What Spotify’s Un-IPO Means for Wealth Management

The moos were deafening, a thundering herd so loud I held the phone away from my ear. My new client was a cowboy. (Yes, a real one.) He was herding cattle and was a participant in the friends-and-family program for a hot initial public offering. It was high noon, the first day of trading, and his shares were flying. Although we had no idea at the time, they would close over five times the initial offering price by the final bell.

Giddy up, cowboy.

I doubt everybody was happy. A first-day bump of 10% in price is the industry rule of thumb for a well-priced IPO. Which means that early-stage investors, like venture capitalists who sold at the offering price, left lots of money on the table.

Spotify, the Stockholm-based streaming-music company, is exploring a solution to this problem, pursuing a plan to list its shares publicly without raising new capital. The process is known as a “direct listing,” and investment bankers are understandably worried. Because if Spotify is successful, other companies will follow its lead, pay lower fees to Wall Street, and eliminate the vagaries of IPO pricing.

What do “un-IPOs” mean to wealth management?

On one level, direct listings mean fewer investment-banking handoffs to broker-dealer advisers. Goodbye, competitive advantage.

But on a more fundamental level, direct listings put the wealth-management industry on notice: If clients are anything less than happy with our services, somebody (probably from Silicon Valley) will reverse-engineer the problem, fix it, and put finance-first-technology-second advisers out of business.