Regulatory Title Collapse

For a hundred years, "broker" meant something to people. It had a particular meaning which invoked scenes of salesman speaking into telephones, executing orders all across the world. "Custodian" is another word that had plenty of meaning for the 50 years post ERISA. Suits, conservatism and ruthless acquisitions. "Trust Company" creates visions of lawyers preserving wealth for later generations. Banks are just banks as they have always been.

Regulators be damned, these terms are no longer useful models of the world for individuals and haven’t been for some time. Vanguard, Schwab and all other entities have been consolidating products for decades to unify their services across the entire lifecycle of a user. Whether its an UTMA account, their first roth IRA, a 401k or end-of-life wealth management, financial services firms want your business for life. They’ve moved to slow.

Robinhood is the most recent success story of a company attempting to break down these barriers. The median age of a user has has grown to 35 years old. Robinhood has accelerated quickly into 401ks, IRAs, strategies, credit cards and now even mortgages via their partnership networks as a response to this change in demographic. An expected wealth boon from boomers likely factors into their plans.

Financial businesses will soon share an unlikely stablemate in their aims to follow a customer through their whole life of investing and money management: car dealerships. Car dealerships have curated their their lineups carefully to create intro cars into the brand when they are young. Mercedes is a prime example. Their sedans have been focused on the C, E and S classes.

The real kicker is they don’t want you to go up the ladder in this order. Each version receives one with a bigger engine (and higher margins) labeled as AMG. It doesn’t end at sedans though. They acknowledge at some point you’ll have kids and SUVs like their GLS, GLE or G-class become important for all those extra seats. Car dealerships become especially excited when you make enough to access their top line, Maybach in this case. And who can forget the classic midlife crisis SL roadster?

Dealerships have a car for every part of a person’s life which implicitly asks the question "Why buy a car from anywhere else but us?". This brand loyalty and relationship forces a strong bond. Deconstructing this emotional tie into metrics leads us to optimizing 3 things as a business:

A hole in this logic is regulatory barriers that both dealerships and financial institutions maintain today. Both require licensing, have specific requirements from regulators and require consistent audits. This is where crypto adds a wrinkle.

If we assume for a moment that crypto will create some regulatory arbitrage and break some of these barriers between "terminology companies", then any company (such as Robinhood) could break through and start offering competing products more quickly. Yes there are some regulatory hurdles. But compliance can be solved pretty easily compared to building a sustainable high growth business.

The financial super app is coming! Just wait.