What You Need to Know
- A big fear of the advisory industry is a Goliath like Walmart coming in and disrupting the business.
- It massive size, large number of clients and deep tech know-how give the retailer an easy pathway.
- The biggest losers likely would be broker-dealers and asset managers.
When wealth management executives are asked, “what keeps you up at night?” or “what are you most worried about?” their usual responses haven’t been about their fears of losing market share to current rivals or any of the annoying startups backed by venture capital.
Rather, their real anxieties are laser-focused on what could happen if the big tech titans like Amazon, Google or Apple finally turn their disruptive appetites on the business of financial services.
After all, these goliaths have had a devastating history of wiping traditional industries off the face of the planet and replacing them with their brutal efficiencies, cost savings, elegant interfaces and middle-man crushing technologies to provide a better customer experience.
In fact, if they even start sniffing around a particular industry, stock prices get hammered. Case in point: When Amazon acquired Whole Foods, all bets were off in the traditional industry of food distribution.
To date, wealth management has been insulated from the reach of the tech titans by, of all things, regulation. These titans have said many times that they don’t like highly regulated industries and there are so many more fruitful markets still waiting for them to dominate.
Also — and probably the biggest barrier to entry — is that the current wealth space already is an oligopoly of trillion-dollar companies. These firms are highly entrenched brands that have invested massively in technology, driving many costs to zero; much of the middle-man distribution inefficiencies have been commoditized, dramatically reducing competition.
In many areas of financial services, though, there are expensive, clunky and manual processes that remain part of product manufacturing and distribution in the legacy businesses of mutual funds, insurance products and the like — and this does open the door for a non-traditional goliath to exploit.
Let’s consider the one 800-pound Gorilla that hasn’t made the list of what keeps wealth management leaders up at night: Walmart.
The world’s largest retailer typically isn’t thought of in the same disruptive categories as the tech titans, yet the potential is there for it to completely re-write the distribution and delivery of financial services, forever altering the comfortable, highly profitable world in which many of the industry still lives.
Thus, when news broke in January that Walmart had created a new fintech start up with venture capital firm Ribbit Capital to develop and offer “modern, innovative and affordable solutions,” the REM sleep cycles of asset manager, broker-dealer and insurance company executives probably were cut in half.
“For years, millions of customers have put their trust in Walmart to not only save them money when they shop with us but help them manage their financial needs,” said John Furner, president and CEO of Walmart, in a statement announcing the new strategic partnership with Ribbit Capital.
Of particular worry to the wealth management industry is that Ribbit Capital has real experience in this area, having been behind fintech startup successes such as Robinhood, Credit Karma and Affirm. This means the combination of Walmart and Ribbit could be the beginning of something truly disruptive.
“When we combine our deep knowledge of technology-driven financial businesses and our ability to move with speed with Walmart’s mission and reach, we can create and deliver financial offerings that are second to none,” added Meyer Malka, managing partner of Ribbit Capital, in the announcement.
What will this mean to us in the cushy world of wealth management? What happens if Walmart does launch a robo advisor or a robo insurance platform?
Should we be worried? After all, financial advisors — for the most part — have been immune to the technology changes driven by the entrance of digital players over the last decade.
In fact, many of the innovations developed by these early VC-backed entrants largely have been embraced, extended and commoditized by the big financial services brands, such as Vanguard, Schwab, Fidelity, and Merrill Lynch. So what’s the big deal?
Before we answer that question, let’s review the data that highlights Walmart’s massive reach. In terms of revenues, Walmart generated $524 billion in its 2020 fiscal year.