Welcome, everyone! Welcome to the 52nd episode of the Financial Advisor Success Podcast!
My guest on today’s podcast is Joel Bruckenstein. Joel is one of the industry’s leading advisor technology gurus, publisher of the Technology Tools for Today newsletter, and runs the popular T3 Advisor and T3 Enterprise technology conferences for the financial advisory industry.
What’s fascinating about Joel, though, is his nearly 20-year history of writing about and covering advisor technology trends, from publishing regular columns in Horsesmouth, Morningstar Advisor, Financial Advisor, and Financial Planning magazines, to his own newsletter and now his latest platform the T3 Tech Hub… which gives him an incredible perspective on the evolution of advisor technology tools over the years, and where the gaps still remain.
In this episode, we talk in depth about recent trends in advisor technology, the results of the latest Advisor Software Survey that Joel administers along with Bob Veres’ Inside Information, why Joel views today as the “Golden Age” of advisor technology, and what kinds of new trends in advisor technology we’re likely to see in the coming years.
We also talk about the real-world challenges of implementing advisor technology in the typical firm, why data migrations from one piece of software to another are so painful, and why many advisors may actually be trying too hard to find the best technology for their firm… when the real problem is a need for the firm to focus and systematize what it does just to make it possible for technology to help more in the first place.
And be certain to listen to the end, where Joel talks about the biggest areas where advisors can get better ROI from their technology… particularly when it comes to better utilizing CRM software for business intelligence purposes.
So whether you have been curious about the latest trends in advisor technology, are curious why Joel thinks we are living in the “Golden Age” of advisor technology, or have been wondering how you can better utilize your CRM and get a better ROI from your technology, I hope you enjoy this episode of the Financial Advisor Success podcast!
What You’ll Learn In This Podcast Episode
- What Technology Tools for Today does in the advisor technology world. [3:10]
- What the most overlooked financial advisor technology problems are. [22:31]
- The real issue that firms need to fix before trying to find the best technology. [22:31]
- Why it’s safer for advisors to be in “The Cloud” instead of using in-office servers. [30:03]
- What themes Joel sees consistently with respect to technology challenges. [28:04]
- Why data migrations from one software to another are so challenging. [34:03]
- New trends in advisor technology we’re likely to see in the next few years. [59:18]
- Why CRM is the most underutilized technology among advisors. [1:15:03]
- How advisors can get better ROI from their technology. [1:15:03]
Resources Featured In This Episode:
- Joel Bruckenstein – Technology Tools for Today (T3)
- T3 Technology Hub
- Technology Tools for Today’s High-Margin Practice by David Drucker and Joel Bruckenstein
- Virtual Office Tools for a High Margin Practice by David Drucker and Joel Bruckenstein
- Tools & Techniques of Practice Management by Stephan Leimberg
- Nerd’s Eye View article on MaxMyInterest and MaxForAdvisors
- T3 Advisor Conference – Nerd’s Eye View readers get an additional $75 off with KITCES discount code!
- 2017 Software Survey Results
- 2018 Software Survey Data Collection Form
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And if you have a moment, please Click Here to leave us a rating and review in iTunes!
Full Transcript: Why Today’s Technology Tools Are The Golden Age Of Advisor FinTech with Joel Bruckenstein
Michael: Welcome, everyone. Welcome to the 52nd episode of the Financial Advisor Success podcast. My guest on today’s podcast is Joel Bruckenstein. Joel is one of the industry’s leading advisor technology gurus. Publisher of the Technology Tools for Today newsletter, and runs the popular T3 Advisor and T3 Enterprise Technology conferences for the financial advisory industry. What’s fascinating about Joel, though, is his nearly 20-year history of writing about and covering advisor technology trends, from publishing regular columns in Horsesmouth, Morningstar Advisor, Financial Advisor, and Financial Planning magazines, to his own newsletter and now his latest platform, the T3 Tech Hub.
In this episode, we talk in depth about recent trends in advisor technology, the results of the latest advisor Software Survey that Joel administers along with Bob Veres’s Inside Information, why Joel views today as the golden age of advisor technology, and what kinds of new trends and advisor technology we’re likely to see in the next few years. We also talk about the real-world challenges of implementing advisor technology in a typical firm, why data migrations from one piece of software to another are so painful, and why many advisors may actually be trying too hard to find the best technology for their firm when the real problem is a need for the firm to focus and systematize what it does just to make it possible for technology to help more in the first place.
And be certain to listen to the end, where Joel talks about the biggest areas where advisors can get better ROI from their technology, particularly when it comes to better utilizing CRM software for business intelligence purposes. And so with that introduction, I hope you enjoy this episode of the Financial Advisor Success podcast with Joel Bruckenstein.
Welcome, Joel Bruckenstein to the Financial Advisor Success podcast.
Joel: Thank you, Michael. Happy to be here.
Michael: I’ve been looking forward to having you on and just talking about the advisor technology landscape. I think most folks today who know you kind of know you as the advisor tech guru guy. You’ve got a technology column in Financial Advisor Magazine, you’ve had a technology column in Financial Planning Magazine and a book before that. You had a technology column for Morningstar Advisor magazine, you’ve written your own newsletter, you run conferences. You know, you are I think one of the people most in tune with just everything that’s happening in the advisor technology landscape. And so as our whole advisory world seems to rotate more and more to these intersections between what we do as advisors, as humans, and then what we do to use technology and what the technology does well, I’m just…I’m excited to get to have you on the podcast here and talk about the advisor technology landscape and everything that’s happening out there.
Joel: Well, thank you. I’m always happy to talk tech.
What Technology Tools Tor Today Does In The Advisor Technology World [3:10]
Michael: Happy to talk tech. So as a starting point, maybe you can just tell us a little bit more about just your business, what you do as it exists today. I know you’ve got this Technology Tools for Today platform. You call it T3 for short, Technology Tools Today. So just talk to us a little bit about what do you do in the advisor technology world?
Joel: Sure. So as you mentioned, I do a lot of consulting. I do consulting with all kinds of advisory firms. The range over the last few years has been everything from the startup solo practitioner up to roughly $5 billion RIA firms. I also do some consulting, you know, with custodians and broker-dealers who are looking to, shall we say revitalize their advisor platform, so they’re looking to come out with new offerings for advisors or add something to an existing offering. Maybe they’re trying to tweak it and make it a little better before it actually goes live, do some pre-testing. And from time to time I work also some of the tech firms in the industry. Again, either helping them refine products. Maybe it’s like working on a new user interface, giving them some guidance from an advisor’s point of view on, you know, the utility of a particular feature that they have. Sometimes tech guys get all excited about this new feature and it has no applicability in our space, and vice versa.
Michael: Right, right, like, “Really neat tool, but do you realize no advisor would actually want to use this in the real world? No. Thanks, guys.”
Joel: Exactly. Yeah, I’ve written for many years for the trade publications. I’m sort of taking a step back from that this year in 2018. I want to create more content for our own properties, the T3 Technology Hub blog, which I’ll talk about a little bit more, which, you know, is the content that feeds our newsletter, our free newsletter. Anybody can go to T3 Technology Hub and sign up for the newsletter for free. We run two major conferences a year. One is the T3 Advisor Conference. It’s well over a decade now, approaching 15 years. That conference is for advisors. It’s open to everybody. Typically we have anywhere from 65 to almost 100 technology providers to independent RIAs. Most people don’t know there are that many technology firms that serve RIAs.
Michael: Yeah, that’s a lot of companies, like up to 100 different tech companies just serving the RIA landscape. Like, that’s a lot of stuff to choose from.
Joel: That’s pretty incredible. And, you know, one of the things we try and do at the conferences is help people narrow their selections. You know, it is more of a trade show. I think one thing that differentiates the T3 Advisor Conference from other conferences that have a technology component is A, it’s the only conference in the industry that’s the only national conference that’s strictly technology for advisors. So you get three full days of just technology.
And the other thing is the quality and the type of people you get in the exhibit hall at T3. We encourage technology companies to bring not only their salespeople but also to bring their developers and, you know, people who are decision-makers at the firm so they can interact directly with advisors and get it first-hand. What I find is that, you know, it’s kind of like the game of telephone when people…when developers get information about advisors, many of them are locked in a room somewhere. They never get out and actually meet with advisors. And they get feedback from sales guys, but it may go through three to five other people before it actually gets to the developer. I want them to talk first-hand to the people who actually use their software.
And the other thing is it’s a hands-on kind of atmosphere. Advisors can go there, and they’re encouraged to go into the exhibit hall and actually try the software before they buy it. Well, you usually don’t get that experience at other conferences.
Our other main conference is the T3 Enterprise Conference. That is primarily focused on the decision-makers, the CTOs, the CIOs at independent broker-dealers. If I recall, institutional RIA firms, credit unions, banks, etc.
Another thing we’re working on right now is the T3 Technology Survey. It’s actually the T3 Inside Information Technology Survey. I’m doing it in conjunction with Bob Veres for the second year. We’re hoping to survey at least a couple of thousand advisors and get their opinions on the technology, not only the technology they use but the technology they’re thinking about using going forward. I think we discussed it a little bit. The first year of the survey we were very happy with the results. We’re planning to do even a much better job this year. And the results of the survey will be announced at the T3 Advisor Conference, February 6th through 9th in sunny Fort Lauderdale.
Michael: So I’m fascinated by the Software Survey that you guys are doing in particular. You know, I know you did the first one independently last year, and we’ll put a link out to the show notes because you guys were kind enough to just make that a freely available Software Survey results for any advisor that wants to go and just see all the different software and the different categories and who’s using what. But the thing that fascinated me the most about the Software Survey that you guys did last year is that you didn’t just ask who’s using what as well as what they’re thinking about using, which is interesting to get perspective on not just what people are using but maybe what they’re thinking about ditching and what they’re thinking about going to, but you asked advisors what they actually think of the software. Like, “Give it a user rating from 1 to 10.”
And, I mean, as far as I know, no one else had ever actually done user ratings of advisor software before, which I sort of get because historically these surveys came from trade publications who might have been a little bit afraid to ask the question, “What do you think of the software,” because if the software rates badly and it was one of your major sponsors, it’s kind of hard for your advertising department. So, you know, when you guys run that survey independently, you’re not beholden to advertisers in the same way. But I was fascinated just to see the range of results and views and opinions about just the quality of software, including to me what I think was the most striking thing, which was just the highest adopted survey…the highest adopted software is not always the best rated. And, you know, you would sort of hope in a classic efficient market, like, usage would gravitate to the stuff that gets the best ratings and is the easiest, the most popular and effective to use. But that was very much not the case in several software categories.
Joel: Yeah, well, you’ve covered a lot of ground there, so let me start first of all by giving a shout out to Orion Advisor Services and Fiserv, that both of those firms are sponsoring our survey this year. I mean, it takes an incredible amount of work as you know, you know, to do these kind of surveys, compile the data, etc. And yeah, it was a labor of love the first year, but we can’t afford to devote all the time that it deserves without getting a little bit of sponsorship. So those two firms were kind enough to see the value in this and make it so we can make it available to everybody at no cost. So thank you to…
Michael: Yeah, which is fantastic.
Joel: …both Orion and Fiserv.
You know, as far as the ratings, yeah, I mean, we tried to do it on a limited basis at Financial Planning when I did that survey, particularly with regard to the custodians and the broker-dealers, but yeah, for a lot of reasons we weren’t able to do it across all categories. And as you indicated, I mean, I think it’s very important, Bob thinks it’s very important. And so, you know, we really are trying to give actionable data to advisors.
And it is interesting that the most heavily used software is not always the best rated, but it’s not a total surprise to me for a number of reasons. One reason being, you know, sometimes you’ll get a software product that is more of a niche product, so it’s not really applicable to be used by everybody, and it’ll get really high ratings even within a category, or sometimes you’ll get a new product that just is not widely known yet or sometimes you’ll get one that’s, you know, cost prohibitive to some advisors. So there’s a lot of reasons why whatever scores the best may not be the most widely used. And there’s also integration issues, right? You could have software that’s great software but maybe it only works, you know, with a limited number of other partners and custodians. And so the people who are using it love it, but if you don’t use those partners and those custodians you just can’t use it.
Michael: And I know for a lot of tools, I mean, our challenge just gets down to, it’s really hard to switch software because we have all this client data of, you know, whatever it is, whether it’s in CRM or portfolio management or especially financial planning software because you usually can’t port most of that data. So, you know, it was striking to me, like, the portfolio management tools category, you know, still, number one on adoption was Schwab’s PortfolioCenter, but they weren’t even top five on user ratings. And I sort of get it, I’ll confess we’re a firm that was on PortfolioCenter for almost 20 years and left I guess about 2 years ago for Orion, and we stayed on a long time just because it was really difficult and frankly just outright expensive to do the data migration and rebuild on the other side. And, you know, the switching costs are so high. We stuck with that software for a very long time.
But, you know, most of what I see for that category, like, all the growth seems to be going to other software platforms, but Schwab PortfolioCenter had an immense market share from the like, the late ’90s, early 2000s when they were one of the only players. And they’re still carrying this enormous market share, whereas planning software, you know, the top two by utilization were MoneyGuidePro and eMoney. And they actually were two of the highest rated. But then you get upstarts like RightCapital that was actually getting better user ratings than either of them, but it’s just a new software, so it takes a while to get the word out. So I get why their market share might be a little lower.
Joel: Yeah, I’m glad you mentioned RightCapital because that one stuck out in my mind too. Yeah, and I agree, that’s an example of a firm that’s a relatively new firm and maybe the software is not right for everybody, but the people who have discovered it and who are using it seem to be very happy with it. Having said that, both of the market leaders also have very, very impressive scores. So it’s not like people are going to leave, you know, something that has a marginally lower rating that they’ve been using for years. And it’s not like the leaders in that category have very low scores. They have quite impressive scores given that their user base is so much larger and probably more opinionated, whereas, you know, the new upstart has a small very loyal following. But yes, it did catch my eye immediately as it did yours.
And as far as…I was going to say as far as the portfolio management software and your experience with Schwab PortfolioCenter, I think that’s very typical. I mean, it’s ironic in a sense, but the longer you’re in the market, the more data you have, and the more years of data you have, then the more difficult it is to move. But ultimately, you know, when a product gets old, if it’s not…I don’t want to say it’s not being supported anymore because it is being supported, but if it’s not being supported with the same enthusiasm, let’s say, and the same level of investment as it was in the past or there are other products that are clearly newer and better and have additional capabilities, yeah, it takes time. But it becomes not a matter of if you’re going to switch but when. And, you know, in a case of a firm like yours, which probably knew 5 years before you had to do it, I would argue that there was an opportunity cost also for waiting the extra 5 years when you probably identified somewhere between 2010 and 2012 that you were getting to the point where you needed to make the move.
Michael: And it’ll be interesting to see even how certainly that category, in particular, evolves as Fidelity is building out their Wealthscape tools. And I know Schwab is working on a new sort of updated Portfolio Connect service. So it’ll be interesting to see how the data shows up in the survey this year. Because you guys are doing the…you’re doing the data collection for what will be the 2018 Software Survey now.
Michael: Right? Like, you’re collecting here late 2017. And I guess, you know, for advisors who are interested in participating and adding their data, you know, we’ll actually…we’ll include a link in the show notes. So this is episode 52, so if you go to kitces.com/52, we’ll actually have a link out so you can participate in the upcoming now data collecting 2018 Software Survey, and, you know, add in your own perspective on what you’re using that you think is good and what you’re using that you think is bad. And share your perspective so you can see how it stacks up with everybody else’s once the final results are out.
Joel: Yeah, I think that category, in particular, is a really interesting category. It has been for the last couple of years, and I think it’s going to remain a very interesting category for at least the next two or three years for a number of reasons. You know, one reason is, as you have indicated, there’s still some software that was originally built, you know, in the ’80s or the ’90s that’s still out there. There’s still people, a few thousand-plus people using Advent Axys, much to my chagrin. There’s still a significant number of people that are using PortfolioCenter. And yes, I think when Schwab finally comes out with their next generation product, and I think it’s fair to say a lot of existing Schwab clients have been waiting three to four years for that to happen, that you’ll get some movement there.
You know, there’s also a lot of smaller players that probably aren’t as well-known. Everything from, AssetBook to Advyzon has a portfolio management and reporting capabilities. So sort of, you know, there’s things out there that people probably aren’t aware of that exist, that may be cost-effective and maybe niche players that have in some cases pretty good satisfaction ratings.
And then at the other end, if you look at, you know, what I would consider the more popular players today for firms your size, you’re looking at firms like Orion, Black diamond, and Tamarac. And all of them, you know, either have already or are clearly trying to become more than portfolio management. They’re all, you know, a platform player themselves. Clearly, Tamarac already is. Black Diamond is clearly moving in that direction, and so is Orion. I mean, when I talk to clients of mine that do business with Orion, and I’m sure you know this as well, they have quite a long list of products and services that you can engage with them for everything from video marketing to, you know, their new rebalancing and trading tool, they have a client portal. And they act as a great sort of integration tool because they have deep integrations with quite a few other leading providers in the industry.
Michael: It’s funny. I feel like we’ve gone through this interesting transition over maybe the last…I guess more rapidly over the past 5 years, but I feel like it really sort of happened slowly over the past 10 years. If you were to go back 10 years ago to like mid-2000s, if you were an independent advisor making technology choices, you didn’t actually have very many choices to make. Like, there were sort of a couple of core categories around CRM portfolio management and financial planning software. There were usually three leading choices in each, you know, back then. Like, you could get MoneyGuidePro, eMoney, or NaviPlan. And, you know, your CRM might have been early Redtail or…
Michael: …you know, Act!, which was still around.
Joel: Yeah, Act!.
Michael: Or maybe an early Junxure. Salesforce wasn’t even really going in our space yet. Like, there were just only a couple of choices. Every software pretty much stood on its own. And just you just decided from the few available which one you wanted to use, and that was that. And now, your financial planning software category has, like, a dozen responses. The portfolio management tools category has more than a dozen responses. Even the CRM tools category is much, much deeper than it used to be. And I feel like now we’ve gotten to a point where the biggest challenge for a lot of independent advisors putting together the technology stack is just figuring out how to put together a technology stack because there’s so many choices now that just figuring out how to narrow the list is quite challenging.
Joel: Well, I’ll put out a teaser there for you. We are going to have an announcement at T3, at the conference in February, a new service offering from T3 itself, which may help a little bit. I’m not going to say too much about it except stay tuned. But yeah, we also view it as a major challenge to advisory firms. I guess that’s why our consulting business is doing okay these days, you know. And the other thing that’s really, really interesting to me about consulting on the consulting side is, I would say that probably 8 times out of 10, when somebody engages us to go into their office and help with, you know, pick a topic, “We’re looking to change portfolio management software,” we identify on average at least 3 other things that we think are more pressing that they haven’t been asking us about.
What The Most Overlooked Advisor Technology Problems Are [22:31]
Michael: Are there certain areas that are common? Like, what are the most overlooked advisor technology problems that you usually find when you actually go into firms and talk to them and look at their stack?
Joel: Yeah, that’s a good question. I think there’s a couple of things that sort of stand out in my mind, but it’s a pretty long list. The ones that jump out at me is most advisory firms don’t think about technology holistically. So, you know, they’ll read something you wrote or I wrote and they’ll say, “Okay, well,” or they’ll read the survey and they’ll say, “Well, this is the best financial planning software, so let’s go buy it.” And then they’ll read somewhere else, “Well, this is the best CRM software, let’s go buy it.” And they don’t think about a couple of things. They don’t think about the use case, like best for who, right? As we said, RightCapital may be great and get very high satisfaction rankings from those who use it, but it’s not right for everybody. Same with any software out there. And then, does it talk to my other software? Does it talk to my custodian? You know, how do…it’s kind of like putting together a puzzle, do the pieces all fit together? And oftentimes they don’t. So that’s clearly a problem.
Another very common problem is just usage. You have good technology, but for whatever reason. Usually, it’s a lack of training. People are not using it properly. So I’ve seen many cases where people buy some of the best rebalancing software in the industry, I mean, I’ve seen it numerous times when I’ve gone into firms that were using Tamarac, for example, and they have this great rebalancing software, and they’re just not using it right. So they’re not getting any scalability or any efficiencies because they have 150 clients and they have 150 models on it. And it just…it’s ridiculous. And you see the same thing in billing, right? Everybody says they have a billing schedule and then they make exceptions for every single client. They show you their printed schedule, and there’s maybe three schedules. And when you actually go and you look at what they’re billing clients, they really have 150 billing schedules. So, you know, those kind of things.
Another area that we see just advisors still struggling with all the time is operational inefficiencies. And, you know, even though we don’t consider ourselves per se practice management consultants, technology and practice management obviously go hand in hand. If you’re calling me in to look at your workflows that you have programmed in your CRM and your workflows are no good, automating those workflows is just going to automate lousy processes, right? So first you have to fix the process and then you have to program it. And so those are just a couple of things that jump out at me, but there’s all kinds of problems in advisory firms.
Michael: Well, and I know I frequently see challenges for a lot of advisory firms that really just comes down to that, like, they’re trying to use technology to get the firm more efficient, and the problem is they are not running…like, they are not making efficient decisions about the firm in the first place, for which technology has no solution.
Michael: Right? Like, you know, they want to get more efficient in their portfolio trading process because it takes so long to rebalance 150 portfolios so they go and buy rebalancing software, but the problem is not actually that you don’t have software to rebalance 150 model portfolios, the problem is that you run 150 model portfolios and that you haven’t standardized your investment offering. And if you haven’t done that, the software doesn’t give you much leverage because you’re still running specialized portfolios for every single client, so the software can’t really scale it much the way it can if you decide, “Okay, we’re going to have five core models and do this consistently for all of our clients ranging from conservative to aggressive.” Now all of a sudden you can get a ton of leverage from the software because it runs 5 models very efficiently for 150 clients, but it’s just not efficient to run 150 models.
Joel: Yeah, and we see this all the time. You know, you’ll go into a firm and they have a process. They mentally are married to that process, and then they can’t figure out why they can’t scale. And as you indicated, it’s because the process itself is not scalable, and maybe, you know, when you started out and you had a limited number of clients, it wasn’t as big a problem. But when you’re on a…really on a growth swing, and, you know, I don’t know hardly anybody in the business who doesn’t want to grow, so it’s like, “How do I get more clients?” Then you have a bigger problem because you’re putting more and more people on an inefficient system and eventually it breaks down.
Michael: Yeah, so I would imagine it is not infrequent that what starts out as a consulting engagement for you ends out as a practice management and strategic planning engagement for you. And the process of trying to figure out how to get the firm more efficient with technology, it’s really a discussion about how to get the firm more efficient, period, and then use technology to help implement it?
Joel: I would say that that’s common. Again, we don’t consider ourselves strategic. And if it’s something that’s an ongoing problem, we’ll refer that out. But we’ll certainly point out the fact that, “Hey, based on your current processes and procedures, technology won’t fix this, sorry.” So yeah, we do. We do have that conversation more than occasionally.
What Themes Joel Sees Firms Consistently Focusing Energy On [28:04]
Michael: Interesting. And so, you know, what do you find overall? Just I’m curious what you’re seeing at the grassroots level when it comes to consulting with advisory firms. I think you mentioned, you know, you’re talking to everyone from startup solo practitioners to large multi-billion dollar RIAs, so are there certain themes that you tend to see consistently these days with respect to primary technology challenges or where firms are focusing their energy on technology issues?
Joel: Well, I think we just talked about some of it. Some of it is more, you know, sort of practice management and strategic issues than pure tech. I think one commonality is as an industry, finally, after all these years that I’ve been in the business, people are really recognizing the role the technology plays in a practice and how important it is. And those firms that do have good policies and procedures in place are getting some real leverage from applying newer technologies. I think there’s a lot of firms that have been around, you know, for a number of years that have, I don’t want to call them legacy systems, but they’re still using server-based software. You know, the old version of Junxure. They have PortfolioCenter on a server. And that to my mind is limiting their technology leverage because they’re relying on a “tech consultant,” who’s not a full-time person, to maintain that infrastructure. And again, it’s really not efficient and cost-effective. I think the most, you know, practical way for all but the largest firms to run themselves today is to run themselves in a total, you know, cloud environment. I just don’t see the need for servers anymore in-house.
Why It Is Safer For Advisors To Keep Data In “The Cloud” [30:03]
Michael: So how do you answer the concern of advisors who are fearful that transitioning to all-cloud systems just puts their client data at risk and is more exposed to, you know, the…they feel more comfortable with servers in their office versus being out there on the cloud when you read all the stories about people getting hacked?
Joel: Well, the short answer for anybody who brings that up to me is, you’re wrong. You’re wrong.
Michael: Well, that’s pretty direct, so…
Joel: The longer answer is I’ve been in those offices, I’ve seen their infrastructure and I’ve seen what they do to protect their servers and their data, and it’s nowhere near the level that true cloud computing protects the data, right? They’re not in essentially a fortress with armed guards. They don’t have the ability to even detect whether somebody has breached their network. There’s just no comparison. And I think now there’s wide acceptance in the industry among technologists, some people who know what they’re talking about, that it’s a much safer better solution for advisors to be in the cloud than not.
And they’re already in the cloud, right? I mean, they all have client assets at a custodian, it’s not on their servers. They all have bank accounts, it’s not on their servers. If they’re using most of the leading financial planning software today, it’s not on their servers. If they’re using, you know, cloud portfolio management, it’s not on their servers. If they’re using Salesforce, Junxure Cloud, Redtail, not on their servers. So I really don’t get what they’re talking about anymore. I thought we kind of closed the book on that discussion five years ago, but it does come up still from time to time, incredibly.
Michael: Well, I know the two that stuck out to me the most of just advisors with…who were concerned about cybersecurity kept their…you know, kept everything on their servers because it was “safer.” You know, I know one that, you know, they had their, you know, nice locks and protections on their server closets that no one could break in, but they were in a traditional office, like traditional office space with those drop ceiling panels.
Michael: So, you know, thieves just came in at night, took a ladder, popped the ceiling panel out in front of the door, climbed over the door, went to the server room, opened it from the inside, walked out with all the servers. Just stole their equipment right out because they had a highly secure door and a completely open ceiling. And you could just climb right over. All you needed was a ladder.
Joel: Yeah, and people have walls and doors and locks, and a lot of those walls are sheetrock that, you know, you can break in five minutes. I mean, physical security is a big deal. It’s something that’s often overlooked. Sometimes they have the primary servers locked up well and they’ve got, you know, on-site backups that are not locked up well. I’ve seen all kinds of crazy stuff.
And the other thing I’ve seen quite a bit is, and I’ve seen this more than once, many times and more than once, is where you ask somebody who’s got the on-site servers, “Where’s your backups?” And they point to them, and then you go look at the backups and there’s nothing on them or they haven’t backed up in six months. I’ve seen that numerous, numerous times. You don’t get that stuff with the cloud provider.
Michael: Yeah, no one…individual advisors rarely go and test their backups on a periodic basis. Robust cloud providers pretty much do it continuously.
Joel: Yeah, even advisors who do, they spot check it, you know, once every three months, once every six months. Well, imagine if you have a problem and you haven’t checked in three months and you lost three months’ worth of data. That’s still a substantial amount of data to lose. Nobody checks them daily. I’ve yet to find anybody who does.
Why Data Migrations Are So Challenging [34:03]
Michael: Yeah, it’s been interesting to see the shift that I feel like we, as you said, I mean, I think we are gaining cloud momentum now. There’s a lot more acceptance around this. I think for a lot of firms now the biggest challenge of moving away from servers is just, well, we mentioned earlier, the actual migration process of, “Now I’ve got to pick a cloud-based server…a cloud-based software and migrate.” You know, whether I’m going from the server-based PortfolioCenter over to Tamarac or Orion or Black Diamond or something, or I’m going from, heck, I just don’t know a few advisors that are using server-based Act! or GoldMine that want to now go to a Redtail or a Wealthbox or a Junxure or Salesforce. And just the effort of making those changes is still very significant. I think for a lot of firms it becomes the blocking point of getting it done.
Joel: But again, I mean, the number of people who use Act! has gone down by probably 90% over the last 10 years, and GoldMine as well, in our industry. And, you know, to the point that I made earlier, there’s an opportunity cost, right? They should have made that move 5 or 10 years ago. And if they did it when they should have done it, the pain would have been that much less. Now they’ve got 10 years’ more worth of data on there and the migrations are going to be more difficult today.
Michael: Yeah, it’s an interesting point to make. That as long as we continue to be going concern businesses that continue to do things with clients and accumulate more clients and do more things for existing clients, you know, the…anytime you’re thinking about a software switch that involves moving data, you know, literally, like it never gets easier when you wait. You just accumulate more data and it’s just more painful later. So like if the data is the pain, you may as well just bite the bullet because it literally never gets better.
Joel: It never gets better, and it could potentially get worse. Because if there’s still a larger installed user base of Act! users, for example, odds are you’re going to have a wider selection of consultants and price points to choose from when you do the conversion. If you are the last one off that ship, there’s not going to be a lot of people around who still do those kind of conversions and probably you’re going to have less choice.
Michael; Yeah, that’s a good point. That’s a good point. So as you look over the landscape over the past decade or 2, you know, as you said, like, you’ve been running the T3 Advisor Conference for almost 15 years, since the early 2000s, I know you were writing a little bit on the technology space prior to that, so as you look at this landscape and how it’s changed and evolved over the years, like, what do you view is the biggest shifts from…like, what do you see in the T3 Advisor exhibit hall today versus what was there 15 years ago at the first conference?
Joel: Well, a few things. You know, first of all, we talked about cloud. Most of the providers today are cloud providers. Clearly, that wasn’t the case 15 years ago, 15 years ago, you know, with1 or 2 exceptions. You know, Morningstar is one that jumps to mind and the custodians. You know, a lot of the firms in the T3 exhibit hall at that time were relatively small newer firms. Many of them were mom-and-pop operations, now a lot of them are, you know, small businesses. There’s still not a lot that are giant businesses, but there are some, right? You have the Envestnets of the world, the Morningstars, the SS&Cs. And we’ve grown up with, you know, some of these firms. I mean, probably when we started T3, MoneyGuide was a relatively tiny firm and now they’re an industry leader. Same thing for eMoney and others. So some of these firms have matured and they have better technology, and they have better client service, and they have scaled themselves. So that’s clearly changed. I’m trying to think. That’s really a good question.
I think sort of the collegiality among the competitors is still the same. It’s kind of a weird dynamic, but most of the firms that compete with each other really are on kind of a friendly basis with each other. They go to a lot of other shows together, and there is an ecosystem there of mutual respect, which I think you don’t find in many other industries. So that’s something that’s I think quite unusual and positive.
As far as, you know, advisors, I think in general advisors are more sophisticated today. I think when…you know, 15 years ago, they were overwhelmed a little bit by technology. I think they’re better informed when they come in today generally. Know a little more about what they want, ask more intelligent questions. Pace of integration has clearly evolved.
Probably when we had the first T3 Conference, the thought on the part of many of the custodians and others was that, you know, these third-party providers are out there, advisors need to figure it out and be their own integration engineers if you will. And now, as we said, there’s a lot of platform players out there, both custodians and third parties, who want to help advisors bring the pieces together. You have the all-in-ones. Obviously years ago there were no digital advice platforms if you will, institutional robos for advisors, there’s a lot of that out there now. We went from a situation 15, 20 years ago where there were a couple of firms that tried to be all-in-one to sort of this philosophy that no advisor wanted an all-in-one solution, and now we’ve come full circle to, “Hey, maybe some advisors don’t want to have anything to do with integration and they want a turnkey platform.” So you have many firms.
Michael: Are you more upbeat about the viability of all-in-one platforms this time around versus the last generation of them that seem to generally not work out well for most of them?
Joel: Yeah, actually I am. I think, I mean, I could point to a few examples. RBC BLACK has done with CircleBlack, and RBC really is a very robust all-in-one platform. You have another custodian that’s probably not as well-known, TradePMR, that’s built out their own platform that’s…you know, what they give to my mind is sort of a beginner version of everything, from CRM to portfolio management to some goal-based planning, and then they also provide integration. So if you want to move up the value chain, I can move to a more robust third-party provider of any of those. And they’re building out the APIs for all of that. Got a pretty robust client portal. They also have sort of the unbundled offering, the unbundled TAMP offering, so you can do, you know, as much or as little as you want with that. So that’s an interesting platform.
Clearly, Tamarac has had it for years and they’ve been successful, with the exception of the financial planning piece. Morningstar is going in that direction. They keep building Morningstar Office/Advisor Workstation, try and provide more. Orion, as we said, is trying to provide more services. Black Diamond through integrations is trying to provide more services. And you have some of… I’ll tell you…
Michael: So is there a point where this starts to break down because everybody is trying to be an all-in-one platform? Like, I almost wonder if we’re at risk to go to the sort of the opposite side of the extreme. You know, the challenge a couple years ago was there were lots of good best-in-breed solutions in the various categories, but it was really hard to make them integrate and work together, so we all pounded the table for integrations. Then we got more integrations and them more firms started trying to become full platforms and build all-in-ones.
And now I start to wonder that we go to the other direction that I know at least for me, maybe you don’t hear this, like, one of the biggest complaints I’m starting to hear from some advisors now is like, “So I like software blank but it does, like, 47 things I don’t need because I already use all these other software tools. Like, I just need to do this one thing, and I can’t buy any software that does this one thing because everybody’s a platform that does lots and lots of things.” And so now, like, you can’t even make…before it was just hard to make the jigsaw puzzle fit together, now you just can’t even fit the pieces together because everybody is making giant pieces that overlap each other.
Joel: I think there’s a little bit of that.
Michael: Do you think that’s a fair criticism or…
Joel: Yes and no.
Michael: …is that just the world I’m in?
Joel: Yeah, I think it’s more the world you are in.
Michael: All right.
Joel: I see it a little bit but not to the extent perhaps that you are. I get it that sometimes there’s overlapping things, and I think it really goes to, you know, what’s your approach to technology? If you can find a provider that has most of what you want but not all of what you want, and that does allow you to integrate with certain other leading third parties, that probably works. If you’re really looking, you know, to get every little piece separate, yeah, that’s going to probably exclude third…yeah, certain providers going forward.
You know, so an example would be like let’s say overall you like what Tamarac has on rebalancing, trading, reporting, and CRM, but you say, “Hey, you know, they really don’t have anything on financial planning.” Well, if they integrate with eMoney or MoneyGuide and you have a good deep integration, you probably have most of what you need there, right? Same thing with Orion. Some of the newer ones like AdvisorEngine, they have a lot of pieces, but they’re also willing to be open and say, “You can buy as much or as little of what we offer as you want. So if you just want portfolio management yeah, we’ll just sell you that.” But, you know, I think what they’re hoping is that once you get engaged with the platform and see for example how their portal is, that even if you have another portal provider you’ll eventually, you know, see the light and engage with their portal as well.
Michael: Yeah, with the caveat that I feel like portal software is one in particular that every company in every category has made portals. And as advisory firm sometimes we end out like, “So which of the five portals do you want to use from your various tools?”
Joel: But see, I mean, I think advisors look at it sometimes and they say, “Hey, we’re paying for this whether we use it or not.” I see it from the other side where, you know, providers say, “Hey, we have to be able to check that box for those who do want it,” right? Particularly more for their institutional clients, but to a lesser extent for their retail client, you know, retail advisor clients. So they say, “You know, we get it, there’s too many portals, but, you know, some of our clients want us to provide that, so we have to do it even though it’s overlapped with 50% of our clients.” And it’s a good problem to have.
Michael: Yeah, I mean, I’d rather have a lot of choices than none. So, you know, careful what you wish for. I hear you there. And I guess that’s an interesting question unto itself because I know you see both sides of this. Like, how much of the roadmap of technology companies these days is driven by sort of the independent advisor community versus the enterprise environments? Because, you know, for most of us as individual advisors we don’t see the entire enterprise side of the technology world.
Joel: Well, I think certainly it depends. I think certainly it depends somewhat on the firm you’re talking about. They’re not all the same. Some have either already a big presence in the institutional space, broker-dealer space, what have you, and some don’t. Some want to and some don’t. So I think, you know, it is somewhat company-specific, but the ones that do have a big presence obviously they’re listening on the one hand to what their institutions are telling them because those are big contracts, on the other hand, a lot of the thought leadership to this day comes from the independent space. So even though there may be not one institutional client that’s asking for a feature, you know, if there’s a reasonable number of independent advisors who are asking for that feature, I think for the more progressive companies the odds are they’re going to build the feature because they realize that if advisors want it, probably a year or two down the road the institutions will want it as well. I mean that’s just the way it is.
Michael: Well, and, I mean, part of that I feel like is always sort of the nature of innovation, right? The old classic is smaller firms are more nimble and innovative, larger firms have more challenges turning the ship. So, you know, in practice, the independent advisor community also tends to be the smaller nimble more innovative group.
Michael: The large firm environment is the ones that pick up the innovations as they go more mainstream. And so, you know, for you as an advisor tech firm, you know, you point your innovation from what the independents want and then you figure out how to build it in the enterprise context. Or I know for a lot of advisor software companies over the years, like, that literally was their roadmap for growth. Like, advisor had problem, couldn’t find solution, made solution, sold it to friends, made a software company on the side, grew it enough in the independent channels that enterprises started showing up, sold it to enterprises, then turned into a large software firm.
Joel: Look, I think it happens to this day, okay? I mean, I deal with a lot of startup tech companies. They come to me naive and they’re like, “Well, you know, we want to sell to, I don’t know, pick it, Commonwealth, LPL, whoever.”
Michael: Yeah, Cetera. “You know, how do we get 1,000 advisor licenses per transaction or more?”
Joel: “And by the way, currently we have zero client base.” You know, I mean, every now and then there is a unicorn that’s able to walk in with something new if it’s just so attractive to a firm that they’ll buy it, but the much more likely scenario is they’re going to get street cred by selling to independents first. You know, if you’re a startup tech firm and you can go to a broker-dealer and say, “Hey, look, we’ve only been in business a year and we have 300 or 500, you know, paying, loyal, enthusiastic RIAs that do business with us,” if I’m a big institution, I’m going to pay attention to that immediately. And by the same token, if I’ve been in business 3 or 5 years and I have only attracted 30 paying RIAs, well, that may not be a sustainable business model. So I think you get a lot of street cred by winning over as you say entrepreneurial advisors who are paying money out of their own pocket for technology. If they’re enthusiastic about it odds are it’s a viable product.
Michael: Well, and it still fascinates me overall just how much of our advisor software is still getting created by advisors. You know, Redtail came out of an advisory firm, Junxure came out of an advisory firm, ProTracker came out of an advisory firm, Orion came out of an advisory firm, Oranj came out of an advisory firm, eMoney kind of came out of an advisory firm, or at least Edmond had a lot of that background.
Joel: And to a certain extent MoneyGuide too because they were working with Harold Evensky and his firm.
Michael: You know, the number of tools that get created by advisors for advisors, TRX in the rebalancing category. Like, I’m just sort of…I mean, how do you view this? Is this like…is this a positive sign of innovation, that advisors can create software tools, sell them to peers and turn them into viable companies or is this a problem that we so lack investments in innovation that the only way things get created is advisors just literally make their own tools out of frustration, sell it to their peers and then eventually make software companies?
Joel: I’m not quite as pessimistic as you are, in my view. I think what I would say is this. I think there’s a lot of technologists who try and come into our space with no domain knowledge and try and build a product for the space and then they’re amazed that nobody wants it or that people are just calling out all the faults in it. So if you have no domain knowledge, it’s really, really, really difficult to get into this space.
Like I talk to firms all the time and they’re like, “Well, we’re building this product for X, for advisors.” And I say, “What kind of advisors? You know, independent RIAs, broker-dealers, who?” And they don’t even know what I’m talking about. All of that tells you they don’t know what they’re doing, right? Because if you don’t even know who your market is how do you know what your market needs?
So, startups that have somebody involved who’s been in the business tend to do better. It doesn’t mean it has to be advisor, you know, created and driven, but it definitely needs advisor input early on and people with experience in the business because as you know, even within the independent RIA space, there are nuances and there are different, you know, sort of sub-sectors. And the same can be said for the broker-dealers, and certainly the wirehouses. And it’s very hard to build a product that’s going to appeal to all of them.
Michael: Yeah. So can you tell us a little bit more about just your own background and path? Like, how does someone become a advisor tech guru guy? What was your background and path to getting to the point where you’re writing advisor technology articles and running advisor technology conferences?
Joel: Well, I wouldn’t recommend my path to anybody who necessarily wants to do what I do now. It was a very strange one. I started in the business doing foreign exchange in 1980. In the early ’90s my firm was looking to get into equity derivatives before anybody knew what they were, so we had to register with FINRA and start a broker-dealer. I drew the short straw so I had to become president of that subsidiary. So I had to take all my licenses and start a firm. You know, I had to study and stuff. That was a lot of fun. And then we did this equity derivative thing for a while.
And while all this was going on, I was working with, you know, a number of colleagues who had fairly substantial 401(k)s, who…currency traders essentially and knew nothing about mutual funds and other investments that were available to our 401(k). And I started an RIA firm to service them. One of my first outside clients was actually somebody who was formerly one of the chief people at PC Magazines Labs, was doing testing, and he left PC Labs and built his own lab in his house, by my house. And I spent a lot of time there, and one day a little bulb went off in my head and said, “You know, somebody should be doing this for advisor tech.” Because some of the advisor tech that I built early on was horrible and I felt that I was really ripped off. And so I actually went to, at that time, Marv Tuttle, who was at that time the editor of the FPA, the Journal of Financial Planning, and I volunteered to write articles, you know, reviews of technology for free because I was so pissed off. And he turned me down.
Michael: And he turned you down.
Joel: Yeah. He’s like, “No.” Again, probably because he was worried about annoying sponsors or losing sponsorship. It may have been a business decision, I don’t know. We never really discussed it afterwards. And then that made me even more angry. And being a New Yorker I just said, “Well, I’m going to make this happen.” So started writing for Horsesmouth. Eventually, the Journal came back and offered me a spot writing for free and I said, “You missed it, now it’s going to cost you.” And they had no money. So that never happened. But then I started writing from Morningstar for a number of years, Financial Advisor, Financial Planning. And then, you know, I was friends with Dave Drucker through NAPFA. One day we were having dinner, you know, he said to me, “Hey, you want to write a book about technology for advisors?” And I’m like, “Yeah, okay.” And so we wrote a book, and Bloomberg published it. It came out…I think it actually released at the beginning of 2001, and the rest is history.
After that, we decided to do a conference. The first two years in conjunction with NAPFA, but they had a different vision of what a conference was going to be than we did, so we went out on our own after that. And, you know, since that time Dave has retired, but I kept on doing what I’m doing.
Michael: So that was…I mean, I think you did a couple of books over the years, right? You had the…
Joel: We actually did three, yeah. The first one was the Bloomberg book. Hang on, what is it?
Michael: That was “Technology Tools for the High-Margin Practice?”
Joel: “Technology Tools for a High-Margin Practice” was the first. The second was part of the National Underwriter, the old Tools and Techniques Series, “Tools & Techniques of Practice Management.” And then we kind of did a refresh of the original book but with a lot of co-authors a few years ago. And I doubt I’ll ever write another book. It’s just not very cool.
Michael: I was going to ask, like, are you thinking of doing another one or are you not actually a fan of that, it’s just a model and a way to get paid for your time and expertise?
Joel: Well, I think the first time we had something to say and nothing had been done on it, and probably at that time a full book was the best way to get the message out. But it became apparent to us even when we did the first book that, you know, with technology the shelf life is pretty short if you’re talking about products. And we named products in the first book. I mean, half of it was principals and half of it was actual products. That stuff gets stale pretty quickly. So doing that type of book today, you know, it’s going to be stale before it even gets printed.
Michael: So that’s the virtue of having blog platforms, conferences.
Michael: You know, I know you’ve made now your T3 Tech Hub, so, you know, you’ve got a place to do much more live real-time commentary in a space like technology that moves as fast as it does?
Joel: Exactly. In this day and age, you know, writing a book, like I said, the principles of technology haven’t changed much. I was looking at the first book not that long ago, and I said, “You know, almost everything we wrote still applies today from that part of the book, but in the review part, you know, obviously all of that stuff is antiquated many, many years ago.
Michael: Yeah, I guess that’s the…well, that’s the challenge of how quick the space works. So does that mean, you know, going forward, like, you’re much more focused on tools like T3 Tech Hub and the conferences? Is that where you see, like, the focus of building and sharing technology expertise in the future?
Joel: Sure. And obviously the consulting is still very helpful, you know, because in a way even though consulting itself is not scalable, the knowledge I gained from those engagements is scalable, you know, the lessons learned. So it’s really interesting to go into firms and see what they’re actually doing. And even though I can’t mention firms or anything, that’s all confidential, I have a database in my mind of actually what’s going on in these firms and I can share sort of common trends, which we talked about earlier, that I see. So that does help me make decisions on everything from, you know, what we’re going to write about on the blog to what kind of speakers we’re going to have at the conferences.
We had a very heavy concentration of cyber security this year at the Enterprise Conference because clearly there was a trend in the industry that cyber was not getting the attention that it deserved, and a lot of the presentations I had seen were either over advisors’ heads or they were more from a compliance aspect as opposed to, you know, practical, “Here’s what you can do to make things better,” kind of thing,. So both T3 Conferences, we’re trying to get actionable advice, and not just say, “Hey, here’s a problem, go figure out how to fix it yourself.”
Trends In Advisor Technology We Are Likely To See Going Forward [59:18]
Michael: Right. So as you look forward from here, like, where do you see the advisor technology trends going? Where do you think this evolves over the next five years in our space?
Joel: Well, I mean, I think it depends how far you’re looking at. If you’re looking at let’s say the next 12 months, clearly cyber is still going to be a very big issue. I think, you know, even though we’ve been talking about it for well over a decade, I think that integration is still a problem in most independent advisory firms. And like I said I think we see better solutions coming. The more people are in the cloud, the easier it is to solve. But as you indicated, yeah, there’s some overlap, and getting it exactly the way you want it is going to continue to be a little bit of a challenge.
On the other hand, you know, I’m also overall very positive. I think the good vendors in the industry, and there are many of them, really are investing heavily in the future. There’s just so many good firms that are coming out with more and more good product and better product and better interfaces, and, you know, better ways to interact with clients, and trying to figure out ways for advisors to leverage technology better. As we develop more data sets I think you’re going to see more on…and I think you’re already starting to see this on business intelligence and business analytics.
Looking out a little further, yes, things like blockchain, things like augmented reality, voice. And one thing that the technology giants are doing today, which we really haven’t done a good job of yet, is leveraging the additional data that’s available or potentially available through mobile devices. So, you know, the more clients use mobile devices to buy things, to manage their money, the bigger the data set is going to be. We’re not harvesting any of that right now. I mean, a couple of big institutions, international banks are starting to and maybe national banks, but it certainly hasn’t filtered down at this point to the advisor level. But I think eventually it will. And I think we’ll get to the point where…
Michael: What kind of…I mean, like, what sort of big data insights do you imagine we glean out of that when all this data starts getting rolled up?
Joel: All kinds. I mean, I wrote an article on the T3 Tech Hub not too long ago, I think, about what RBC Bank in Canada is doing. They just launched a new app, but it’s got some kind of artificial intelligence in there. It’ll look at things like, you know, what’s your current checking account balance? It knows what bills are coming in over the next couple of weeks, and it’ll alert you to the fact if you don’t have enough money to…you know, cash flow, projected cash flow to pay those bills and say, “Hey, you might want to take some money out of savings or somewhere else and raise some cash to pay these invoices.” The flip side of that is you can…you’ll be able to program it to say, “Hey, you know, keep a, whatever it is, $3,000 a month balance in my checking account all that time, but when you project it’s going to be more than $3,000 in excess of what my bills are going to be this month, just move that to savings or some kind of investment vehicle.” So I think there’s the opportunity to automate savings more for younger clients and older clients.
Something that one major U.S. bank is already doing, which is something that I think is somewhat of a threat to independent advisors is, you know, for many years, I think independent advisors have kind of owned the rollover space. Like, we knew about a rollover first and we were most likely to get it when our clients were changing jobs. Well, one major bank now has a program in place that looks at where all of their clients’ paychecks are coming from every pay period on direct deposit. And whenever they see a change in direct deposit, somebody in the bank gets an alert and says, “You know what? Looks like this person just changed jobs, let’s reach out to them and see if they want to roll over their 401(k).”
So, you know, those are just a couple of examples. But I think the other thing is if you’re doing most of your spending on your phone and I have access to that as your advisor, I don’t need to ask you, you know, what your budget is, where you’re spending money, I already know. And I have a much better data than you’re going to give me. And so I can just do planning with that.
Michael: Yeah, I’m fascinated by the potential for us as advisors to finally get more involved in doing financial planning around cash flow-related issues…
Michael: …once the technology automatically tracks most of it and we don’t have to get stuck on the, “Well, what do you spend?” “Well, I don’t know.” Because the clients that have the most significant spending problems are usually the ones that do the worst job tracking their own spending so they have no idea and can’t fill out the data gathering form. When we get down to, “Oh, just, you know, click these buttons to link your bank accounts and your credit cards and then the software will instantly categorize your spending and we have a snapshot of where your money is going,” suddenly we can do cash flow and budgeting planning in a way that we couldn’t before entirely enabled by the technology to basically make the data gathering process disappear.
Joel: Yeah, if you want to get really scary, imagine if your client enabled you to see where they were all the time and sent you an alert if they walked into, like, a car dealership and you could say, “Wow, don’t do anything until we talk,” right?
Michael: What are you doing in the car dealership today?
Joel: Right. But, you know, seriously, like, 10 years ago, there were a number of applications that started popping up that were trying to address more the liability side of the balance sheet, and what happened is interest rates essentially went to zero, and there wasn’t much value in that. But I think when interest rates start going up again, I think there’s the opportunity, especially now that we have so much better data than we had years ago, to do, you know, some arbitrage on the liability side of the balance sheet better. Just manage the liability side of the balance sheet and really add some value to clients there. You’re also seeing it a little bit on the asset side. I don’t know if you guys have looked at MaxMyInterest. Have you seen that?
Michael: Yeah, yeah, we wrote about MaxMyInterest and kind of the Max for advisors platform on the blog I think about a year and a half ago. Sort of early on for them, but…
Joel: Exactly. And when they came to me at that point I wasn’t too excited. I’m like, “Interest rates are at zero, where are you going to get me an extra, you know, 0.1%? Who cares?” But as interest rates go up and spreads widen a little bit, you know, it’s already to the point where I think something like MaxMyInterest is a no-brainer for advisors who have clients that have, you know, reasonably sized cash balances. The cost of it is very reasonable and it’s really good…a really good service.
Michael: Yeah, so for those who aren’t familiar, you know, MaxMyInterest is basically…I was going to sort of say a robo tool, but I feel like that may be biased to some people against it just to use the label. But it’s a software platform where clients connect their primary bank account, and they’ve got connections out to I think five or six other internet banks and they will automatically transfer dollars from one client bank account to another just to automatically shift to whatever is paying the best interest rate. So if, you know, the next bank along comes out and is offering, you know, a half a percentage point more or 1% more or heck, to 0.1% more than what your client is currently getting paid, they will automatically move the money on the client’s behalf, transfer it to new bank and get the higher yield.
So you just literally auto shop for higher bank yields across the range of banks that they use. And they’ll even do the additional layer for high-net-worth clients of move the money around but also stay under FDIC limits. So if your clients have concerns about, you know, bank system stability, they can basically play the game of well, $250,000 FDIC limit per account if you’ve got separate accounts for husband and wife across multiple banks. And so they do both the allocating for yield and the allocating to maximize FDIC limits.
Joel: And I think they’re also trying to sort of negotiate better rates for their clients. They say, “Hey, we’re going to give you a steady stream of funds.” Sometimes maybe they can get a few extra basis points out of that. So that partly covers their cost, which I think, you know, is in the range of five to eight basis points. Is that right, annually?
Michael: Yeah, yeah, I think that’s their range. Which, you know, if clients automatically get to grab an extra 10 basis points of yield when one bank out of many steps up their rates a little to attract dollars, the algorithm just moves it all right over. Like, they’ll very likely pay for themselves just in automating yield movements that clients wouldn’t have taken advantage of anyways.
Joel: Right, because even if the advisor is trying to do that, again, it’s not really scalable if you have a lot of clients, and is that the best use of an advisor’s time? It just seems like a no-brainer to pay for a service like that, especially when it’s so reasonable.
Michael: The thing that amuses me the most about it is just if they’re really good at what they do, they’ll start taking cash off the custodial platforms, which is how a lot of the custodial platforms actually make their money on the money market spread. So if they do a really good job, they’re going to eventually disrupt some custodians. But it’ll probably take a little bit of growth for them to get there.
Joel: That thought did occur to me, yes.
Michael: Yeah. So when you look out at the advisor tech landscape, like, what’s exciting to you about what you see on the horizon? Are there I guess tech trends or even particular technology companies? Like, what’s got your eye right now that you’re focusing on?
Joel: Oh, I don’t know. Again, I think it’s hard because I’m looking everywhere and there’s always something that excites me, and it almost can change on a weekly basis. Like I said, I mean, I think the big trends are that advisors have more and better choices than they’ve ever had before. And when I look at sort of the community of vendors that serve advisors, unlike the things that really annoyed me, you know, when I wanted to start writing about this, I would say that like 99-plus percent of all the vendors I deal with really are good and really are trying to do the right thing for advisors. Yeah, there’s always a couple of outliers, but there’s just so many good companies out there that are investing as we speak to make advisors’ lives better, that it makes me really optimistic about the future. I really do believe that augmented reality is going to play a role in wealth management before way too long, so I’m excited about some of the developments there.
I think there’s tremendous opportunity between machine learning and artificial intelligence to get better data to drive better solutions for advisor clients in the future. And I think some of these other technologies that people don’t really understand like blockchain definitely are going to impact our industry within…well, they’re already starting to, but you may not see it at the advisor level for a few years. But there’s a number…most banks and big institutions are already in some way, shape, or form experimenting with blockchain. Blockchain is being used right now by the Australian Stock Exchange. It’s the tenth largest Stock Exchange in the world. This thing is going mainstream, and it really is going to create new efficiencies and lower cost of some services. And honestly, it will disintermediate some people in our ecosystem. Like, I don’t think reconciliation five years from now is going to be done the way it is today. On the other hand…
Michael: I was going to say, like, when…
Joel: Go ahead.
Michael: What actually changes for us at the advisor level? I mean, I’m personally fascinated by some of what’s happening with blockchain, but I feel like it’s a very…I’m curious how your technology works under the hood in a world where most of us don’t actually look at how our technology works under the hood. I just want it to work and get it as cheap as possible.
Joel: Right, so how will it work for you?
Joel: I think how it could work if the custodians got their act together is, you know, you wouldn’t need data feeds and you wouldn’t need to have accounts at five different places. Everything would clear through one blockchain and everything would work with every portfolio management software. You could have trades that literally, you know, settle almost instantaneously. So there’d be no T+1, T+3, all of that stuff. All of that could go away. And there would be no reconciliation because, by definition, it would be reconciled. Because you’d actually be…your software would be talking directly to the ledger. So whatever you had, and if your custodian is Schwab, what Schwab had would be the same all the time.
Michael: Yeah, which would be interesting, right? Because, I mean, even when you drill down to things like portfolio management software is very expensive. And one of the reasons it’s very expensive is the data cleanup and reconciliation process is still very challenging for most providers. So if that starts to go away because we all pull off of one consolidated blockchain then just portfolio management software starts getting cheaper for everyone.
Joel: And again, I don’t think that’s happening tomorrow, but I think it’s in the realm of possibility. I think contracts like insurance contracts in the not too distant future, they’re all going to be in a blockchain. Eventually, title insurance will go away because all the titles to all the properties are going to be on a blockchain. So, I mean, this is really a revolutionary technology that people really haven’t grasped yet. They think blockchain they think bitcoin. Now, to me, bitcoin is pure speculation. To me right now it looks more like tulips than anything else. But blockchain I think is a real technology that can be implemented in a lot of creative ways. And we’ve only really just scratched the surface of what it can do.
Michael: And from the advisor end we’ll just see faster, more efficient, cheaper technology.
Joel: Yeah, we’ll benefit from it, not directly. Not that you’re going to go out and build it, but yes, the people who supply services to you will build it and you’ll benefit from it.
Michael: Very cool. So what else do you see…
Joel: User interface.
Michael: …over the coming years of changes?
Joel: User interfaces. I mean, they’re getting much better. There’s been tremendous innovation over the last let’s say eight years on user interface, but it’s still got a way to go. I see, you know, firms, again, all across, whether it’s the CRM firms, your leading financial planning firm, your leading portfolio management and accounting firms, they’re all trying to make it easier to interact with their software, both at the advisor level and the client level. And I think that trend is going to continue. And to me, that’s exciting because then advisors can spend more time talking to their clients and less time interacting with the software. And I think that’s still a challenge.
Why CRM Is The Most Underutilized Technology By Advisors [1:15:03]
Michael: So from the flip side, what do you see is the most underutilized technology by advisors? Like, where are we not doing well of using what’s available to us?
Joel: Well, I think as an industry, we’re not doing nearly as well as we should with CRM. I would say that still the vast majority of the firms, even if they have CRM isn’t only a fraction of its capabilities. I go into firms all the time that are using CRM as an electronic or a digital Rolex as opposed to really, you know, practice management tool. I don’t think we’re doing a good job today on business intelligence. So I go into firms all the time, every firm I ever walked in can tell me who their top clients are by revenue, almost nobody can tell me who they are by profitability. They don’t keep that. So, you know, I think we have a long way to go there.
And part of it again is getting the data in. So if you don’t create the data by really having some idea of what resources you’re devoting on an annual basis to a client relationship, how do you know if you’re making money off it. Account aggregation still better than it was a few years ago. Not where anybody would like to see it, it’s still a challenge. So, you know, dealing with held away assets is somewhat of a quagmire to me still to this day. And I think that’s still a challenge. So yeah, there are challenges out there.
I’m not saying it’s all going to go away and be great tomorrow, but every year, to me, I see, you know, the glass more half full than half empty. And every year I see advisor technology progressing, more and more advisors taking advantage of technology that’s available to them. Having said that, you know, I think for the next five years I don’t have to worry about having enough consulting work. I think there’s still plenty of firms out there that can benefit from some professional advice.
Michael: And what about from the provider end, do you think there are still areas where technology companies are missing out on what we still need as advisors or are they doing a pretty good job of understanding our needs now it’s just down to who can execute it well and figure out how to make it easy to use?
Joel: I mean, I think there’s a lot of firms out there that understand what advisors do and what they need, and they’re trying to build for it. Again, we’re not a homogeneous group, so they get mixed messaging sometimes and they have to prioritize and say, “You know, what are we getting the most requests for? We have limited resources.” So sometimes that’s an issue. And I still think there’s people out there who are identifying new…what’s the word? You know, gaps in the market that could offer opportunities.
I was out at the Riskalyze Conference, Lake Tahoe, I guess it’s a month or so ago, where they rolled out this Riskalyze Retirement. It’s a new 401(k) platform that they developed. I mean, my eyes lit up when I saw that because I said…you know, I’ve seen so many of these third-party provider software platforms that advisors use today that are in that business and so many of them look antiquated to me, and so many of them are overpriced, and it’s a lousy user experience. And I looked at this and I’m like, “Wow, where was this before?” And so they identified a need and they built something for it. And I’ll tell you it’s the nicest-looking, totally digital end-to-end platform in that space that I’ve ever seen. Maybe there’s something better out there that I haven’t seen, but certainly the best I’ve ever seen. So yeah, I think there’s still smart companies out there that are identifying opportunities, hearing from advisors we have a need, and somebody is willing to invest the money and build it.
Michael: Amen. And what about your…kind of your platform, this website of T3 Tech Hub and newsletter service and conferences, like, where do you see all this going for you over the next couple of years?
Joel: Well, as I said, I think we’re going to invest more resources in the Tech Hub this year. Look, we try and put out all of the relevant news from all the providers in the industry. We also try to put our commentary, by me primarily when appropriate. We also invite everybody, including you, to submit thought leadership pieces that we’re happy to publish. And we put that out to our audience. We’re also active on social media.
As far as the conferences go, you know, this is the golden age of advisor technology. We have a great group of exhibitors and sponsors who make it very affordable for advisors to come to our advisor conference. We are by far the cheapest national three-day conference in the industry because, you know, we get good sponsorship. And rather than, you know, taking all that money in we use some of it to subsidize what advisors would pay otherwise. So we really try and make it affordable to everybody.
We’re also making a big effort for the last couple of years and even more so this year to encourage more students to get involved. So whereas other conferences they go and, you know, they talk about how they can be a planner, we try and talk to students and say, “You know, if you don’t want to deal on the front line with clients, there’s plenty of other jobs in this industry for you. You could help build the next great CRM product. You could help improve the next financial planning product. You can be in client service and help on the tech side servicing advisors who need support.” So, you know, we’re very active in that space.
And, you know, we also run a small thought leadership conference that we don’t really publicize, the T3 Tech Summit, where we bring together for a day or a day and a half all of the leading thought leaders in the space to talk about just the kind of thing you were asking me about. You know, what needs are there of advisors that are not being served? Are there any areas within the tech space where nobody has a competitive advantage, where the tech providers could be collaborating even though they’re competitors because there’s no real advantage to competing, let’s all pull our resources and drive down the price and get some economies of scale? So we do that at least once a year. And, you know, there has been some interesting things that have come out of that, and some of them have led even to product changes or developments on the part of some of the participants in that conference.
Michael: Well, you know, I’ll give a plug for T3 Advisor Conference, in particular, coming up in February. You know, I was at the very first one or two, and I still remember being amazed from the very first conference that it was the first one I had ever…it was the first conference I’d ever been to where one of the biggest complaints from the participants was not enough time to go to the exhibit hall.
Joel: Yeah, we still get that and we keep it open pretty much throughout the conference. You know, some people that’s what we want to do. And, you know, that’s fine.
Michael: Yeah, it’s amazing thing, right? We’re so used to conferences where, you know, the only reason you go in the exhibit hall is because they foot the food and the coffee at the back end of the exhibit hall to force you to walk through the exhibit hall so that you can…you have to pass the exhibitors, and they can take a crack at all the advisors. And then you get a conference like T3 and people are complaining that they don’t have enough time to go through the, well, now close to 100 vendors in the exhibit hall. It wasn’t as many as 100 back then. The space has grown. But even more to the point that, like, there’s actually a lot of choice out there now.
I mean, I continue to recommend the conference a lot and, you know, as you know it’s been on our best conference list for many years now just because there’s really no better place to go if you want to just get a full perspective on the entire landscape of all the technology providers that are out there. Granted you don’t quite have literally every single company in every category, but you do have almost every single company in every category at that conference. And so, you know, if you’re shopping in some particular category and trying to figure out, you know, who the players are and how to compare them, like, there’s really no better use of your time as an advisor than going out to this thing and just literally going down the aisle from one company to the next and just compare them all on the spot and use your time efficiently.
Joel: Well, I appreciate you saying that. We certainly think that’s the case. And I think it’s fair to say that we have the leaders in every category there, the top three or four firms in just about every category. And we also make a really, really significant effort to invite newer emerging tech companies that are new to the space for two or three reasons. One is we want to educate those companies and we want them to talk to tech-forward advisors and get feedback so they can get better. We want advisors to get an opportunity to see not just the leaders in the field but also some of the newer providers that they may never find on their own, not in a reasonable amount of time.
And also because, you know, like I said, they’re sort of an ecosystem within the tech space that we think it’s important to initiate those new firms into. You know, we want them to understand that, “Hey there, if you want to be successful in this space, you need to go visit with the custodians. You need to go visit with some of the other providers that don’t provide what you provide and create those integrations in order to be really valuable to advisors.” And all of that happens during those three days.
Michael: Yeah. Well, we’ll make sure to put a link out to the T3 Advisor Conference on the show notes as well. So again, this is episode 52, so people can go to kitces.com/52. And I know you’ve been kind enough to give a discount for Nerd’s Eye View readers as well, so we’ll have the discount code up there as well if anyone is interested in attending and wants to get even more of a deal, though, you know, truly you guys are already one of the cheapest multi-day conferences for what you do.
Joel: Well, we’d love to have as many of your listeners and readers as possibly can make it down. It’s Fort Lauderdale on the beach in February. It’s not too shabby.
Michael: No, not the worst place to go. And I know you guys pretty much rotate between nice Southern warm places during February. So it’s very kind of you.
Joel: Well, you’re not going to find us in Minnesota in February. It just doesn’t make any sense. No offense to all my friends in Minnesota.
Michael: No offense to all of our financial planning friends in Minneapolis. So from your end as well, for advisors who are interested in getting even deeper into some of these technology issues, like, how do people engage you if they actually are saying, “Yeah, I’m still overwhelmed by all the choices and I don’t know how to fit the darn things together because I’m a financial advisor, not a technology person?” How do they find you if they’re interested in going deeper?
Joel: I try to make myself fairly available. They can direct message me through Twitter @FinTechie. They can visit the T3 Technology Hub. There’s a link to reach out to me there.
Michael: And how do they engage you? Like, do you typically do ongoing consulting engagements? Do you do lots of hourly engagements of just, hey, they can buy an hour or two of your time to get some perspective? Like…
Michael: …what should firms expect if they’re interested in talking to you?
Joel: So if it’s somebody who’s really small on a really limited budget, we will do hourly stuff over the phone. It’s a minimum of two hours, if not it’s not worth my time. You know, I get people call me up, “Can I buy 15 minutes of your time?” I’m not sure.
Michael: You know, well, and which I always giggle at that. It’s like I don’t know a single advisor where if a client called and said, “Could I buy 15 minutes of your time,” that you would actually write an advisory agreement to do a 15-minute engagement.
Joel: Right, it takes longer to write the agreement than it does the task. So it’s just not cost-effective. You know, the problem with those engagements obviously is I can’t see what’s going on in your office. And I have advisors, many advisors who I’ve talked to, in fact, almost every advisor that I’ve ever consulted with I have preliminary discussions over the phone. I ask them to describe what’s going on in their office, then I go there and I see something totally different.
So, you know, our typical engagement is a day and a half to two-day engagement where I fly in, depending on the size of the firm I’ll spend a day and a half to two days there. I try and interview everybody in the firm, look at everything they’re doing, look at some of the documents where appropriate, look at some of their hardware where appropriate, and then do, you know, a few hours of follow-up. They’ll get a written report and whatever. And those run generally speaking around 7,500 bucks, including the pre-visit, the post-visit, and the written report. And then it goes up from there depending on if you want more of my time or not.
Michael: Yeah, which, you know, if that’s going to save you days and days of time and just actually getting the right technology for your firm. Like, it’s a good ROI for a firm.
Joel: Imagine what it costs to a firm if they select the wrong portfolio management software, talking tens of thousands of dollars. If it’s a reasonably sized firm, probably $100 grand up. So yeah, we think we’re pretty cost-effective.
Michael: Yeah. So as we come to the end here, you know, this is a podcast about success, and one of the things we always talk about is that just the nature of success and what we’re building towards means different things to different people, sometimes different things to us in varying stages of our own career.
Michael: So, you know, you’ve built to I think a pretty incredible position as being at the very forefront of what’s happening in the advisor technology space, including, you know, literally running one of the leading websites for it and the biggest conference for it. In fact, I guess technically the biggest two conferences for it if you count…
Joel: Thank you.
Michael: …T3 Advisor and T3 Enterprise separately, which I think I would. So, you know, you’ve certainly built quite a business in our industry, and so I’m just wondering as you look forward from here, how do you define success for yourself?
Joel: Well, that’s a deep question, Michael. I guess to just keep doing what I’m doing. You know, if I can help advisors succeed and be successful and make a good living doing it, that brings me a lot of joy. I’ve had tremendous opportunities in this industry to work with hundreds if not thousands of advisors. And again, you know, 99.9% of those relationships have been positive experiences for me. And I still get, you know, emails from time to time from people that I interacted with years ago, or I sent an email two years ago, or they read an article I wrote years ago thanking me and telling me how it changed their lives and changed their business. Or people who came to T3 and learned enough to really make an impact on their business. And that’s extremely gratifying. So, you know, I’m in a very happy place right now. I love what I do. I love working with advisors. I love playing with new technology. So I’m a happy camper.
Michael: Very cool. Well, I hope you get to continue doing what you’re doing, being a happy camper for many years to come.
Joel: Thanks. Me too.
Michael: Yeah, well, thank you again. Thank you so much for joining us here on the Financial Advisor Success podcast.
Joel: It’s been delightful. Thank you for having me.