4 Ways Investing Could Change in the Next Decade

Of note, the firm markets a unified managed account that can combine every type of financial instrument in a single account.

In the interview, Wormus, who previously led the online division of HedgeCo Networks, notes that in “catching up with technology … financial advisors are … putting tools together to [create] brand-new platforms.”

Here are highlights of our conversation:

THINKADVISOR: What technologies are emerging or are expected to be here in the next five to 10 years that will help advisors?

AARON WORMUS: We can’t ignore AI. I’m just not 100% sure how it’s going to be able to embed itself in our industry. What I’ve seen so far are great engagement tools so advisors can talk to their clients.

THINKADVISOR: What do you forecast otherwise?

WORMUS: Looking at different types of financial instruments in the next decade, definitely coming down the pike is the tokenization of assets, like being able to buy Google on the blockchain.

Nasdaq has talked about that a lot, saying it will be able to fulfill requests through the blockchain.

THINKADVISOR: What else do you envision?

WORMUS: The merging of different asset classes is definitely happening. With the interest in alternatives, we’re going to have investors not [knowing] the difference between buying an ETF and buying some alternative product.

So it will be: How does a portfolio manager manage buying on the stock market as usual and buying alternatives through an independent firm?

THINKADVISOR: Anything else that’s notable upcoming?

WORMUS: We’re probably going to see fewer IPOs, with people being able to sell their product just via alternative platforms.

Data show that companies are staying private much longer than they used to, raising far more private capital before going public.

As a result, much of the value creation that once occurred in public markets now happens in private markets, where institutions and high-net-worth investors typically have access.

There’s a high demand from advisors to be able to support alternatives in a UMA/Model portfolio, which is what SMartX provides.

THINKADVISOR: Where do advisors stand when it comes to the technology platform they’re using now?

WORMUS: We’re at a place where picking your technology platform can make all the difference.

We’re seeing a world where financial advisors are catching up with technology. There are a lot of tools out there. They’re finding they can create value in their own platform. And they’re putting tools together and creating brand-new platforms.

THINKADVISOR: Why are alts becoming so popular?

WORMUS: The main reason is that they provide non-correlated returns but also because they’re new and different, and not everyone has them.

THINKADVISOR: How will alts evolve in portfolios?

WORMUS: Since mid-2000, the general public has become a whole lot more sophisticated; so the role of the financial advisor is becoming more difficult.

The public understands that a typical portfolio should have 60% stocks and 40% bonds.

But now there’s talk [notably from Larry Fink, CEO of BlackRock] of 60% stocks, 30% bonds and 10% alternatives.

So investors are like, “Well, this is something new: alternatives. How can I get some of that?”

They’re calling their financial advisor and saying, “The stock market is up. Let’s talk about alternatives and how I can get access to some of these assets that are very uncorrelated to the rest of the market.”

The percentage of alts is up to the financial advisor.

THINKADVISOR: What’s SMartX’s role?

WORMUS: We work with asset managers who are building financial models and distributing them to hundreds of thousands of accounts.

They want us to create a model that has the 60/30/10 position. We’ve put technology together that can deliver that into an account.

That’s a huge innovation. It’s really what clients want at this point. So as far as we’re concerned, it’s a win-win-win.

As a fintech firm, we’re focused on providing advisors with a platform where they can build and grow business and create intellectual properties.

We have ways for advisors to build a product to satisfy a specific need. I can reach into SMartX and pull out very specific functionalities that can go to market very, very quickly.

THINKADVISOR: Would any of these use AI?

WORMUS: We’re a key component in a financial advisor’s building system that uses AI. But we don’t have AI products that we provide to markets.

We’re doing a lot of research on that and have found that the core piece of AI is the data. Having data strictly for financial advisors is the most important thing they need to enable an AI vendor to create something that will help support the advisor’s business.

We want to be the company that provides financial advisors with as much data as they need.

So if you want to build an AI agent as an advisor, the data won’t be the problem.

When, for example, an advisor makes a trade, does some tax harvesting or manages the account [in other ways], you’ll get that information and be able to garner intelligence from it.

THINKADVISOR: Your website mentions SMArtX’s providing solutions for advisors’ “pain points.” What’s an example?

WORMUS: Tax is a really big one.

Financial advisors should be managing their clients’ portfolios in a tax-aware manner.

A friend recently told me his advisor said that as he got older, he had to invest more in bonds. So he did — he sold stocks. At the end of the year, he got a $50,000 tax bill. It was shocking. This is something that should never happen.

His advisor should have told him, “This is going to get you a $50,000 tax bill. So let’s do it over five years — $10,000 a year.”

SMArtX software allows you to create a tax budget like that.

THINKADVISOR: Why didn’t the advisor prepare your friend for that huge tax liability?

WORMUS: Lots of times, especially if it’s an older firm with a single advisor doing many different things, they don’t have the tools to give the client what they need to help them.

That was our firm’s motivation for bringing truly modern technology into portfolio management, to give advisors a total portfolio solution that will allow them to fulfill their clients’ needs.