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Money – it’s been around for 1000′s of years and drives most people to do things, good or bad. When you have money, you also need banks to provide a safe place for people to deposit their money. These banks then turn around and lend this money to others. This simple business model is how banks have operated for 1000′s of years and thrived on the difference of what interest they gave to depositors and what interest they received on outstanding loans. Over time, banks started to offer more and more products to generate more and more revenues. Many of these products were not that simple and in the process were given a fancy name – structured products, which just means they are customized for each customer based on their specific needs. Then BOOM, the financial markets collapsed and many of the banks faced near bankruptcy because of their loosing lending practices and their structured products which started to come undone. In the aftermath of this financial carnage a new group of “banks” are emerging in the US to get back to basics in banking.

The four that have emerged include – Bluebird, GoBank, Moven and Simple. All are pretty similar in that they have low fees, no physical locations, heavy use of technology but a couple are not actual banks. To be called a bank you need to be a member of the Federal Deposit Insurance Corporation (FDIC) which means the deposits are insured by the US Government for up to USD 250,000.

Bluebird - Bluebird is a partnership between American Express & Walmart, the distribution strength of Walmart and the credit card experience of American Express (AmEx) is what makes this offering interesting. The product is a no-fee checking account that has a debit card. The target audience is low-income shoppers who have a tough time getting a regular credit card. Bluebird is a bank since at the height of the financial crisis AmEx was turned into a bank holding company so it could accept money from the Federal Reserve.

GoBank - Green Dot first made it big with it’s prepaid cards it offered to low-income consumers, then it forayed into other parts of the banking sector. Green Dot acquired Bonneville Bank, an FDIC member bank, and renamed it to Green Dot Bank. GoBank is brand of the Green Dot Bank. The offering is similar to Bluebird in that it offers an online checking account, debit card and access to most ATM’s in the US.

Moven - Moven started out as Movenbank then changed its name because it’s not a bank. It has partnered with an unnamed FDIC member bank. Moven offers the usual banking products but really shines around the money management tools it offers. MoneyPulse is one of their tools which tells you where you are spending your money. Moven was started by Brett King who has authored several books on the future of banking, his latest book is called Bank 3.0.

Simple - Simple also started out with a different name, it was first known as BankSimple. But it also is not a bank and has partnered with The Bancorp Bank, a member FDIC bank. Early on Simple attracted a lot of attention as one of it’s early founders Alex Payne was an early employee at Twitter. Alex left Twitter to startup Simple which was seen as a stamp of approval for Simple in that it solves a real world problem. Alex has since left the company. I signed up for the service but I really don’t use it much since I don’t live in the US and most of my transactions are Rupee denominated, however the overall interface has definitely got some great eye candy.

Bottom line – Most of these new age banks are offering a convenient mobile platform via iOS and Android devices to allow consumers to interact with their bank information. In addition, most of them have spent a large amount of time and resources on the UI of their website and mobile apps. However, I still believe it’s early days with these banks and feel they need to also address the investment portfolio part as well. By adding the investment piece, it creates an end to end solution which many consumers are still looking for.

Back in November 2011, Ron Johnson head of retail at Apple moved over to JC Penney as it’s CEO. Ron had already been at Apple for 11 years and made bank as he watched the stock zoom from around $25 in January 2000 to over $375 in November 2011. It was time for him to move on and JC Penney is where he decided to work his magic and transform it into “the Apple of department store chains”. His resume reads like a Fortune 500 baller – Stanford University, Harvard Business School, Target (struck the deal with Michael Graves), Apple (created the Genius Bar concept)…jeez, JC Penney had found their savior.

Based on his past work experience it seemed like it was a slam dunk that JC Penney was going to crush all the other department store chains like Sears, Dillard’s and Kohl’s. However, after a brief 17 month stint Ron Johnson was fired this past week from JC Penney and the board reinstated Mike Ullman as it’s CEO. It ended so quickly before it even got started, but revenues fell over 20% and institutional investors headed for the exit – the stock is down over 50% since Ron was made CEO. So what really happened?

Simple, the board felt that one guy could rejuvenate the company’s fortunes because it worked before for Ron. The board failed to realize it’s about the overall team and also the right market sentiment sometimes called timing or luck which most people tend to negate. Remember Jon Corzine? Goldman Sachs CEO whiz turned Senator, who became the CEO of MF Global and within a short period bankrupted the company. His strategy was to implement the same trading style he employed at Goldman Sachs, the difference is that Goldman Sachs had a risk management team in place whereas MF Global only had a single dude with an Excel sheet to manage the risk.

Ron was probably a rock star at Apple because of Steve Jobs’s unrelenting focus on products and simplicity. Even Jobs was not a one man show, he needed a designer like Jony Ive on his team to help dream up the amazing products that Apple would sell through their retail stores. When I moved to India in 2005, I was part of an algorithmic trading fund that launched a product in 2006 and we collected over Rs. 200 crores (USD 50 million) in a matter of months. I still get pitched by other algo traders wondering how we got so much money in a short period and honestly it was just timing. It was early 2006 and the Indian equity markets were headed for the moon and several private banks had started their retail banking operations. We went through the due diligence process for the banks and got some private investors to invest in the fund. Then one day we get a call from one of the banks and our algo product was approved for distribution to their clients. BOOM, that opened up the flood gates and the money just poured into the fund.

Would it work today? No, the regulatory environment is very different. Back then banks were getting 2% commissions which today is no longer allowed. In addition, retail investors are more risk averse today then they were back in 2006. Just because it worked back then does not mean it will work again.  It’s similar to the statement all mutual fund companies makes in their marketing – “past performance is not a indicator of future performance”…so, so true.

Sometimes you know the truth but don’t want to think about it, because it hurts or goes against everything you believe in. I’ve always had a keen interest with the financial markets, whether reading The Wall Street Journal, Forbes, Fortune or watching CNBC. But, one area I always thought was a bit murky was the area of giving personal finance advice.

Many of the magazines such as Kiplinger’s Personal Finance would scream “10 stocks to help you retire” or “make your 401(k) work harder for you” to attract readers. But, when you would read the articles you realize it’s pretty worthless information. And yet every time I would read an article along the same genre and expect different results…stupid I guess. I knew the advice was mostly wrong but I didn’t want to believe it.

My eyes were opened when I was watching the Daily Show with Jon Stewart and he had Helaine Olen on as a guest. After the show, I downloaded her book “Pound Foolish” where she slams the entire personal finance industry for providing worthless information. It’s pretty clear she’s not looking to make friends and is just speaking the truth.

The whole “Rich Dad, Poor Dad” line of books – apparently the Rich Dad never existed. Wow, is all I can say. If you really did follow his advice and took on massive debt to buy houses all over the US, then welcome to the great housing bust of 2008. Feels good don’t it! Even Robert Kiyosaki the author of “Rich Dad, Poor Dad” got hit by the housing bust, one of his companies filed for chapter 7 bankruptcy in late 2012.

The book goes on to mention almost every personal finance guru - David Bach, Suze Orman, Dave Ramsey and many others. Bach was the guy that talked about skipping that cafe latte at Starbucks and instead saving the money. Overnight, he was on every morning talk show speaking about the “Latte Factor”. Honestly, if you are that hard pressed for $4.00 a day you got bigger issues and listening to some joker on TV for financial advice is the least of your concerns.

After reading the book you realize people are looking for quick and simple answers. However, many financial products sold are complex for a simple reason – to hide the fee structure. I’ll never understand why people work 40-80 hours a week for a paycheck and then take zero time to understand their personal finance well being. Stop the madness and start small, take one hour a week and start to understand your money situation and investments. Nobody gives a damn about your money more than you.

I think everyone can agree that making money is not easy, but what is even more difficult is managing it. One area within the financial services sector that is ripe for disruption is the multi-trillion dollar wealth management business. Even with all the gee-whiz technology of the internet, there has yet to emerge a company that has made a serious dent in this space. Of course, there is mint.com which aggregates all your financial data and then provides recommendations to you but doesn’t really help with the wealth management piece.

The idea of having a wealth manager, financial advisor or private banker looking after your money sounds very alluring. Typically, these managers charge you based on the assets under management (AUM) they supervise, so if they charge 1% and you have USD 1,000,000 you will be paying them USD 10,000 a year. The fees range from .5% to 2.5% and that is just the management fee, there are also the fees that the products they recommend charge. This multi-layer fee structure is what most startups want to disrupt.

One of the most respected wealth managers is Goldman Sachs Private Wealth Management. Never heard of them? There is a reason, you need a minimum of USD 100 million in liquid investments to even open an account. They don’t need to advertise because they get many of their clients from the various deals they advise on around the world – M&A, private equity, restructuring and public offerings. So, who are some of the new kids on the block challenging the old boys network of Wall Street?  Betterment, FutureAdvisor, Personal Capital and Wealthfront.

Betterment, Personal Capital and Wealthfront all charge a percentage of the AUM – Betterment (.15%), Personal Capital (~.80%) and Wealthfront (.25%). FutureAdvisor charges a fixed cost whether you have USD 10 or USD 10 million, the most expensive plan is USD 195 a year.  All these ventures want to re-create mint.com for the wealth management space by relying heavily on technology and try to minimize the amount of human interaction with an advisor.

Of all of them, I believe Personal Capital might have a shot since it still relies on a traditional advisor but it’s fee structure is essentially the same as existing wealth managers. Having a slick user interface with great graphics might work for mint.com but in the wealth management space having access to an advisor on demand is really the core of the business. Working on a clients overall asset allocation is only one piece of the pie. So, is there a better model?

The existing old school wealth managers charge a hefty percentage and provide advisors whenever a client calls and even provide access to specialists for areas such as taxation and succession planning. The clients are happy but pay a heavy price. The new age websites want to limit access to advisors and use technology to streamline the advice. However, by taking a page from the health insurance playbook and implementing a co-pay system it might bridge the gap. A quick recap of the insurance industry co-payment system:

A type of insurance policy where the insured pays a specified amount of out-of-pocket expenses for health-care services such as doctor visits and prescriptions drugs at the time the service is rendered, with the insurer paying the remaining costs

A co-pay system could provide the happy balance between a wealth management firm and its clients. The management fee would be similar to the monthly/yearly insurance premium you would pay. Then if you have a specific question you would request access to an expert advisor and pay a small fee for the advice. If the advice generates additional fees for the management firm then great, if not then at least it would be able to partially cover the cost of the meeting. The co-pay system might be a radical idea but then again the industry is ripe for disruptive change.

There is a constant debate between financial services firms and government regulators over financial market regulations – over regulate them or let them run wild and free. If there are no financial regulations in place, you end up with what we have today – a highly unregulated derivatives market. The unregulated derivatives market led to the financial collapse of 2008 and the massive destruction of wealth, yet as of today there are still no guidelines in place to regulate this highly toxic market. On the other end of the spectrum is completing choking the market with financial regulations and deterring business.

In between is that fine line that needs to be in place for markets to be efficient, transparent and trustworthy. In an emerging market like India, the regulators should be first and foremost focused on protecting the consumer. Secondly, in order to attract first time consumers the regulators should be promoting a culture of openness, simplicity and easy to understand language for financial products.

However, over the past 3 months the Indian regulators seem to be going in reverse and making it more difficult for first time consumers to make decisions. They appear to be adding more financial jargon to the process and potentially scaring off first time consumers. For most consumers in India, there are 3 government regulators that have oversight over the bulk of their money:

- IRDA (Insurance Regulatory and Development Authority) – insurance sector
- RBI (Reserve Bank of India) – banking industry
- SEBI (Securities and Exchange Board of India) – oversight of the equity/debt markets

About 3 months back the IRDA essentially shot itself in the foot when it announced new guidelines for websites that aggregate insurance information. Overnight the guidelines killed the business models for insurance aggregators. Personally, if I’m shopping online for insurance I want to be able to compare the various products and understand the pros/cons of the various offerings. However, with the latest IRDA ruling it has banned these websites from providing “opinions” on products or ratings. For first time consumers a rating is such a quick way to decide which product is better. Instead you force the consumer to read through jargon filled insurance material and in the end they will probably not buy anything because its difficult to decipher.

Likewise, SEBI recently introduced new guidelines for the type of information that mutual fund companies can provide in their marketing materials across all mediums – print, TV and web. Specifically, mutual funds companies can no longer provide a rating from someone such as Morningstar, Value Research or S&P. In addition, rankings or testimonials are also off limits. Once again this is moving in the wrong direction, a star rating is easy for someone to understand like a hotel rating – 1 star vs 5 star. Of course, consumers could just goto the websites of Value Research or Morningstar and get the star ratings and rankings themselves.  But, that assumes a first time consumer would know about Value Research or Morningstar which I doubt.

The flip side is that these rankings and ratings were leading some consumers to skip researching these new products altogether. My feeling is if consumers are that stupid to part with their money that easily, then no amount of change in regulations will curb that kind of behavior.