Welcome to the January 2023 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 news that Envestnet has decided to enter the RIA custodial business through a partnership with Australian bank FNZ to white-label what was once the State Street RIA custodial platform of many years ago – providing Envestnet an opportunity to even more deeply integrate its front-end advisor platform to the back-end of custody for a more seamless end-to-end experience (and, potentially, a more competitive bundled pricing arrangement for a unified technology-plus-custody offering).
Notably, though, with so much of Envestnet’s existing base of advisors in the independent broker-dealer channel, it seems less likely that the company will be competing with the ‘traditional’ RIA custodians of Schwab and Fidelity for independent RIAs and wirehouse breakaways, and more against the likes of LPL and Pershing for broker-dealers that are adding and expanding RIA offerings to their increasingly hybrid platforms (and might welcome the opportunity to save on Envestnet’s software costs by adopting its RIA custodial platform in the future?). Which positions Envestnet well to grow with a unique segment of ‘emerging’ RIAs… while providing relatively little competitive pressure to the existing RIA custodial ecosystem.
From there, the latest highlights also feature a number of other interesting advisor technology announcements, including:
- Docupace launches an ‘RIA Productivity Toolkit’ as it increasingly expands beyond its document management roots in a bid to become more of the back-office workflow engine of small-to-mid-sized advisor enterprises
- Raymond James launches ‘Opportunities’ as the latest competitor to facilitate ‘Next Best Conversation’ insights to help their advisors engage with the right clients at the right time for the most meaningful conversations
- FMG partners with Catchlight to integrate its marketing insights about the prospects on an advisor’s email list to better target content that can turn them into clients
Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including:
- AdvisorFinder launches a new expertise-based lead generation portal that matches prospects based not on their zip code or advisor compensation preferences, but on the advisor’s specialization or typical (i.e., niche) clientele
- Modern Life raises $15M and rolls out a digitally-based life insurance brokerage solution for advisors who want to continue to offer life, disability, and long-term care insurance but with a more ‘modern’ technology platform to facilitate applications, underwriting, and in-service support
In the meantime, we’re excited to announce several new updates to our new Kitces AdvisorTech Directory, including Advisor Satisfaction scores from our Kitces AdvisorTech Research, and the inclusion of WealthTech Integration scores from the Ezra Group!
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]!
Envestnet Partners With FNZ To Launch RIA Custodian But Mostly For (Hybrid) B/Ds?
The RIA custodial business has been a hot opportunity over the past decade, but still a remarkably challenging one. Advisory assets are on the rise, both with the shift to fee-based models within independent broker-dealers, the growth of hybrid advisors, and the ongoing growth of the independent RIA channel (coupled with the small but material ongoing trickle of breakaway brokers from major wirehouses). But the custodial business is a scale business – measured ‘at least’ in the hundreds of billions, if not trillions, for successful platforms – which means most are still struggling to achieve the size it takes to be successful.
As a result, despite the continued growth opportunity of the industry’s ongoing shift from broker-dealer to RIA, in practice, RIA custodial platforms have largely consolidated – not proliferated – over the past decade. From Trust Company of America to Scottrade Advisor Services to Folio Financial and even TDAmeritrade all being acquired, to most of the remaining ‘alternative’ custodians operating on top of existing platforms (e.g., SSG Institutional on top of Pershing, TradePMR on top of First Clearing, and Altruist on top of Apex), the success rate for any new entrants to the RIA custodial space is remarkably small.
Given these dynamics, there have been murmurs for years about whether Envestnet – a mega-platform-TAMP with nearly $1 trillion of combined AUM and AUA, and trillions more that is connected to under its various “subscription” programs – might someday enter into the custodial business. Which, on the one hand, seemed incredibly appealing as a way for Envestnet to expand its revenues on existing advisors by being more vertically integrated. But on the other hand, often evoked a question of ‘why bother?’, given that they already have the arguably higher-value (and less commoditized and easier to scale) portion of the investment value stack with their investment management solutions.
But now, Envestnet has (finally!?) announced that it will be entering the RIA custodial business, in a partnership with Australian bank FNZ, which previously acquired what was once an RIA custodial platform offered long ago by State Street, and will now white label the offering in the US with Envestnet, in a launch that is anticipated to take 12-24 months (becoming available in 2023 or 2024).
In practice, the new offering appears to be both a defensive and offensive play for Envestnet. From the defensive end, Envestnet has increasingly had to fend off RIA custodians that have begun to launch their own TAMP platforms for RIAs (e.g., Fidelity’s FMAX, Pershing’s Lockwood, Schwab’s Institutional Intelligent Portfolios, and a growing number of third-party SMA and TAMP options available directly through any of them), which advisors often prefer because they can implement the portfolios directly within their existing custodial technology platform. Whereas Envestnet, a ‘third-party’ itself relative to existing custodians, has always been limited (by what the custodians’ own tech can even make available in the first place) in the depth of integrations that it can create to custodial platform workflows; now, however, Envestnet will have the opportunity to make a ‘full-stack’ experience including both the front-end (with Envestnet’s existing technology) tied directly to the back-end (with FNZ/State Street’s custodial platform).
From the offensive end, having an RIA custodial offering gives Envestnet an immense opportunity to ‘cross-sell’ a bps-based revenue model (where RIA custodians often generate 15-25bps of revenue yield on their assets on platform) to Envestnet’s existing ‘subscription’ advisors (who buy various Envestnet technology solutions like Tamarac but pay fixed software fees)… a big growth opportunity given that subscription assets are the super-majority of Envestnet’s assets ($4.9T of its $5.7T, according to its latest 2022 10-K) but a minority of its revenue ($454M of its total $1.19B). In addition to the opportunity to earn the ‘custodial layer’ of revenue on Envestnet’s existing core TAMP business.
From the advisor perspective, though, this means that Envestnet’s RIA custodial offering is likely to show up differently than others – where it does not necessarily compete as much head-to-head with Schwab and Fidelity for existing independent RIAs, and instead is focused more on Envestnet’s existing – largely independent broker-dealer – advisor base. As this is where Envestnet already has traction to cross-sell expanded RIA services, can solve for IBDs that are still in the nascent stages of launching and growing their RIA platforms (before they’re too deeply embedded with another custodial platform), and can create unique incentives to attract existing IBDs by bundling its tech to its new custodial offering (e.g., firms that use Envestnet’s custodial offering might no longer have to pay for Tamarac or Envestnet’s other technology).
Which puts Envestnet in a very unique position to gain traction with its custodial offering… because most new RIA custodial entrants have the unenviable position of trying to sell against “free” solutions like Schwab and Fidelity, but Envestnet can actually compete on ‘price’ by bundling the software layer its IBDs (and Tamarac-using RIAs) already pay with the custodial offering it wants to grow. Consequently, Envestnet’s offering looks to be more of a competitor to the likes of LPL – which is also trying to attract (or, in many cases, simply acquire) small-to-mid-sized IBDs to help them expand their RIA capabilities (on LPL’s custodial platform) – along with the new Pershing X, than traditional RIA custodians who compete primarily for (existing) independent RIAs.
In the long run, though, the core challenge for any and every new RIA custodian is ultimately: can they provide an offering compelling enough to make advisors actually change, in a world where every advisor is utterly loathing to ever re-paper? It remains to be seen whether Envestnet can make a compelling enough case… though the promise of a more end-to-end experience for the immense base of IBD advisors it already has, coupled with a relative lack of competition for IBD advisors (as most large RIAs are focusing on the largest wirehouse breakaways instead), and Envestnet’s unique opportunity to bundle existing hard-dollar software costs into its RIA custody, puts it in a better position than any other recent new RIA custodial entrants to actually gain traction!
Docupace Aims To Digitize RIA Back Office Workflows With New ‘Productivity Toolkit’ For Investment Operations.
When ‘the internet’ first began to show up in advisory firms nearly 25 years ago, the idea of digital workflows with straight-through processing wasn’t even a concept yet. The core focus in digitizing advisory firms was simply to eliminate entire rooms full of filing cabinets of paper client files and convert them to electronic format. Which led to an explosion of various ‘document management’ systems like LaserFiche, NetDocuments, Worldox, and Docupace that aimed to solve the problem for financial advisors (and other paper-intensive professional services industries like accounting and law).
As the physical pieces of paper went away and more ‘paperwork’ and forms became electronic, though, a new challenge emerged: making the flow of (digitized) paperwork more efficient. As while the paperwork itself had become electronic, many of the workflows and processes that touched them were still ‘analog’, resulting in bizarre processes in the early 2010s like PDFs that had to be printed, then faxed, so that the recipient could process the faxed paperwork by hand, and then scan the approved form into their electronic system. Which was cast into stark relief with the arrival of the robo-advisors, that could fully execute a digital onboarding process in minutes from a smartphone, and led to the rise of multiple ‘robo-advisor-for-advisors’ platforms like Jemstep, AdvisorEngine (née Vanare|Nest Egg), Oranj, RobustWealth, and more, that aimed to improve upon advisors’ digital onboarding processes!
Over the past ten years, broker-dealers and custodians have slowly but steadily improved upon their onboarding capabilities, making it easier for advisors to deliver a more digital onboarding experience to clients directly, but the expansion of more automated digital onboarding systems has now begun to highlight the gaps in advisory firms to facilitate their overall onboarding workflows that may span multiple systems from custodians to document management systems to their CRM. Which is creating a growing focus on back-office workflow engines to increasingly automate those tasks as well!
In this context, it’s notable that this month, Docupace – one of the initial early-internet providers of document management solutions to financial advisors – announced the rollout of a new “RIA Productivity Toolkit”, which brings RIAs a workflow engine to facilitate cross-system management of their core investment operations tasks, from account opening and onboarding (integrated to multiple custodians) to status tracking of open work items by client (integrated to multiple CRM systems), along with a core Forms library (with pre-configured form validations) and an embedded (fully integrated) DocuSign solution.
Relative to Docupace’s roots – which is working within mid-to-large-sized independent broker-dealers – the RIA Productivity Toolkit is notable as a strategic shift for Docupace to diversify beyond IBDs and further into the RIA channel. For which, notably, Docupace substantively repackaged its offering, as RIAs (which tend to have far fewer advisors than even ‘mid-sized’ IBDs, and don’t have the same depth of operations staff and infrastructure support to manage large-scale projects) need a solution that they can more readily implement in a more modular manner around their existing systems.
From the (independent RIA) advisor perspective, Docupace’s shift into RIAs with a more workflow-oriented solution (beyond their document management roots) comes at a time when RIAs are increasingly struggling to manage operational workflows internally, particularly amongst those that have not adopted Salesforce and its various (more-workflow-friendly) overlays. Though ultimately, Docupace’s success will be driven primarily by how easy it really is to implement their solution one ‘small’ RIA (and their idiosyncratic existing systems and processes!) at a time.
From the broader industry perspective, though, Docupace may increasingly come up against RIA custodians themselves, which are building out their own more robust onboarding and workflow systems (that advisors get with their existing custodial relationship and don’t have to pay separately for!). However, to the extent that RIA custodial platforms ‘only’ go as far as their core investment operations and typically only work on their own platforms, Docupace is still well positioned to compete for advisors who are multi-custodial (and want to live within one system that works with them all!), if (and as) it continues to expand beyond the ‘core’ investment functions that RIA custodians can fulfill, and ties more deeply into firms’ broader financial planning and wealth management workflow needs (that RIA custodians can’t solve for!).
At the same time, though, as CRM systems are increasingly pressured to better facilitate workflows as well, Docupace may also find its workflow engine increasingly competing with the CRM systems it’s integrated to… raising the question of whether Docupace may eventually end out merging into or acquiring a CRM system to be able to facilitate the advisor’s entire back-office workflow systems?
Raymond James Launches ‘Opportunities’ To Prompt The Next Best Conversation For A Client Relationship.
For most of its history, financial planning has been very reactive, derived largely from our transaction-based roots in selling insurance and investment products. As the reality is that in a commission-based world, advisors are only paid when there’s an opportunity for the client to buy a new product. Which means there was little financial incentive for financial advisors to meaningfully engage with clients on an ongoing basis. Instead, ‘check-ins’ were relatively brief (if at all), and most financial planning opportunities were client-initiated and advisor-reactive; simply put, advisors regularly called on a small subset of their top clients to proactively find opportunities, and for the rest, the advisor would help clients with whatever they called about when they needed help that would lead to them implementing something (which was when the advisor could actually get paid to do the work).
However, as the financial advisor business model has increasingly shifted to ongoing fees over the past 20 years – from AUM fees to subscription fees – the incentives have shifted, too. Because in an ongoing relationship model, it’s no longer necessary to find a ‘sale’ for an interaction with a client to be meaningful. Instead, any opportunity to deliver financial planning advice is meaningful because it shows the advisor’s value, which leads to clients sticking around longer. In fact, any ‘meaningful conversation’ with an ongoing-fee client can be financially meaningful to the advisor to support (and retain) the relationship!
The caveat, though, is that it takes a lot of mental bandwidth to maintain a lot of client relationships… and while ongoing-relationship-based advisors have far fewer clients (typically no more than 100 as an individual advisor, or 150-200 as a multi-person team) than transactional advisors (where 300-400+ clients per advisor were not uncommon), it’s still too many clients for an advisor to remember everything in the advisor’s head. From key milestones like birthdays and anniversaries, to the timing of when kids go to college, or key retirement milestones like 59 ½ (early withdrawals from retirement accounts), age 62 (early Social Security), age 65 (Medicare), to being aware when clients move money out of or into accounts, to figuring out which clients may be impacted by (and merit a conversation regarding) a recent tax law change, the reality is that there are more potential conversations to be had than there is an ability to figure out exactly which conversations to have (and when)! Which, fortunately, is a problem that advisor technology can help solve!
Consequently, it makes sense that this month, Raymond James launched a new solution to help facilitate these ‘Next Best Conversation’ moments with clients. Aptly dubbed “Opportunities”, the new dashboard for advisors will notify and prompt advisors to take action on “important client milestones, financial planning insights, excess liquidity, and significant life events…” some of which may lead to client actions, and others that may simply result in conversations that foster deeper relationships and connections with ongoing clients.
From the advisor perspective, Raymond James’ Opportunities is appealing as most advisors are beginning to drown in a veritable sea of investment, financial planning, and other data that holds a plethora of opportunities and little way to stitch all the disparate data sources together to actually see them all in a timely manner, in order to engage with clients more meaningfully. Which isn’t to say that advisors are sitting around doing nothing… but the status quo for many advisors is simply to have ‘regular’ client meetings 2-3 times per year, regardless of whether there’s anything to actually talk about, just in case there might turn out to be. Whereas tools like Opportunities create the potential for having more proactive conversations, at the time they’re meaningful… which can lead to enough of the right conversations at the right time with clients that they replace other meetings (that are often less productive because the meeting wasn’t driven by a prompt of an actual meaningful planning opportunity to discuss!). In other words, Opportunities won’t necessarily make advisors more efficient – as though it will reduce how much time advisors spend talking to clients – but such ‘Next Best Conversation’ advice engagement tools do have the opportunity to make financial advisors more effective with their clients.
From the broader industry perspective, the arrival of Raymond James’ Opportunities (and recent third-party entrants with a similar approach like ForwardLane and Bento Engine) is part of an ongoing trend that started with Morgan Stanley’s ‘Next Best Action’ in 2018, but signifying what appears to be an ongoing shift away from just finding new product/sales opportunities for transactional clients, and towards more ‘Next Best Conversation’ opportunities to engage ongoing relationship clients (which support the relationship, which supports retention, which is good business for recurring revenue clients).
In the long run, though, the real question about such advice engagement tools will become: what are the most right/impactful conversations to have, and more importantly, where/how is the data stored to identify those opportunities in order to put the tech right next to it? Will third-party solutions that overlay CRM (like ForwardLane and Bento) be able to do it? Or will the best Next Best Conversation tools be built primarily by larger platforms (such as wirehouses like Morgan Stanley and major broker-dealers like Raymond James) that can build deeper (and more custom) solutions that stitch together their specific advisor and client data across disparate systems?
FMG Partners With Catchlight To Better Target Email Drip Marketing To Prospective Client Profiles.
For most of our history, advisors found new prospects by “prospecting” – going to networking meetings, seeking out introductions, and trying to engage with potential new clients one person at a time. The bad news of this approach is that it was very time consuming to go through all that work to make one connection at a time. The good news was that it did afford advisors the opportunity to really get to know the prospect and determine whether that prospect was a good fit (or not).
In more recent years, advisor growth has increasingly shifted to a one-to-many marketing effort, where advisors build a list of prospect names and addresses (in the past, mailing addresses, and now email addresses) and then ‘drip market’ to those prospects with various (email) marketing newsletters. The good news is that this kind of marketing approach is much more scalable and allows advisors to reach far more prospects. The bad news is that now there are so many names on the list, it’s hard to determine who is actually a good prospect or not, and what the most relevant marketing content would be to connect with them.
As a result, advisors often have to turn to third-party platforms to look up prospects – from consumer data services like ZoomInfo, to searching for them within/beyond their networks on LinkedIn – just to figure out which of the various prospects on their list are actually worth pursuing, and what the right marketing/messaging would be to reach the select few that are best to target. Which, at best, is a very manual and time-consuming process to qualify a few prospects from amongst the many. And at worst is simply not feasible for advisors, who instead just send the same information to everyone and hope the best prospects surface on their own.
To help bridge the gap, FMG – which was originally an advisor website provider that has expanded into a broader advisor marketing platform and service provider – has announced a new partnership with Catchlight (which provides marketing data to better pre-qualify prospects), which will pair Catchlight’s marketing data to the prospect names in an advisor’s mailing list with FMG to better target those prospects with the right marketing content from FMG’s content library.
From the advisor perspective, infusing Catchlight data into FMG’s email marketing systems to better target content is appealing, but notably not unique – a number of other advisor email marketing systems over the years, most notably including Vestorly, tried to build similar systems to make advisors’ email marketing content more targeted and relevant… but few gained traction, due primarily to the simple fact that most advisors struggle to build their email lists in the first place (e.g., due to poor website design, lack of clear calls-to-action to convert, etc.). And if the advisor doesn’t have many prospects to market to – and isn’t adding many on an ongoing basis – the ROI of having more targeted content isn’t much.
In fact, when the reality is that it only takes a handful of high-quality prospects to become clients to meaningfully change an advisory firm’s growth outcomes for a year, arguably one of the best opportunities for the Catchlight-FMG integration is not to alter the FMG content that is dripped to prospects based on Catchlight data, but to guide advisors about which prospects should not merely be ‘dripped to’ in the first place and instead merit a more proactive outreach from the advisor. In other words, quickly guiding the advisor to the 5 best pre-qualified prospects on their mailing list to proactively contact may be more effective than better customizing content to a few dozen or hundred email addresses on the entire list?
From the broader industry perspective, though, the point remains that when most individual financial advisors measure their growth success by whether they get half a dozen, a dozen, or (maybe!?) two-dozen new clients in a year, one-to-many marketing strategies that help funnel down a large number of prospects to a select few who convert can be an effective marketing strategy. But if the end goal is to focus as quickly as possible on the most meaningful prospects – given the high value of an individual client, and the limited time to develop a relationship with any particular prospect along the way – the ultimate question is not how advisors better target content to their mailing lists, but how they identify the few best prospects to pursue beyond their mailing lists. Which, ironically, means tools like Catchlight could actually reinvigorate a switch from digital marketing back to ‘analog’ by helping advisors identify their highest value prospects to pursue with more traditional sales and prospecting tactics?
AdvisorFinder Launches Expertise-Based Lead Generation Platform, But Will Consumers Actually Show Up?
For financial advisors, it’s tough getting new clients. Not because financial advisors aren’t well-priced and offering a strong value proposition – as the typical financial advisor’s sky-high 90%+ (often 95%+, sometimes 97%+) retention rates can attest, the overwhelming majority of clients appear to be very happy with what they’re getting. The challenge is getting the attention of prospective new clients, and standing out as a financial advisor from all the others pursuing the same lucrative long-term client opportunities. As a result, according to the recent 2022 Schwab Benchmarking study, the average independent RIA grew its client base at an average annual growth rate of just 5.1% over the past 5 years.
In turn, the struggle of advisors to drive organic growth has led to a number of other emerging trends around advisor growth strategies over the past decade. It has led to an immense rise in inorganic growth, as the DeVoe RIA Deal Book shows that advisor mergers and acquisitions are up more than double over the past 5 years and over 6X in the past 10. And the demand for M&A – coupled with rising valuations as a result of the demand outstripping the supply – has led to a shift of advisor budgets towards marketing, resulting in the emergence of a new crop of paid lead generation services for advisors, from SmartAsset’s SmartAdvisor to Zoe Financial to IndyFin to WealthRamp and more.
The caveat, though, is that it still takes a lot to get the attention of consumers. In fact, a recent Kitces Research study on Advisor Marketing found that for established financial advisors, the average Client Acquisition Cost for a single new client is $4,056. And there’s a risk that cost will go even higher as even more advisors spend more on marketing in an attempt to jump-start their growth, and in an increasingly crowded marketplace of advisor lead generation solutions also emerge… all competing for the same consumer attention. Yet at the same time, with client acquisition costs so high, and many advisory firms willing to pay as much as 25% of lifetime revenues to get a client, there remains a lot of revenue potential for lead generation services that can figure out how to break through the noise.
In this context, it’s notable that this month, another new lead generation service for advisors – AdvisorFinder – entered the fray. Similar to other lead generation competitors, AdvisorFinder offers a consumer-facing portal where individuals can come and find the ‘right’ financial advisor for themselves, filtered by various search criteria, and then reach out to contact the advisors they find of interest. Though notably – and unlike most other platforms – AdvisorFinder will not share consumer inquiries with a wide range of prospective advisors (which can then lead to an unpleasant onslaught of follow-up emails and calls to the consumer), and instead will “leave the consumer in the driver’s seat”, where the consumer initiates contact to their selected advisor(s) (and only their selected advisors) on their own terms.
What is perhaps more notable, though, is the unique way that AdvisorFinder is currently filtering the advisors in its marketplace for consumers to select – based not on where the advisor is located (‘what is your zip code’ isn’t even included as an option!), nor based on the advisor’s compensation model (though those details are included on the individual advisor profiles). Instead, advisors are filtered primarily by their specialization (a particular expertise like Retirement Income or College Planning or Tax Minimization Strategies), or their typical clientele (i.e., the advisor’s niche, such as retirees, tech employees, corporate executives, or divorcees). Or stated more simply, AdvisorFinder is not matching advisors based on where they are and what they charge, but instead based on who they serve and the kinds of problems they solve.
From the advisor perspective, the biggest appeal for AdvisorFinder may simply be its price – which launched initially with a $249/year subscription fee, that rose to ‘just’ $329/year in 2023 – the service is substantially less costly than others that charge advisors by the lead (which can add up quickly if there’s a lot of lead flow) or under a revenue-sharing agreement (which means advisors only pay when they get clients, but can add up to exponentially more in marketing costs in the long run). As a result, even if AdvisorFinder ‘just’ produces a single client for an advisor in a year (or every other year), it’s still an incredibly good deal relative to other marketing channels.
The caveat, however, is that AdvisorFinder does have to produce at least a client for each and every advisor on the platform, to make it worthwhile for them to keep paying at all. And when the average client acquisition cost for an established advisor is over $4,000, it remains very unclear how AdvisorFinder can sustainably generate an ongoing flow of new clients for all the advisors on its platform when it’s only charging 1/10th the price for a subscription in the first place. Because the reality is that the key to advisor lead generation is not in the consumer interface, per se, but the ability to scalably generate a growing volume of clients (to engage with the interface in the first place)… and the jury is still out on whether AdvisorFinder will be able to find a scalable marketing strategy to deliver, especially at its arguably-below-market price point that may not give the company enough cash to invest into its own marketing?
Modern Life Raises $15M And Rolls Out Modern Tech Platform For Advisors Who (Still) Want To Write Insurance For Clients.
Life insurance has traditionally been sold by life insurance agents – employees of the life insurance company, whose job is to represent the company and sell its insurance policies to consumers. As a result, life insurance agents would often pick the company to affiliate with based on the quality of its individual insurance products that were being sold into the marketplace. Because one of the easiest paths to sales success was simply to represent a company with superior products to sell.
Yet while the ‘captive agent’ distribution system is still deeply entrenched in many of the country’s oldest life insurance companies, in recent decades there has been an ongoing shift towards greater independence, where advisors don’t just sell their individual company’s insurance products, they are able to offer any company’s insurance policies. From the advisor's perspective, this is incredibly appealing, because it allows the advisor to be more competitive with each and every prospect – there’s no longer a risk of being ‘out-sold’ where a client chooses another advisor who has a better insurance policy to offer, if the advisor can offer the same policy themselves.
However, the shift towards a more independent system of insurance distribution also further impacts the advisor’s decision of what platforms to affiliate with, because not only does the company no longer necessarily differentiate on its proprietary products (that aren’t available elsewhere), it can’t necessarily differentiate on any products (when all the other independent brokerage platforms can offer the same). Which instead has increasingly led independent insurance brokerage platforms to differentiate on their service and support of advisors who write insurance through them, and on supporting those advisors in their efforts to market and grow their businesses.
But now, a new entrant has arrived – Modern Life, which recently completed a $15M round of capital to launch a new kind of technology-first insurance brokerage platform for financial advisors. Offering the ‘usual’ suite of life, disability, and long-term care insurance from the major carriers, Modern Life is not competing with other ‘digital insurance’ startups like Ladder Life to underwrite its own policies, nor is it aiming to go directly to the consumer in an effort to disintermediate advisors. Instead, the company is effectively positioning itself to compete with the landscape of FMOs and IMOs that currently support independent insurance agents to facilitate the core processes of applications, underwriting, policy issuance, and in-force servicing, along with advanced markets and service support.
Notably, even within the domain of startups that aim to support advisors offering insurance to clients, Modern Life is also unique in that it is not trying to support RIAs who don’t want to be licensed for insurance and earn commissions (where others like DPL Partners are growing); instead, Modern Life is specifically looking to work with advisors who do write insurance for clients (which ostensibly may be as a standalone insurance agent, aligned to a broker-dealer, or as an RIA that is not fee-only and still wants to implement insurance for their clients), but want a more technology-driven experience to implement efficiently.
Which suggests that the digitization of insurance is now progressing in a similar manner to how investments did with the rise of the robo-advisor – where initially, venture capital firms funded direct-to-consumer startups that aimed to disintermediate advisors by offering (commission-free or lower-cost) investment products to consumers, only to discover that it’s incredibly expensive to get clients in a hyper-competitive environment, leading most to ultimately pivot away from a direct-to-consumer approach and instead become platforms to make advisors more efficient. And arguably that pivot makes even more sense when it comes to insurance, which long has operated under the viewpoint that “insurance is sold, not bought”… which is sometimes used as an indictment of an industry that aggressively tries to sell policies that no one would otherwise buy, but is also simply an acknowledgment that facing one’s mortality (or risk of permanent disability or debilitating disease) is a challenging subject that makes a lot of consumers procrastinate until and unless a financial advisor helps them across the line.
In the long run, though, the biggest question for Modern Life will not necessarily be its competitiveness to existing independent insurance brokerage platforms – which have long struggled with limited resources that in many cases results in outdated technology, and where Modern Life should certainly be able to win market share if it can execute a competitive technology platform – but simply whether the future ends up being one where financial advisors still execute a range of investment and insurance products that may include commissions (where Modern Life has positioned to compete), or a more fee-only world where, similar to doctors, advisors prescribe insurance recommendations but send clients elsewhere to have the prescription implemented (where alternative platforms like DPL are positioned to shine).
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? Will Envestnet be able to gain traction as a ‘new’ RIA custodian with its existing independent broker-dealer and Tamarac-using RIAs? What would it take for you to pay for a service like AdvisorFinder to get prospects? Is it appealing for your email marketing software to incorporate insights from platforms like Catchlight to better target content to prospects (or would you rather just know who the most high-value prospects are to pursue yourself)? Let us know your thoughts by sharing in the comments below!