Meet the $40 billion Wall Street revenue killer: John Bogle. Who’d want to buy a no-brain mutual fund that merely matches the market? That’s the dismissive question Wall Street lobbed at Vanguard for years. Now it’s the Valley Forge, Pa.-based fund giant — and its founder, John Bogle — who are getting the last laugh. As a recent Bloomberg piece explains, the beloved (by ordinary investors) octogenarian has cost the buy and sell sides billions in revenue due to the ownership structure Bogle established when he formed Vanguard in 1975: its investors essentially own the company. With that innovation, profits could go back to investors in the form of lower fees, which create less of a performance drag, leading Vanguard’s funds to attract more and more investors and assets. Those assets, mostly in Vanguard’s passive funds, not only make it tougher for active fund managers to earn a living but also has led to sharp reductions in commissions that traditionally would flow to Wall Street. By 2020, Bloomberg suggests that Vanguard will be removing $40 billion in revenue annually from Wall Street. Pretty impressive from a guy who looks like your grandfather.
Bitcoin “hard fork” could KO currency. Bitcoin has a problem: Its current protocol has processing and speed limitations. Participants realize they must upgrade, but they’re grappling with the “hard fork” issue of whether all members of the Bitcoin network should upgrade in one fell swoop (to what, no one’s sure) or do it piecemeal. Since there’s no Bitcoin regulator or governing body, it’s tough to get agreement on anything. If the current disagreement among participants is not resolved successfully, look for financial firms, central banks and governments to increase their support for alternative digital currencies — those associated with Ripple Labs, the Litecoin Project and the Ethereum Foundation come to mind. Read more here about the issue and associated developments at the recent Scaling Bitcoin conference in Hong Kong.
Lack of love drives new bank apps. Sure, antiquated technology and bureaucratic thinking have made large banks easy targets for disruption, but those aren’t the only things making financial institutions vulnerable to digital banking apps. It’s actually that “two out of three consumers” don’t believe the big banks’ marketing messages and don’t think banks have their interests at heart, according to a survey from management consulting firm cg42 and noted on thefinancialbrand.com here. The takeaway: Even with cutting-edge technology and attempts to change the minds of younger customers, banking giants are vulnerable because their fees, automated customer service systems and constant sales pressure are major turn offs.
Crowdfunding needs more risk, conflict disclosure. That’s the view espoused in this rant by ex-trader and Finance Magnates strategist Ron Finberg, who says crowdfunding’s ultimate success depends on transparency. “Without the adoption of wider transparency standards, a lack of suitable trust will go a long way towards degrading this burgeoning industry,” according to Finberg, who says it’s vitally important for crowdfunding platforms to open up on their funding and possible conflicts. He says the time to act is now, given that the ink is still wet on final rules associated with Title III of the JOBS Act. This provision permits non-accredited individuals to invest in start-ups (with some limitations) alongside accredited investors and could significantly magnify the U.S. crowdfunding market.
Don’t believe fintech hype, says fintech exec at fintech conference. Banks should fear other banks far more than fintech start-ups, which are grabbing more mindshare than market share. That was the candid, if politically incorrect, view of fintech insider Mike Laven, CEO of payments processor Currency Cloud, at last week’s Fintech Connect Live conference in London. His comments were a seeming rebuttal to former Barclays CEO Antony Jenkins, who recently predicted that financial services faced an imminent Uber threat. We agree that fintech currently overflows with puffery and big talkers, yet we also believe that beneath the hype an actual revolution in financial services is afoot and that Laven is ignoring a core point — fintech disrupters may be small today, but time, goodwill and a lack of legacy assets favor the best ones over traditional financial services firms. Today’s puppies may be tomorrow’s big dogs. Read more here.
Companies of Note: Friendsurance and Lemonade.
Berlin-based Friendsurance has been a pioneer in bringing sharing economy concepts to the insurance industry. That niche is attracting attention in the U.S. thanks to a high-profile financing recently closed for Lemonade, a property and casualty start-up. Read more about the companies here and here.
This week’s little known facts about…Orthodontia.
1. Braces have been around since ancient times. Etruscans buried their dead with primitive braces to ensure that teeth stayed straight in the afterlife.
2. Thank NASA for developing the nickel titanium used in some braces wire. The properties that allow the material to maintain its shape are activated by a person’s body heat.
3. The average cost of metal braces in the U.S. is $4,937 without dental insurance and $3,407 with dental insurance, according to CostHelper.com.