By Arjun Sondhi - Managing Director BMC Global Services Digital
Technology has disrupted all industries and shifted consumer behaviour. Wall Street is not immune to these innovations.
The success of many disruptive brands is generated through two strategies. Firstly the most disruptive brands appeal to younger consumers, and generate enough momentum to catch the market leaders flat footed. Secondly, the most disruptive brands create a combination of breakthrough product innovation and breakthrough business model innovation.
The financial services industry is starting to see signs that traditional products like mutual funds are beginning to lose their dominance. New stock exchanges and IRA accounts are emerging that provide the next generation of investors with alternative investment opportunities versus traditional stocks, bonds and mutual funds.
Traditionally the world of startup investing was limited to ‘exclusive clubs’ like venture capital funds and high net worth angel networks. However, new startups such as AngelList, WeFunder and Republic enable ordinary retail investors to invest in early-stage startups at an early stage of the company’s growth. According to a survey conducted by Harvard Business Review & Research Now/ SSI, 15% of national households are interested in investing in early stage startups.
What is particularly interesting about the disruption to traditional Wall Street businesses is the age of these alternative investment super-consumers. The data collected by Harvard Business Review found that the consumer most interested in these alternative investment tools have an average age of 35 and an annual income over $130,000. However, a large number of Americans find investing confusing and scary due to the fact that millennials grew up during the 2008 recession and don’t trust the markets as a consequence. Therefore a way in which startups could enter the stock market could be through educating these young and eager investors.
Disruptive startups are making investing easier and are also purpose and passion driven. For instance, real estate investment startups such as GroundFloor and Lending Home have created a platform for consumers to invest in real estate. On the other hand, crowdfunding platforms such as Seedrs provides a platform for consumers to invest up and coming startups. These consumers are very excited to invest in brands that they are customers of, as they have a clear interest in ensuring the company’s long-term viability.
The youth of these consumers is very important to the rate at which Wall Street will be disrupted. Traditional Wall Street firms have always struggled to build relationships with younger investors, therefore the Wall Street industry is ready to be heavily disrupted by young startups. The average age of traditional wealth management firm’s customer is in the mid 50’s. Therefore, unless the market leaders innovate new products for the next generation of investors they will be out of business.