Welcome to the April 2022 issue of the Latest News in Financial #AdvisorTech – 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!
This month's edition kicks off with the big news that Wealthbox has raised a new $31M Series B round to capitalize its efforts in moving further ‘upmarket’ to challenge Redtail and especially Salesforce’s hold on the largest advisor enterprises. (As advisor adoption of CRM systems is now so high, it’s a virtual certainty that current CRM systems can only grow by capturing market share away from competitors!)
From the broader industry perspective, though, the real shift that’s underway is the transition of advisor CRM systems from their roots as the tool that captures client contact information and communication history, into one that drives the advisory firm’s key workflows. Because as advisory firms provide increasingly broad and holistic advice to clients, it’s no longer feasible for the firm to run ‘just’ from its RIA custodian or broker-dealer investment platform as the hub; instead, the advisor CRM system is becoming the hub, around which the rest of the firm’s systems and processes are built. Which is expanding the opportunity set for advisor CRM.
From there, the latest highlights also feature a number of other interesting advisor technology announcements, including:
- Summit Wealth Systems raises a $20M Series A round, as its founder Reed Colley (who previously founded Black Diamond) aims to build the next generation of performance reporting for clients
- Advyzon launches a new TAMP offering for the advisor users of its portfolio management + CRM system
Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including:
- Goldman Sachs reveals that it is still not quite ready to launch its competing RIA custodian, nearly 2 years after it acquired Folio Institutional to speed up the process, highlighting just how hard it really is to compete in the RIA custodial business
- Savvy Wealth raises $7.3M to fund its own tech-based advisory firm (in the hopes of out-competing advisory firms that are struggling to build their own tech?)
- IndyFin raises $2.2M of capital to become the next ‘Yelp-for-advisors’ platform as the SEC greenlights client testimonials… but raising the question of whether Yelp itself may still be best positioned to be the Yelp for advisors?
In the meantime, we’ve also launched a beta version of our new Kitces AdvisorTech Directory, to make it even easier for financial advisors to look through the available advisor technology options to choose what’s right for them!
And be certain to read to the end, where we have provided an update to our popular “Financial AdvisorTech Solutions Map” as well!
*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!
In the earliest days of the financial advice business, the only way an advisor kept track of their clients’ contact information was to write it down in a book. And that book of client names to call upon to do ongoing business was so valuable, advisors upon retiring could sell their “book of business” to another advisor who needed people to call upon. The emergence of computers in the 1980s began to digitize the advisor’s physical “book” of business (client names) into a digital Rolodex of contact information, which captured not only names and phone numbers but a history of all communication with that contact, in what became known as CRM (Customer Relationship Management) software.
Through the 1990s, a number of CRM systems began to get adopted by the financial advisor industry – including ACT! and Goldmine – but the deeper nature of financial advice relationships (which go beyond just tracking contact information and the latest sales communication) increasingly necessitated advisor-specific CRM tools, leading to the birth of Junxure, ProTracker, and Redtail CRM by the early 2000s. Where Redtail in particular managed to outdistance its competitors by building more quickly to the cloud (while others languished in server-based environments), and more successfully moving ‘upmarket’ to advisor enterprises (in particular, independent broker-dealers), which housed the majority of the advisor seat-count opportunities.
Over the past decade, though, advisor CRM has been in the midst of another transition – from being a glorified Rolodex and contact management system into a full-fledged hub of the advisor’s business. Because as firms become more planning centric and less tied to their broker-dealer or RIA custodian – because they need more than ‘just’ the investment resources of those platforms – a standalone CRM system is becoming more crucial, not just for contacts, but as a workflow and process engine. Which has not only further boosted the growth of Redtail as it built out workflow capabilities, but has driven rapid growth for Salesforce in particular amongst the largest advisor enterprises with the most complex workflow needs (for which Salesforce is arguably the most capable of customization, albeit at either a significant cost to build those customized workflows, or the need to use a third-party overlay like XLR8, Skience, AppCrown, etc.).
In this environment, Wealthbox first emerged as a new advisor CRM competitor in 2014. Having been built from the start in the cloud, and not needing to rely on legacy technology (relative to its competitors that were originally built on 2000s architecture), Wealthbox’s offering had a more ‘modern’ UI (patterned after a ‘client feed’ approach similar to the Facebook feed), and began to capture market share where nearly all AdvisorTech starts: with independent RIAs and the solo advisors of independent broker-dealers, selling one advisor at a time, because they have the most straightforward needs and the fastest sales cycles. While the latest Kitces AdvisorTech Study shows that Redtail continues to thrive with mid-sized firms, and Salesforce is actively being bought amongst the largest practices.
But now having cleared 14,000 users, Wealthbox this month announced a hefty $31M Series B round to expand and accelerate its move ‘upmarket’ into mega-RIAs, and especially into the mid-to-large-sized independent broker-dealer marketplace that still holds the majority of the advisor seat-count and market opportunity. Which is a uniquely capital-intensive endeavor, as the reality is that larger firms simply have greater ‘enterprise’ demands, from more permissioning layers (to handle the various tiers of reps, teams, branches/offices, compliance, the home office staff, etc., each of whom needs different levels of access to certain clients or types of client data), to more integrations (both to a wider range of providers, and to enterprises’ own internal/proprietary systems), to simply having more features to handle the greater complexity of enterprises that have larger multi-department workflows.
The question, though, is where exactly Wealthbox will manage to gain market share. As in practice, CRM has the highest adoption of any AdvisorTech system (nearly 90% according to the latest Kitces AdvisorTech study, and the bulk of those without CRM systems are simply too small or too new to need one, yet), and Wealthbox is already winning a plurality of the new startup advisors. Which means growth in the enterprise market will have to come almost entirely at the expense of competitors – e.g., Redtail and Salesforce, along with less-popular-but-still-present competitors like Microsoft Dynamics and Junxure – in an environment where only about 1-in-16 advisors changes CRM systems in any particular year. And CRM system changes are the most arduous amongst the largest firms, that have the most data and existing workflows that must be rebuilt/re-mapped into a new provider (i.e., the ‘switching costs’ in internal process change and advisor re-training are quite high).
To some extent, Wealthbox’s increased ability, thanks to its Series B, to be present and competitive in the enterprise RFP process for CRM systems – for those that are looking to change – will clearly give it some opportunity to win incremental market share. Though as it stands right now, Wealthbox’s advisor satisfaction ratings in the Kitces AdvisorTech study were competitive but not materially higher than its competitors, which makes it difficult to win a large share of the market on user experience alone.
Which means in the end, Wealthbox’s ability to move upmarket and materially capture new market share is likely to be less a function of its existing feature set, and more about whether Wealthbox can innovate deeply enough when it comes to enterprise workflow capabilities, to have a workflow/process engine compelling enough for advisors and especially enterprises to be willing to absorb the switching costs and make a change in a highly competitive CRM environment. (Which in turn amps up the pressure on Redtail and Salesforce to bolster the depth and usability of their own workflow engines enough to reduce the desire and willingness of advisors to switch in the first place?)
Summit Wealth Systems Raises $20M For Next Generation Portfolio Management System To Become The New Advisor/Client Hub.
In the 1980s and 1990s, the primary business of financial advisors was selling mutual funds for a commission, and the technology of choice was Morningstar (and its Principia Pro), which provided one-page performance summaries for each of those mutual funds so advisors could share with their clients how their selections were doing. As in the long run, advisors have ongoing pressure to show that they’ve created favorable results for their clients in order to retain them.
In the 2000s, the rise of online brokerage firms, and the emergence of No-Transaction-Fee (NTF) platforms, suddenly made it possible for consumers to analyze their own mutual funds online, and buy them directly – without paying a commission to the advisor – forcing advisors to begin a business model shift to what ultimately become the Assets Under Management (AUM) model, where the value was not just picking mutual funds but creating a diversified asset-allocated portfolio. Which in turn meant advisors needed a new kind of performance reporting system to show not how their individual funds were doing, but their entire asset-allocated diversified portfolio. The result was the rise of a number of portfolio performance reporting systems, including Orion, Black Diamond, and Tamarac, which all emerged in the 2000s to become a staple of the advisor tech stack for any firm on the AUM model.
Yet in the nearly 20 years since, arguably very little has changed in performance reporting systems. Tools may have shifted from local servers to the cloud, with updates to their underlying calculation engines and the graphical design of their reports. But the core value proposition of performance reporting systems remains largely unaltered.
In that context, it is notable that this month, Summit Wealth Systems announced the launch of a whopping $20M Series A round as it emerges from ‘private beta’ with a new next-generation performance reporting and portfolio management system.
Created by original Black Diamond founder Reed Colley, and former Advent executive Anthony Sperling, Summit is notably being positioned not simply as “performance reporting” or “portfolio management” software, but as a “Wealth Operating System” (WealthOS) engine called “Abundance” – meant intentionally to move away from the traditional “Are We Okay?” scarcity mindset of clients, and towards one of abundance. Accordingly, Summit’s WealthOS claims it is taking a more holistic balance sheet approach to reporting on affluent clients’ 'abundant' assets (ostensibly beyond ‘just’ their managed accounts?), and aims to tie client wealth more directly to their values (an extension beyond goals-based investing?) with a broad range of third-party data sources for account aggregation.
In practice, Summit appears to be offering all the ‘core’ functionality advisors have come to expect from such systems – including performance reporting, portfolio management, billing, a client portal, and integrations to key third-party systems. Though Summit is also highlighting a unique data architecture that makes each advisor’s data independently available to them and fully segregated from other advisors as a private data warehouse (that advisory firms don’t have to build themselves), which not only provides advisors more protections for data security, and more control in how their data is used, but also greater independence from their custodians and platforms (by better owning and controlling their data), and potentially makes it easier for advisors (at least at larger enterprises) to build more of their own tech stack on top of Summit.
Ultimately, though, Summit’s success will likely be determined not by its ability to provide the ‘standard’ features that the other performance reporting and portfolio management tools offer, but by its ability to create a new approach to performance reporting (or more generally, the full spectrum of the clients’ wealth data in the advisory firm’s Summit-based data warehouse) that is substantively different and beyond the current generation of tools. For which a more holistic and ‘values-based’ approach appears to be well-aligned to the broader financial advisor industry's shift towards more holistic and values-based advice. But can that be expressed in software in a manner compelling enough to get advisors to go through what is often a year-long project to make a switch to a new performance reporting system?
Advyzon Leverages Its Own Portfolio Management Tech To Launch Its Own TAMP Offering For (Advyzon) Advisors.
One of the biggest tensions in the world of AdvisorTech today is drawing the line of where technology ends, and asset management services begin. As on the one hand, asset managers are increasingly ‘tech-ifying’ themselves, in the hopes of both improving their margins, differentiating their offerings to advisors, and perhaps being able to access ‘tech-style’ valuation multiples. While on the other hand, technology firms are increasingly pivoting towards asset management, in the hopes of being able to supercharge their revenue by pricing in basis points on assets (which can generate far more revenue than charging per-user, per-client, or per-account software fees). And the ongoing convergence has blurred the lines between the two.
As a result, in today’s market, firms like AssetMark (historically, a TAMP) increasingly compete with Orion (historically, a portfolio management software provider), both of which compete with the goliath known as Envestnet (the original platform-TAMP that used its technology to provide a marketplace of TAMP and SMA solutions to advisors). Leading to a number of TAMPs consolidating into technology firms (e.g., Brinker selling to Orion, Adhesion selling to Vestmark), and a number of technology companies trying to roll out investment management offerings (most notably as ‘model marketplaces’ offered by providers ranging from Oranj to Riskalyze).
The caveat, though, is that asset management itself is still first and foremost a distribution game. Which means, in general, asset managers – whose roots are grounded in the distribution of investment management – adding in tech (while keeping their investment management core) have had far more success than technology firms trying to offer model marketplaces (that require different strategies to distribute than ‘just’ offering technology itself). As unlike quality technology solutions, asset management is not an “if you build it, they will come” offering.
In this context, it is notable that this month, portfolio management tech provider Advyzon announced the launch of its own “Advyzon Investment Management” (AIM) offering, a Turnkey Asset Management Provider (TAMP) solution for the advisors already using Advyzon.
From an investment management perspective, Advyzon’s TAMP is relatively ‘typical’, offering a series of different portfolio models (including active/passive diversified asset-allocated models, an ESG model, a tax-sensitive ETF model, an alternatives portfolio, and a Direct Indexing offering), and the usual suite of TAMP services (trading and rebalancing, billing, reporting, and support on paperwork and as a custodial liaison), for which Advyzon is charging a TAMP-typical AUM fee of up to 0.35%.
What’s unique about Advyzon’s TAMP, though, is its positioning in the marketplace. Unlike some technology-turned-TAMP/marketplace providers (e.g., Oranj), Advyzon actually does have a sizable existing base of more than 1,000 advisory firms to which its TAMP solution can be distributed. And because of the all-in-one nature of Advyzon’s portfolio-management-plus-CRM (but not including financial planning) solution, the software has an especially strong connection to investment-centric advisors operating on the AUM model (where a TAMP outsourcing solution is especially well-aligned). In other words, Advyzon has the ‘right’ type of existing base of advisors to be viable for cross-selling TAMP services.
From the broader industry perspective, Advyzon’s shift to a TAMP offering is also notable in that ironically, the recent shift of TAMPs to become tech companies (and tech companies acquiring TAMPs) means that advisors who already like and use Advyzon may struggle to find TAMPs that will work with them on Advyzon (and instead would have likely required them to switch to another platform)… a significant challenge given that Advyzon scored higher than Orion, Black Diamond, or Tamarac for portfolio management in the latest Kitces AdvisorTech study. Which means that the vertical integration of TAMPs and technology providers may have ‘forced’ Advyzon to launch a competing TAMP for its advisors who wanted to outsource investment management while remaining with Advyzon!
Ultimately, a TAMP will still live or die by its ability to distribute its investment management solution to advisors, and distribution is always a challenge in a hyper-competitive environment for asset management. But founder Hailin Li’s Morningstar roots (as the original chief architect of Morningstar Office) have helped Advyzon recruit a deep bench of leadership talent to lead its TAMP (including Brian Huckstep, former head of U.S. Asset Allocation at Morningstar, as CIO, and Meghan Holmes and Lee Andreatta, both formerly of Schwab Advisor Services, as COO and CEO, respectively), and Advyzon seems uniquely well-positioned to compete with the quality of its technology (that has made its advisor users prefer an Advyzon TAMP to leaving Advyzon for another TAMP).
One of the greatest benefits of the growth of AdvisorTech over the past decade has also become its biggest pain point: the sheer proliferation of the number of AdvisorTech solutions, which has led to the paradoxical outcome that there have never been more technology solutions for advisors, more capable of integrating to one another… yet the overwhelming exponential increase in the number of point-to-point integrations amongst them means that advisors are increasingly frustrated by the lack and depth of (quality) integrations that actually exist across their tech stack.
At the one end of this spectrum, this integration challenge is leading more AdvisorTech providers to expand towards ‘All-In-One’ solutions that offer more and more of the core tech stack on a single platform, which ‘only’ has to integrate deeply with itself to provide the desired experience. And at the other end of the spectrum are advisory firms that are increasingly looking to build their own proprietary tech stacks to fully control their own advisor & client experiences to make them more efficient and seamlessly integrated.
Of course, the caveat is that most advisory firms were launched to be advice-providers to clients, not builders of technology, and relatively few firms have managed to fully bring technology ‘in-house’ successfully. Instead, the firms that are aiming to be ‘technology-first’ are being launched as technology firms – or at least, tech-enabled financial advice firms – from the start, such as Facet Wealth that aimed from the beginning to build its own internal proprietary AdvisorTech tools in the hopes of being able to scale itself to 250+ client relationships per advisor with technology efficiencies.
And now, the latest newcomer to emulate the approach is Savvy Wealth, which this month announced a $7.3M Seed round of capital to fund a Facet-Wealth-style vision of becoming an “all-in-one technology-powered financial services firm” – in other words, not only to be an all-in-one technology stack that advisors can buy, but to actually become the financial services firm that uses its own tech stack to deliver advice efficiently.
However, as the robo-advisors themselves discovered a decade ago, financial advice is not an “if you build it, they will come” offering, raising the question of how exactly Savvy Wealth intends to scale up the number of clients it has (and the number of advisors serving them). For which Savvy’s capital announcement suggests that it may even look to acquire wealth management firms as a way to bulk up its client and advisor count.
Except even if Savvy allocates 2/3rds of its newfound capital – or about $5M – for acquisitions, at a typical 2X+ multiple for independent advisory firms, this only provides Savvy the capital to acquire roughly $250M of AUM, far short of what it would need to truly scale up. In fact, Facet Wealth similarly pursued an acquisition-style strategy early on to grow its client base… only to ultimately abandon it as the acquisition costs were prohibitive (especially when considering the staffing it takes to source and execute acquisition deals, along with integrating the acquisitions themselves after they close). And as a number of RIA aggregators have found over the past decade, it’s especially difficult to rapidly execute a high volume of acquisitions where the selling firm is expected to be assimilated into the acquirer, simply given the independent-minded streak of most independent advisors.
Ultimately, then, the real question for Savvy is not whether it can build ‘better’ tech, per se, but whether it can develop scalable marketing and business generation systems that can attract a critical mass of clients who are willing to switch to work with Savvy’s advisors… and whether Savvy can hire or acquire enough skilled financial advisors to keep up with the demand (if they’re able to find traction with clients in the first place). Because in the end, the biggest blocking point to scaling up financial advice businesses is not actually the scalability of technology efficiencies (or lack thereof), but the scalability of marketing and whether it can bring down client acquisition costs low enough to be able to scale in the first place?
Goldman Sachs RIA Custodian Launch Still ‘Pending’ As RIA Custody Oligopoly Proves Remarkably Difficult To Break.
The RIA custody business is a scale business. So much so, in fact, that every major RIA custodian today didn’t even start out as an RIA custodian; instead, it built its RIA custody business by leveraging the existing infrastructure and scale it already had from a related business. From Schwab and Fidelity (and previously, TD Ameritrade) using their retail brokerage infrastructure to offer RIA custody, to Pershing and LPL and Raymond James using their broker-dealer custody/clearing platform as a basis to expand into RIA custody. As the reality is that established RIAs, who themselves have high demands based on the depth of services and affluence of their own clientele, require and expect a lot in terms of both technology and service.
The end result of this dynamic up until a few years ago was a near oligopoly of ‘Big 4’ RIA custody providers (Schwab, Fidelity, TD Ameritrade, and Pershing), and a handful of ‘second tier’ RIA custodians that serve various sub-segment niches of the advisor marketplace where they can remain competitive against the Big 3 for their subset of advisor clientele. Which became even more concentrated when in the fall of 2019 Schwab announced that it was going to acquire TD Ameritrade, a deal so large that it produced a lengthy Department of Justice investigation to ensure it wouldn’t necessitate antitrust intervention.
Ultimately, the DoJ antitrust concerns were dismissed, in large part due to the expectation that other financial services firms would be attracted into the marketplace to compete as RIA custodians to fill the competitive void left by TD Ameritrade’s acquisition, especially as a number of TDA-custodied firms were signaling that they did not want to continue to be served by Charles Schwab (especially given that a material segment of RIAs at TDA had gone there specifically because they were once rejected by Schwab as being ‘too small’). Which made it all the more notable when the storied Goldman Sachs announced within barely 6 months of the TD Ameritrade acquisition, in the spring of 2020, that it was acquiring Folio Institutional, one of the ‘secondary’ RIA custodians that Goldman would use to expedite its own competitive launch into the RIA custody business.
Yet now, nearly two years later, RIABiz reports that the Goldman Sachs RIA custodian launch is ‘indefinitely’ delayed, after announcing Steward Partners as an RIA custody launch partner last summer of 2021… but after missing several anticipated launch dates, is now not expected to even begin to onboard Steward clients until this fall of 2022, a date that Goldman itself still won’t even publicly commit to, signaling that its own internal launch timeline is still uncertain and raising the possibility that the launch may not come until 2023. Which is notable, as Schwab’s own timeline to complete its integration with TD Ameritrade is also slated for completion in mid-2023… such that Schwab may manage to complete its entire multi-year integration faster than Goldman could even buy its way to launch a full-fledged ‘upstart’ competitor!?
Ultimately, the fact that even Goldman Sachs, with its capital to acquire and its existing depth of team and resources, is struggling to engage in a timely launch of an RIA custodial competitor after several years, highlights the sheer challenge of what it actually takes to be ‘competitive’ in the RIA custody business. In Goldman’s case, the delays are rumored to stem from the complexity of integrating Folio’s basket trading window approach into a more flexible intra-day trading platform for larger RIAs. But whether it’s trading systems or reporting systems or data integrations or service teams (as large RIAs, in particular, have high expectations for the quality of their service teams!), the ‘table stakes’ of what it tables to be competitive in RIA custody have never been higher.
In the long run, Goldman should still manage to eventually launch its RIA custody competitor. Which is likely to be especially competitive in the wirehouse breakaway segment, where advisors (and their clients) care about the brand of the platform, and the cache of Goldman’s reputation in private wealth (on top of its bona fide capabilities for serving ultra-HNW international clientele) will still carry weight relative to ‘retail’ brands like Schwab. Even if it is long after the window in which Goldman might have capitalized by trying to draw away TD Ameritrade advisors unhappy with the merger (who will by Goldman’s launch have since been integrated into Schwab, or have already found an alternative).
Still, the fact that Goldman Sachs' acquisition of Folio Institutional for $250M to ‘jump-start’ its RIA custody launch is still leading to what may be a 2-3 year launch path for a competitive offering highlights just how difficult it really is to compete, and paints an even more daunting picture for other competing RIA custody upstarts that may be trying to enter the picture in the years to come. Which, unfortunately for the end RIA (and their clients), means the RIA custody oligopoly doesn’t seem likely to break up anytime soon?
IndyFin Raises Capital To Launch (Yet Another) Yelp-For-Advisors But Can It Really Beat Yelp… For Advisors?
In the early days of the internet, the world wide web was primarily a ‘finding machine’ for information, and the search engines that did the best job of parsing the tremendous breadth of online information to surface the most relevant information were most successful (i.e., Google). Within a decade, though, the internet shifted from just finding information, to finding solutions – buying products and especially services online, and using the internet to vet those offerings. Which in the early 2000s led to the rise of online review platforms, from Angie’s List to TripAdvisor to Yelp, where consumers could rate their experiences and provide reviews for others of the service they received.
Yet even as review services proliferated in most service industries, they have noticeably lagged amongst financial advisors. In part, this is simply due to the fact that in most service industries, only a small percentage of customers ever leave a review – which for providers that may have hundreds of customers each year, can still quickly reach a critical mass of reviews, but for financial advisors who may only have 75 – 100 ongoing client relationships at capacity, can result in no more than 1-3 client reviews (and by then, the advisor is already at capacity!). And historically, advisors couldn’t do much to try to increase the rate at which reviews were left, due to the industry’s longstanding restrictions against soliciting clients for testimonials.
However, in early 2021, the SEC ‘updated’ its testimonial rule for the first time in nearly 60 years, and recognizing the proliferation of third-party review sites and the way consumers use those reviews to make better decisions about service-providers, opened the door for financial advisors to begin to solicit and use client testimonials. Which in turn has sparked a number of advisor lead generation services to launch in the past 18 months, that are all pledging to become the next ‘Yelp for advisors’, collecting and housing third-party client testimonials and providing those reviews for consumers to help them choose their own advisor, including Finance Friends (now Onesta), Wealthtender, and more.
And now, IndyFin (a lead generation service for advisors) has announced a new $2.2M round of capital, that it is positioning to become the ‘Yelp for financial advisors’ by leveraging the new SEC testimonial rules for advisors to solicit their clients to leave reviews, which IndyFin can then use to help consumers find their own new advisor (who has the most favorable reviews). And advisors who claim and fill out their profiles can then receive those leads directly from IndyFin (and similar to other lead generation competitors, pay a ‘success fee’ to IndyFin for each new client that closes).
Notably, though, IndyFin is taking a more ‘vetted advisors’ approach to its marketplace of advisors for consumers, and is highlighting the ‘rigorous’ vetting advisors that advisors will have to go through to be included in the IndyFin network. Which raises the question of why advisors would solicit clients to leave reviews on IndyFin’s website if they might not pass the vetting process. And if only successfully-vetted advisors use IndyFin’s reviews, then ultimately it won’t have the breadth of reviews that a broad-based provider like Yelp does… as while businesses can claim their Yelp profiles for additional features, any consumer can leave a review for any business on Yelp, regardless of whether the business claims the review or has been vetted by Yelp. Which is what helped Yelp gain a critical mass of reviews to become a known brand unto itself.
In fact, the question of whether all advisors will steer their clients to IndyFin to leave reviews – or only those who are successfully vetted by IndyFin, while other advisors refer their clients elsewhere – highlights the broader issue that in the end, review sites tend to benefit from network effects (where the greater the volume of consumers leaving reviews and advisors participating, the more valuable the service is and the more consumers leave additional reviews and the more additional advisors participate). Which means in the end, there probably won’t be multiple “Yelp-for-Advisors” sites; instead, the most likely outcome is that one will become the market leader, that best gains the critical mass of consumer reviews, advisor participation, and most importantly media/consumer recognition, and the coming year(s) will be a race to see which one wins.
For which it seems that the most likely winner may simply be… Yelp itself. After all, as far back as 2014, the SEC acknowledged that if a consumer independently leaves a review on an independent third-party website, it was already permitted under the prior testimonial rules. The regulatory concern was never about third-party review sites, but about advisors using client testimonials in their own marketing, where there was a risk that advisors might be selective in cherry-picking the best testimonials (and give a distorted picture to consumers), whereas third-party review sites that the advisor doesn’t control never had that problem in the first place. As a result, consumers can often already find well-reviewed advisors on Yelp in their area, and the permissiveness of the new SEC testimonial rules – which makes it easier for advisors to outright solicit clients to leave reviews on Yelp – may just amplify Yelp’s lead further.
In addition, the added benefit for advisors that use Yelp is that, while there is a cost to claim the Yelp profile, it is a small fraction of what lead generation services charge for each lead and/or as a success fee for each closed client. Which means from the advisor’s perspective, Yelp already has better consumer recognition, is more commonly used, is more likely to have a critical mass of reviews, and is less expensive for the financial advisor to rely upon. (Along with advisors claiming their Google My Business profile and similarly obtaining client Google Reviews that show up with local search.)
Ultimately, the 2021 change in the SEC’s (anti-)testimonial rules that for so long had at least limited how much advisors could solicit client reviews will likely increase the frequency of clients leaving reviews (and how often advisors solicit clients to do so). And there is clearly a need, desire, and willingness of advisors to pay for a wide range of lead generation services. But in the long run, when it comes to building advisor review sites in particular and emulating the ‘Yelp’ model for financial advisors, it’s not clear whether or why any of the upstart services may be able to execute a “Yelp-for-advisors” model better than Yelp… for advisors?
In the meantime, we’ve rolled out a beta version of our new AdvisorTech Directory, along with making updates to the latest version of our Financial AdvisorTech 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? Can Wealthbox win business away from Redtail and Salesforce in the larger enterprise market? Will advisory firms be open to a new, more holistic values-based approach to performance reporting for client households? Will Goldman Sachs eventually be able to break the current RIA custodian oligopoly? Do you think advisors will adopt third-party client review platforms like IndyFin, or just engage more actively with existing platforms like Yelp and Google Reviews? Let us know your thoughts by sharing in the comments below!