Wealth management companies are sprouting up left and right and it could be hard to pick out the good ones. But let me give you a hint. When a company has gathered $1.5B in assets and has created over 30,000 accounts that could be all the help you need in deciding. Oh and did we mention that this growth all took place in a little more than a year? Vanare, the wealth management platform conforms its analysis towards your investment philosophy and has a wide range of features that takes them one step above the competition.
Coming off a round of funding, CEO Rich Cancro tells AlleyWatch how his company can make you rich, and all about the Roboadvisor’s DNA.
Who were your investors and how much did you raise?
Vanare | NestEgg has raised $3.25 million in Seed capital. Our investors are wealth management firms (RIAs), Wall Street and private equity executives, and family offices. We are fortunate in that our institutional clients are interested in both using our services and investing in the business.
Tell us about your product or service.
Vanare is a next-generation wealth management platform built on Roboadvisor DNA. Our mission is to catalyze profitable growth for financial advisors through innovative technology, leading to enhanced client service, long-lasting relationships, and higher enterprise value.
We provide a comprehensive platform for financial firms, the first to truly integrate online and traditional wealth management solutions. Our prospect and client management tools include performance reporting, portfolio management, online account opening, proposal generation, compliance logs, financial planning, and trading and rebalancing.
The Roboadvisor DNA stands for empowering advisors to scale their digital offering and serve the next generation, which helps investors get access to high quality investment choices and outcomes. Our client firms can create private-label digital advice channels using their own brand and investment philosophy, leveraging on our front-end or via an API.
What inspired you to start the company?
We are a unique organization combining Gen X and Gen Y: the experience and leadership of 20+ year financial industry veteran and the innovation and design-first approach of a Roboadvisor founder.
Rich Cancro, Vanare’s CEO, has over 20 years of experience building and managing wealth management businesses, platforms and products. He was previously at Bank of America/Merrill Lynch as the Head of their RIA custody business (Money Manager Services) serving independent RIAs and their HNW clients. He was also responsible for their Global Wealth and Investment Management Managed Account Technology Platform that served over $350 billion in AUM. Prior to BofA/Merrill, Mr. Cancro was a Managing Director at J.P. Morgan, where he was head of their Investment Advisor Services RIA custody business.
Alexey (Lex) Sokolin, Vanare’s COO, was previously Founder and Chief Executive Officer of NestEgg Wealth, a next-generation technology company and RIA that pioneered online wealth management in partnership with financial advisors, reaching new customers in a scalable way by algorithmically automating financial advice online. Vladimir Baranov, Vanare’s CTO, was also the CTO at NestEgg, which was acquired by Vanare in 2014.
We had a meeting of the minds about the direction of where the industry was going since 2013. Rich had focused his career on helping traditional financial advisors provide more technology enabled services, and was looking to deliver a single platform that would allow advisors to run their business. Lex’s experience running a Roboadvisor taught him that automating the wealth management process is not enough – there needed to be a human touch for complex financial situation. As a result of their collaboration, the team developed a platform that is purpose-build to support both fully-online and fully-traditional wealth management business, as well as all permutations in between.
How is it different?
We compete on (a) breadth of features, (b) intuitive and simple user experience and (c) thought-leadership.
Our platform covers the entire client lifecycle, and is broad in capability through native development and integrations. We have built an architecture that can provide these features from a client centric, rather than accounting, point of view, and can tie workflows and financial data into a CRM in a unique way.
Second, our focus on a modern, fast client experience extends beyond responsive web design. We are driven by a philosophy focused on making information more convenient, using automation to do much of the administrative work, and providing value to advisors immediately. Integration of data across different sources is a key to getting this right.
And lastly, our team has continued to stay ahead of the curve in innovation — building one of the first Roboadvisors, first to private-label, and now first to integrate into a full platform. We continue to see financial firms recognize that the combination of the two models is the right way forward – and we are the only firm that has incorporated such design into its DNA.
What market you are targeting and how big is it?
We target the independent registered investment advisor market (“RIAs”) and the retail, mass-affluent and high net worth clients that they serve. There is over $10 trillion in assets under management at play controlled by the clients, and approximately $4 trillion that is directly advised on by the independent channel.
Our target RIA manages between $100 million and $5 billion in assets, and is faced with the major problem of scale. As these firms become larger, the disconnected technology solutions they use for trading, planning, investment and asset allocation become a barrier to efficiency and growth. An integrated platform solution unifies the data and workflows together to allow these firms to grow faster and more profitably.
Second, these firms face the challenge of understanding younger millennial clients, and providing scalable services that incorporate these clients into the overall model. Approximately $60 trillion of assets will be moved between generations in the near future, and firms need a solution to remain relevant for the next wave of wealth management. Our platform allows RIAs to set up a private-label roboadvisor platform to capture this opportunity, in addition to serving their core clients traditionally.
The overall revenue opportunity in the market place comfortably exceeds $1 billion. We see public companies with multi-billion dollar valuations serving adjacent categories, as well as several $250 million M&A exits in the last year alone.
What’s your business model?
We are incentivized by the success of our clients. We charge a variable basis point fee on assets that flow through our platform.
How do you fit into the FinTech ecosystem?
Our firm focuses on the infrastructure to deliver financial advice and investment products. Although financial advice is often delivered together with capital markets and asset management products (ETFs, stocks, online trading), it is a qualitatively different category.
In our industry, an advisor, whether in person or online, has a relationship with an investor, and provides that investor with counsel in regards to their financial health. This may take the form of recommending a portfolio, building a financial plan, and performing trading implementation.
As a SaaS tech platform, we sit between firms like Wealthfront, which focus entirely on the B2C market, and firms like Envestnet, which power large institutions in delivering advice traditionally. Our model combines the best of both worlds – the efficiency and spend of Roboadvisor DNA, and the breadth and depth of an institutional platform.
What was the funding process like?
No funding process is fun. But it is easier when the fundamentals of the company are sound, and resonate with the marketplace. The path we charted as a company for our investors had to be proven by performance to date, and a concrete plan for the future that fit into the context of the industry.
We have focused the last year deeply on product development and meeting the needs of our institutional clients. This included lightning-fast product ideation, design and development, followed by onboarding and supporting complex client situations. We had found strong product-market fit and were lucky to be getting inbound demand (unsolicited calls and emails). This is rare in institutional sales, but it is a unique moment in the wealth management industry. However, we were not at scale yet to service this demand, and raising capital became paramount.
We spent the majority of our fundraising efforts on the founders’ network rather than traditional VC – former colleagues, partners, clients. It is easier to explain Vanare to an industry insider, so to some extent this was a faster way to get capital in the door.
What are the biggest challenges that you faced while raising capital?
Our firm makes perfect sense – from a business model point of view – for a wealth management industry insider. There was a longer ramp up curve when we talked to institutional investors.
On the one hand, we are not a B2C firm going after the mass affluent client, because we believe the technology route has far better scale potential. This makes us different and a bit foreign relative to the Roboadvisor investment opportunities many VCs have seen. On the other hand, we are still targeted at a very high-growth opportunity, making us inappropriate for a private-equity fund looking for value-investing in cashflows.
What factors about your business led your investors to write the check?
It was a combination of relationship management, and having the sound fundamentals in the business. We were able to show growth, product development and scale, and increasing prospect interest.
What are the milestones you plan to achieve in the next six months?
We expect to significantly grow our sales and development efforts over the next six months, while continuing to invest in the product. Vanare will provide a customizable technology platform to any financial firm seeking to deliver wealth management advice to a client – whether that client is worth $10 million or $1,000.
What advice can you offer companies in New York that do not have a fresh injection of capital in the bank?
There is always a way, and sometimes that way is not capital. A company may be bootstrapped, or revenue-funded, or remain a side-project for years until the time is right. Raising capital is not an end-goal, it is a necessary by-product of some, but not all, business models.
It is also reasonable to ask—why is the capital not there? Do investors not see the opportunity? That absence may be a function of successful communication, or it may be that the opportunity is not investable via your target audience. In that case, adjust strategy and sanity check your market.
Where do you see the company going now over the near term?
The wealth management industry faces several fundamental trends. First, there is a $60 trillion intergenerational wealth transfer that is in progress, from a generation that has traditionally relied on an in-person advisor relationship to a generation that expects much more of a technology-augmented experience. Advisors need to understand the millennials and engage with them on their own terms in order to preserve the household relationships that have been the cornerstone of the advisor business model.
Second, there is significant competitive pressure from consolidation. Independent RIAs are merging and being acquired in order to create multi-billion dollar AUM scale and efficiency. These larger companies benefit from the operational and technology practice management best practices, which lead to superior growth. Lastly, Roboadvisors are creating fee-compression and competing with the traditional financial advisor, utilizing ETF-based low-cost investment models powered by efficient technology.
We see Vanare helping our clients address each one of these challenges. Our solution helps firms connect with the next generation, become more integrated and scalable, and lower costs.
Smarter technology improvements, based on machine learning and neural networks, may also start to play a role in the wealth management space. An algorithm that reads a client’s social media presence and financial data feed may be able to provide a true and optimal view of that investor’s risk posture and financial needs. We expect to incorporate such tools into the existing advisor workflow and into self-directed tools to make advice generally more sophisticated and accurate.
Where is your favorite place to enjoy the fall weather in the area?
I love the fall foliage in the Catskills this time of year.