be insured by the Securities Investor Protection Corporation, according to the company, but president and CEO of SIPC Stephen Harbeck had “serious concerns” about the product. SIPC protects brokerage accounts, which are meant for the purpose of investing in securities and cash—those would likely not be protected, according to SIPC. “I understand that people want to be innovative and things change, but I have to work within a certain statute,” said Harbeck. “The statutes we work with can protect only certain funds.” A day later, Robinhood’s co-CEOs published a blog post amending their original plan and said they would re-brand and rename the product.
Why it matters: It’s too bad we can’t do memes in these articles, because this would be the one where somebody steps on the curved end of a rake and immediately gets whacked in the noggin. Robinhood seems to have forgotten one big thing—you have to be a bank to offer “bank accounts,” which consumers perceive as safe, impervious to risk and insured. Also, it was only 10 years ago that Wall Street itself tried out the same “innovation” of packaging something high-risk (subprime mortgages) into something perceived as low-risk (mortgage-backed securities and collateralized debt obligations). It’s not new, and it’s not innovative.
Wall Street Firms Back NIGO Reduction Startup AccessFintech 👍
What happened: Goldman Sachs, JPMorgan Chase, Citigroup and Credit Suisse Group invested $17.5 million in AccessFintech, a startup that sells technology to help financial firms better handle business errors, errors that require interventions to be resolved. AccessFintech’s technology will help reduce the time and resources needed to resolve these by helping financial institutions better communicate with each other. It will also reduce the risks associated with the errors. All four banks have worked with AccessFintech over the past year; other customers include asset managers, custodians and fund administrators.
Why it matters: Errors in paperwork and processing cost advisors and their financial services firms millions of dollars every year, creating the dreaded NIGO or “not in good order” error. Fixing it is often compared to your hair being on fire and trying to put it out with a hammer. I’ve always thought it would be an interesting application of machine learning technology to see if errors could be flagged and fixed in real time. Best wishes to the team at AccessFintech on trying to tackle this problem.
Square Reapplies for Banking License 👍
What happened: Square, known for its white card readers, is making another effort to become a bank. The company first started the process in September 2017 but withdrew its initial application over procedural issues. The venture, called Square Financial Services, recently acquired an office in Salt Lake City with room for up to 30 workers. According to the application, Square said the banking license would allow it to provide financial services to businesses that can’t get help from traditional banking entities.
Why it matters: Small businesses have always struggled with good access to credit, and Square is aiming to change that by lending against a company’s payment processing flow. I’ve always thought this was a super-cool idea. Disclosure: I’m an investor.
Quantfury Launches Zero-Fee, Zero-Commission Crypto Trading App 🤔
What happened: Fintech firm Quantfury launched an app that enables use of digital assets as collateral for trading in different markets all over the world. In its mission, the firm says that it seeks to transform all markets by making them fair and transparent through allowing crypto holders to have liquidity over their crypto assets. Investors wishing to use the app perform a two-minute onboarding process and then deposit cryptocurrencies as collateral. Afterward, the trader will be ushered into a fiat traded market that allows them to trade in excess of 20 times their collateral, all without losing more than their collateral.
Why it matters: Take some of the world’s riskiest assets, add the ability for 20 times leverage, then make it easy to access with a two-minute onboarding process. What could possibly go wrong? Still, for experienced crypto traders this is an interesting step forward for liquidity in that market.
Whealthcare Planning Announces Public Version of Its Health Care Planning Software 👍
What happened: Whealthcare Planning LLC announced the “soft release”](https://www.wealthmanagement.com/technology/public-version-whealthcare-planning-available) of a public version of its health care planning software. The software is designed to help individuals and families proactively plan for the “Big Four” decisions: when to get help with financial decision-making, when to quit driving, when and how to prepare for a safer living situation, and when to get help with health care decisions. An individual subscription is $39 per year and includes one financial caretaking plan, one Whealthcare risk profile, one proactive aging plan, and the ability to share profiles using the site’s Whealthcare connect service. The platform also helps connect advisors to those needing help.
Why it matters: Health care will be the biggest expense most retirees face, bar none, and there are no signs that we’ve “bent the curve” in making health care affordable, despite the massive rewrite of the nation’s health insurance system created by the so-called Affordable Care Act. Financial advisor Carolyn McClanahan has been trying to help fellow advisors plan this better for their clients, and it’s cool to see her expand access to this tool for consumers, too.
SEC Fines Wealthfront and Hedgeable for False Disclosures 👎
What happened: Wealthfront and Hedgeable agreed to pay fines related to charges filed against them by the Securities and Exchange Commission. The SEC alleges that Wealthfront made false statements to clients saying it would monitor for any transactions that might trigger a wash sale—which can diminish the benefits of the tax-harvesting strategy—but failed to do so. The SEC also found that Wealthfront improperly re-tweeted prohibited client testimonials, paid bloggers for client referrals without the required disclosure and documentation, and failed to maintain a compliance program reasonably designed to prevent violations of the securities laws. Hedgeable, which managed approximately $81 million before going defunct, was accused of making a series of misleading statements about its investment performance. Both companies settled and agreed to pay fines of $250,000 and $80,000, respectively.
Why it matters: The only good thing for Wealthfront is that a completely defunct self-directed investing service was put in the same headline with them. When you stake your value on having better technology, it’s pretty embarrassing when the regulators announce that your tech really screwed up tax harvesting and created wash sales. Add on a violation of what is an insanely dumb rule—you can’t repeat nice things clients say about you—and I think Wealthfront is ready to turn the page to a new year. So who buys Wealthfront in 2019? The clock is ticking for the investors to get their money back, and there are no returns in sight.
401K Startup Guideline Raises Additional $35 Million in Funding 👍
What happened: 401K startup Guideline announced that it raised a $35 million Series C. The startup’s existing investment partners also contributed to the round, which includes Felicis Ventures and Propel Ventures, bringing the total financing to $59 million. With offices in Austin, Texas, and Portland, Maine, in addition to its San Mateo, Calif., headquarters, founder and CEO Kevin Busque said that they plan to use the funds to continue to grow aggressively. Those plans include increasing new plan counts by 129 percent year-over-year, giving them 10% market share of new 401K plans in the country.
Why it matters: It’ll be interesting to see how the new 401K startups do in 2019. The big incumbents seem to be losing ground to firms like Guideline, and Vestwell, which recently announced a big deal with BNY Mellon and Pershing. The combination of better technology and lower costs is a powerful one for advisors. Disclosure: Vestwell is our partner for Riskalyze Retirement Solutions.
Aaron Klein is CEO at Riskalyze.
Editors note: The views expressed in this column are Aaron Klein’s, and do not necessarily reflect the opinions of Wealthmanagement.com.
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