Welcome to the January 2019 issue of the Latest News in Financial Advisor #FinTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors and wealth management!
This month's edition kicks off with the big news that Blackrock is partnering with Microsoft as it doubles down (or triples down as taking $100M+ stakes in both FutureAdvisor and Envestnet!?) on its strategy of using technology as a distribution channel for its iShares ETFs (and possibly a new next-generation fee-based annuity as well)?
From there, the latest highlights also include a number of interesting advisor technology announcements, including:
- TD Ameritrade rolls out a new account-opening API as RIA custodians slowly but steadily try to match the capabilities of retail robo-advisors.
- LPL acquires AdvisoryWorld for $28M to be its ClientWorks core after struggling to build its own solution
- RIA In A Box gears up to become the first “RegTech Roll-Up” by acquiring cottage industry compliance consulting firms and transitioning them to RIAB’s compliance technology solution
- Harness Wealth raises $4M of seed funding for yet another attempt at an advisor matchmaking lead generation platform.
Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including wirehouse struggles to build competitive technology to what independent advisors already have, Fiserv’s updated fee billing and revenue management solution, the SEC fining Wealthfront $250k for failing to implement its own tax-loss-harvesting solution properly, Betterment rolling out a new two-way cash sweep program that allows them to attract held-away cash (while advisors are developing new solutions to move cash away from their existing RIA custodians due to non-competitive yields), and a look at how the broker-dealer drive to move deeper into financial planning is causing planning software solutions to finally build the more modular planning tools that advisors have wanted for years… even as it remains unclear is more modular planning tools will actually help broker-dealers themselves to gain financial planning adoption amongst their own brokers.
And be certain to read to the end, where we have provided an update to our popular new “Financial Advisor FinTech Solutions Map” as well!
I hope you're continuing to find this new column on financial advisor technology to be helpful! Please share your comments at the end and let me know what you think!
*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!
Blackrock Announces A New Partnership With Microsoft To Amplify Its Tech-As-Distribution-Channel Strategy Beyond Traditional Industry Channels. Back in November, Blackrock announced that it was taking a whopping $123M stake in Envestnet as part of a partnership that would more deeply integrate its iRetire, FutureAdvisor, and other Blackrock Advisor Center tools into Envestnet’s Digital Wealth platform, the result of a successful pilot showing that advisors using Blackrock’s iRetire tool really were more likely to subsequently implement Blackrock’s iShares ETFs (which are shown by default as part of the recommended solutions in iRetire analyses). But as it turns out, the Envestnet deal to share iRetire more widely, along with the news that iRetire will be integrated into eMoney Advisor as well, were only the prelude to an even bigger announcement in December: that Blackrock is partnering with Microsoft to get its retirement planning tools directly into the hands of pre-retirement employees. In essence, Blackrock is using technology as a distribution channel for its asset management products, a strategic shift that started with the acquisition of robo-advisor-pivoted-for-human-advisors FutureAdvisor in 2015, but is now going beyond “just” robo-for-advisors and financial planning software platforms into what is effectively a direct-to-consumer version of a technology channel by partnering with Microsoft directly to get Blackrock’s tools into Microsoft’s workplace apps. Notably, though, Blackrock does not appear to be trying to actually be a 401(k) manager, akin to Financial Engines, and won’t even collect individual user data through the workplace apps it creates; instead, the company is simply trying to get consumers to use their retirement planning tools that ‘suggest’ iShares ETFs as the default solution at the end of the planning process, and letting them subsequently implement wherever and however they want. Which will likely generate less follow-up than a more hands-on implementation solution… but also allows Blackrock to amplify its tech-as-distribution-channel strategy without creating the more overt channel conflicts that would emerge by trying to be a direct managed account provider in the 401(k) marketplace (or similar to the emerging Edelman Financial Engines strategy, to capture mindshare and market share of consumers while still in the workplace before they ever hit the radar screen of an independent advisor). Although ultimately, the goal for Blackrock may not simply be expanding market share of its existing iShares ETFs through its retirement planning tools in the consumer workplace, but using those apps to help promote a new annuity-style guaranteed income product it is currently developing… in essence, attempting to re-create a 21st-century version of a digitally-based private defined benefit plan, leveraging next-generation annuity product design, but without the cumbersome costs of commissions and legacy salesperson-based distribution channels. And raising the question of whether Blackrock may disrupt annuity carriers in the coming decade with its technology-as-distribution-channel strategy the way it’s been disrupting so much of the mutual fund industry for the past decade.
TD Ameritrade Rolls Out Digital Account-Opening API As Legacy RIA Custodians Slowly Catch Up To Apex And Robo-Advisors. When robo-advisors first launched, they heralded themselves as disruptors to the traditional human financial advisors, executing in seconds and minutes an account opening and asset allocation process that currently takes most human advisors days or sometimes even weeks to complete. Yet the reality is that the mere process of opening accounts and implementing an asset-allocated portfolio is not the primary value proposition of human financial advisors, either, and the fact that it typically took human advisors so much longer to complete was not a function of human advisors being slow and inefficient but the platforms that advisors use lagging in their own technology capabilities. In essence, most human advisors looked at robo-advisors and said “that isn’t competition… I want that technology to use my clients, too!” Accordingly, in recent years, there have been a spate of both robo-advisor acquisitions by incumbents (to acquire and hopefully-quickly deploy the technology) and major technology reinvestments as other incumbents decided to build their own upgrades. And now, finally, the fruits of their labor are beginning to show, as TD Ameritrade announced a new account opening API that will allow providers from Envestnet to Orion, Salesforce to Wealthbox, and Agreement Express to DocuSign to iPipeline, to all push and pull information directly to/from their respective platforms and the TD Veo platform to complete a more-fully-digitally enabled account opening process. In other words, key client data on new account paperwork will no longer have to be re-keyed into each system, and the “paperwork” itself can be submitted and processed digitally. Notably, though, the solution still does not appear to be a fully end-to-end straight-through digital process, as account openings may “only” take a few hours now (down from days in the past) but will still not be ‘instantaneous’ or within a few minutes (unlike competitors like robo-advisor-powering Apex Clearing), as account application fields are still validated on the back end by TD Ameritrade to determine if there are any NIGOs (though the mere fact that data doesn’t have to be re-keyed as often should reduce the NIGO rate!). In addition, it’s notable that many of the key workflow processes of the account opening process will still occur in third-party platforms that leverage the TD Ameritrade APIs… which means in practice, some technology providers may implement the TDA account opening process more efficiently and effectively than others. Nonetheless, the fact that custodians are finally improving their open-accounting and other API capabilities still represents a substantial potential for workflow efficiency improvements and reduced NIGOs for advisory firms, eventually allowing client administrative and operations staff to support more clients without more staff hiring (the very epitome of increasing advisory firm staff productivity through technology).
Wirehouses Still Trying To Find Their FinTech Balance Between Partnerships And Proprietary. This past month, Wells Fargo announced a new “What-If” planning tool dubbed “Envision Scenarios” as a part of its proprietary (albeit built on the FinanceWare chassis) financial planning software solution… a key feature of modern financial planning software that competitors like MoneyGuidePro pioneered upwards of 15 years ago, and highlighting in the midst of an otherwise-positive feature announcement the struggle that wirehouses still face (notwithstanding all their available resources) to maintain proprietary software solutions across the entire range of the wealth management spectrum that are competitive to what independent advisors already have. Similarly, Morgan Stanley also announced this month the next generation of their centralized advisor dashboard WealthDesk, which provides both advisors and clients a centralized location to view both portfolio performance and risk analytics alongside financial planning software projections… and again replicates features that independent advisors already have available for years through platforms like eMoney Advisor and Orion Advisor Services. Of course, the challenge for independent advisors is that disparate independent technology tools don’t always work well with each other – a challenge that wirehouses are arguably uniquely suited to address by using their resources to build their own proprietary dashboard layer on top to weave them together. Yet given how recent wirehouse technology announcements are still largely replicating features that have been available in the independent advisor community for years, and that the largest independent advisor software platforms actually have far more advisors than even the largest wirehouses, it remains to be seen whether wirehouses can effectively leverage their resources and potential economies of scale to actually build superior technology that isn’t just catching up to or replicating what the independent channels already have.
LPL Financial Acquires AdvisoryWorld (As Fallback?) To Power Its ClientWorks Advisor Dashboard. This month, LPL Financial announced that it was acquiring proposal generation and portfolio analytics platform AdvisoryWorld for $28M in cash (already part of LPL’s Vendor Affinity Program), which will be made available for free to LPL advisors in 2019 and is anticipated to become the “centerpiece” of LPL’s new ClientWorks advisor platform. What’s striking, though, is not merely that LPL decided to acquire technology to power its new platform – as the company has a long-standing history of making technology acquisitions in deepening its capabilities in various areas – but that it comes on the heels of ClientWorks (the successor to LPL’s prior BranchNet advisor workstation) having been delayed in its rollout earlier this year… raising the question of whether the AdvisoryWorld acquisition has effectively become a fallback “Plan B” because LPL is having trouble building its own solution. In fact, LPL’s Burt White notes that AdvisoryWorld will immediately replace LPL’s existing Investor Presentation and Proposal Tool, along with its Portfolio Review Tool, and former LPL advisors like Ron Carson have been especially vocal about LPL’s woes with its home-built technology. On the plus side, though, the AdvisoryWorld acquisition gives LPL not only a fully-operating proposal generation and portfolio analytics tool with a long-standing track record (AdvisoryWorld was a ‘smaller’ proposal generation and analytics tool in the advisor marketplace, but has been operating successfully since 1987), but the company’s existing APIs create the potential for an AdvisoryWorld-powered-ClientWorks to more rapidly develop third-party integrations, leveraging its already-San-Diego-based team (just up the street from LPL’s own offices). Notably, LPL has indicated that AdvisoryWorld will still remain available as a third-party platform for non-LPL advisors as well – a model that Fidelity similarly implemented by acquiring eMoney Advisor, deep-integrating it to WealthScape, and also leaving it available as a third-party solution – likely because integrating AdvisoryWorld into the core of ClientWorks means LPL will have an opportunity to solicit existing AdvisoryWorld users into its “even-more-AdvisoryWorld-holistic” ClientWorks platform in the future and effectively turning technology into an LPL recruiting channel. In the meantime, though, LPL is also reportedly looking to better fit AdvisoryWorld (which historically served primarily independent RIAs doing “only” portfolio management) to its own business model (where LPL is also the #1 distributor of annuities) by adapting AdvisoryWorld’s proposal generation tools to better incorporate annuity proposal generation as well… by using LPL’s size and clout to force what historically have been difficult-to-negotiate data sharing arrangements with annuity providers to better automate the annuity proposal generation process with third-party tools like AdvisoryWorld.
As Financial Advisors Shift From Commission To Fee Models, Fiserv Rolls Out Updated Fee Billing And Revenue Management Solution. One of the unique and rarely discussed challenges of the industry’s shift from commissions to fees, especially amongst the hybrid broker-dealer world that has to oversee and administer a blend of commission and fee revenue, is that financial services industry technology to manage fee collection and track and allocate fee revenue is lacking, with just a few existing players like Redi2’s Revenue Manager and Fiserv’s Advantage Fee. And so in response to the growing demand, Fiserv announced a major update to its Advantage Fee platform, transitioning its legacy solution to a fully cloud-based (and more scalable) application with the goal of allowing for faster fee collection and shorter billing cycles, and better revenue projection and management capabilities (for firms that need to manage a high volume of complex billing arrangements). In fact, arguably fee/revenue management may soon emerge as an increasingly popular advisor FinTech category of its own, as in the past commission structures were largely standardized by product providers (and all advisors implementing the same product generated the same revenue), but in a world of fee-based advisors that can set their own fee levels, the very process of fee billing and collection and revenue management becomes exponentially more complex. Which helps to explain why not only is Fiserv updating its Advantage Fee platform, but also why Morgan Stanley’s new WealthDesk platform includes an advisory (“relationship”) fee calculator tool, as well as the emergence of new standalone fee-for-service financial planning fee platforms like AdvicePay.
PE-Funded RIA In A Box Aims To Roll Up Compliance Consultants Into Compliance RegTech Platform? Compliance consulting for RIAs has always been a labor-intensive knowledge-based business, with experts who learn the details of the Investment Advisers Act of 1940 and supporting SEC guidance, and then help less-knowledgeable independent RIAs (of which 95%+ don’t have the multi-billion-dollar-AUM staffing depth for a full-time Chief Compliance Officer) fulfill their compliance obligations. Yet the reality is that because compliance is about following a standardized set of rules, much of it ends out being a series of highly repeatable processes that are very conducive to technology automation… from social media and email archive reviews to verifying employees aren’t front-running client trades and even the process of making sure that all processes on the compliance calendar have been fulfilled. As a result, compliance consulting – especially support for the ongoing compliance process – is beginning to shift from what was historically a consultant-centric support solution, into a “RegTech” technology solution instead (with consultants who simply step in for the occasional situations that don’t fit the standard process). The forerunner in the world of RegTech for RIAs has been RIA In A Box, which started out as a “traditional” compliance consulting firm in the mid-2000s, was acquired by GJ King and Will Bressman in 2011 who began to pivot the company into being a technology solution in addition to a service provider, and then proceeded to rack up an impressive three-peat win for “Best In Show” at the Orion Fuse Hackathons in 2015, 2016, and 2017, with solutions like centralizing vendor cybersecurity due diligence reviews in a centralized database and automating a state registration cross-check between a firm’s ADV and its existing client addresses. More recently, the company also launched a new “Audit Prep” tool, which details to RIAs what they can expect from an upcoming SEC or state regulator information request and audit exam based on requests and findings of similar firms. But the real news was when earlier in 2018, private equity firm Aquiline Capital acquired RIA In A Box, and now appears to be helping RIA In A Box go on an acquisition surge into what historically has been a small cottage industry of compliance consultants. The opportunity, in essence, is to convert the clients of what have typically been consultant-centric labor-intensive hourly-billing compliance support providers into users of RIA In A Box’s more-scalable recurring-revenue RegTech compliance support solution, a “classic” roll-up venture of aggregating small providers into a larger one with a stronger business model but in a domain that traditionally wasn’t viewed as a “tech” vertical in the first place. Nonetheless, with both RIA In A Box’s rising profile, alongside competitors like SmartRIA and ComplianceHero that are also helping to slowly drag paper-based compliance processes into the modern era… it appears that FinTech is reaching into all sorts of new and previously-unrecognized domains of the RIA ecosystem to both automate and increase efficiencies, and also to create substantial business opportunities in the process as well.
SEC Charges Wealthfront $250k Fine For Misleading Advertising And Improper Execution Of Tax Loss Harvesting. It was just 3 years ago that then-Labor Secretary Perez personally highlighted robo-advisor Wealthfront as a paragon of fiduciary advice in the midst of the industry’s debates over the Department of Labor’s proposed fiduciary rule. Now, however, the SEC has announced that Wealthfront was not executing properly on its own fiduciary promises, fining the robo-advisor $250,000 for numerous compliance infractions, including most notably that the tax-loss harvesting benefits the company has been touting were not actually being properly monitored for potential wash sales as their marketing claimed. Instead, the SEC found that improper wash sales occurred in at least 31% of Wealthfront’s accounts that were enrolled in its tax-loss harvesting strategies. Notably, Wealthfront has pointed out that the actual wash sale transactions made up only 2.3% of the tax losses harvested for clients, suggesting that the improper wash sales were likely due to small regular transactions like ongoing contributions or dividend reinvestments. Nonetheless, given that a fundamental aspect of the fiduciary duty for RIAs is to “say what you mean and do what you say”, the fact that Wealthfront stated in their promotions that the company would monitor for all wash sales, and then failed to do so in a manner that resulted in wash sales across nearly 1/3rd of its tax-loss harvesting accounts was deemed a material breach. (No mention was made of the fact that Wealthfront also overstates the long-term value of tax loss harvesting by failing to account for the consequences of decreasing cost basis in a tax-loss harvesting transaction.) In addition, the SEC also cited Wealthfront for improperly re-tweeting positive client statements on Twitter (which constituted an inappropriate use of client testimonials), for paying bloggers for client referrals without proper paid-solicitor disclosures, and for not maintaining a compliance program reasonably designed to prevent such violations in the first place. The action caps a troubled year for robo-advisors, as fellow robo-advisor Hedgeable was also cited for inappropriate advertising in the same SEC action (along with an $80,000 fine, which may help to explain why Hedgeable shuttered its robo-advisor just a few months ago), while Betterment was hit with an even-bigger $400,000 fine back in June for FINRA violations in how it was determining its reserve requirements and segregating customer securities. Ironically, though, none of these actions were actually unique or specific to “robo-advisors” in particular; instead, the regulators are simply applying the exact same rules that exist for any RIA or brokerage firm that uses (or misuses) technology to serve consumers. Yet at the same time, the wave of regulatory sanctions and findings of compliance violations against robo-advisors during their hyper-growth years raises troubling questions about whether aggressive venture capital funding into FinTech firms was/is creating undue incentives and encouragement to ignore regulatory boundaries in pursuit of growth, even if it puts their own customers at risk?
Harness Wealth Raises $4M Seed For New Advisor Matchmaking Service Targeting “Niche” Money-In-Motion Need. In a world where financial advisors are struggling more and more with lead generation in an increasingly competitive environment, “advisor lead gen” services are becoming a popular category, in an attempt to apply a scalable “marketplace platform” model to advisor-client matchmaking (akin to solutions like Uber, Airbnb, and eBay, but for financial advisors). In the past year, this has included newcomers like SmartAsset’s SmartAdvisor program and Zoe Financial, and now another provider – Harness Wealth – has thrown its hat into the ring with a recently announced $4M seed round. The core model for Harness Wealth is similar to others – to match consumers in need with pre-vetted financial advisors, using an intake questionnaire to attempt to make a “good” match – though at least for its initial launch, the company is specifically focusing on consumers looking for help to wind down the estate of a recently deceased parent… which is notable because such scenarios are typically “money in motion” opportunities (with life insurance payouts and inherited liquid wealth) where it’s common to need to find or switch financial advisors, and represents a number of unique pain points (settling and closing the estate, probate and tax matters, etc.) that necessitate seeking out advanced expertise. In fact, Harness Wealth is aiming to make introductions not just to financial advisors, but also estate attorneys and tax professionals as well. The core business model for Harness – similar to lead generation arrangements from RIA custodians like Schwab, Fidelity, and TD Ameritrade – is to receive a revenue-sharing slice of client revenue (ostensibly by registering as an RIA solicitor for the advisors on its platform). Of course, the caveat is that in the world of RIA custodians, it’s “easy” to claim an ongoing revenue-share, because the custodial platforms literally hold the client’s assets and sweep the advisor’s fees in the first place, so it’s very easy and straightforward to verify assets and split fees accordingly. In the case of Harness, the company is trying to stay “attached” to advisors and their clients by developing a Personal Financial Management (PFM) dashboard that advisors can use collaboratively with their clients, which in theory is both a service to clients, an opportunity for technology-efficiency for advisors, and a way for Harness to track its revenue-sharing assets and fees. However, in the increasingly competitive world of financial planning software rolling out PFM solutions, along with the ever-expanding attempts of performance reporting software to also become the central advisor-client dashboard, and RIA custodians (and some broker-dealers) themselves also attempting to be the primary portal… it’s not clear whether Harness will be able to simultaneously compete in the world of Advisor FinTech and maintain the necessary focus on scaling its actual lead-generation service in a cost-effective manner. In addition, advisor matchmaking through an online platform is still difficult because so many advisors themselves are still generalists, that there’s often little way to differentiate them in a matchmaking algorithm, which raises the question of whether Harness will struggle with matchmaking effectiveness (as similar competitors have struggled in the past). Nonetheless, given that RIA custodians have validated that advisors will share as much as 25% of ongoing recurring revenue, indefinitely, with 97%+ retention rates, just to get an affluent client (which amounts to a whopping $83,000 of lifetime client value to a matchmaking platform that provides a single $1M AUM client!), the advisor lead gen opportunity will be incredibly lucrative to whichever platform finally figures out how to cracks this tough nut.
Betterment Develops Cash Sweep Solution To Manage (Previously-)External Client Cash Positions. As the Fed slowly and steadily raises interest rates and cash yields once again begin to “matter” (now that they’re not all just yielding 0%!), there is a growing focus on what investors are “doing” with their cash. When it comes to advisory firms, this is leading to a growing conflict with their custodial and broker-dealer platforms, which increasingly are using proprietary money market funds or sweeps to affiliate banks that provide below-average yields and leave advisors little choice but to encourage their clients to keep cash “off-platform”… which in turn has led to the rise of platforms, such as MaxMyInterest and more recently StoneCastle, that automate the process for advisors of moving client cash around to the highest-yielding online bank account… and in the process, take the cash away from the advisor’s assets under management (unless they specifically have a broader “Assets Under Advisement” business model). In this context, it is notable that robo-advisor Betterment recently launched a new “Two-Way [Cash] Sweep” solution that automates the process of transferring excess client cash held in external accounts into the robo-advisor’s managed solutions, using their “Smart Saver” solution that invests client assets into ultra-short-term-and-low-risk bonds (80% short-term Treasuries and 20% short-term investment-grade bonds) that aims to provide ‘cash-like’ stability but a substantially higher yield than most banks (currently about 2.2% based on the 30-day SEC yield). Of course, the reality is that many advisory firms already reinvest client cash into short-term bond funds to get a higher yield than available money market or cash sweep alternatives… but the significance of the Betterment solution is that it also automates the process of transferring in any excess cash that clients have in held-away bank accounts, leveraging an algorithm it developed to determine what constitutes “excess” cash (after considering the investor’s ongoing regular deposits and withdrawals and seasonal spending habits). In fact, Betterment estimates that almost 30% of its 360,000 clients have an average of $20,000 in excess cash in held-away low-yield bank accounts, which means Betterment has a chance to attract more than $2B of additional AUM (on an ‘automated’ basis!) with the rollout and generate an additional $5M+ of revenue (at their 0.25% AUM fee). Which provides a striking contrast of how the conflicted business models of RIA custodians (at least until they shift to a custody fee arrangement instead of relying on back-end net interest margin or money market expense ratios) are leading to the development of third-party solutions like MaxMyInterest and StoneCastle that potentially pull assets away from the RIA platforms instead, while Betterment’s simple more-client-centric AUM model is leading it to develop technology solutions that attract client assets to the platform, instead.
Sentieo Raises $19M To Replace The Bloomberg Terminal But Will Any Financial Advisors Actually Care? When it comes to doing rigorous investment research and tracking the day-to-day gyrations of the markets, the “industry standard” is still the desktop terminal, with Bloomberg commanding a massive 33.2% market share (and Reuters another 22.5% on top) notwithstanding Bloomberg’s massive $20,000/year/user fee. However, the high cost of existing solutions has been leading to a growing effort of FinTech startups to provide far-cheaper cloud-based alternatives like FactSet… for which the latest entrant is Sentieo, which prices at barely half the cost of a Bloomberg terminal and recently raised a $19M Series A round to try to further scale its 700 hedge fund and RIA clients, and includes everything from market data to an AI engine that helps to analyze a wide range of 10-K, 10-Q, and other public filings on the SEC’s EDGAR system, along with third-party analyst reports. The caveat, however, is that it’s not clear how many financial advisors will realistically want to use a platform like Sentieo, which is deeply focused on the financial data and filings of individual companies, while financial advisors are increasingly focused on managing mutual funds and ETFs rather than individual issue securities. In fact, Sentieo itself acknowledges that nearly 90% of its current users are hedge funds, not RIAs (nor does industry data show that Bloomberg terminals have much penetration into the independent advisor marketplace either). Which suggests that, while Sentieo happens to be the current darling of the investment research tech disruptors, platforms like YCharts (with their deeper analytics capabilities on mutual funds and ETFs) are better positioned to compete for independent advisors… as in reality, the key incumbent to unseat amongst the RIA community is not the Bloomberg Terminal, but Morningstar Direct instead.
MassChallenge FinTech Competition Announces 21 Finalists Highlighting Hot Areas Of Advisor FinTech. MassChallenge is a unique type of startup incubator/accelerator platform, that unlike most others is structured as a non-profit and does not take equity from the startups it supports. And having found initial success in funding a wide range of early-stage startups across numerous industries, MassChallenge has recently launched industry-vertical-specific accelerators in HealthTech and more recently in FinTech, bringing together a number of large financial services firms with specific challenges they’re looking to have solved with early-to-mid-stage (<$10M in revenue) startups to solve them. And after soliciting applications through the fall, MassChallenge FinTech has announced its first slate of finalists, which themselves provide an interesting glimpse of where the funding and focus are for advisor FinTech. Overall, the majority of the solutions fall into three primary categories: AI and data (including AlphaSense, Datavore, Diffeo, eGiftify, Elsen, ForwardLane, Posh, SizeUp, and Zylotech), back-office process automation (Catapult HQ, Coalesce, Digital Onboarding, Fincura, Surround Insurance), and a number of “niche” financial planning applications including for college planning (Edmit), philanthropic giving (Pinkaloo), and a pair of “digital safety deposit box” estate-planning-oriented applications (Cake and LifeSite). In other words, as the industry transitions past the initial “robo” digital phase, financial services FinTech is now increasingly focusing on big data and AI along with process automation that eliminates back-office jobs, while empowering advisors (and consumers directly) on their financial planning needs!
Broker-Dealer Demand Continues To Drive Financial Planning Software More Modular As MoneyGuidePro Announces ‘Blocks’. With the ongoing commoditization of basic asset allocation and investment portfolios, financial advisors are increasingly being driven towards financial planning as the “anti-commoditizer” that allows them to maintain their value proposition and earn their fees. Yet in practice, barely 30% of all “financial advisors” actually have CFP certification, and it’s a long-standing “open secret” of financial planning software adoption is that when a typical deal is announced with a major broker-dealer, only 20% to 40% of the brokers usually end out actually using the software. Which is leading to growing pressure on financial planning software companies from broker-dealers to figure out how to make their financial planning software “simpler” and easier to adopt (given that the most common complaint from non-adopters is that the software is “too time-consuming” to add into their existing process with clients). As a result, SEI recently took a stake in Advizr and is trying to roll out its “lite” planning tools to increase adoption amongst the 60% of their advisors who don’t use planning software, while eMoney Advisor rolled out a new “Foundational Planning” solution that breaks financial planning into simpler more streamlined modular goals that can be delivered incrementally over time (but requiring less time per module). And now at the recent T3 Enterprise conference, MoneyGuidePro announced its own modular planning-lite approach, dubbed “Blocks”, where advisors will be able to do planning in smaller bite-sized modules (e.g., a “Protection Module” or an “Income-Planning Module” or a “Buckets Module”, or a “Financial Freedom” module that breaks down further into paying off credit cards, paying down student loans, creating an emergency fund, etc.), while still having all the components ultimately feed into a common platform core (that eventually can even evolve into a full comprehensive financial plan, albeit one module at a time). Arguably, though, the evolution of planning software towards more modular pieces that feed into a holistic (rather than always and only producing a comprehensive financial plan all at once) is arguably a better way to do financial planning in the first place. As the truth is that few prospective clients ever wake up in a cold sweat in the middle of the night thinking “I’ve got to get a comprehensive financial plan!” Instead, prospective clients typically have more finite and targeted pain points that they want solved (or at least, solved first), and may come back to the more comprehensive plan later. While ironically, it’s not at all clear that today’s “financial planning non-adopters” in the broker-dealer channels will necessarily transition to modular planning anyway… as the simple reality is that if those brokers have already built their own businesses and value propositions around something else (e.g., products or investments and not financial planning), then they won’t realistically implement financial planning software tools regardless of their simplicity because they’re just not relevant to the broker’s value proposition. Which means in the end, pressure from broker-dealers may drive financial planning software in the modular direction that it’s needed to go all along, but for reasons and to meet (broker adoption) goals that won’t likely be achieved. And raising the concern about whether, in the process, financial planning software may tilt so far towards becoming too simple that it loses the adoption of the more sophisticated financial planners who are the companies’ core users as well?
In the meantime, we’ve updated the latest version of our Financial Advisor FinTech Solutions Map with several new companies, including highlights of the “Category Newcomers” in each area to highlight new FinTech innovation!
So what do you think? Will Blackrock be successful in adopting a purely-technology-based distribution channel to consumers through Microsoft’s workplace tools? Will RIAs (or independent broker-dealers) really adopt a deep stock-investment-research platform like Sentieo? Should broker-dealers and RIA custodians develop tools like Betterment that attract client cash to their platforms instead of driving it away? Are broker-dealers driving the right changes in financial planning software (even if for the wrong reasons)?