Welcome to the March 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 FeeX is going all-in on helping financial advisors (get paid to) manage held-away 401(k) plans, providing the ability to facilitate trading and rebalancing without transferring or liquidating the employer retirement plan… and in the process, has raised a whopping $80M of fresh capital and is rebranding away from its “FeeX” roots to a new name “Pontera” to signify how it is building a bridge to retirement plans (“pont” is the Latin root for "bridge"!).
From the advisor perspective, the growing demand for Pontera highlights the ongoing expansion of wealth management services from ‘just’ managing a client’s liquid investment account to providing more holistic advice on their entire household… for which advisors at the least are increasingly charging AUA (Assets Under Advisement) fees, but are increasingly interested in tools that allow the advisor to manage the held-away account and provide their full scope of services (and be able to charge their full scope of AUM fees).
From there, the latest highlights also feature a number of other interesting advisor technology announcements, including:
- Datalign launches a new lead generation service that will allow the advisory firms with the best processes for converting prospects to clients to outbid their competitors for the best leads
- Fidelity Labs launches a new compliance solution, dubbed Saifr, to facilitate more rapid compliance reviews of marketing and other advertising materials in large advisor enterprises
- Morningstar launches a new Wealth Management Solutions offering in an attempt to TAMP-ify its existing Morningstar Office and related portfolio management tools
Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including:
- AssetMark launches a new integration with RightCapital, less than a year after acquiring Voyant, and highlighting the ongoing advisor demand for best-of-breed (over all-in-one) solutions
- The SEC proposes new cybersecurity rules that would require RIAs to disclose, to clients and (via Form ADV Part 2) to prospects any cyber incidents they’ve experienced (ostensibly in the hopes that the risk of being ‘cybershamed’ will encourage more advisory firms to invest more into their cybersecurity practices)
- NaviPlan founder Mark Evans is preparing the launch of his new financial planning software – Conquest Planning – in the hopes that a ‘strategy-centric’ approach will become the Next Big Thing in financial planning software!
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]!
FeeX Goes All-In On Trading Solution For Held-Away 401(k)s With $80M Capital Raise And Rebrand To Pontera.
The rise of the robo-advisor nearly 10 years ago raised an industry-wide question about whether the Assets Under Management model could and would survive technology competition. Yet in the years that followed, not only did standalone robo-advisors struggle to gain widespread adoption, but AUM fees have actually remained remarkably robust, as advisory firms have not buckled to fee compression and instead simply reinvested to ‘value-add’ their way up to the ongoing AUM fees they were already charging.
However, the ongoing ‘Great Convergence’ of the industry away from its commission-based roots and towards the (AUM-based) advisory model is creating a more fundamental challenge: there are only “so many” clients with assets available to manage, in accounts that are liquid and available to be transferred to a financial advisor in the first place. Which is a challenge not only of the simple fact that only about 1/3rd of households even have more than $100,000 of investable assets outside of their primary residence (the so-called “mass affluent” and up to wealthier households), but a significant portion of those still hold the assets inside of a 401(k) plan that most advisors don’t have a way to manage (as unless the plan permits in-service distributions, the advisor must typically wait until the client retires and the assets become eligible for rollover).
The end result of this emerging squeeze – where there are more advisors pursuing the AUM model than there are clients with available assets to manage – is leading to a fork in the road, where advisory firms either pivot to alternative fee-for-service business models to serve non-AUM clients (e.g., working with higher-income households that may not have an existing portfolio but want to pay for advice by charging 1% to 2% of income instead of assets), or try to expand the scope of their advice by shifting from an AUM model to an ‘AUA’ (Assets Under Advisement) approach where the advisor charges a fee based on the entire balance on which the client is being advised (including both their managed accounts, and held-away non-managed accounts).
The caveat to the AUA model, though, is that it’s difficult to charge the same advisory fee for held-away accounts as the ones that advisors do manage directly, as it draws into stark relief the difference between ‘just’ giving advice about what the asset allocation of the portfolio should be, and the service of actually being responsible for trading/implementing it (upfront and on an ongoing basis). Which both introduces new problematic conflicts of interest – the advisor has an incentive to persuade the client to roll over the assets from a held-away non-managed account to a managed account instead – and also undermines the pricing and service opportunity altogether (as if advisors can’t manage held-away accounts, they can’t provide the same level of service, and thus can’t charge the same level of fees, even if the client otherwise wanted to hire the advisor and pay them to do so).
Which helps to explain the rise of FeeX, which this month announced that it has completed raising a massive $80M of new funding, as the company’s “held-away 401(k) managed account” services are seeing a rapid growth in demand. What’s unique about FeeX is that it has built the capability for advisors to actually manage held-away 401(k) plans, without triggering problematic Custody Rule issues by having a client’s password to log into their account directly, and instead serves as an intermediary that the client grants access to, where FeeX then takes and implements discretionary trade orders from the advisor to implement their management strategies. The end result is that advisors are able to offer trading and rebalancing on clients’ held-away 401(k) plans (and 403(b), and HSAs), and charge the same ‘normal’ AUM fee they may charge for the rest of the client’s accounts (rather than a reduced AUA fee).
Notably, enabling the management of held-away 401(k) plans is proving to be highly lucrative to FeeX itself, which reportedly charges a 25bps fee on all the accounts it facilitates trading for… which may be very “expensive” by traditional AdvisorTech Software standards, but holds up quite well for financial advisors who can utilize the service to charge a ‘full’ 1% AUM fee in the first place (and simply net 0.75% for their advice and implementation support after FeeX’s servicing cut).
The irony to FeeX’s success is that originally, it was a direct-to-consumer “Fee Comparison” tool, that captured investment costs from 401(k) plans to show consumers what they’re really paying, and at one point somewhat controversially tried to pull advisors’ fee schedules directly from their Form ADVs and tried to highlight which advisors may be charging them above-average fees and ‘help’ them find other advisors who might charge less. Which in 2016 pivoted into a model of using the FeeX to provide employer retirement plan data on fees and expenses to facilitate potential compliance with the proposed Department of Labor fiduciary rule on rollovers… and then after the rule was vacated, extended into the current offering of providing advisor the ability to provide additional services (and charge additional fees) on top of 401(k) plans instead. Accordingly, with its new capital and new focus, FeeX is rebranding itself to “Pontera”, signifying its shift away from its fee-comparison roots and towards being a bridge for financial advisors to work with clients’ employer retirement plans (where “Pont” is the Latin root for “bridge”).
More broadly, though, the FeeX-turned-Pontera growth story highlights the ongoing trend that financial advisors are increasingly trying to expand their services beyond ‘just’ managing a client portfolio (that is transferred to their broker-dealer or custodian to manage), and the ongoing rise of human financial advisors increasingly extending more directly into the realm of employer retirement plans while employees are still working there and need advice services (rather than ‘just’ waiting to work with retirees after they separate from service and are ready to roll over their retirement accounts).
Datalign Launches Lead Generation Service To Auction HNW Prospect Introductions To One (Highest-Bidding) Advisor.
For as long as the business of financial advice has existed, the biggest challenge has simply been getting clients who will pay for the advice in the first place. As the reality is that even when the financial advisor is knowledgeable and has a lot of value to add – and charges a very reasonable fee for that value – the financial services industry is still a low-trust industry, and one in which competition for consumer attention is fierce. The end result is that according to Kitces Research, financial advisors face an average Client Acquisition Cost of more than $3,100 per client. A cost that is so high that most financial advisors don’t even have the financial wherewithal to spend that much on marketing and sales… and instead invest their time engaging in various marketing activities (from seminars and webinars to networking to building relationships with Centers of Influence) to try to attract prospects.
Yet for a subset of larger advisory firms, the ‘traditional’ time-based approach to growing the business through advisors trying to develop business one at a time creates scalability issues unto itself, as it’s difficult to train advisors to bring in clients, and the ones who do either quickly fill their book of business (and then don’t have the capacity to take on more clients), or must be compensated very highly (with incentive compensation and/or equity) or risk that they leave and start their own competing advisory firm instead.
The pressure on scaling organic growth has, in recent years, led to a rising interest in growth strategies that are more directly scalable to the amount of dollars invested into them – in other words, centralized marketing and paid lead generation services that can bring prospects directly to the advisory firm where a centralized business development team can pre-qualify (and even close) the prospects, allowing the advisors to ‘just’ do the work of serving clients (for a reasonable base salary but without the ‘costly’ business development incentives). Accordingly, the latest Kitces Research on Advisor Marketing found that when it comes to the marketing strategies that are generating the strongest Return On Investment, it is increasingly the dollar-based (not time-based) strategies that are winning out. And “Lead Generation” solutions have become one of the hottest segments of the Kitces AdvisorTech Map.
In this context, it is notable that this month witnessed the launch of yet another paid lead generation service – Datalign – which similar to others in its category, aims to attract consumers to its website, and then introduce them to pre-qualified financial advisors in exchange for a referral fee. Allowing advisory firms to choose how much they wish to spend on lead generation, and dial up their marketing budget (and the associated prospect leads) as much as they want and need to in order to achieve their desired growth goals.
What’s unique about Datalign, though, is that unlike most lead generation platforms that simply determine a prospect’s geographic location (and perhaps an anticipated level of assets to pre-qualify the prospect) and then simply provide the lead to multiple financial advisors (kicking off a frenzy for advisors to be the first to follow up and respond to the lead before anyone else makes a connection), Datalign aims to provide each prospect to just one financial advisor, and will ask a series of up to 20 questions (about everything from assets to income to their time until retirement and their required services) to try to make a good match. In turn, according to Datalign’s Form ADV Part 2, any financial advisors who meet all of the prospect’s requirements will then have an opportunity to bid – auction-style – for the introduction, with Datalign making the introduction to the highest bidder.
From the consumer perspective, the appeal of the Datalign approach is that, unlike most other lead generation services, the consumer themselves isn’t bombarded by multiple different advisors all trying to reach out to them in the span of an hour or so after they submit their inquiry, providing a more comfortable experience with the subsequent introduction. And ostensibly, greater confidence in finding a good fit by being matched to a good-fit advisor on more details than ‘just’ their ZIP Code.
From the advisor perspective, the idea of being put in a competitive bid situation with other advisory firms for prospect leads will likely be a turnoff for many. But may actually be especially appealing to advisory firms that have the most effective sales process and are the best at actually turning prospects into clients. After all, the irony is that with standard paid lead generation or solicitor arrangements – where any/every advisor pays the same for each lead – the advisory firms that are the most confident in their sales process, and know they could be financially successful even if they paid more for leads, are effectively ‘barred’ from doing so. Whereas with Datalign, the firms with the most effective sales processes will have an opportunity to put their money where their mouth is, and actually outpay the competition. Which means in practice, Datalign will not necessarily be an appealing solution to financial advisors who are just starting and trying to buy leads, but instead will be the best fit for larger more scaled firms that have the financial capital to spend on organic growth and lead generation, and the most established sales processes to convert those leads into clients (giving them the most flexibility to pay the most for those leads).
Ultimately, though, the real question for Datalign will simply be whether it can scale a sufficient volume of leads in order to generate the auctioned introductions in the first place. Thus far, the company has indicated an approach similar to SmartAsset and TIFIN, of targeting consumer media sites that have a higher concentration of potential prospects for advisors (i.e., mass affluent or HNW investors), and trying to facilitate introductions. But in the end, will Datalign actually be able to generate enough volume of prospects to meet the demand – those who are willing to go through an up-to-20-question questionnaire first, and with a sufficient lead quality that advisory firms are willing to bid up the price enough to make it economically viable for Datalign? Only time will tell… but to the extent that Datalign can do so effectively, it is uniquely positioned to find the true market-clearing price of what the most sales-effective growth-oriented advisory firms are really willing to pay for organic growth?
SEC Requires RIAs To Risk Being Cybershamed To Drive Compliance With Proposed New Cybersecurity Rules.
Over the past 20 years, the rise of the internet has increasingly digitized key aspects of the back office of advisory firms, from the conversion of paper files to cloud-based document storage, to eSignature and electronic transfers of client accounts and the digital implementation of client trades. The good news from this shift is the rise in the back-office efficiency of advisory firms, reflected in rising client/staff and revenue/staff productivity metrics. The bad news is that, by storing more and more information online, “protecting client data” has shifted from what was historically a matter of protecting physical client files with intruder alarm systems and locked file cabinets to a digital realm of protecting against hackers and cyberthieves.
For the average advisory firm, the risk of a direct breach of private client data from its storage systems is relatively limited, as most advisors use various third-party systems with robust data protections (from using Microsoft or Google for client storage to CRM vendors with their own cybersecurity protections, to various broker-dealer and RIA custodian platforms that engage in their own cyber protections). However, in practice, advisory firms can still be at risk for “cyber incidents”, from phishing attacks against employees or malware that can gain passwords to access otherwise-protected systems, to more ‘socially engineered’ attacks that persuade advisors to take actions on behalf of clients that turn out to be fraudulent (e.g., the fake “urgent wire request” from a “client”).
Unfortunately, though, the fact that advisory firms engage in such a range of different systems and approaches – from outsourcing to IT Managed Service Providers who are expected to handle all the cybersecurity issues, to carefully selecting vendors with good cybersecurity protocols, to simply implementing their own tools and systems and buying the necessary third-party hardware and software to protect their systems – makes it difficult for regulators to determine a uniform approach and expectations for advisory firms when it comes to cybersecurity, even as a rising number of cyber-breaches (an estimated 70% increase in “data compromises” in just the past 2 years, according to SEC Commissioner Allison Lee) make it clear that “something” more needs to be done.
Accordingly, this month the SEC issued a newly proposed Cybersecurity Rule aimed at bolstering cybersecurity for Registered Investment Advisers. Notably, though, the rule is purposefully vague about what, exactly, RIAs are expected to do even in a heightened cybersecurity context, stipulating only generally that under the new Rule 206(4)-9 that RIAs must “adopt and implement policies and procedures that are reasonably designed to address cybersecurity risks”, including a Risk Assessment (what systems and service providers hold or have access to client data that could be exposed), User Security and Access (who is able to access the key systems where client data is housed), Information Protection (monitoring information systems and whether they have been exposed), Threat and Vulnerability Management (how the firm will respond if a cyberattack is occurring), and Incident Response and Recovery (what the firm will do if it has been breached).
However, accompanying the new broad-based requirements for cybersecurity is a new Rule 204-2, that RIAs would be obligated to maintain as a part of their Books and Records both a copy of their cybersecurity risk management rules, and the occurrence of any cybersecurity incidents… which in turn would also include an obligation under new Rule 204-6 to disclose any “significant” cybersecurity incident (i.e., one that “disrupts or degrades the advisor’s ability… to maintain critical operations… or leads to the unauthorized access or use of advisor information… [that] results in (1) substantial harm to the adviser, or (2) substantial harm to the client… whose information was accessed”). Furthermore, the RIA would also be obligated to include a reporting of their cybersecurity incidents not only to current clients, but to prospective clients via a new section that would be added to Form ADV Part 2A.
In other words, rather than try to specify exactly what RIAs will be obligated to do to enhance their cybersecurity protocols, the SEC is providing more general guidelines that firms must implement “reasonable” policies and procedures… but is also upping the ante even further by exposing the RIA to potential ‘cybershaming’ with forced disclosures to the SEC itself, the firm’s clients, and all of its future prospects, that a cyber incident occurred. Ostensibly in the hopes that if advisory firms face even more public scrutiny over a cyberattack, the demands of the marketplace alone will drive firms to improve their own protections.
Ultimately, it remains to be seen whether or how much RIAs will really change their practices in response – given that most firms are already fearful of the impact to clients of a cyber incident, and simply struggle with limited resources in what they can actually do about it – but at a minimum, increased scrutiny from the SEC (if the proposed rule is passed) will likely both increase the focus of advisors of doing due diligence on their vendors to determine which have good protections in place (e.g., looking for SOC 2 certification), and the use of vendors that train advisory firm employees on good cybersecurity practices (e.g., KnowBe4).
Fidelity Labs Launches Saifr To Accelerate Compliance Reviews Of Marketing Content With AI.
Financial advisors have a fundamental obligation not to make misleading comments about the investment solutions they may be offering to clients, from not over-promising returns or overstating guarantees or not understating (or obscuring) potential risks. Which over the years has been codified into a compliance approach of both pre-approving most advisor marketing materials (to ensure that no misleading statements are made before any client or prospect sees it) and post-reviewing ongoing advisor communication with clients (to ensure that such statements aren’t being made to an existing client in an ongoing relationship).
While such an approach is important to protect consumers, in practice it creates substantial challenges that can limit or even undermine proactive communication with prospects and clients. As if all advertisements and marketing materials (which are very broadly construed to a very wide range of content) must be approved by a compliance professional before they go out, there is at best a natural delay in timely communication, and at worst a rising cost (by staffing up more compliance professionals to engage in a more rapid turnaround) that can render the advisory firm less competitive in the marketplace.
To combat this challenge, this month saw the launch of Saifr, a new compliance technology solution that is specifically aiming to speed up the process of pre-approval and post-review of advertising materials and marketing communication with clients, by leveraging Artificial Intelligence to spot which advisor content has little or no risk (and can go straight through) and which may need to be paused at least briefly for a human compliance professional to review.
Specifically, Saifr announced the launch of both SaifrReview, and SaifrScan. The SaifrReview solution is intended to be a platform that facilitates content creation itself, where advisors can build their written, audio, video, and other content assets, have Saifr review for potential issues, escalate to compliance for speedy (or where appropriate, not-so-speedy) review, and support the back-and-forth editing process where changes and a re-review are required. In turn, SaifrScan is built to scan and monitor ongoing communications with existing clients to similarly spot potential compliance flags in post-review that may need to be escalated to compliance to review further.
From a development perspective, it’s notable that Saifr was developed from Fidelity Labs, the company’s internal FinTech incubator platform that is building solutions that may be especially helpful for Fidelity itself, its end clients, or in this case the advisory firms that use its platform. For which reinvestments into compliance technology, in particular, are especially appealing given the SEC’s new marketing rule that is expected to increase how proactive advisors are in external marketing.
From the advisor perspective, smaller and even mid-sized independent advisory firms (e.g., 1 to 5 advisors) often just don’t have a very high volume of new marketing materials being developed and a more established base of reviews (where communication review issues surface less often). Which means Saifr will most likely be of interest to larger advisory firms (10+ advisors, even bigger mega-RIAs, and broker-dealers that often have hundreds of advisors) where the sheer volume of advisors and content to review makes it especially difficult to balance cost with the timeliness of review, and AI solutions like Saifr that help the human compliance professionals focus their time on the reviews that matter most provides the biggest boost in productivity.
In the end, though, the key point is simply that when most advisors do what’s right for the client in the first place – because they came to the business to serve clients, and it’s good business anyway – the nature of compliance arguably should be one of ‘issue spotting’ and risk management, where not every piece of content and communication is scrutinized the same, but instead is scanned quickly to triage which advisors and communication pose the greatest consumer risk and deserves the most attention… a task that AI-driven technology arguably should be especially good at delivering on. The only question is whether, in the end, AI tools like Saifr really can identify ‘risky’ content and advisor communication effectively enough to avoid allowing bad actors to slip through?
Momentum Persists For Best-Of-Breed As AssetMark Partners With RightCapital Even After Voyant Acquisition.
In the early days of the financial advisory business – which were the early days of computer technology itself – software was expensive and time-consuming to both build and to distribute, such that in practice the best software was developed by the largest advisory firms that could build deep integrations across all of their tools and had the most advisors across which their costs could be amortized, while the cottage industry of smaller independent advisors struggled with little technology that had no means to be connected together (because the tools were developed independently).
However, the AdvisorTech pendulum swung in the opposite direction with the rise of the internet and the emergence of Application Programming Interfaces (APIs), which made it both easier to distribute (and for advisors to purchase) software, and provided a mechanism for otherwise independent software providers to connect to one another, driving a shift from all-in-one solutions to the emergence of a robust “best of breed” approach where advisors would buy the ‘best’ software in each category and leverage the available API integrations to weave them all together.
In recent years, though, the ongoing growth and scaling up of both mega-RIAs and hybrid broker-dealers is leading a push back in the opposite direction, as advisors increasingly complain of how arduous it is to actually link their best-of-breed solutions together, which large platforms are trying to capitalize upon by building or even acquiring their way to their own unique all-in-one (and thus already fully integrated) solutions in the hopes of tying advisors more deeply to their platform in particular.
Which makes it all the more notable that this month, AssetMark announced a new deep integration with financial planning software provider RightCapital, less than a year after AssetMark closed on the $145M acquisition of its own financial planning software solution Voyant. In other words, even as AssetMark has acquired a financial planning software provider to more deeply integrate into its own platform and offering, the company is still finding it necessary (ostensibly based on their own advisor demand) to continue to deepen external integrations to third-party ‘best-of-breed’ providers as well.
In part, the AssetMark integration with RightCapital simply helps to highlight how difficult it is for financial advisors to switch financial planning software providers – such that existing RightCapital users were more interested in seeing AssetMark integrate with RightCapital than switch to Voyant. Especially since financial planning software providers have largely mimicked one another in core capabilities for years – such that it’s difficult for advisors to justify the time-consuming switching costs for what may only be small incremental new features or capabilities. Though it also emphasizes what has driven the all-in-one-vs-best-of-breed debate for more than a decade now – that category leaders whose sole focus is to execute well in their particular category make it difficult for all-in-one offerings to remain competitive (as it means they have to try to be good at ‘everything’ all at once). As in practice, RightCapital has in less than 7 years since it was founded become the top-ranked financial planning software amongst independents according to the latest Kitces AdvisorTech study.
Ultimately, though, the key point is simply to recognize that even as the scaling up of large advisor platforms is leading a push towards more all-in-one proprietary solutions from those platforms, the platforms themselves seem to be facing an ongoing demand from their advisors to remain more open architecture – or that at the least, advisors are unwilling to give up their particular best-of-breed solution in the categories that matter most to them, which writ large across a large number of advisors will make it difficult for platforms to gain traction with more all-in-one consolidated solutions (or at best, force them to ‘just’ build the unique middleware layers instead?).
Morningstar Looks To Get Bps For Tech By Bundling Its RIA Technology Components Into A (Direct Indexing) TAMP Solution?
One of the biggest differences between technology solutions for financial advisors and investment solutions for financial advisors is that technology charges software fees, but investments typically charge basis points (bps) on assets. To some extent, this is simply a recognition of where the solutions sit relative to the end value proposition to the client – when the advisor manages a client’s portfolio, investment solutions tie directly to the revenue generation process, while technology typically supports the middle- and back-office functions of the firm. As a result, advisors are far more willing to pay for investment solutions that drive revenue (“you have to spend money to make money!”) than software that exists as overhead (“a cost to be managed”). Which is material, given that advisor tech budgets are often no more than about 5% of revenue, but investment solutions can add up to as much as 15% to 30% of revenue.
In fact, over the past decade, advisors have shown a remarkable unwillingness to pay for virtually any software solutions with bps pricing, despite increasingly commonly operating on an assets-under-management model that charges bps to their own clients, even as bps-based pricing for outsourced investment management solutions (e.g., Turnkey Asset Management Platforms, or TAMPs) have become increasingly popular.
As a result, there has been an increasing shift towards the “TAMP-ification of Tech”, where technology providers attempt to bundle themselves into investment management solutions, using their technology as the differentiator to win outsourced investment management business to the TAMP, thus enabling them to charge TAMP-style basis points to generate far more revenue for the tech-turned-TAMP solution. This convergence of tech-plus-TAMP has been the story of both the increasingly tech-ified Envestnet TAMP platform, along with the TAMP-ification of Orion with its acquisition of Brinker Capital in 2020.
In this context, it’s notable that Morningstar has announced the launch of a new “Wealth Management Solutions” offering, that specifically aims to bring together its Morningstar Investment Management TAMP offering with its Morningstar Office portfolio management tools and its ByAllAccounts account aggregation software into a single bundled platform… creating the potential to both bulk up its TAMP assets with a more tech-enabled offering, and ‘upsell’ its software-user-fee-paying technology users into a bps-for-TAMP solution instead.
As while financial advisors have heavily resisted the bundling of all-in-one solutions that include financial planning/advice tools, cohesive technology stacks for investment management are more popular… leading to both a rise in RIA custodians offering their own portfolio management tools (for advisors who otherwise want to self-manage portfolios and leverage technology to do so), and growing competition between TAMP providers to show which has the ‘best’ tech… ironically is resulting in more and more TAMPs having more and more comprehensive feature sets… effectively commoditizing the tech and making it less able to be differentiated. Which in turn appears to be leading Morningstar towards differentiating on its investment offering itself, by working on the development of its own Direct Indexing solution (allowing Morningstar to leverage its own core capabilities as an index and investment research provider).
In fact, the biggest challenge for Morningstar may simply be the process of actually weaving together its disparate technology tools for RIAs into a single coherent solution, in what has historically been a series of very siloed technology offerings. Fortunately for Morningstar, the company’s brand itself is still very strong amongst advisors, and it remains especially connected to independent advisors who moved from broker-dealers to RIAs, who are accustomed to relying on ‘home office’ solutions and may be more willing to outsource to a Morningstar TAMP offering (especially with a differentiated direct indexing offering).
Ultimately, though, the key point is simply that investment management technology tools appear to be increasingly bifurcating into two distinct directions – advisors who prefer to self-manage their portfolios, and obtain their investment technology tools for free directly from their RIA custodians, and those who are willing to outsource, where investment technology tools can be bundled directly into TAMP offerings that command a higher price for the technology (from those advisors willing to pay for it bundled into an outsourced investment management offering in the first place).
Can NaviPlan Founder Mark Evans Create The Next Big Thing In Planning Software With Conquest Planning?
Financial planning software has gone through several major evolutions over its multi-decade history.
The very first generation of tools – back in the 1980s, as computers started to appear in the offices of financial advisors – were product-centric, and existed primarily to illustrate the benefits of buying and implementing a particular insurance or investment solution. As the technology tools became more robust in the 1990s, an alternative, more cash-flow-based approach emerged, that aimed to create more value in the planning process by modeling out the full range of a household’s savings and spending (not just those pertaining to a particular product) in order to make better planning decisions.
Except modeling out every household cash flow for multi-decade time periods became overly time consuming, given that, in the end, advisors were typically trying to plan around particular concrete goals (for which they could provide solutions) such as retirement, college, and family protection, leading to the rise of goals-based planning software in the 2000s.
However, one of the limitations of goals-based planning is that once the plan is formulated and a course of action is set, there’s little to be done on an ongoing basis. Which led in the 2010s to the rise of financial planning portals, powered by account aggregation, that allowed clients to engage more holistically and on a more ongoing basis around their entire household finances and not ‘just’ whether they were on track for their primary goals.
The significance of these shifts if the focal point of financial planning software is that each time the dominant value proposition shifted, so too did the leading financial planning software, from more product-based tools like Financial Profiles in the 1980s, to NaviPlan’s cash-flow-based software in the 1990s, MoneyGuide’s goals-based planning of the 2000s, and eMoney’s portal-based planning experience of the 2010s. All of which raises the question: what new differentiated approach to financial planning will emerge in the 2020s (and lead to the next breakout provider of financial planning software)?
According to Mark Evans – the original founder of NaviPlan – the Next Big Thing in financial planning software will be a more “strategy-centric approach”, which he’s building into a new financial planning software competitor called Conquest Planning. At its core, the distinction of Evans’ strategy-centric approach is that Conquest can evaluate the impact of a wide range of strategies – e.g., various action items and recommendations that clients might implement – and surface which may be most impactful for clients, making it easier to narrow down to a concrete set of recommendations more readily than just dragging sliders in real-time and trying to figure out which combination of recommendations is best. In other words, Conquest is aiming to expedite the process of actually coming up with the best recommendations for clients – which has the potential to reduce one of the most time-consuming phases of the financial planning process.
Because Evans (and NaviPlan originator EISI) is based in Canada, Conquest itself has initially launched in Canada, but is expected to come to the US in the second half of 2022. Which means that while Conquest may be new to the US when it launches, it won’t be starting entirely from scratch, as it will already have been vetted in practice by Canadian advisors.
Nonetheless, the challenge remains that with financial planning software, no two systems use the same assumptions, nor have standardized ways of viewing data… which means, unlike CRM or portfolio management software conversions, advisors can’t download a massive file of data, map it, upload it to the new tool, and then just clean it up. Instead, advisory firms effectively have to re-create every financial plan in their system manually when they move to a new planning tool. As a result, there is tremendous reluctance from financial advisors to switch financial planning software providers for anything short of a true paradigm shift – as occurred with the rise of NaviPlan’s cash-flow-based planning, MoneyGuide’s goals-based planning, and eMoney’s portal-based ongoing planning – and it remains to be seen whether Conquest’s offering will be seen as incremental or a more substantive leap to something new (that merits the trouble of switching to new software).
Still, though, given that financial planning software epochs have lasted about a decade each with remarkable consistency, arguably the landscape is overdue for the Next Big Thing in financial planning software. Will Conquest be different enough? Time will tell when it launches in the US later this year…
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 advisors continue to expand their AUM scope to held-away accounts by leveraging FeeX-turned-Pontera to manage outside 401(k) plans? Will the potential for a required public disclosure of cyber incidents drive independent advisors to reinvest more into their own cybersecurity? Will advisors buy the TAMP-ification of Morningstar Office? And is there really room for a new provider like Conquest Planning to break into the current world of financial planning software? Let us know your thoughts by sharing in the comments below!
Brad Tinnon says
Thanks for sharing Michael. We recently partnered with FeeX and I was told by my compliance firm that we could bill an IRA for a 401k fee. Can you please clarify whether or not this is allowed and point me to a source?