What is this financial technology (cont.)?
Keep it Simple, Part 2: Fractional Shares, Friction No More, and Spotify Me.
Where did we leave off? Oh right, how on Emcee, can you mirror a leader’s portfolio for as little as $5 even, if that individual is like a millionaire.
The key: Fractional shares, that is, owning a fraction of a share, it is that simple. How does it work? Dealers. No we’re not talking about the 10 Crack Commandments by the Notorious BIG, but it does draw an analogy. Emcee is not your dealer, we do not profit from your supply;but your broker can be. It really comes down to a risky game of accounting. Your broker or custodian or dealer (check the fine print, the name will be there) slices and dices shares of stocks they already own as inventory — let’s call it their own supply. It’s important to note that you can’t buy fractions of stocks on the stock market. Similarly, you can order a whole pizza and then split it with your friends by the slice. The larger the party, the smaller the slices — unless you have a large budget for a large party and in that case we expect an invite.
Dealers take on some risk, since they have to buy the shares first before they can sell them to you in fractions, and if they don’t sell all the fractions, they can be left with market risk, owning more of the stock than they want to. Needless to say, a financial dealer is in the business of risk management and efficient at distributing supply. What does this mean for you? It means you can afford shares of stocks you couldn’t afford before.You can own shares of expensive stocks like Amazon, Google, Tesla with little as $5. Try it out on our fractional shares calculator.
What does it mean for Emcee? It means we enable you to mirror the investments of other users who own shares that you otherwise couldn’t afford. Remember those friends from highschool we talked about? They probably have large investment accounts since they started investing a long time ago and can afford whole shares of almost any public company that you might not be able to. At Emcee we’re very excited to put fractional shares to use in a very new way.
Friction No More
If you’ve never opened an investment account with an advisor or broker, then you won’t appreciate this as much but Spotify will serve as a good example. If you have, thank us later. Imagine you want to open a Spotify account, and Spotify is required by law to know who you are and make sure you don’t share any music that doesn’t belong to you. Then imagine Spotify is required by the Music Exchange Commission (MEC) to make sure you can only listen to music and follow other playlists that it deems appropriate for your ears only, based on your music knowledge, age, gender, etc. How would Spotify do that? Let’s just say it would take you at least 10 minutes to answer a lot of questions about yourself and your music listening behavior and knowledge while staring into a mobile app. How many users would Spotify have today if this was true? We live in an era of attention scarcity, so they probably wouldn’t have converted as many users as they have today.
Luckily, Spotify is not required by the law to do this, but investment advisors like Emcee are.
We’re not even talking about Know Your Customer (KYC) and anti-money laundering (AML) laws and regulations. Your broker takes care of these, and financial technology today has streamlined the process down to about 60 seconds. Whew! But investment advisors are also responsible for risk suitability. That means it is our fiduciary responsibility to let you know if you are about to do something that’s, well, reckless or stupid. Advisors must identify your risk tolerance at a minimum in order to make suitable recommendations, and this is typically done through standardized questionnaires across the digital advisory industry.
If you’ve opened an investment account with an advisor like Betterment or Stash you know what we’re talking about. They start with: “What is your age, financial profile, and household type?”. Then they ask an uninspired behavioral question like, “What would you do if the market dropped by 20%?”
Somehow the industry has settled on a process that not only creates friction and discourages newcomers from completing the process, but is also incomplete, inefficient, and as insightful as a blind necromancer.
So far we’ve described just the bare minimum required by law. What if Spotify wanted to provide a better user experience, such as curate your music to your taste profile, or recommend podcasts of influencers that made a difference in the world? Well, Spotify would do this by learning from your user experience while you use their platform. It eerily knows what kind of music you prefer, at what time of day, on what day of the week, during which season, and on what moon cycle.
Emcee won’t let you or the industry settle on this inefficient and time-wasting process, and there is a lot of room for improvement for the financial services industry to get to a Spotify-like user experience. That’s why we’re developing a robust solution that replaces question-based analysis of risk suitability with big data and machine learning. So, everything about that hypothetical Spotify scenario is a reality for investment advisors, and now advisors can eliminate friction with Emcee. We only use relevant information that you’ve already made public (think LinkedIn not Facebook) to determine your risk tolerance, check for at least six behavioral biases exhibited by most investors, and recommend companies that you love or that align with your interests, causes, and beliefs. Maybe you’re interested in environmentally- friendly companies, maybe you believe US military dominance translates into real power — either way, we’ll find what you’re looking for and match you with leaders who are already invested in the space.
No more friction, and real results with the click of a button. You’re welcome… well kinda, it’s still a work in progress. As our data science-y readers might have noted, one needs an initial dataset to build strong signals. Want to help us out? Take one of those annoying 5-minute surveys by clicking the image below one last time so that we can tackle this problem together. You might even learn a thing or two about yourself in the process.
We are just getting started so if you want to learn more about Emcee or to take part in our beta pilot program, sign up below.