First ARCA board meeting: Nick Beim, Jason Wenk, Rron Rexha and Bill McNabb
Rron Rexha joined us as an Entrepreneur in Residence a few years ago to come up with the next big idea in fintech. He found that idea, and today he is launching the company that resulted from his efforts: ARCA, an AI-first Registered Investment Advisor (or RIA), which is rethinking wealth management bottoms-up to create better financial outcomes for consumers, improve the performance of financial advisors and build a wealth management organization that is far more efficient and higher-growth than anything the industry has yet seen. ARCA began wealth management operations 7 months ago, and the company already manages over $1 billion in customer assets, has raised $64 million and is growing very rapidly.
Importantly, ARCA is not seeking to replace financial advisors with AI. I believe that one of the big mistakes Silicon Valley has historically made in wealth management is trying to automate away the financial advisor on the assumption that this is what consumers want, initially with roboadvisors and most recently with AI advisors. In fact, consumers have shown a remarkably strong preference to work with people to help them manage their money for reasons of trust, empathy, understanding and accountability. Roboadvisors were an exciting new innovation, but ultimately became a niche product. There are certainly customer segments where roboadvisors and AI advisors are best-fit products, and these will grow over time, but today they are still small.
What’s revolutionary about ARCA is that it is knocking down almost all of the technology the industry is using today and building new capabilities and automation bottoms-up with AI from first principles. This should enable vast improvements in advisor efficiency. Today most advisors spend about 50% of their time stuck in administrative tasks rather than working with clients or growing their business because of the limitations of the existing industry technology stack, which consists of siloed point solutions that communicate poorly with each other. ARCA’s unified technology stack will break down these boundaries, pool all of an advisor’s data, automate most workflows and do much of an advisor’s administrative work, research and analysis in minutes, giving them back most of this time to serve more clients and grow their businesses.
ARCA will also make advisors far more effective by bringing world class financial judgment to every contextualized financial decision they make. This will enable optimization of financial planning, portfolio construction and portfolio management to the needs, risk tolerances and tax profiles of their clients to a degree that has not previously been possible. Combined with custom indexing and highly personalized behavioral coaching, this will lead to better financial outcomes for ARCA’s customers.
The AI-first approach will not only create better financial outcomes not only for ARCA’s clients, but for its financial advisors, who will be free of the highly limited technology they have to work with today. Working at ARCA, they will be able to serve more clients, which provides significant financial upside. They will also be able to deliver better outcomes for these clients, which enables them to expand these relationships and improve retention. A key reason ARCA has grown so rapidly is that advisors, who understand the current technological limitations of the industry better than anyone, have expressed a strong preference to work at the company and have voted with their feet to join it.
From a macro perspective, ARCA is a building a highly productized form of services organization, where human agents, in this case financial advisors, remain the core of the business, but they are far more efficient and effective because they are empowered by a unified AI foundation that replaces the tangled mess of technology they use today and brings them a much higher degree of financial intelligence than would otherwise be possible.
This should make the company far more scalable, higher-margin and higher-growth than traditional services organizations in wealth management. While existing RIA’s, wirehouses and broker dealer networks can apply AI point solutions on top of their legacy technology stacks, they won’t be able to achieve similar scalability, margins or growth without replacing these stacks altogether, which is very difficult to do, especially for highly-scaled organizations. This type of wholesale rebuild is most effective when it is done from scratch by a small company with an outstanding AI-first engineering team.
Rron has brought together an exceptional group of advisors to help him build the company, including Jason Wenk, the founder and CEO of Altruist; Bill McNabb, the former Chairman and CEO of Vanguard; Morgan Housel, the leading expert on the psychology of money; and Peter Crawford, the former CFO of Charles Schwab.
It’s early days for ARCA, but given the advantages in performance, scalability and growth that its AI-first approach confers, I believe it has a lot of ground to take in the wealth management industry in the decades ahead.
(For those who are curious, “arca” comes from Latin and was the holding place for people’s most valuable assets. It’s where heirlooms, money, and documents were kept safe.)