AMA 120 – A View in the Future: Changes in the Investment Industry with Nathan Jaye

 

Nathan Jaye is the founder of Ziprz and contributor to the CFA Institute Magazine. In an article, Nathan interviewed Tom Brown, the global head of investment management at KPMG on some of the interesting financial changes we might see in the next decade and a half. Jason invites Nathan on the show to talk about the article he wrote and to discuss why millennials are not a fan of Wall Street.

 

Key Takeaways:

[2:40] Nathan talks about the past financial crisis in 2008.

[4:00] Why do millennials not relate to Wall Street?

[7:05] Wall Street’s business model wants to ‘sit down and talk about it’ and many millennials who are used to making purchases on the internet do not like that.

[9:05] Nathan and Jason talk about robo advisers.

[11:15] Technology will affect the way we traditionally bank.

[15:45] We’re slowly starting to see changes in technology-incorporated clothing.

 

Mentioned In This Episode:

http://ziprz.com/

http://blogs.cfainstitute.org/investor/2015/04/28/a-view-to-the-future-changes-in-the-investment-industry/

 

Tweetables: 

71% of young people would rather go to the dentist than go to a bank branch.

In the last few years we’ve seen the real growth of these so called robo advisers.

We need to design clothing more in a way that our devices work with them.

 

Transcript

Jason Hartman:

It’s my pleasure to welcome Nathan Jaye to the show. He is founder of Ziprz and contributor to the CFA Institute Magazine and I recently read an interesting Business Insider article that he wrote, which is talking about the future of the finance industry, the investment industry in 2030. You know, there’s been a lot of talk automation in every area of our lives. Let’s look at the future of our investment world and what it would be like in the networked economy in which we live. Nathan, welcome, how are you?

 

Nathan Jaye:

Great, thanks so much for having me.

 

Jason:

Yeah, it’s good to have you on the show. As Yogi Berra said, the future ain’t what it used to be.

 

Nathan:

Well, that’s so true. That’s so true and I think this story line is getting a lot more attention these days. Recently The Economist came out with a special report on technology and banking and how the interactions are changing the landscape and the article I wrote for CFA Magazine had to do with a report by KPMG last year, I believe, going very in depth into all kinds of changes in the investment management business.

 

Jason:

Okay, so talk about some of those changes if you would. I mean, so you based off largely off the KPMG report, but you know, what are their and your visions of the future for this.

 

Nathan:

Well, really before we get to the future I think it’s helpful to a little bit go into the past.

 

Jason:

Fair enough. That’s a good point. Past first, yes.

 

Nathan:

The interesting story line here is a lot of this was, at least, the soil for this was set out of the financial crisis of 2008 where Wall Street banks were really hurt in many ways, both financially and in their trust standing among their customers and among the public. At the same time the crisis didn’t touch Silicon Valley and tech companies in the same way, so they emerged from the crisis much more healthier and perhaps more confident, so what we see now at lot of the technology companies are moving into areas traditionally held by Wall Street and making different inroads with the public in those spheres.

 

So, in fact there’s a report recently that 71% of young people would rather go to the dentist than go to a bank branch. So, that just illustrates how the younger generation has not as much as natural affinity with traditional Wall Street and banking services. They are more used to using Apple, Google, and Amazon.

 

Jason:

Just out of curiosity, what are your thoughts, Nathan, on why the millennial generation, why generation Y doesn’t relate to Wall Street? Did they view it as I do? That it’s the modern version of organized crime or are they just not into that sort of, I don’t know, the feel like I get when I go to financial advisers it’s always sort of this kind of good old boy type of thing of, you know, who do you know, I don’t know, that’s always how it feels to me when I sit across someone from  Merrill Lynch or Ameriprise or any of those companies.

 

Nathan:

Well, that’s a good insight and I think a lot of it is that just is not the way that younger people are used to doing things. They are not used to going in somewhere, sitting down at a desk, and talking to the guy on the other side. So, while they may have ideas about organized crime and Wall Street, etc, and the background somewhere. I think a lot of this is a lot more visceral . People just – younger people just don’t do things this way. They touch things on the internet.

 

They use their mobile devices, they use their iPads and they correspond with technology companies in that way, they are very comfortable doing that and one of the things that the KPMG report highlights is technology, or excuse me, financial and investment companies traditionally aren’t very good at reaching younger people through technology and I’ve noticed that consistently at my work at CFA Magazine when I may be researching or looking into one investment manager or another, often they are mid-market and you look at their websites and they just look they’re built in 2003.

 

So, it’s not the website that the younger generation is used to and you can’t really interact with it. So, there’s this divide in terms of generations I see, in terms of what financial companies are doing with their technology and what younger people are used to and are demanding more and more.

 

Jason:

Yeah, I would definitely see that and, you know, it seems like a lot of these financial advisers, they sort of, you know, they will bemoan the SEC and FINRA, yet at the same time, I think they use that as a sales tool. I think they actually love it secretly because, I remember one I was dealing with several years ago had, I had sold one of my companies and had a decent amount of money to invest and he’s like, let’s just meet and talk about it and I just wanted him to send me something, send me a link to something I can look at about the performance of his model portfolio and so forth over the past few years and he couldn’t send me anything.

 

He hid behind the typical FINRA, SEC type stuff. Oh, I can’t do that, it’s all regulated, and you know, I don’t know, I just feel like this industry has to kind of evolve and grow up. People want to see things. They want to see stuff documented. It’s always, let’s sit down and talk about it. I don’t want to sit down and talk about it. I want to see the goods, show me the charts.

 

Nathan:

Exactly, exactly, and I think they’re going to have to change or new competitors from one area or another are going to come in and make them change. Now, it’s true they have a lot of regulation to deal with that preps other industries, but you know, that’s only a excuse.

 

Jason:

Yeah. Okay, good. What else do we need to know about the past and the present and I can’t wait to look in the future with you.

 

Nathan:

Well, I think we’ve done with the past. The only other thing I might bring up is the emergence of peer-to-peer technologies over the last, I’d say, 15 to 20 years. I mean. We are all familiar with Napster, the file sharing program that became such a hit in the late 90s and of course the traditional banks are your centralized hub for financial transactions, so we have this real c-change in terms of how correspondence between people and individual is something that we’re seeing in the last decade or two and it’s much different than the centralized way of doing business that a lot of traditional investment managers and banks are operating on.

 

Jason:

It’s really interesting and I really can’t wait for it to see how peer-to-peer disintermediates a lot of the banks in terms of lending, things like the lending club, etc, there’s various online sites that allow peer-to-peer lending and burrowing, but how does it impact investment advice. Where does the peer-to-peer part of that come in?

 

Nathan:

Well, I’m not really familiar how it’s affecting investment advice. I mean, we have in a very large scale way there’s all kinds of chat rooms, you can get advice from anywhere now from anybody, basically. There’s almost too much advice.

 

Jason:

Right, I agree and the old saying for that is advice is usually worth what it costs.

 

Nathan:

Yeah, no, there’s something to that. At the same time though, as you were mentioning, you had the CEO of Betterment on and interns of investment advice, I mean, it’s not necessarily peer-to-peer but the whole emergence of robo advisers is definitely changing the way we’re looking at how we get advice and how much we want advice.

 

Jason:

Talk more about the robo advisers, using computers and algorithm to advice people. I mean, certainty the high frequency traders have taken advantage of this in a big, big way at the personal level, I mean, what is it all going to look like in 2030?

 

Nathan:

Wow. It could look a lot different. In the last few years we’ve seen the real growth of these so called robo advisers, companies like Wealthfront and Betterment, Personal Capital, and for those that don’t know, these are companies which are basically making the investment process very easy, so you select a few different priorities of yours, investment priorities and they basically put your priorities into their system and they invest your money in a different set of index funds depending on who you are and what you’re interested in.

 

So, it really scales down the whole process, you don’t have to go in to talk to anybody, you don’t have a long conversation with the person who then decides to do with your money. Basically go online and five minutes later you’re done. So, that really appeals to younger people and also me and it kind of feels good, it feels familiar, it feels like placing an order on amazing. It feels like doing a transaction on any technology website which you’re in and your out and then you’re on to whatever else you’re doing in life.

 

Jason:

That’s just great. I mean, you don’t have to rely on some guy who wants to pay for his golf club membership with your investment money. You’re just much ore, you’re much more empowered. I mean, this is the era of the empowered consumer.

 

Nathan:

Exactly and I think a lot of people now are questioning, you know, when I do go to a financial adviser, how much is he adding? How much value is he adding to my investments? Is this actually make a difference and we don’t really know and it should be interested in the coming years to see some studies based on how our robo advisers are preforming compared to other asset advisers.

 

Jason:

Yeah, certainty, okay. So, what other types of changes do you see for the future?

 

Nathan:

Well, I think, for one thing, it’s just interesting again how technology is making inroads into traditional banking. I don’t think people would have predicted a number of years ago that people using Apple Pay, Apple is now getting .15% of all transactions. So, who could imagine that Apple would be getting a cut on the credit card business at this point, but there we are.

 

Jason:

Right, the interesting part of that though is Apple Pay is just using the credit card platforms anyway. In my Apple Pay account, I just got it linked up with my American Express and my Visa and my MasterCard, of course, nobody really wants to take American Express, because they rip off the merchants, that’s another tangent, but you know, there are really, it’s just a credit card processing platform really. It’s not a disruptive – maybe that’s where it’s going, but right now, right? That hasn’t evolved to be that disruptive yet, do you think?

 

Nathan:

Well, I’d say it’s the beginning. Apple wasn’t involved with this at all, the credit card companies at their platform and they took all the profits and now just the fact that Apple is getting a share of that is a change and at the same time you see a lot of different other kinds of mobile payment systems. You have Venmo, which a lot of people are using today and quick payments, of course you had Paypal for a number of years. A small percentage of people are using Bitcoin to pay each other for different things, so you’re beginning of ways to pay each other, pay people, quickly and simply.

 

Jason:

Sure, yeah. It’s really, really fascinating. I mean, I’m very excited about it and we’ve got to lower the friction and the cost of transferring payments in the payments industry and all of that type of stuff. It’s just going to be good for the global economy, you know? It’s going to increase the velocity of money and I think improve things. Isn’t it amazing, Nathan that we by enlarge are still paying our bills the way we did a 150 years ago. Even if we bank online, as of course, almost all of us do, you know, all they’re doing is writing a physical check and sticking it in the mail. That’s hilarious that we’re still doing that to me.

 

Nathan:

Yeah, I think what you’re saying about the velocity of money is a really interesting factor too. I mean, the more we can get money in motion and get capital to people who are going to do things with it, that’s going to change the world in very interesting ways, getting capital to people who may not have access before, but have something to offer in terms of what they want to build.

 

Jason:

We kind of talked about some of the future of the investment industry from the individual, from the consumer side and everything there makes sense. What about the institutional side and then I want to ask you also about investment advisers, you know, if someone listening is an adviser out there, what do they need to prepare themselves for? But first the institutional part, does it change anything there?

 

Nathan:

Well, it’s a little bit more removed for the individual consumer, but what Tom Brown who is head of the KPMG Global Investments branch was saying that institutions need to get closer to their consumers, their end-consumers. Right now they do things through, the larger ones, through third parties in terms of reaching people who have money to invest their clients and he says they need to reach their consumers, they need to get closers, they need to find out who they are and they need to find out what their needs are, they need to be able to talk to their end-consumers and that’s the way they’re going to keep those consumers as their clients.

 

Jason:

How about the advisers? I mean, Goldman Sachs, the way they do business, it’s all going to be the same for them? The big institutions?

 

Nathan:

Well, probably nothing will be the same in 2030.

 

Jason:

So, Nathan, give out your website if you would.

 

Nathan:

Well, the website for Ziprz is Ziprz.com.

 

Jason:

What is Ziprz exactly? I know about CFA, but Ziprz?

 

Nathan:

This is actually a clothing line, so me and another designer, fashion designer, in San Francisco are redesigning the dress shirt to do away with buttons and we have a zipper where the buttons would be, so we have fresh and familiar combination, it’s go the structure of the dress shirt, but it allows you to dress down a little bit, which is perfect for people in Silicon Valley.

 

Jason:

Yeah, very interesting. You know, I’ve been amazed that clothing has not really modernized much at all. Of course, some of the fabrics are getting more hi-tech, which is kind of cool, but with all of this technology around us, the concept of clothing hasn’t much changed.

 

Nathan:

Yeah, we’re starting to see changes, like you say with materials and other processes, but it’s a very physical business, you can’t digitize it. So, it’s a little bit more resistant.

 

Jason:

I know. It needs to, I think we need to design clothing more in a way that our devices work with, though, that integrate with our phones and so forth. Of course we know there’s a couple of companies doing that, but no one is doing it in a big way, you know, so. Kind of a tangent, of course, but so what are your closing thoughts here, Nathan, on 2030 and the financial and investment industry?

 

Nathan:

Well, as we’ve seen just in the last 15 years of the internet, technology has changed almost every part of our lives and there are some businesses, some sectors which are less touched than others and eventually those will be touched by technology too. So, the encumbrance are going to have to change or they will be changed from the outside by other companies, basically.

 

So, I mean, you think of auto industry, Apple, there’s rumors that Apple is getting into making cars themselves and then if you bring it back to investment, the investment business, but the focus on the interview here is about them – for instance, Ali Baba, the giant Chinese Amazon, so to speak, they’ve launched their own investment business now and they’ve had huge success. So, in China, they are an investment player now and that’s just, you could say a clue as to what may happen here in the west or other countries.

 

Jason:

Fascinating. It’s an amazing time to be alive. Nathan Jaye, thank you so much for joining us.

 

Nathan:

My pleasure, Jason.

 

Announcer:

This show is produced by the Hartman Media Company, all rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com

or email media@hartmanmedia.com. Nothing on this show should be considered specific personal or

professional advice. Please consult an appropriate tax, legal, real estate or business professional for

individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network Inc. exclusively.

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