The Potential of the Exponential Jonathan Bentley One of the challenges we face at InvestCloud is helping advisors and managers understand how flexible our integrated applet platform is. This is partly because of the highly conservative nature of the financial services industry. It is an industry that tends to attract people that are geared toward measurement and risk mitigation, rather than creativity. However, the software industry can be quite creative. The value and importance of taking a more creative approach is addressed in a new book, “Bold: How to Go Big, Create Wealth and Impact the World”. Peter Diamandis, one of the book’s co-authors, is a scientist who created the X Prize to promote innovation in space flight, in addition to his founding ventures in genomics. As pertains to our industry he was also the keynote speaker at TD Ameritrade’s advisor conference earlier this year. At the conference, he spoke about the difference between exponential entrepreneurs and linear-minded executives. Diamandis used four entrepreneurs that he interviewed in his book as examples. These four entrepreneurs were leading tech entrepreneurs that have dramatically remade the industries they have addressed: – Google’s founder, Larry Page, Tesla’s Elon Musk, Sir Richard Branson of the Virgin Group, and Amazon’s Jeff Bezos. The reason why Diamandis selected these individuals was because he wanted examples of exponentially successful entrepreneurs, who solved problems so big that they could affect the lives of billions of people; problems that we previously thought only governments could address. He wanted individuals that had clearly demonstrated the wisdom and skills needed to think and act on a global scale. He specifically spoke about how these exponential entrepreneurs are solving big problems by finding and exploiting the “Six D’s”: digitalization; deception; disruption; demonetization; dematerialization; and democratization. According to Diamandis, these ideas represent the chain reaction of technological progress, how a particular technology can create both serious threat and great opportunity. Below is a short summary of each aspect, along with ideas of how we think they apply to the financial service space in which we work. Digitization: Any product or service that can be digitized will be digitized. Anything born of a logical, repeatable process that is subject to an algorithm will be at some point created in, delivered by, or supported through the cloud. Although robo-advice is the typical example of the day, this has broader application to all of the manual processes that still exist at the junction of managing money and relationships.
Deception: This is a period during which exponential growth goes mostly unnoticed and incumbents downplay the threat of advancing technologies. The doubling of numbers on an exponential curve is at first so small that the numbers seem insignificant or linear. Think of Amazon’s early book sales dismissed by the bricks and mortar booksellers, Google’s early search numbers dismissed by Yahoo and AOL, or Bitcoin’s early transaction activity which is now surpassing popular payment competitors like Western Union. Could the relatively small flow of assets in robo-platforms be the parallel deception in our space? According to CNBC, the current aggregate of $19B is not that large, but if it continues its exponential growth in a few short years it could become a threatening number. Disruption: This is what happens when an innovation gains enough scale and momentum that it disrupts the market in which it is operating. It is the AirBnB challenge to the hotel industry, Uber to taxis, or what 3D printing and robotics are doing to overturn manufacturing. Could a parallel in our space be what happens when independent robo-hybrid advisors start attracting assets not only from higher cost traditional advisors, but also directly from the actively managed mutual fund companies that continue to operate in a high-cost, low transparency environment? Demonetization: Things that can be digitized tend to become cheaper. Computing power is cheaper than ever with most of us now carrying smart phones that have more processing power than yesterday’s supercomputers at a fraction of the cost. Consumer data storage is free at most eco-system driven Internet companies like Google and Apple. At InvestCloud, this is reflected in how we have built intelligent Programs that Write Programs (PWP) based on user requirements and presentation needs, collapsing the cost and time of application development over traditional programming. This accelerated ‘Applet” process allows smaller firms to have very sophisticated custom applications that only the largest firms could previously afford. Applications that pivot as quickly and often as the demands of financial service providers do, change to meet client expectations. Dematerialization: These digital advances, when they take root, can cause entire product lines to disappear. As an example, smartphones have subsumed watches, cameras, flashlights, GPS trackers, portable music players, calculators, video game consoles, and encyclopedias. For our robo-theme, might that mean that at some point there will be a Siri voice that can explain why the rebalancing algorithm increased exposure to emerging market equities? Democratization: With the Internet as a foundation, coupled with the maturing of cloud integration and delivery, the exponential technology we have been discussing can be accessed and used by anyone. You do not have to be a large corporation to compete in application development. Instagram reached a global photo-sharing audience at a value over $1bl in less than 2 years. In financial
services, this principal is represented in how we have been able to provide even smaller clients with a more fully integrated and powerful application platform. We consider ourselves leaving the era of enterprise software, and as we look back, we become more acutely aware this level of functionality was previously available only to the largest global banks and wirehouses. If you would like to find out more about how InvestCloud’s fully integrated financial applet platform can help you leverage the exponential power of digital technology, contact us at 888-800-0188 or visit us at www.investcloud.com. Jonathan Bentley leads InvestCloud’s content development and management division. From helping advisors better craft and deliver their stories to curating customized advisor RSS site feeds, Jonathan’s team is critical to InvestCloud’s bespoke design and site management services. Jonathan was previously founder and CEO of LightPort Inc., which merged, with InvestCloud in 2013. Previously a practicing RIA, Jonathan was involved in developing web portals for more than 500 advisors and money managers while working at LightPort.