Merrill Lynch Hostile Takeover? Why That May Not Be An Insane Idea With A New Financial Innovation

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The term “Wall Street” is synonymous with financial innovation. In an insightful synopsis of the financial crisis, author Michael Lewis catalogues how Wall Street CEOs prioritize financial innovation – what he calls the “new new thing” – because of the profits they drive to their firms.

But when it comes to innovation in wealth management, Wall Street is decidedly lagging Silicon Valley. That’s because the “wirehouses” have not kept pace with a key shift in consumer investing behavior: the adoption of digital tools.

“Generation D” is a new population segmentation concept. It refers to the segment of the American population defined by behaviors, not demographics – namely, their partiality for digital tools. According to a recent Accenture study, members of Generation D, which numbers 75 million people, check multiple devices and investment sites to make financial decisions.

So what do Generation D investors demand  that Wall Street does not provide? They demand apps that make their money accessible and transparent. That’s expressly the need that Personal Capital, a Silicon Valley startup, fills with its software. The company’s free web and mobile apps allow an individual to see all their accounts in one place, to track everything from cash flow to portfolio performance and to receive automated investing advice. 

In a recent interview with Maria Bartiromo on Fox Business, Personal Capital CEO Bill Harris describes why it will take Wall Street 5-10 years to catch  up to Silicon Valley in terms of innovations in consumer technology. According to Harris, the single biggest reason is size: “They’re large companies… and the larger the company, the less you can do in a hurry.”

The very nature of Wall Street firms keeps them from great tech innovations. First, that’s because it’s hard to compete for tech talent as a financial service company.  And second, because Wall Street has grown through acquisitions, it’s working on old IT that is hard to update.

Will five to ten years be enough for Silicon Valley startups to overtake Wall Street?

Bill Harris quipped that if Personal Capital doesn’t put Merrill Lynch out of business, it will acquire the firm in a hostile takeover. That, or Wall Street may need to start orienting around consumer’s needs. Either way, what’s going on in Silicon Valley makes the future of investment management bright.

Personal Capital Advisors is an SEC registered investment advisor. Any reference to the advisory services refers to Personal Capital Advisors. SEC Registration does not imply a certain level of skill or training. This communication and all data are for informational and educational purposes only. You should not rely on this information as the primary basis of your investment, financial, or tax planning decisions. You should consult your legal or tax professional regarding your specific situation. Third party data is obtained from sources believed to be reliable. However, PCAC cannot guarantee that data's currency, accuracy, timeliness, completeness or fitness for any particular purpose. Past performance is not a guarantee of future return, nor is it necessarily indicative of future performance. Keep in mind investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

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Posted In: Personal Finance
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