Uber and Netflix have fundamentally shifted consumer behavior and disrupted incumbent firms. In our research, we’re beginning to see signs that Wall Street is being threatened by similar forces.
In financial services, there are signs that traditional products like mutual funds are beginning to wane. Meanwhile, new investment exchanges and IRA accounts are emerging that provide alternatives to traditional stocks, bonds and mutual funds. They have similar liquidity but greater transparency, and were previously available only to the ultrawealthy.
One next-generation example that is already available is YieldStreet, which offers a wide variety of debt investments, including real estate, marine finance and litigation finance. Platforms like AngelList, WeFunder and Republic enable ordinary retail investors to participate in the world of start-up investing. Through these platforms, Main Street investors can screen start-ups by industry, review business plans and ask questions of founders directly. Perhaps the biggest sign of future disruption to traditional Wall Street incumbents can be seen in how young these alternative investment superconsumers are. Our data shows that the consumer that is “extremely interested” in alternative investments is very young and has a high income, with an average age of 35 and average annual income over $130,000.
Disrupters show the way by bringing investments that are easier to understand and more purpose- and passion-driven, both of which are highly appealing to millennial investors. How much disruption could Wall Street be facing? It depends on how prepared and proactive they are. The alternative-investment superconsumer represents about 20 million to 25 million households, who have approximately $25 trillion in investable assets and nearly $8 trillion in retirement assets.
The youth of these superconsumers is perhaps the most critical insight. Incumbent Wall Street firms never had a relationship with these younger superconsumers, so it was much harder for them to anticipate the disruption. The average customer of a traditional wealth-management firm is in his or her mid-50s.
Much like the threat that millennial cord cutters have posed to cable TV companies, traditional financial institutions are not likely to see the change that’s coming, and will face similar disruption challenges unless they take action now.
Eddie Yoon & Kyle Okimoto
Eddie Yoon is the founder of Eddie Would Grow, a think tank and advisory firm, and a director at the Cambridge Group. Kyle Okimoto is the founder of Market Junctions, a growth-strategy consulting firm.
Image credits: Simon Thomas | Dreamstime.com
