1089. Insights: Why does wealth management arrive too late?

23:14But I do think it's an interesting, challenge as well because maybe it is biasing successful outcomes in this space towards people that have the right networks and the right people around them and obviously kind of one of the things that we're very passionate about here at 11FS is trying to kind of really spotlight founders businesses across the whole spectrum you know maybe people that aren't coming from necessarily such traditional founder backgrounds I wonder if some of those people are going to being particularly disadvantaged in these moments because they might not have the friend next to them that's done it before.

23:46They might be forging the path for the first time. Steph, you're pointing it better than me. You're absolutely right, Kate. I mean, I think like all things in financial service, the kind of key principle is if you start with access, you have access. And if you don't start with access, you're in a more challenged position to educate yourself and kind of gain traction and control. A good founder friend of mine, and she's a first-generation U.S. immigrant. She's building a business in the CPG category. And we were chatting the other day and she said, I honestly don't know, Steph. Like, I've been so heads down making this work, figuring out my product and my distribution.

24:25If I had to sell the company tomorrow, I don't know what I would make. I actually don't know how much I own of this company. And she's done multiple rounds of safe notes, so then they convert. And she's really in the dark about a lot of the decisions that affect her and her outcome. And there is no one tapping her on the shoulder pre an exit saying, let me help you figure this out. And I think that's such a miss because in a lot of cases for this to all be interesting, you don't need to have a billion dollar exit. You actually don't need generational wealth. Some people might walk away either as founders or even as operators in a company with much smaller dollars that they're receiving.

25:07but those are life-changing dollars. Remember, the average American does not have$400 in their bank account to pay for an emergency, okay? So when we get into the venture capital ecosystem and the noise and cognitive dissonance of generational wealth starts to set in, I think we lose sight of the fact that many founders have, one, potentially put all of their life savings, if they had any, into their business. Two, are undereducated. And as a result of that, they lack confidence in being able to navigate the decisions. And so much of that confidence is a derivative not of ego. It's a derivative of knowing if A, if B, what are their results, right?

25:45Because if you go to sell a company and you make a decision about taking cash versus stock, there are so many different permutations of making this valuable to you in different ways, tax-friendly. And I do really feel that the system does not only not support founders and people who operate in tech, it doesn't support people who don't start with wealth and or who don't kind of grow up in the system where they inherit their parents' financial advisor, or they have a friend who can make that referral, which is exactly why I think there's white space to build something that's never really been done the right way before.

26:22As I'm conceiving of pretty smart money, I'm not ready to say all the things it is and will do. I have a very unique take on how you would help someone find an advisor who gets them, right, really understands who they are and what they want, and can work with them in a way that helps them plan the entire trajectory, not just this single moment in time.

26:43David Brear:Sounds fantastic. We'll definitely talk about that a little bit more in the second half of the show. We're going to come back to you. We're going to be exploring what the next generation of financial advice could actually look like, whether AI, fintech, and new business models can actually build that trust that we've been talking about. So, be back with you really shortly.

27:06David Brear:Welcome back, everybody. In the first half of the show, we explored why traditional wealth management often arrives a little bit too late after the big financial decisions have actually already been made. So if that is the problem, then what really should replace it? Steph, I mean, you said going through this process has changed how you think about that exit. And obviously, in the first half of the show, we talked about the need to really get a very long run up in that space. But, you know, I guess we're talking about quite a different approach to financial management. I mean, it's not about wealth management.

27:40David Brear:It's more about the sort of construction of wealth in its first principle, I guess. Yeah, exactly. I mean, I think wealth management like diminishes it, right? Because it actually narrows it to thinking only about your portfolio. And that is important as you have the ability to invest and grow your assets, whether through a liquidity event or through some other avenue. Wealth is one part of the picture. But income streams and various income streams, not just a salary, but other ways to generate income are as meaningful as potentially building up your wealth portfolio. So I think it just, the word itself like misses the broader opportunity of thinking about a comprehensive set of inputs and outputs that help you pay for the life you want now and build for the life you're going to have in the future, which may or may not include having this traditional nine to five full-time career path.

28:29And so when I think about like today's industry in the U.S., Part of the reason I think that the cold outreach and this sort of like ick factor exists is because the model essentially says you don't get paid on anything other than assets or products. So if you can get assets under management, you will make money. And so, you know, the industry has trained advisors to go seek that out. And hey, if you can give some advice on the perimeter, it's not bad. But the way we're licensed in the industry, the way we're compensated, it all drives back to assets under management, which then silences the conversation.

29:08And I've never had a conversation with a traditional wealth advisor that encourages me to think about how I might make different career choices. Should I take this compensation package that biases to a big bonus that I don't have total control over? Or should I take one that biases to higher cash? Should I look at a job that has better benefits for certain things versus cash compensation? I mean, there are myriad choices to make. And so I think about the framework a little bit differently. Because again, kind of confidence is the emotional outcome that I think is the win. Money will be part of that, but the emotional outcome is part of this.

29:48And so for me, there's four things. If you were making a high stakes financial decision and we were not calling it wealth management, I'd think about your math, right? Like understand the numbers, the trade-offs, the timing, and the possible outcomes. Possible outcomes being an important one because so often you don't know what a downside scenario might be versus an upside. You really only think about the big ones. Number two would be your tribe. Consider the people whose lives, perspective, and support matter. I'm married to someone who is infinitely supportive of my crazy dreams to build things.

30:20And still, I don't make a decision without saying, like, how will this affect our household? Is that the right decision for us? I recently walked away from an opportunity in one of the hottest startups in New York and really almost in the world right now to take a very senior role for a, call it, nine-digit compensation figure. And there were a lot of red flags. And my husband was like, but we don't need$100 million. And why would you want that job? And I had to really dig deep on, you know, my tribe. And I think there's a third pillar, which is what I call your compass. So aligning the decisions with your values, your risk tolerance at what matters most in your household, your family.

31:01And then last is your growth. Skills, relationships, opportunities that compound over time. The strongest decisions have all four of these together. And not once you can be talking about your portfolio. It's in there, but it has nothing to do with the kind of framework for making the big decisions. And to me, that's what's missing.

31:20David Brear:Definitely. I mean, as you say, that's a decision-making criteria rather than a financial instrument in that sense. I mean, it's bizarre how often, and Kate, I mean, there's at least 700 episodes of this podcast where we've talked about this. So strap yourself in, everybody, listening to this. But for me, as you say, the irony that financial services is called financial services when the service is completely missing, right? All of the benefits, as you say, are driven by the selling of financial instruments or products rather than actually the thing that you need. That confidence and those four factors that model creates, if you get those things right, is a wealth or whatever size of it or lack of it or whatever becomes a background factor to life, not the foreground factor, doesn't it?

32:12David Brear:And that's a strange thing that people miss from these things, isn't it? Again, it's, but you can't, there's nothing that hacks you quickly to fulfilling those four corners. All of them require actually thinking about it and ongoing trust from it. And, you know, I think with the wealth industry as well, I mean, the difficulty with fintech more broadly has been that it is approached retail banking, commercial banking, payment structures as a self-service thing that you can just move all of the decision-making criteria onto the customer. But those things that you were just describing, Steph, require somebody to A, point them out to you, and then somebody to help you, guide you through those processes.

32:55David Brear:Because it's pretty hard to do self-reflection on your own sometimes, isn't it? You have a million blind spots, and you have your own emotions, and you have a bunch of input. So when you're able to work with somebody who has your best intentions and outcomes in mind. It's a fundamentally different relationship. It's kind of like personal trainer, right? Of course I could, Kate, you could get on that Peloton and there are great content classes on it and strength training is one of them, but I'm never going to work as hard or even do the poses and postures, right? If I'm not potentially with somebody who's coaching me up, right?

33:29So I think a lot about that, like it's a really simple analogy, but health and wealth actually do fit really nicely together. and you had your own blind spots. No one ever does it as well as they could if they had a professional in their life. And I think that's kind of the thing I always come back to. And Kate, I'm not saying you don't ride the Peloton. I'm sure you do. I ride mine. But I do ride the Peloton, but I do also use a coach to make me do the right things, right? So yeah, I completely agree with that analogy. I mean, one thing that I thought was, I was particularly interested as I was listening to kind of those four pillars you were describing, I think was the tribe component and I think we're often quite critical about social media influences, people getting advice from social media but I do think that kind of tribe component is maybe part of why social media, financial content on social media is so compelling because if I think about the things that come up on my feed, you know, it's all coming from mostly women that look a bit like me and they speak about similar life stages to me, similar career choices to me, because the algorithm has kind of worked out that, you know, I'm going to be much more likely to interact with content that seems like it's from my tribe or somebody that I would recognize their life experience in my own.

34:48And so I think, yeah, a part of, yeah, that's just such a really interesting pillar to think about because I think at the moment it's not being served and that's probably why we're seeing so much, so many eyeballs on social media content because it's filling that gap and people aren't getting that support elsewhere. Well, I think, Kate, you point out something so different in today's version of social media. I often joke with Alexa Montobo, who was the founder of LearnVest, we would have never sold LearnVest if today's version of social media had existed. And I say that because in the decade plus since we sold LearnVest to North Western Mutual and in the 20 years plus that I've been a financial planner, I got my CFP in 2006, like really three things have gotten better.

35:32Number one, direct indexing is cheaper and easier. Number two, you can buy fractional shares, and that's great. And that used to be hard, and now it's easy. And number three is social media. It's the algorithms are really dialed to a place where you can find the voices who have the knowledge, potentially the trust. And Kate, I don't think it's necessarily a bad thing to consider some of that content a part of your tribe as an extension of the tribe, perhaps. But to me, that's actually one of the most meaningful and influential differences. It used to be like your uncle, your brother, somebody in the family.

36:08And as a financial planner, I would always hear from people how they got their tips and advice. You know, Kramer, there was like a few faces out there, but not many. And not many that looked like you. And I do think that that is one of the big transformations that will continue to influence. I mean, TikTok not only saved books, thanks to BookTok, but they are definitely playing a huge role through FinTalk in how people access information, not only about the concepts, but sometimes about products that are the right fit. And I'm not averse to products, by the way. We said financial services buy assisted products.

36:43There's a time and a place for some of them. It's just a matter of like, knowing that they're really a great fit for you and knowing how and when to think about those products entering the planning that you're doing. Yeah, definitely.

36:55David Brear:The sort of finding a community that's been through similar things who can guide you through those is really important, isn't it, in that sense. I guess the sad part really is that we're still not getting that service though from traditional players, are we? We're living in a world where, as you say, video content can be so heavily personalized to each individual, but actually still it's a random dude on LinkedIn reaching out. I know I've said on the podcast before but my sadly when my dad passed away and my mom inherited uh everything from his side then first thing she did was move all of the money away from the bank that she was with because they basically alienated her for 30 years you know like so so the the experience is not uh has not moved much further forward i would say with a lot of the traditional players it's it's very much the how nice is the pen and how nice is your suit and uh you know how thick is the pdf you're sending to everybody to make them feel the value rather than actually generating it, isn't it?

37:55David Brear:So, but I mean, Kate, that feels like a gap. It feels like technology can kind of address these problems now. So why is that not happening? Well, I mean, first of all, I do love a good pen. So like in some ways I feel like it, yeah, I know, I know what my actual like informed brain should be thinking about, but part of my brain is going, I really want a pen. But no, let's be serious, I mean I think part of the challenge is that financial services is just such a heavily regulated space like you know we can't we know what the customer outcomes are that we want but these are regulated products that come with costs and so I think we're still just not seen certainly in the UK I'm not as up to speed with maybe the US pitch I'm sure Seth will have that lens but like I just don't think people have got their heads around how they make it commercially viable to offer financial advice to more people, which means, as you said, we're saying people are waiting for that moment when the assets under management are there just to pick up and run with.

38:57So yeah, I just don't think we've seen people think innovatively enough about how they make money from customers. And that sounds like it should be a negative thing. It sounds like it should be, I'm meant to be a sort of customer researcher. Why am I talking about making money from customers? But good customer services, good customer outcomes aren't sustainable unless these businesses are able to cover their costs and make profit and scale efficiently. So I think we have to really come back to trying to find ways to make providing advice more cost effective. Obviously, AI potentially is going to play a huge part in that.

39:36And we're still just trying to understand how that's going to play out. Certainly, we've seen initial movements from the FCA in the UK talking about kind of the interrelation between AI and advice. But yeah, we haven't really seen that ripple down into actual customer facing propositions yet.

39:51David Brear:Yeah, I guess on the point of making money, I mean, definitely we've seen weird things happening in the market lately, haven't we? We've seen, you know, Coots in the UK, Steph, you know, used to be the Queen's Bank. So it's very fancy. They've raised their limit, the minimum, sorry, from a million pounds to three million pounds in an attempt to make sure that actually there's money being made from those accounts. We're seeing gigantic wealth providers offboarding customers in the range of 500 ,000 to 750 ,000 because they can't make them profitable. And actually, that's a weird place to be, isn't it?

40:26David Brear:If you can't make somebody with 750 ,000 pounds under management with you profitable, that's not a good sign that actually your back office is cost efficient, that you're not layering people over bad processes to solve. And I think that really that's possibly the opportunity. But I guess as Kate says, the advancements in technology and particularly with AI, that feels like quite a big opportunity to turn that around. I think AI is going to be incredibly influential in the back and middle office. I know we're in the U.S. seeing, you know, some early things with ChatGPT and Plaid as partnerships to basically say, link all your accounts and we'll give you financial advice.

41:07And I really don't think that is the answer. If I come back to that framework, right, it's like that misses all the key things that we were just talking about. And it also misses something where I feel like human advice has an irreplaceable component that I call emotional optimization. And there's a financially optimized answer to every mathematical input, but there's also the emotional optimization. I'll give you an example. This is what's about founders, and this is just more general sort of, you know, financial planning. When people have debt, which is in America, unfortunately, very common, there are high interest rate debts and there are low interest rate debts.

41:45And generally speaking, we're going to want to try to help you pay off your highest interest rate debt first because it's the one that like compounds like rabbits, right? It just keeps getting bigger because the rate is so high and the compounding is so fast. And so if you're talking to somebody and they have debt to pay off and they say, listen, I know that I should pay off this high interest rate card first, but the student loan debt that I've had for a decade is embarrassing, makes me feel bad every time I look at the balance. And if I'm picking the$100 to go somewhere, I'd really like it to go there.

42:17That is as good of a decision as the high interest rate debt because it's progress, right? And if you were to just have a chat GPT answer, the math would always bias to doing the high interest rate problem first. And for many people, progress is an incredible drug. Okay. I'll go back to the Peloton, right? Why does fitness start with like 20-minute classes and 10-minute things? It's so that you can go on the journey to eventually run a mile or complete something material. And I think about wealth and financial planning in the same way. If you have$5 to put towards something, $5 is better than zero.

42:56And so just start. And I think sometimes that is missed. And this is where there could be plenty more education going all the way back to school, right? In our education system in the U.S., you learn nothing, nothing about what it's going to take to make financial decisions. And then you're thrown into the world and you have all of this stuff and it's noisy. And then we get into the problem of financial products being out there and not having a real understanding of what they do. So while I'm very pro-AI, and I would say in the U.S. in the wealth management space, we're seeing interesting interns like Humanity Labs coming in to really optimize with agents, that middle and back office.

43:36There was a ton happening with Hazel by Altruist for CRM management and financial planning, just optimized with data that's getting collected through calls and emails. Those are going to be amazing game changers, I think, in the cost structure. we still need that human. I think we're going to see like a concierge level service become very, very, very valuable. I think about it a little bit like when I'm trying to navigate a canceled flight and I'm stuck in an airport. All you find people doing on the phone is saying operator, operator, like trying to bypass, right, the automation. Humans are going to be a premium.

44:16And in the U.S. market, we don't have enough people who enter the financial advice category as a career, there are only about 100 ,000 people considered advisors or financial planners. And some of our biggest wealth management shops and broker-dealers, their number one concern is staff, right? So that to me says premium for human interaction. Portfolio optimization, stock picking, I mean, all of that stuff is just going to continue to get more and more and more AI optimized and honestly, like, less differentiated by firm. Those are commodities. The non-commodity is the relationship and the person who gets you and gets that list of things that your tribe, your values, your math, they all come together in a central way.

45:00So that for me is something I just hold really tight as I think about what this future looks like.

45:06David Brear:Yeah, I think that's super right. It's going to be amazing to see how far through that journey the technology can go. The trust, the confidence that you talked about earlier on, the proactiveness that can come with that, not just waiting until somebody's got a problem or waiting until they come to you, but actually proactively dealing with problems for people. it changes the context of financial services again, doesn't it? Which is, you know, it's quite an amazing thing to think about, isn't it? If your life was something that financial services was being done for you, how different would that feel than just the thing at the back of your head that you know you need to deal with that paperwork or this thinking or saving for college or whatever, You know, it's a different feeling for life, isn't it?

45:59David Brear:Which makes it sound so fluffy, but that's what it's all about, isn't it? As you said earlier on, the confidence of, you know, being able to sleep easy every night because you know these things are taken care of is something that I personally would pay for, for sure. But what do you think, Kate? Like the technology is disrupted. Pretty much every financial services slither, you know, all around the world. But still, we're seeing a lot of FTPs with PDFs being sent down them. Like, you know, the wealth space definitely has a long way to go. Yeah, absolutely. I think Steph's completely right to call out that I do think the ideal endgame will be technology plus people.

46:43Like, I think that is the ideal outcome. I suppose I worry that people are going to get so excited about AI that similar to what we saw with the arrival of digital banking, generally people's first instinct will be to just try and move everything into kind of, can we funnel everything through AI in as regulated way as possible to kind of strip out as many humans as possible and it'll probably take that system to fall short or to break or to not achieve the outcomes that some of these companies are hoping for for them to realise that they have to put some of the people back in. I guess maybe that's my pessimistic interpretation, but maybe with the likes of founders like Steph pushing on to their next ventures, maybe we'll get there a bit sooner, but fingers crossed.

47:23David Brear:So what do we expect then? Five years from now, obviously Steph by then, pretty smart money is going to be ridiculously successful as well. Yes. But what do we reckon in five years time? What is this space going to look like? Steph, maybe starting with you. Yeah, well, as we said, I think the human's going to be at the center of it. And so I'm excited to continue to see humans in the financial advice arena. But more importantly, I think that execution is going to be the really critical next layer of investment that's really never been completed. So I'll give you an example. Right now, we have all this talk about agent at commerce.

48:00And I'm going to have agents who are going to go buy my trips and plan everything for me. And we are starting to see real inroads in payments for that. I think if you apply that same execution lens, when you're doing financial planning, there are lots of things that get said that are the next important step. And they require a login and a password and permission. And so the financial planner is stuck just emailing you, texting you, like reminding you to do it. And if you're me, you're like, I have great intentions. I'm going to get that rollover from my husband's old 401k taken care of. but it requires a phone call and it requires a form and I'm busy.

48:40So I think execution is going to be hugely important and probably a fee surface that's never been touched before. When I recently updated my estate plan, you know, estate plans, like all things, are great pieces of paper. They're only good if you actually go to retitle your property, your assets. Guess what? The house I'm sitting in has not been retitled in the name of the trust. But an agent could easily optimize every state, every municipality, and make those changes. So when I think five years out on the horizon, I think the human's still the central point. I think we're talking deep emotional optimization so that this works the way I just described.

49:20I think it will. And then like the minutiae of making those things actually come to life. This is where the cost consideration used to be a problem and I think won't be as agents for execution really do enter the picture in a meaningful way. And I hope it doesn't take five years, by the way. I really hope it doesn't.

49:38David Brear:Well, it sounds like you're going to be building it. So it sounds like it's up to you how long it takes. Kate, what do you think? Five years from now, what are we looking at? What does the industry look like looking back from then? Yeah, I mean, I don't think I can necessarily top what Steph described. I definitely think it will be fundamentally different because of the arrival of AI. I mean, I suppose the other thing that I'm seeing from the conversations we're having with eBanks and Cummins FinTechs, I think more and more people are kind of waking up to the fact that they need to start thinking less about individuals and more about family units.

50:11I think people are kind of starting to realize that their customer base is just aging and the bottom of that funnel is not topping up in the way they assumed it would necessarily or not looking quite the same. so I do think in five years time we'll have platforms services support that yes serves individuals but also has to try and think about kind of broader structures families household units in different ways to try and fit with the way in which people's lives actually work and so yeah a lot of AI hopefully some more family structured money and hopefully better outcomes

50:45David Brear:definitely I think that that would be the wild add I think it's just better outcomes for everybody Ultimately, that's what every regulator around the entirety of the world wants is good, consistent outcomes from people. And the advancements in technology definitely can lead to that, you know, evidencing why every piece of information led to a specific piece of advice. That's a dream from a regulator's perspective, not sort of dusty old bits of paper, but much better services for people, which is a you know an interesting thing that that would be a step forward that suddenly we you know five years from now we start getting good outcomes weird right um all right well before we wrap up one sentence right well maybe even let's go even shorter like kate the future of financial advice is what better i'd like it like it steph about the whole person i like it contextual to everybody in that i feel like we've done a lot i don't even have one that can top either of you to or even come close, so I'm not even going to try.

51:44David Brear:So on that note, we better wrap up this discussion. And Steph, when you can come back and tell us more about your new company and the sort of run you're going to plow with that one, we would love to hear it. But for anybody trying to get in touch with you now, and I presume not stuffy old, dusty old wealth managers into your DMs, but Steph, where can people get in touch? You can find me on LinkedIn. You can also follow Pretty Smart Money. And for those that want to watch my very embarrassing social media journey, I am on TikTok and Instagram as SKPCFP. So come have a watch. It's interesting being in your mid-40s, getting in social media.

52:21So come have a look.

52:22David Brear:Sounds like fun. Sounds like a lot of fun. Kate, where can people find you more? LinkedIn, probably the best place. I mean, I have Instagram, but it's mostly just pictures of my children. So I don't think that's going to be of interest to people. So yeah, LinkedIn's probably the best bet. I feel like they might enjoy that. You know, you never know. Get involved with, you know, Kate's journey through motherhood as well is always an interesting one. As for me, just drop me an email, david at 11fs.com. I hope you've enjoyed this podcast. Thank you so much for listening. If you do like what you've heard, follow our podcast and don't forget to leave us a review.

52:55David Brear:It helps us make the show better and helps other people find it as well. As always, if you want to join the conversation, you've just been shouting at your earphones of something that one of us said and you want to correct us or thank us or anything in that sense. Find us on any platform from a social media perspective. Just search for 11FS or FinTech Insider. Or if you really want to, email us on podcasts at 11FS.com. Thank you very much for listening, everybody. Goodbye.

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