Investing in the Age of Millennials: Beyond Robots and Replicants
A look at wealth management in the year 2020
What are we like, in a future after Skynet and Bladerunner?
Rachael is not a cyborg, but there are at least three computers jacked into her body. Well, not physically jacked like William Gibson predicted. But attached emotionally, so that they travel everywhere with her.
A translucent sheet of flexible glass sits in her coat pocket. A derivative of the cellphone, this paper thin computer has the processing power of ten 2015 iMacs. She uses it for shopping, and pays through a quick tap on a sensor. Her transaction history is bio-marked, categorized and saved in a massive peer-distributed database. She has full privacy control over the raw data, which reveals what she buys, when she buys it, and where she buys it. The information is regressed against her cohort — age, education, income — to identify her special idiosyncrasies.
The second machine sits on her wrist and functions like a remote control to her life. In response to spoken word or a few haptic gestures, it changes the temperature in the house, opens garage doors, and feeds Rachael all the information from her over-connected life. Location is mapped and tracked — in case someone needs to find her — and saved to another private peer-distributed database. The data is enriched by all the outputs from the Internet of Things. The watch knows what Rachael does, and more importantly, it knows what she does differently than everyone else.
The last piece of magic sits atop Rachael’s ears like glasses, or dangles like earrings, or is embedded within a necklace. It can also talk and track, but most importantly, it sees. The visual input of the world is constantly flowing through the device. Images are saved as video, photography or virtual reality. Everything that is categorized and recognized — by face, the software knows her friends and family; by type, it knows cats and dogs; and by location, it recognizes landmarks. The information is mapped onto a unique three dimensional rendering of Rachael’s life, saved again on that peer-distributed, private, database. Though image recognition was available by 2015, in the last few years it has become adopted by mainstream culture. Second-derivative virtual reality innovations (apps and algorithms) flourish.
The databases of Rachael’s observed life — everything she has ever seen, liked, purchased or said — are combined with a comprehensive map of her genome. Expressed behavior is regressed against programmed DNA, and Rachael’s peculiarities are highlighted and put on a pedestal. That is her special sauce, those differences. It’s how software customizes her journey through the connected world.
Risk profile questionnaires filled out with a thought.
Imagine this world.
The 2015 process has no choice but to adapt. Can we continue to have client investment risk profiles driven by a paper questionnaire, with hard-to-understand multiple choice questions?
Will account opening at a financial institution require 25 pages of thinly sliced dry tree, with a hand-scribbled ink mark to prove authenticity?
Will a person employed full-time feed sheets of paper into a fax machine, a device invented in 1846?
We must innovate because too much is at stake. Having grown up during the Tech Bubble and the Great Recession, our generation’s financial future has become an anxious bundle of personal and family goals under constant attack. Social Security will not guarantee a meaningful standard of living, and is projected to crumble under the population pyramid.
Each one of today’s Millennials needs to become the best self-employed institutional investment manager to achieve her retirement goals. Remember also—if Ray Kurzweil is right, Rachael and her children are going to live well past 100.
Software will erase structural industry barriers.
The structural barriers of the industry will be eaten by software. From paper documentation to transaction costs, those activities that make financial innovation and delivery costly will be transformed into frictionless platforms.
Advice will be based on the thousands of financial and personal interactions imprinted in private databases, highlighting personal traits that relate specifically to clients. Account opening will happen instantaneously by fingerprint, powered by an identity application stored across devices and authenticated by bio-signature.
Account shells will be stored on the blockchain. Like all sensitive information, financial accounts will be protected by distributed technology. With currency and investment structure in a fully digital format, account opening will take a microsecond, and account funding will happen in the microsecond thereafter. Account minimums, anachronisms that they are, will be completely wiped out.
Rachael will be able to assign $0.25 into brokerage, trust or a 401K, and have that petty amount split into 500 individual stock and fixed income holdings, hedged by options and other derivatives based on the open-source hedge fund algorithms available to all. ETF and mutual fund structures will disappear as transaction costs go to $0. Selection of an investment manager will be made digitally and instantly, and alpha generation will be almost fully automated.
Regulators will celebrate and champion these innovations, because the Securities and Exchange Commission will be staffed by lawyers who had grown up in a world of iPhones. In 2015, they take Coursera classes in machine learning for fun. In the future, these regulators will hold dual graduate degrees: one in Law, specializing in the 1940s Act, and another in Computational Data Science, with an emphasis on financial technology.
What then of the Wealth Management industry?
In a world where investment management algorithms are deployed like heat-seeker missiles, the best managers are made by popular syndicate. A tap on the screen can tag fiduciary financial decision-making to a preferred financial brand, operated on autopilot by sophisticated computational engines.
Brand and reputation will rule asset-gathering. Like Twitter followers today, investors will align themselves with a variety of proprietary and open source robo- and augmented-advisors. Both the storied, hundred-year old banks and overnight crowd-sourced technology upstarts will inherit a quickly fluctuating set of clients looking for personal expression and self-actualization through financial instruments.
Access to the very best of everything will be completely open. The 2015 paradigm of hedge funds for the Accredited and ETFs for the rest will dissolve, as Registered Investment Advisors, wirehouses and investment banks turn into regulated financial software.
People may still have the choice to pay for service and relationships — talking with an expert operator of your algo, and putting that algo in context, will always have an emotional place. While computers run money, advisors will keep clients happy and fulfilled, building a reputation for personal excellence. Behavioral financial therapy will become a certifiable accreditation.
This is the world Millenials are building.
One where we have super-computers in our pockets, our big data is memorized and categorized, and where the difference between investment management for teenagers and university endowments will be the dress code of our advisors, not investment outcomes.
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