Few FinTech founders will name-drop Marx, Sartre, Keynes, Plato and Piketty in a single blog post. Mathieu Hamel, co-founder and CEO of Marie Quantier, is one of them.
Hamel is on a mission to disrupt the wealth management industry in France. His intention is to make Marie Quantier, the robo-advisory firm he co-founded in 2011, a mainstream tool for French investors.
The Marie Quantier approach to investing starts with an assessment of current market conditions, which can be classified as “panic,” recovery,” “serenity,” and “euphoria.” The assessment is driven by an analysis of nearly two dozen economic indicators. Then a proprietary algorithm produces a personalized asset allocation recommendation based on the answers to a few questions on your age, income, assets and retirement goals. The individual securities recommended are all ETFs in the portfolios I’ve seen. Some life insurance products are recommended as well.
Unlike traditional robo-advisors, Marie Quantier encourages clients to customize the recommendations they receive. Why? Because, according to Hamel, “Blind trust in black boxes is obsolete.”
Marie Quantier’s clients do’t need an investment background. Those not interested in following the ups and downs of their investments every day may spend as little as six minutes monitoring their investments annually. Clients are notified by text message when transactions are recommended, which might occur a few times per year.
Marie Quantier officially launched in January 2015 but began working with some clients last year. The firm is based in Paris.
Q. Mathieu, can you give us a high-level overview of the wealth-management industry in France?
A. There is a prominent lack of innovation and a poor level of client satisfaction in the wealth management industry in France. But, people know they have to prepare for their futures and financial education is improving fast.
I predict the French market will be one of the most sophisticated in coming years. Look at what happened with smart phones or home automation. The French are tech-savvy.
We often hear that French people are risk averse. I don’t believe there is a financial chromosome that spread across a nation. It’s all about need and education. French people have an above average quantitative education and are now craving for performing investment tools. I don’t think French are risk adverse but rather Cartesian.
It’s a fair estimate that France will soon be the most stimulating and innovative market for the wealth management industry globally.
Q. And of the regulatory environment?
A. AMF which stands for Autorite des Marches Financiers oversees the industry. Our license is CIF (“Conseiller en Investissements Financiers”).
Q. How did the idea for Marie Quantier come about?
A. I use to be working in London where everybody’s talking about finance. It’s a bit like in L.A. with the entertaining industry. As a consequence, it’s hard to keep an eye on the genuine retail market needs. But coming back to Paris regularly, I began to realize how much people wanted to invest and had no way to do so. Trust in traditional players was lost for good: too much fees, not enough performance, too much complexity and not enough explaining.
With my partners, we knew what to do. In simple words, we brought state of the art Wall Street technology that we modernized and packaged it in a nice and simple “Apple” way. Technology must aim for simplicity and user experience. We aimed at being the best performing 100% automated financial advice platform and being the most simple financial application anyone could ever dream of.
Q. How big is the market for this in France?
A. The market for it in France is huge. The French have admitted having 200 billions euros in their accounts that could be better invested. About 90% of the French population does not want to invest anymore through traditional players because of a lack of trust. You get the picture.
Q. Who is your target market?
A. Anyone who can make a wire transfer on the Internet and wants to prepare for the future.
Q. How are you attracting customers?
A. We believe the simple approach is the most appropriate. We work hard to provide our clients with a radically new experience to invest. Marie Quantier is all about simplicity, understanding and making money. Word of mouth is very powerful. We are so proud right now because one of our early clients went to a meeting at his bank and 15 minutes after his meeting ended, we had a new client: his bank’s Financial Advisor herself.
Q. Are you taking advantage of a generational change? Do members of Gen Y lack trust in traditional providers?
A. Yes, we are. However, we are noticing a Y-ification of the whole customer base. For sure, a “Z” member wouldn’t even consider entering a retail bank. But even for people in their fifties, when they experience a great time building their wealth easily and more efficiently, there is no more turning back.
Q. You are taking Marie Quantier directly to consumers. Will wealth management in the future be self-directed?
A. Absolutely. 80% of the asset management industry must prove that they are worthy of their management fees. Wealth management is about to experience the revolution that took place amongst the travel agency business. We can book plane tickets, rate and book hotels, organize airport transfers, for far better value for money online. Only very exclusive or exotic travels require an agent these days.
Q. Which online brokers have you partnered with?
A. Interactive Brokers. Their technology is the best available. Their coverage, the most complete. Finally, their costs are the lowest for a European investor. It’s a no brainer. But we cannot speak of a partnership as we refuse any kind of kick backs. We’d rather talk about online brokers we are fully connected with. We are open to any online brokerage. We will be looking for the best one at any given time.
Q. Is there any fee sharing? After all, you are generating trading commissions for the brokerage firm.
A. There is absolutely no fee sharing. It has to be that way. To ensure bulletproof loyalty to investors they must be exclusively paid by your clients.
Q. Who owns the customer? Does the customer view Marie Quantier or her brokerage firm as her primary financial services provider?
A. The customers don’t belong to anyone. Marie Quantier’s great investing experience is based on simple web interface, better performing advice and a robust execution platform. Without the online brokerage’s ecosystem, nothing could have happened. We believe each of us should focus on what we do best. Brokers should focus on executing trades with the most reliable process at the cheapest price. Financial Advisors should focus on providing absolute returns to their clients in the simplest way.
Q. Can clients affect changes to their Marie Quantier portfolio by logging into their brokerage account?
A. Of course. Besides, Marie Quantier automatically tracks thanks to an automated feedback mechanism.
Q. Can customers interact with a real person if they have questions?
A. Yes, of course. We are here every step of the way for our clients. We provide a lot of online documentation and tutorials and we encourage our clients to make the effort of looking for themselves before calling. We praise ourselves for being the Hedge Funds for the Rest of Us and we want to offer the same level of service independently of the current wealth invested. To provide this equalitarian treatment, we had no choice but asking for some self discipline. And, right now it’s working pretty well. When you respect your clients, they respect you right back.
Q. Is the bigger opportunity in taking customers away from the traditional firms or in convincing people who have savings but no investment accounts that they need to become investors?
A. Definitely the second. To be more precise, most of the people are already convinced. The challenge is to prove them that we are the right solution for them.
Q. Tell us about the investment philosophy behind Marie Quantier. Is it fair to say you take a “global macro” approach?
A. Totally. The equation we had to solve was pretty simple. We had to provide our clients with strong performance, from a crystal clear investment strategy that would only require couple of annual adjustments from our clients. Hunting for the long economic trends was the right answer.
Q. What is your approach to international diversification, and especially to diversifying outside of the euro zone?
A. Diversification is at the heart of our DNA. We diversify our client’s portfolio across 5 asset classes: Equities (10 sectors), short term Bonds, Sovereign Bonds, Investment Grade Bonds and High Yield Bonds and across 2 geographical area: USA and Euro Zone. Therefore we also build a “view” on the EUR/USD.
Depending on the GDP growth perspective we separate our clients’ portfolios between equities and bonds. Then we look at the specific global macro outlook to anticipate the interest rates curve moves (shifts, steepening, flattener, inflation) on the CDS indices levels and on the currency most worthy of investment.
As an example, we had been recommending investing on the US equities and in the USD from August 2014 to January 2015 for example, on US High Yields Bonds and on Euro denominated sovereign and investment grades bonds. Since then we’ve still been recommending investing on the US equities but we are now protecting our clients’ investments from the fluctuations in the exchange rates as we think EUR/USD is near to a fair value.
All our views are explained on the application and can be challenged. Thanks to our interface, instead of requiring 10 years experience on the financial market to follow those strategies, it now only takes 10 minutes.
Q. You also recommend clients utilize some life insurance products. Is this for protection or as an investment?
A. In France, life insurance is a very good investing vehicle for risk-free assets. Basically, when you invest in one of our recommended life insurances, you get exposure to euro zone sovereign bonds. The interest is that one benefits from a lot of protection from the state. It is the ultimate capital protected investment. Therefore, it is very useful to limit the downside risk and the drawdowns.
Q. How are you calculating the allocation to life insurance? Are you recommending specific policies from specific carriers?
A. During the questionnaire to assess the risk profile of our clients, we help them define the threshold of financial pain using a simulator. The output is a risk tolerance based on drawdowns. We calculate the allocation to life insurance based on market conditions and this risk tolerance.
Q. What kind of back-testing was done on your investment algorithms during development of your recommendations? Would it have been possible to bring this type of mass-customized investment advice to retail investors before recent advances in high performance computing?
A. Marie Quantier is the first platform to bring to clients the ability to stress test a customized portfolio through Monte Carlo kind of tests and to collect the output on portable devices like smart phones or tablets.
Without high performance computing, nothing would have been possible. When I was working at Societe Generale, a whole Google-like server room was required to run risk calculation. Marie Quantier needed this to be achieved on a smart phone. We partnered up with the best French university in mathematics, UPMC, and with the best one in computing science, INRIA, to build the algorithms needed to optimize risk calculation.
Q. One way to help people grow their assets is by helping them keep more of what they earn with their investments. You say your algorithms are careful to minimize tax implications of your trading recommendations. This is generally much more complicated than people realize. How have you gone about this?
A. Indeed. In the US, I understand it’s all about 401k and tax harvesting. The French investor has to take into account the trade-off between tax benefits of life insurance and the extremely high fees of those vehicles.
Tax harvesting in every country is about complying with wash-sale rules. Thankfully, ETFs make it far easier to find highly correlated securities in order to get the exposure while harvesting the loss. We are keeping a very close track of correlation patterns amongst hundreds of securities. To make sure we are up-to-date with correlation patterns we also paper trade correlations across the whole ETF universe. Depending on the PnL of those strategies we monitor our tax-harvesting’s hedge.
Q. You have three levels of service: Coaching, Classique, and Premium. Coaching is available to anyone, Classique is for those with assets of between 5,000 € and 150,000 €, and Premium is for those with more than 150,000 €. What are the differences between the services offered?
A. Basically we optimize the brokerage costs and track opportunities accordingly. Therefore, we use geographical ETF when it doesn’t make sense to invest at the sector level. We also differentiate in terms of currencies. The Premium offer will soon allow our clients to replicate indices to cut the costs to the next level.
Q. Coaching is currently free. For Classique, the annual fee is 82,80 €, and for Premium, the annual fee is 588 €. There are no asset-based fees, but you charge Classique and Premium customers 5% of their gains. How do your fees compare wealth management fees generally charged in France?
A. Coaching is still a work in progress.
Marie Quantier is completely disturbing the remuneration mechanisms currently in place in France.
On the financial advisory side, asset managers directly pay 95% of their remuneration on average. It brings about a huge and unbearable conflict of interest.
Banks like to sell structured products in France with up to a 5% up-front fee. Legally, it’s not stealing; ethically it is, at least, questionable.
Marie Quantier’s annual fee is necessary to keep our infrastructure up-to-date with state-of-the-art technologies. The performance fee is here to align our interest with our clients’. A hedge fund used to charge 20% of the gains. They are more and more around 10% nowadays. Marie Quantier wants to set a new standard at 5% of the gains.
Q. What is the relationship between Marie Quantier and Q-Hedge Technologies?
A. Marie Quantier is our brand name. Q-HedgeTechnologies is the name of the company. It’s the same company.
Q. Can I manage my Marie Quantier relationship via mobile app?
A. Not yet, one is in the works.
Q. Are you planning to enter other markets or is there enough opportunity in France for the time being?
A. We currently focus on France. There’s so much to be done here.
Q. Have you considered joining any incubators or accelerators?
A. Yes, we applied to Y Combinator and Tech Star. When we saw the great videos the other applicants sent, we understood why our applications were denied. We are definitely better at designing FinTech new technologies than in marketing ourselves. Therefore we decided to only rely on our clients’ satisfaction to make our name known and recognized.
Q. What can you tell us about the FinTech innovation scene in Paris?
A. France is a country of paradoxes. France is seen as a reluctant country for business and yet look at what happen in the Tech Ads fields, France burnt it all. In the FinTech area, just have a look at who is running the quantitative finance in London. London is a major city in terms of numbers of French expats. London is great when you are young and single or when you are rich and your kids are already in college. In the meantime, you are far better off in Paris. Start-uppers in FinTech can’t be college dropouts. FinTech requires skills and experience. In other words, accomplished professionals in their thirties looking to build a business and a family. The FinTech scene in Paris is buoyant because it’s where FinTech entrepreneurs and professionals prefer to live.
Q. Do you plan to raise venture capital?
A. Yes, we do. Rather than faking it until we make it, we are more the kind of always trying to undersell to over deliver. Give us some time to prove ourselves: we are good at what we do and I guarantee you will hear from us.