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The future of wealth management


The famous American publisher Tim Oreilly recently wrote a bestselling book titled “WTF?: What’s the Future and Why It’s Up to Us “ He mentioned something quite profound, which he heard from the Chief Economist at Google. The economist told him that if you want to know what will become popular or ubiquitous in the future, look at what rich people enjoy today.

What he meant was that wealth gives the power to choose a range of options for welfare and wellbeing. The choices the rich people make today tend to be something the rest of the population aspires to and what they will acquire when optimized for broader markets.

This observation explains a lot of seeming irrationality in human behaviour and gives us a template to be able to make educated guesses about what will become the next big thing.


It was surprising to hear that people were in queues to watch movies during the American Great Depression. It was a luxury that seemed most could not afford, but they, nevertheless, indulged in it. The observation by the economist also explains the reason why smartphones have become ubiquitous, and it has a theoretical explanation.

Deflationary Economics
Mark Suster, the US venture capitalist, once wrote a compelling essay on his approach to Internet startup investments titled – “The Amazing Power of Deflationary Economics for Startups.”

In his article, Mark explained that while the Internet has reduced transaction costs for distribution of content and applications for everyone, the most successful startup entrants are – “Ones that offer amazing value (low relative margins) at high volumes that make it nearly impossible for high-cost incumbents to compete.”

He calls the phenomenon “Deflationary Economics.” The new entrants disruptively change the underlying economics of sectors and industries while using the advantages provided by the Internet.

Most disruptive startups start from fringe markets, and these are usually markets composed of poor people who are non-consumers of products provided by the incumbents.

The startups initially provide a lower quality version of these products at lower margins but rapidly make up for it with volumes. The quality improves over time as well, making existing customers of the incumbents see no reason to continue paying a premium.

Companies providing luxury or premium-priced products will inadvertently end up being targets of disruptive startups because of deflationary economics. Products and services available to the rich today will be those available to the poor or more substantial population tomorrow. That is the entire purpose of “market-creating innovation.”


Wealth and deflation
Wealth itself as a concept is also subject to deflationary economics as nobody loves being poor. Aspiration is the one almost universal thing, and technology helps to reduce poverty and increase wealth in many ways.

It is conventional wisdom for people looking at the market opportunity to seek those with disposable income rather than the possibility of creating more income and wealth for those with limited income.

The truth is that creating opportunity is in itself an opportunity, and with new markets created by deflationary economics, new wealth gets created. While it may be smaller and in pockets, technology also helps with aggregating it and compounding it through investments.

Social cooperatives are as old as the first human communities and tribes, but now, African technology companies are using that model to help maximize wealth at the bottom. These entities increase opportunities by making non-traditional investments that traditional financial institutions will not make.

Artificial intelligence is also helping us to understand the risk at the bottom better. There are more retail lending companies springing up to lend to the poor traditionally excluded from financial institutions. The best of these companies are cooperatives who lend money to their members.

The Next Big Thing
While all the financial services and wealth management innovations at the bottom seem to be small and in pockets, they are deflationary and potentially disruptive. They possess the ability to scale rapidly to a massive proportion of the population.

While most think it is the new financial technology (fintech) companies who are doing their best to morph into traditional institutions (like banks) who will bring the poor into existing financial services structures; I believe they won’t be as effective as cooperatives or investment entities that help the poor to become more prosperous.

The “job to be done” for the poor is not faster financial services but more rapid wealth creation. Poor people want flying cars and not quicker horses. Efficient payments and other efficiency innovations in financial services are a race to zero transaction costs as nobody likes to pay tolls for moving money around. The long term viability of those models is in doubt.

The rich people enjoy many things today, and the most important of them is remaining rich. While “Wealth Management for the Poor” may sound like an oxymoron, it is going to become the next big thing. It is already being made possible by technology.

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