(Corrects company and banker name in para 12 and 16)
By Mike Kentz
NEW YORK, Jan 7 (IFR) - Social media firms are threatening
to up-end the plodding infrastructure for financial services
with new applications that aim to rope in an emerging sub-sector
of young, tech-savvy "Millennial" consumers, beginning with
Snapchat is understood to be at the front of a queue of tech
firms developing Robo-Advisory technology - which uses
algorithms to help users develop and implement customized
investment strategies for retirement planning.
The technology enables users to click-and-invest directly
into financial products via their mobile phone applications.
Online robo-advisers Wealthfront and Betterment have seen
interest spike in their automated investment planners in the
last two years as Millennial money increasingly rushes into the
"The opportunity to deliver financial services for social
media platforms is amazing and potentially disruptive,
especially in its ability to engage a Millennial consumer set
that's still emerging," said Reginald Browne, head of ETF
trading at Cantor Fitzgerald.
Social media platforms have a perceived advantage over
financial advisory firms as they already maintain massive user
bases. Snapchat boasts 100m daily active users, whereas
start-ups like Betterment had to grow users organically.
The first generation of social media robo-advisers would
provide access to exchange-traded funds, say sources - since
ETFs trade like stocks on exchanges and therefore are more
easily accessible than mutual funds.
"The landscape for financial services has been heavily
democratized by the rise of the ETF, now social media platforms
have the opportunity to democratize the accessibility and
delivery of those products and advisory services," said Browne.
Spokespeople for Snapchat declined to comment.
Other social media platforms including Instar and Twitter
are understood to have been approached by market participants to
develop similar services, but interest and development stages
could not be determined.
The development is expected not to be limited to the social
Payments application Venmo is understood to be creating
functionality similar to online and mobile application Acorns.
Acorns allows users to invest spare change from credit card
transactions into a suggested portfolio of ETFs, based on risk
Personal budgeting service Mint is also understood to be
forming robo-advisory services similar to Wealthfront and
Betterment. Spokespeople for both Venmo and Mint declined
The projects underscore a major shift in the way financial
advice and products are provided. Tech platforms are dismantling
the out-dated and cumbersome infrastructure for financial
services provision that has traditionally been reliant on
personal advisory relationships.
Investment product providers say Millennial are focused on
self-directed investment methodologies, where a user can control
the creation, selection, and implementation of an investment
"The self-directed investor has become a very important
focus for the asset management industry. Five years ago that was
not the case," said Dodd Kittsley, head of ETF Strategy at
Deutsche Asset and Wealth Management.
Betterment and Wealthfront provide evidence of the trend.
Betterment's assets under management have swelled by 172% over
the last 12 months and the firm now manages over US$3bn across
Wealthfront manages over US$2.5bn, a 150% rise since
mid-2014. The numbers are a drop in the ocean compared to
industry leaders like Vanguard, which manages over US$3trn, but
providers are now accepting that online and mobile access is the
"There's a broad recognition that people don't read white
papers any more, they want investment strategies at their
fingertips - in a quicker, more accessible fashion," said
Key to the development is the rise of ETFs. A record amount
of money flowed into ETFs in 2015 for a second straight year,
according to BlackRock, with global assets totaling US$2.98trn
at the end of November.
The viability of ETFs as an investment instrument is
important because as exchange-traded instruments they are more
accessible than mutual funds. Robo-advisory services could not
work - or would lose much of their value - if users were not
able to trade in and out of products as they can with ETFs.
"Fund managers traditionally have been against the growth of
ETFs - they feared it would disintermediate them from the end
customer because of its accessibility," said one sell-side ETF
"But over time they've come to understand the product's
value, and you can see it here. It helps us reach end customers
we wouldn't otherwise reach, and grow the pie overall."
The project comes at a pivotal time for Snapchat. The firm
has been rattled by concerns surrounding its ability to create a
sustainable revenue model.
Analysts and some advertisers continue to be discouraged by
a lack of data and analytics providing visibility into the reach
of their campaigns, as well as the high price tag associated
with an advertisement on the platform. Analysts say the lack of
data is hurting the platform's ability to establish consistent
In November, Fidelity Investments, the only fund manager to
hold a stake in the social media firm, wrote down the value of
its investment by 25%.
And the write-down came at the end of a year in which
several initial public offerings from high-profile tech firms
came in below their last private round valuations - fuelling
fears of a tech bubble on the verge of popping - and increasing
pressure on private techs to justify valuations.
"The most euphoric period for pre-IPO companies is over,"
said Max Wolff, chief economist at Manhattan Venture Partners, a
venture capitalist firm focusing on late stage private
"The tech market has moved more towards 'prove it' than 'I'm
sure you can do it.' The pressure will be on Snapchat and many
other private tech firms to prove their worth going forward."
A version of this story will appear in the January 9 issue of
IFR Magazine, a Thomson Reuters publication
(Reporting by Mike Kentz; Editing by Helen Bartholomew, Stephen