Today, we formally announced that Bricknode has started the application process for a brokerage/securities license in Sweden. Ever since Bricknode started in 2010, we have had the ambition to add a subsidiary to the company group where we can be the primary broker and custodian for our software users. This will boost our own scalability and help deliver a complete service to many customers.

In order to understand the benefits that acquiring a brokerage license will bring our different customer groups, it is helpful to know how we work with them today.

Distinct customer groups

Within the brokerage product division today, we see two groups of customers. The first group are customers who have their own full regulatory permissions to carry customer accounts. These companies can be rather complex and relative to our other customer groups, there are fewer of these around.

In terms of Bricknode solutions, these companies consume pure software, and they can also outsource their back-office operations to Bricknode if they do not want to manage this themselves.

Today, these companies must also establish their own relationships with banks, brokers, exchanges, fund companies etc. to access financial instruments that they would like to distribute.

This means that each customer needs to have their own relationships which can be less cost effective and take a lot of time to cut through red tape. This is bad from a few standpoints.

First, even if Bricknode delivers the software solution on the same day that it is ordered by the customer, it could still take months before the customer gets approval by institutional brokers and fund networks that it might need to access. In addition, it can take years before relationships are set up to manage international tax withholding and other administrative things that should just simply work.

Second, time to market for new valuable products is greatly increased and companies can go out of business even before getting to first base.

The second customer group is characterized by firms that lack full regulatory permissions for carrying or operating their client accounts in their own firm. Some are simply not interested in having the administrative overhead that is required for those accounts like tax reporting, corporate actions, MiFID II reporting and so on. These can be financial advisors or various types of FinTech companies.

There are many of these companies around but today they need to find an external party that holds the required licenses and that has relationships with various trading venues. This  third party might already have a different software provider to Bricknode, so the deals are ultimately lost if the  third party does not want to go through the process of switching core systems.

The problem is that Bricknode cannot supply the full plug and play brokerage solution for this group of customers, since we must go through a  third party which can introduce more costs for the potential customer and make the whole setup less attractive.

Acquiring a license: benefits for our customers

By setting up a subsidiary of Bricknode with a brokerage license we can merge our administrative services into the brokerage division, and we become a one-stop-shop for customers that do not have their own regulatory permissions.

Bricknode is then the only party that must set up and maintain the relationships with trading venues and issuers of financial products and we can obtain economy of scale.

When it comes to the other customer group that has full permissions, we can now present them with a choice where they could either maintain their own external relationships or switch to Bricknode as their primary brokerage firm. The latter would enable them to participate in the cost savings that this would generate both from shrinking the administrative overhead and from lower trading fees.

 

Acquiring a license: benefits for Bricknode

From a revenue perspective, obtaining a license would greatly increase the market opportunity for Bricknode in the short and long term. It will help create higher margins and shorten sales cycles in general.

As the provider of accounts, Bricknode would have a direct legal relationship to each account holder. This would enable us to apply all our internal tools and knowledge to optimize processes and the end customer experience.

Brokerage-as-a-service

Not that long ago, big UK-based fintech Revolut decided against setting up their own regulated securities firm when they launched equities investments on their app. Instead they made a partnership with another company that is providing and carrying those accounts and making the trading facilities available. It makes a lot more sense for our prospective customers to let Bricknode take care of everything under the hood too, so they can just focus on the end customer.

There are still very few alternatives today for this sort of service and no one is in control of the full back-office software like Bricknode is with Bricknode Broker. By controlling all technology, Bricknode can be agile and quick in ways that other companies who rent their back-office systems for this purpose can only dream about.

Bricknode will provide these accounts and facilities as a pure back-end service and will not have its own B2C offering that could compete with the services of our customers. During the years Bricknode has established technology and the required facilities to provide a wide array of financial instruments like global equities, funds, bonds and more. We see no technical limitations with regards to the products that we can provide, and we think that this complete service bundle will be revolutionary.

Together with front-end partners like Additiv we will be able to provide financial advisors with stellar tools to manage their customers and a full suite of financial products to distribute. This is all the while making sure that the financial advisor builds their own brand and customer loyalty. This is something that is not being done today when financial advisors are forced to place their customer accounts with standard retail brokers that compete for the same customers.

The time is now

Why now, you might ask. Simple, it’s because we have not been ready for this in the organization. Thanks to the IPO we have been able to onboard the right team members for this and we now have the necessary resources to do this with great quality. We have also been able to conduct the full administration for current software customers which has enabled us to build up the required internal routines and learn everything first-hand.

Getting a license to perform regulated activities will not do any harm to the current pure Software-as-a-Service offering where business is expanding aggressively over multiple product lines based on Bricknode Core. It will, however, add a whole new dimension to Bricknode and unleash us from many limitations impacting customer acquisition today.

We did it! We just reached the most important metric in the history of Bricknode. As Jim Collins puts it in his great books, this metric is “the percentage of key seats on the bus that are filled with the right people for those seats”. We just reached 100 %!

I see articles each day where companies are saying that the most challenging thing for them is to recruit the right people.

It is difficult for a company to grow faster than its ability to get enough of the right people but now we are there. One of the core values that we believe in is endurance and long-term thinking. A lot of things in life comes down to pure luck but by having endurance we expose ourselves to luck over a longer period and increase our odds for reaching our vision to be the BEST Platform on Earth for Financial Products!

We have managed to embrace working globally and we are completely flexible with when and from where our team members are working. We are in multiple countries, and we are having a blast each day, who would have thought that we would reach this level of team and product while being completely independent and coming from an unknown small town in Sweden! I would say that Bricknode completely embodies what ROWE means.

Our purpose is to make sure that great consumer friendly financial products and services reach the market and never die from the lack of available tools or from having to fight the giants of the financial industry.

I remember myself the day that we got our first API launched at Bricknode and how the possibilities of building anything for finance just opened up in front of me.

Now we have reached the first big goal and now just watch us as we motor on to the next one!

Please take a few minutes and listen to my reasoning around this blog post.

One of, if not the most, work intensive areas when operating a financial intermediary like a securities brokerage firm or asset manager is corporate actions. There are both simple and complex corporate actions that gets executed every day. The simplest form is when a company pays a dividend in cash. The total amount for the dividend is then received by the brokerage firm who will then distribute the cash between its customers depending on who held what at the so called eligibility date. This is simple enough but when a company issues a dividend in shares and when those shares are not their own it becomes more complex.

Lets say your customers hold a total of 1000 shares of Company A which decides to divest of a shareholding in Company B that it has by distributing those shares to its shareholders at a rate of 1 share of Company B for every 65 shares of Company A that are owned. Dividing 1000 shares by 65 gives us 15.384615… shares of Company B.

You cannot own fractional shares, yes, there are ways as a financial intermediary to let your customers invest in fractional shares but in the real securities register of shares for a company it is not possible to deal with fractional shares.

Those 0.384615… shares will instead be settled in cash so you as the intermediary will get paid say 30 EUR per share meaning 30 * 0.384615… ≈ 11.53 EUR. There might also be tax consequences where the local tax agency will have been involved to set what the acquisition value per share should be for those customers who will get allocated a full share or more.

These are just some initial examples of all the variables that you must deal with as a financial intermediary or asset manager.

Back to the original question, is it possible to automate this and should you?

In my opinion I would say yes and no 🙂

For the basic corporate action types you could in many cases get the terms of the corporate actions delivered to you via file (I look forward to the days when custodians will have nice APIs for this!) and then read those files into an application that interprets this and creates transactions in your back office system. Each custodian is delivering these in various formats and they also have different terminology so you need to integrate specifically with each one.

For the more complex types you would need to create a wizard like tool for each one since the number of properties vary greatly so you cannot use one type of user interface for all of the types.

The way we work with the systems at Bricknode is to create wizard like interfaces for each type of corporate action which then uses our own API to create the resulting transactions with things like acquisition values, taxes and conducts automatic reconciliation at the end so we know that everything went well.

We just created some new tooling for our own back office operations to use for corporate actions like reverse splits, mergers and dividend of instruments in various complex situations. This cuts away days or administration each month and this is something that users of the Bricknode systems like Bricknode Broker could benefit from today.

Please get in touch with us if you are a financial intermediary looking to automate your corporate action tasks or if you need a complete platform to manage your financial operations!

Last night Salesforce released its report for the 4th quarter and showed that it generated more than 7 billion USD in income. Salesforce was the main inspiration for me when I decided to start Bricknode in 2009.

Salesforce was one of the first companies in the world to offer a cloud-based Software as a Service to businesses and started in 1998. Salesforce began with a CRM application and to offer it they had to build a core cloud application infrastructure. As the years progressed Salesforce started offering the core infrastructure called Force.com. It also expanded into other product areas together with its marketplace offering and promoting their API for others to use and expand upon.

This is extremely similar to what Bricknode is doing, we started with Bricknode Broker for what is called financial intermediaries. These are banks, brokers and FinTechs which distributes financial products and acts as an intermediary between the issuers of these products and the consumers.

When developing Bricknode Broker we too had to create a core, we call this the operating system for finance. The main challenge for Salesforce in 1998 was technology since there were no infrastructure available for offering cloud based software.

For Bricknode the pure technology behind cloud infrastructure has never been the main challenge. Instead, the challenge was to invent how the so-called financial domain objects should be represented in code in a scalable and generic manner as to not “hard-code” stuff and get us into a dead end. Another challenge was regulations, in 2010 both potential customers and regulators told us that it was not possible to have financial applications running in the cloud…how wrong they were.

Many have failed along this journey and not taken the time to create a real granular transaction engine as the base. It took Bricknode between 2009 – 2021 to do this right and test every aspect of our invention with multiple real life customer cases. It took Salesforce about 10 years to build up the core technology and launch into a real core software provider in the cloud for a whole industry.

Just as Salesforce did when they launched Force.com in 2008, Bricknode is now morphing into being a multi-product company based on a strong core system, which customers can use to build their own applications through our API.

Our own research shows that a majority of neobanks are choosing to use a SaaS provider as their core when it comes to offering financial services and we think this trend will continue to expand. The Bricknode core now covers everything from investments and loans to wealth management and you can basically build anything related to finance on top of our operating system.

During the last few years we have been able to build a number of new killer applications within specialised areas like Bricknode Deposits and Bricknode Fund Manager which are scheduled to be released to the market during 2022. On top of this we are also developing an application for mass adoption globally that does not require the user to be a regulated company. It will help every company around the world to organise their finances and automate administrative activities around this including accounting, reporting and keeping up to date with all of their investments and liabilities. This will be a “must-have” addition for companies to connect to their regular accounting systems so stay tuned!

Salesforce, together with many software companies, have seen their share price fall more than 40% since the end of 2021 even though they continue to show unbelievable long-term growth. The scalability of the offerings are governed by how dynamic and generic they are, if the solutions are custom made for each customer then the scalability of future profits does not exist. A while back I wrote my thoughts on how to value a SaaS company which you can read here.

The gross margins for Salesforce are at 75% while the total operating margin is at 3.5%. If the system is built right the total operating margins could eventually go to +50% but that would mean that the company would slow down its investments into future growth and in reality, borrow from itself which Salesforce is not interested in.

For the last 10 years Salesforce has grown its annual revenues by 25 – 35% each year, this is what having a long-term view can do for a company, like the view that Salesforce founder Marc Benioff has had all the time. Salesforce has become a purpose driven company that does good things for the world and is a great inspiration for today’s entrepreneurs!

By focusing on products and helping customers reach their goals my dream is to make Bricknode into a Salesforce for finance. I love building software that I can use myself and with the coming mass market offering from Bricknode we are truly closing the circle of building the network between financial service providers and financial service consumers where we are driving change to a more efficient and user-friendly way of consuming and delivering valuable financial services to companies and individuals.

As I and Co-CEO Erik Hagelin wrote in the last quarterly report, 2022 is when we use our newly acquired body at Bricknode (going from around 20 to 40 staff members) to launch all our new products on top of our great core and establishing ourselves as the premier software, network and infrastructure provider to the financial industry and all its stakeholders, consumers and providers alike.

This is what really motivates me personally to burn the midnight oil and be highly engaged in coding our applications!

Just as Elon Musk is now able to help Ukraine with internet, I hope one day that Bricknode will be a global powerhouse for good and make an impact through technology!

One of the most talked about topics in the financial press right now is inflation, what does it actually mean and how do you protect yourself from it and profit?

Well, inflation means that costs of goods and services are going up, it becomes more expensive to live and to cope with it you have to make sure that your assets are appreciating and that you are paid more for your work.

Inflation is the reason that your hard-earned cash should never sit in a non-interest generating account with a bank. Why would you lend your money to the bank and just let them have it for free?

You could lose half your buying power over 10 years

If the inflation rate is 4 %, as it is in many regions right now, it means that the buying power of cash will decrease by 4 % per year. If you have EUR 10,000 sitting in a non-interest generating bank account, it means that the value of the cash has decreased by 33 % over a period of 10 years. If you were saving those 10K for making a 10-year anniversary trip with your spouse or for making an investment in your company like building out your storefront. This means that the price of the trip or the price of building out your store has increased. What you could have bought for EUR 10,000 about 10 years ago now requires you to pay about EUR 15,000 for. That is 50 % more than you needed 10 years ago, and you were thinking that you protected your cash by keeping it in a “safe” bank account! I can guarantee you that your bank made more than those 50 % from your money during that time.

Price increase four percent per year

Is 4 % inflation normal?

No, it is not, at least not historically…but 2 % inflation is. If I adjust the calculation to 2 % per year this still means a price increase over 10 years totalling 21.9 %.

Price increase two percent per year

Do you still think keeping your cash in a non-interest generating bank is safe?

What is the solution then?

Well, having assets always means that you have a risk. With cash the most obvious risks are inflation, the value of your currency dropping in relation to other currencies or your bank going bust.

For myself I like to inflation hedge through using income generating products like preference shares, gold, and commodities. Let’s have a quick look at each one.

Preference shares

These instruments are great if you are looking for a return between 5 – 7 % per year. The Swedish writer Marcus Hernhag (@MarcusHernhag at Twitter) has done some great writing on the topic which I highly recommend. Typically, you want to buy these instruments that are issued by companies that have a stable and profitable business. They will then pay you a fixed dividend, usually every quarter, which you can then decide to re-invest. If the shares are listed, you can buy and sell the shares in the open market and the price will fluctuate.

Since the terms for these preference shares are fixed you know how much dividend you will get beforehand.

Lets look at an example using the preference shares issued by the Swedish real estate company Corem, here is the link to Avanza with the details.

Corem pays a dividend of SEK 5 per quarter so SEK 20 per year. The most recent closing price was SEK 316 per share. If you would have bought them at this price it means that you will receive 20 / 316 ≈ 6.33 % in annual returns for the shares. If the price would drop to SEK 280 per share it would mean 20 / 280 ≈ 7.14 %. In the terms of the instrument there is also a price set where the company issuing the shares has the right to buy them back, this is important to keep track of so you don’t purchase the shares at a price that is much higher than that price which would put you at risk.

Of course, the price of the preference shares can go up and down but I am owning these for the fixed rate of return and do not care too much about the gyrations. If the yield goes up because the shares are hit by a general turndown in the stock market I might be enticed to lock that yield in and buy some more. On the other hand, if the price goes up too much I might look to sell shares and view it as if I am collecting those dividend payments early.

Gold

It is possible to invest in physical gold in multiple ways, the easiest is to buy Exchange Traded Certificates like for example Amundi Physical Gold or Xtrackers Physical Gold. One thing that is easy to miss and that usually is not highlighted in the financial press is that the price change of any asset it relative. The price of gold will show one thing if it is compared to the currency USD or the currency SEK. Living in Sweden this is where I consume and I am based in SEK so when I look at charts of gold I make sure to compare gold to SEK like you can see at the following link.

Compare that to this chart of gold against USD. Gold has been a great investment for a long time compared to SEK but not as good compared to USD. A good place to look to see how the purchasing power of various currencies compare is the Big Mac Index. This will show you how much a Big Mac costs in each country.

Commodities

Another great hedge against inflation is to look at an Exchange Traded Fund like iShares Diversified Commodity Swap which has had a great run as well and appreciated more than 66 % since the beginning of 2020.

Summary

Inflation is a great threat to your wealth and financial well being and something that is worth keeping track of. There are a few good indicators that can be used to gauge how likely raising inflation is and they worked really well this time too and made it possible to go into inflation hedge investments well before inflation reached the current levels, more about that in a future article.

Non-interest generating bank accounts are a great destroyer of wealth and will drain you and/or your company of your financial buying power, it is easy though to do nothing!

Bricknode is all about building the ecosystem (the network) of financial services and providing tools for you and me to keep track of our finances and tools for the companies that provide the financial products. A lot of cool stuff is going to be launched in the network during this year, including tools that you as an investor can use to keep track of your financial health and make your life easier if you conduct investments through your own company. Stay tuned!

The financial services industry is being rapidly transformed by a digitalisation process that started some years ago and has many more years left to run. Investment managers – both for corporate and institutional clients, and for high net-worth individuals in the wealth management market – tend to be further behind on the digital transformation journey. Yet, our 2022 report, Digital Transformation in Investment Management, shows that the industry is now shifting to a cloud-first approach and we are already seeing a lot more solutions that are cloud based.

The time is now

Investment managers agree that digital transformation is a strategic priority. Key benefits include cost reduction, differentiation and additional revenues. Meanwhile, customer behaviour is changing rapidly, especially in the wealth management sector where tech-savvy younger age groups want to engage digitally with their financial advisers and money managers. There is fierce competition from discount brokers, who are mainly online-only. And the burden of regulation is becoming harder to handle for firms that have not adopted RegTech solutions for compliance monitoring and reporting.

Many asset managers used to be reluctant to move to cloud infrastructure because of concerns that regulators would object. Indeed, regulators used to be wary of cloud technology. In the past few years, however, their objections have receded, as long as guidelines are followed. The European Securities and Markets Authority (ESMA), for example, makes this clear in its Guidelines on outsourcing to cloud service providers.

Now is the time for investment managers to align their businesses with the opportunities that come from adopting cloud-based solutions. They can detach themselves from restrictions like legacy infrastructure, too much siloed data and a lack of connectivity – instead looking to the future operating model that drives innovation and customer value.

The benefits for investment management

The benefits of cloud solutions are being felt in just about all corners of investment management. Portfolio managers find that the computing power, scalability and agility of cloud services makes it easier and faster for them to analyse the pros and cons of specific assets, thereby giving them greater confidence in their investment decision-making. Risk managers use innovative cloud-based tools to assess the credit, market and operational risks their business is exposed to. Compliance managers have a wide range of RegTech solutions to choose from, to ensure the firm complies with all applicable laws, regulations, industry standards and internal rules.

Chief executives are attracted to all of the above, but mostly to the potentially lower costs and greater efficiencies that the cloud offers. They are also looking at the opportunities in expanding more easily into new investment products and services – with 83% of executives actively doing so according to a recent report by Accenture on The Future of Asset Management.

What challenges still exist?

There will, of course, always be some concerns when it comes to embracing the cloud, such as security, implementation and evaluating the type of deployment and service models. The major cloud service providers (CSP) like Microsoft Azure and Amazon Web Services are well proven with their high levels of security, although investment managers will still want to be aware of procedures and protocols.

There are also three cloud service models to consider. Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS) models both involve a CSP supplying infrastructure over the internet, but with the firm developing and running its own software on top. The third and most comprehensive option is Software-as-a-Service (SaaS), whereby cloud infrastructure and investment management software is provided as a complete package, as in the case of Bricknode Broker. SaaS is proving the most popular among investment firms because it requires the least effort on the part of the user. There is no need to build, maintain, or update any of the technology. It is also more accessible to small and medium-sized investment firms that do not have as many resources as the bigger players.

Cloud services are accelerating growth

Cloud is enabling investment managers to accelerate their growth with the potential for lower costs, better scalability and ease of introducing new products and services.

“Cloud-first” has become the dominant IT strategy for investment management companies. Most industry observers believe that cloud is the future for the industry, and for the economy and society as a whole.

If you’d like to learn more about how cloud and SaaS are being used in investment management, download our 2022 report, Digital Transformation in Investment Management. And if you’d like to talk about your own requirements, don’t hesitate to get in touch.