In the world of technology, some of the most cutting edge computers, tools, and software are bought and used by Wall Street. Yet the reach of technology to financial advisors has been severely limited; at best, most solution categories have only a handful of players, often built around homegrown tools creative by/for one advisor and marketed to others, or much larger platforms that have to be extensively adapted and customized to actually be relevant for financial advisors. To the extent that any venture capital dollars are invested into financial services solutions, it seems they tend to be offered directly to consumers, rather than as a tool for advisors.

One of the key areas where this shortcoming is most notable is the world of “Personal Financial Management” (PFM) software, where market dominator Mint.com serves consumers directly, but has not been adapted or expanded for use with advisors, and the alternatives actually available for advisors are meager at best, often focusing solely on aggregating investment and retirement assets but falling far short of a comprehensive financial planning solution.

Nonetheless, the market potential for a PFM serving advisors is huge; while most direct-to-consumer solutions struggle to generate enough revenue to be financially successful while trying to get consumers to pay directly, or to induce consumers to buy other financial services products the tool recommends, advisors might happily pay an ongoing fee for an effective solution targeted directly for them. After all, imagine if you as an advisor could have your clients enter simple financial account information into a computer and have an immediate snapshot of the client’s assets, liabilities, and cash flows in the very first meeting (and every plan renewal thereafter). The tremendous efficiency and productivity enhancement – not to mention a better client experience – could be a breakthrough for expanding the reach of financial planning!

Which raises the question – when will a financial technology startup finally take up the incredibly low-hanging business fruit, rise to the challenge, and build the advisor PFM tool we could all so desperately use?! And why isn't the allure of a company that could generate tens of millions of steadily recurring revenue from advisors enough to draw venture capital interest!?


The inspiration for today’s blog post has been a process that we’ve been going through internally at Pinnacle Advisory Group in trying to find a PFM tool that we can use to aggregate together client financial information into a central dashboard to allow for more collaborative planning with clients. The consumer leader in this space is Mint.com, but unfortunately Mint does not have a way for advisors to connect to with their clients, forcing us to look at our industry’s own alternatives… where the options seem to be falling embarrassingly short.

Ideal Capabilities Of A True Advisor/Client PFM

To understand why today’s PFM options for advisors fall so short, it may help to consider what the ideal capabilities of a PFM tool should be, on a scale from relatively simple, to significantly more complex.

Step 1: Aggregate information regarding all household financial assets and liabilities. This would include everything from the value of brokerage and retirement accounts to real estate and personal assets, as well as debts like mortgages and credit cards. The fundamental purpose is to create a household balance sheet. (Notably, there are relatively few PFM tools available to advisors today that can even handle this most basic level of PFM capabilities; many tools are built solely to aggregate account information for investment purposes (e.g., CashEdge, ByAllAccounts, Blueleaf, etc.), but typically do not draw in other assets, nor any liabilities.)

Step 2: Aggregate all household cash flows. This would include not only a reckoning of the spending on various credit and debit cards, but ideally should also draw in bank account inflows and outflows, to capture a full picture of all the money coming into the household, and all the money leaving it. The fundamental purpose is to create an accurate, categorized, comprehensive household cash flow statement. (Notably, there are almost no PFM tools capable of this, for advisors or even consumers. At best, there are some like Mint.com that can draw on spending details from credit and debit cards, and categorize it, but virtually none that can integrate together spending from credit cards, debit cards, electronic funds payments from a bank account, cash withdrawals from an ATM, direct and other deposits into the bank account, etc., into a truly comprehensive household cash flow summary.)

Step 3: Integrate balance sheet and cash flow information into other advisor software tools. While it’s nice to be able to view a PFM’s balance sheet and cash flow statement within the PFM itself, ultimately financial advisors use their CRM as the central dashboard of their practice (or at least they should!), and do their client analysis in their financial planning software. Thus, the ideal here is that the PFM doesn’t just produce a balance sheet, but can push all of those asset and liability values, and key cash flows, into various financial planning software platforms through appropriate APIs, along with key cash flow information. (Although some basic account aggregation tools like Advisor Exchange are capable of doing this to import updated investment account information – but only investment – into financial planning software, no tools are available that capture the full breadth of a client’s household balance sheet for importing/updating.)

Step 4: Proactive client monitoring/notifications to advisors. Ultimately, the real goal of all this information is not just to make it easier for us to reactively produce a financial plan upon client request or when there’s an upcoming review meeting. The real goal is that, once all financial information is tied directly through a PFM to the advisor’s CRM and financial planning tools, the software can proactively notify the advisor when there’s an opportunity or need for a conversation! For instance, the software could let the advisor know at the beginning of July – half way through the year – which clients had an annual savings goal for which they have not yet saved 50%, suggesting to the planner who might need a phone call check-in (or intervention!) to get back on track. Similarly, the software could notify the planner of anything from the opportunity to refinance a mortgage as interest rates change, transfer money from the portfolio to the client’s bank account to increase cash and avoid overdraft fees, realize that a retired client’s Monte Carlo probability of success is falling dangerously low, or recognize when the client reaches key milestones (imagine knowing and being able to call the client the day they first become a millionaire, or simply the day they finally pay down a key debt!). (While financial planning software inStream Wealth is attempting to provide some of this proactive monitoring, the software is still limited by the lack of financial advisor PFM tools to provide this kind of inbound data flow in the first place.)

Step 5: Goal tracking, monitoring, “gamification” for clients. A digital PFM is not only about providing information and data and proactive monitoring for the advisor; it can also be a key tool and resource for clients to use themselves. After all, the more easily clients can be apprised of their financial situation, the more an advisor’s time can be used productively for advice and guidance, rather than “wasting” time gathering financial data that could (should!?) be obtained electronically. In addition, a “client dashboard” tool wouldn’t just give a balance sheet and cash flow details, but would allow for the advisor and client to set goals and give the client feedback towards progress. Imagine that the advisor/client PFM is also a mobile app on the client’s smartphone, that provides them proactive encouragement to "gamify" their efforts in reaching short-term goals (e.g., phone alert: “Great job! You kept your restaurant budget under $300 this month!” or “The final debt payment for your credit card just cleared; congratulations, you’ve paid down another one, just 1 more to go!” (In point of fact, NestWise was working on a tool to do this with their clientele, and LearnVest is also in the midst of building these capabilities into their advisor/client mobile app!)

Step 6: Use big data and information mining to find other unique opportunities. Once so much data and information is aggregated together and available, additional “big data” insights about an advisory firm’s clients becomes possible. The ideal PFM might be able to provide key information about a client base (“the average client earns $XXX dollars, saves $YYY, spends $ZZZ” or “60% of clients have a mortgage”), as well as valuable comparisons to other clients and the marketplace (“these 3 clients have a credit card with above-average fees and should consider switching to another card” or “these 10 clients are your biggest savers, even though you didn’t realize it because they’re saving to their bank and college accounts, not the investment account you manage”).

Weakness of the current landscape

Although in theory much/most of the above PFM framework is possible even with today’s technology (not to mention where it’s heading in the coming years as data standards slowly emerge), the limited number of PFM players in the advisor marketplace today focus far too much on investment accounts, and not the full balance sheet (including debts). Even fewer provide any details of cash flow, and categorizing income and expenses appropriately for a clear snapshot of housing earnings and spending, necessary to facilitate a shift from just an asset gathering tool into a true financial planning tool.

Arguably, one of the best contenders is the client dashboard solution from eMoney Advisor, but unfortunately it is so entirely integrated to the rest of their financial planning and CRM platform that most of its value is lost unless the advisory firm wants to fully adopt the entire eMoney platform - fine for those advisors who want to solely and fully adopt the eMoney platform, but sadly tying what could be a strong standalone solution into a broader package that advisors happy with their own financial planning software will not likely adopt. (While conceivably an advisor might buy an eMoney license just to get access to the PFM – and skip the rest, for those firms already happy with their existing financial planning and CRM software – when our own firm inquired about such a path, the cost/price quote we received from eMoney is something I can only politely describe as “laughably ludicrous.”)

On the other hand, it’s also notable that many of the “robo-advisor” startups – including and especially the ones that are aiming to integrate real human advisors with a heavy dose of technology to support a more virtual relationship – have already begun to build quality PFM tools for themselves, with capabilities beyond anything “traditional” financial advisors have available. Personal Capital’s client dashboard has been available on iPad and Android devices for more than a year, and integrates directly to their platform on the back end; LearnVest’s PFM tool has already begun to integrate some of the proactive client goal notifications discussed above, and is similarly built to integrate directly into their CRM and planning software. (Both platforms have indicated that they built their own tools in large part because the solutions available directly to advisors are so meager!)

Untapped Business Opportunity

While there have been a few technology companies aiming to build their own PFM tools, sadly virtually all of the startups out there today have been targeting consumers directly, either trying to charge them an ongoing fee – (which doesn’t appear very feasible given that Mint.com is free!) – or using the data and details of consumers on the platform to suggest actionable solutions for which the company can get paid (e.g., the software identifies if your mortgage rate is too high or that you have an expensive high-fee credit card, and then suggest alternative financial services products/solutions to use, for which the PFM company earns an affiliate fee/commission for those who implement).

Yet the reality is that while many of these direct-to-consumer PFM tools are struggling to figure out how to monetize when consumers won’t pay for the tool, and it’s hard to get them to make a significant and weighty decision about a financial services product/solution through an “app”, financial advisors can easily monetize the value of a PFM – not by selling products to clients, but simply by leveraging the efficiencies of the flow of client information!

After all, imagine how much more efficient you’d be as an advisor is you never had to do a financial plan update again; just logging into your software pulled all the key financial data for a continuously updated plan. Even better, imagine if onboarding a new client required no data gathering at all, beyond just asking the client to enter some details for their existing online financial accounts, and in just a few minutes the software could import all the client data and provide the advisor an immediate snapshot of the client balance sheet, right there in the first meeting. Even better, the PFM tool might not only capture current assets and liabilities, but scan a 90-day history of the client’s bank accounts and credit and debit cards, and instantly show the client’s categorized spending habits for the past 3 months as a starting point for discussion. How many hours of work could be saved if an advisor could start working on a new client’s financial plan with this kind of efficiency? Or update the plan instantaneously!? Not to mention the improvements to client trust and the overall client experience!? As I've written in the past, this kind of digital age delivery of financial planning could revolutionize our potential reach.

As an advisor, how much would you pay for this kind of efficiency? For advisors that often aim to bill their time at $150-$250/hour or more (sometimes much more for highly profitable practices), the fact that this could save hours of work for almost every client would be a very material cost savings for the advisory firm overall! Right now, many financial planners skip really delving into and advising clients on their cash flow altogether, for the simple reason that it’s so hard to get the data and information in the first place, that it’s not financially viable to help clients in this key aspect of their financial lives. But how many advisors would proactively work with clients on their cash flow if gathering the data was as easy as just entering a few financial account login details!?

To say the least, the idea of paying $1/month or $2/month for each client that uses the platform would be an incredibly easy “sale” for a startup PFM firm aiming to serve advisors, with a tremendous Return On Investment for the advisor who pays for the service (paying $24/year per client for a solution that merely saves 1 hour of work per year is a 500%+ ROI!).

Yet that means if a PFM merely reached 5% of the roughly 300,000 financial advisors in the marketplace who might average 100 clients each, and a mere 50% of the clients engaged in the platform at all, this “startup” PFM software company would be making $1.5 million per month of “indefinitely” recurring revenue. If 20% of advisors got 75 clients onto the platform, the PFM company would be generating over $100 million of annually recurring revenue (and at worst, the PFM successfully generating $100,000,000/year of revenue from financial advisors can always use their profits to reinvest into a direct-to-consumer offering later!). The business opportunity is astounding; frankly, whichever company rises to the challenge first is a business I’d probably like to own a piece of and be involved with myself!!

Accordingly, this is my challenge for the financial services technology industry aiming to grow, especially those at financial tech innovation events like Finovate: stop fighting in the direct-to-consumer channel and trying to usurp an established market player like Mint.com where it’s both highly competitive and the monetization is transactional and difficult, and focus on the wide open blue ocean and what might be the easiest low-hanging technology fruit available: it’s time for a quality PFM for financial advisors that can be purchased on a standalone basis and integrate to today’s available tools to make advisors more productive and efficient, more capable of being proactive with clients, and offer an all around better client experience!

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Wednesday, April 23rd, 2014

Understanding the New World of Health Insurance Evaluating Existing Annuities: What Every Adviser Needs to Know @ FPA New Jersey

Thursday, April 24th, 2014

Keynote @ Shareholders Service Group

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Safe Withdrawal Rates: Mechanics, Uses & Caveats @ St. Louis Estate Planning Council

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