by Todd Dagres, Spark Capital
Online investment advisers like Covestor have the ability to make a significant impact on the wealth management industry as we know it.
Even before the financial crisis laid bare the shortcomings of the investment management business, I believed the industry was broken.
Wealth management is opaque and institutionalized. It's a have and have-not type of industry. If you're rich, you can get access to the best investment managers. If not, good luck.
In the aftermath of the 2008 crisis, the government has stepped up its regulation of the industry in an effort to protect the little guy from unscrupulous managers and unduly risky investment strategies. Yet the end result may actually discriminate against smaller investors by discouraging innovation. Hopefully these new rules will not prevent smaller investors from getting access to the best alpha-generating managers, and obtaining incremental outperformance.
As a general partner of Spark Capital and an investor in Covestor, I see Covestor as giving investors, large and small, the opportunity for self-direction, managing risk and achieving their goals. Investors can build a portfolio of investment managers and diversify accordingly. The Covestor platform allows an investor to invest alongside emerging managers who can potentially outperform the market.
The platform also allows investors to discover managers they might not otherwise know or find. There are outperforming managers who are not necessarily good at marketing themselves or reaching out directly to clients, but who are good at making sound investment decisions.
Covestor provides unprecedented transparency — investors can monitor their managers' performance, and receive updates on how their managers are investing and currently view the market. Investors with small accounts get the opportunity to gain access to managers who can help them meet their financial goals. They don’t have to have millions of dollars to invest.
As an online marketplace, Covestor is able to feature strategies compatible with many objectives, including generating income, growing capital or maximizing performance. The portfolios are listed on the marketplace and the process for comparison shopping is very simple — and the company is becoming better and better at enabling clients to make informed decisions.
In addition to well-established managers, Covestor gives aspiring investment managers a platform to become a professional manager, and investors can find a manager with demonstrated performance or running a strategy compatible to their financial goals.
I want to help transform the investment management business. Covestor is making this happen one step at time.
Todd Dagres is a founder and general partner of Spark Capital and has led Spark's investment in Covestor and is on the company's board of directors. Spark Capital is a venture capital firm that partners with exceptional entrepreneurs seeking to build disruptive, world-changing companies. Founded in 2005, Spark Capital has offices in Boston, New York, and San Francisco.
DISCLAIMER: The information in this material is not intended to be personalized financial advice and should not be solely relied on for making financial decisions. Investment involves risk. Past performance is no guarantee of future results.
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Covestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures. For information about Covestor and its services, go to http://covestor.com or contact Covestor Client Services at (866) 825-3005, x703.