The Latest In Financial Advisor #FinTech (November 2016)

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Strategic Wealth, which provides an evidence-based approach to private wealth management for near- and current retirees, and Buckingham Strategic Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors through the scaling phase of growth.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

Read all of Michael’s articles here.

Vanare Rebrands As AdvisorEngine, Raises $20M Series A From WisdomTree ETFs – Vanare is generally known as one of the early “robo-advisor-for-advisors” platforms, a combination of an integrated technology platform for investment advisors, plus the “robo-advisor” capabilities from its acquisition of retail robo-advisor NestEgg back in 2014. It has been pursuing an aggressive strategy of integrating with custodians this year, with partnership deals ranging from Pershing and TD Ameritrade to Apex Clearing. And now, WisdomTree ETFs has announced a $20M investment into Vanare for a 36% stake (valuing the company at a whopping $55M), paired with a name change to AdvisorEngine. The name change itself is definitely a plus (as few understood how to even pronounce “Vanare”, and the rebranding definitively positions the solution as being an advisor-centric “robo”), and the capital investment gives AdvisorEngine substantial resources to grow further. However, the deal looks to be less on the merits of AdvisorEngine’s own business model – which currently reports just $1.5B assets on the platform, a miniscule sum in the advisor tech platform business, when even “upstart” portfolio accounting solution Addepar just announced 300X the assets on platform just last month – and more akin to the decision of Blackrock to acquire FutureAdvisor, which had nothing to do with the FutureAdvisor business metrics and everything to do with the potential of FutureAdvisor to be a distribution channel for Blackrock ETFs (just as the Schwab robo is a distribution channel for Schwab ETFs). In that context, the Vanare acquisition appears to simply be another in a series of ETF providers positioning themselves to leverage “robo” solutions as ETF distribution channels, from the aforementioned Blackrock/FutureAdvisor deal, to Schwab and Fidelity launching robos with their own ETFs, Invesco (making of Powershares ETFs) buying Jemstep (another robo-advisor-for-advisors), Eaton Vance (owner of NextShares ETF) investing in SigFig, not to mention Vanguard’s blended digital advice offering (which will likely end up being a conduit for more Vanguard ETFs). Accordingly, this deal wasn’t priced on the metrics of AdvisorEngine, but akin to the Blackrock/FutureAdvisor deal was all about what WisdomTree sees as the market potential to distribute (and profit on) its own ETFs. And given that FutureAdvisor was valued at $150M, the Eaton Vance deal with SigFig was rumored to be lower, and AdvisorEngine was valued at “just” $55M, this deal effectively seems to be another in a series of “downround” capital for the entire robo-advisor-for-advisors channel, as the standalone robo-advisor movement slowly and steadily dies and its underlying technology simply becomes a staple of existing custodian and broker-dealer platforms.

RBC Adds NextCapital To ‘Complement’ Its FutureAdvisor Robo Solution For Advisors – Back in February, RBC Wealth Management was one of the first to partner with Blackrock’s FutureAdvisor solution, in what started out as a pilot program for a half dozen of its teams, with plans to expand further. However, last month RBC signed another “robo” deal, this time with NextCapital (and underlying portfolios designed by/with State Street and their ETFs). Notably, the idea of having multiple “robo” solutions isn’t unique – several major custodians have partnered with several – and RBC itself will use the two solutions differently, with FutureAdvisor distributed through RBC’s Wealth Management division, and NextCapital used by its correspondent platform (RBC’s clearing solution for other broker-dealers), the fact that FutureAdvisor did not get the opportunity to expand into RBC’s Correspondent platform doesn’t bode well. Some are suggesting that the problem is simply that FutureAdvisor still struggles to retool what was originally a B2C solution into the B2B channel, while NextCapital – which was built from the start to focus into the advisor channel – may have more flexible technology (important to fit into a myriad of existing legacy technology systems in the small-to-mid-sized broker-dealers that use RBC’s Correspondent platform). More generally, though, the broader trend is that while initial robo-advisor-for-advisors deals may have sometimes been knee-jerk reactions – i.e., “We need a robo! We have to do something!” – now the deals are getting more deeply vetted for actual robo capabilities, including all the challenges that go with adapting and grafting “next generation” robo technology onto legacy B2B financial services infrastructure.

Wells Fargo To Unveil Robo-Advisor Partnership With SigFig – Continuing the theme of major firms partnering with “robo” technology, this month it was announced that Wells Fargo is finalizing a partnership with SigFig, yet another retail robo-advisor that has pivoted to the B2B channel instead. SigFig has made a lot of news this year with its B2B pivot, starting with a partnership with wirehouse UBS (that also involved an equity stake), immediately followed by a big $40M Series D from Eaton Vance (after a Series C downround in 2014). And now with the UBS deal as validation, Wells Fargo is announcing its own SigFig partnership (a choice not to build its own solution, as Morgan Stanley and Merrill Lynch have announced). Notably, though, while UBS had announced its first plan was to pair SigFig with its call center division to help handle smaller accounts that brokers are discouraged from servicing anyway, it’s not entirely clear where SigFig will plug into Wells Fargo, with Financial Planning reporting plans for a pilot program to its community bank unit with ultimate plans to make the solution available for all of its brokers but AdvisorHub indicating that Wells Fargo really intends SigFig as more of a direct-to-client solution as well. In the end, though, Wells Fargo may really end up just using SigFig as so many other asset managers have – a distribution channel for its own proprietary ETFs, as Wells filed for exemptive relief with the SEC to begin offering its own ETFs just a few months ago (likely while the SigFig deal was already being worked on). Which means in the end, “robo” in the context of wirehouses is really taking shape to simply be a largely-self-directed “B2C” solution, supported by the wirehouse brand and perhaps by occasionally (in-person or call-center-based) financial advisors, for “small” accounts that don’t (or “shouldn’t”) fit the traditional wirehouse broker, akin to the same offerings currently provided by Schwab Intelligent Portfolios, Fidelity Go, and the just-announced TD Ameritrade Essential Portfolios.

Adam Nash Out, Andy Rachleff Back In At Wealthfront – Last month, Wealthfront announced via its blog that founder Andy Rachleff was coming back in as CEO, replacing Adam Nash, who had taken over in 2014. The shift comes as Wealthfront lags in the B2C robo-advisor marketplace, as while the company has grown during Nash’s tenure (from $1B in the summer of 2014 to over $4B this summer), it still hasn’t been enough to stay in the robo-advisor lead, as Wealthfront AUM has been passed in the past two years by both competing independent robo-advisor Betterment (now over $6B), and also “newcomer” Schwab Intelligent Portfolios (with over $10B), along with the digital advice behemoth that is Vanguard Personal Advisor Services (at more than $40B). In essence, it appears that Rachleff shifted leadership to Nash in 2014 believing that Wealthfront had found true product-market fit and that it was simply time to scale, and instead found that their techie-solution-for-techies-in-the-valley was more niche than they realized, and that the true blocking point of the AUM pricing model isn’t the cost to service clients but the cost to acquire them (a client acquisition challenge that Wealthfront wasn’t built to conquer). Now, with dangerously lagging growth rates in an increasingly crowded marketplace, the return of Rachleff as founder/CEO will likely signal a fresh pivot for Wealthfront in 2017, which notably still maintains it wants to keep its B2C focus, and instead seems to be gearing up to position itself as an early leader in the application of Artificial Intelligence (AI) to financial advice in an attempt to fulfill its brand promise to be “the only financial advisor [their] clients will ever need.” Though it’s still not clear how Wealthfront intends to solve and scale its client acquisition challenges as competing incumbents increasingly bring similar technology to bear.

Strategic Insight Acquires BrightScope – Amongst financial advisors, BrightScope was primarily known for its AdvisorPages service that scraped public BrokerCheck and IAPD records and posted consolidated information about the advisor’s regulatory record (a somewhat controversial service, given that BrokerCheck itself has long been controversial for its sometimes inaccurate or incomplete advisor reports). Still, given this year’s earlier study on Broker Misconduct finding that a high number of “offending” financial advisors are repeat offenders (which means avoiding an advisor with a problematic regulatory record really does increase the odds you find a “good” advisor), BrightScope had real potential to help clean up financial advisors. However, the reality is that from the business perspective, Brightscope’s core business was actually its Beacon product, a data analytics tool that pulled together a broad array of retirement plan data to help asset managers understand where and how their funds were being used. And it appears that this analytics data is what ultimately has led BrightScope to be acquired by Strategic Insight, which produces popular retirement plan publications including PlanAdviser and PlanSponsor, and also has data and business intelligence services for retirement plans into which BrightScope would fit. Although the company and deal were private, BrightScope was rumored to have more than $10M/year in sales, and the purchase was reportedly pegged at $35M - $40M or so. Notably, given Strategic Insight’s likely focus on Beacon and not AdvisorPages, it remains to be seen whether or how this financial-advisor-related service will be sustained in the future (or not?).

RiXtrema Launches FeeComp Solution To Benchmark Advisory Fees – RiXtrema is a company primarily known for its “portfolio stress test” capabilities, but this month it announced a new tool called “FeeComp”, specifically designed to help advisors benchmark their advisory fees relative to peers to determine if their compensation is “reasonable” under the Best Interests Contract Exemption fiduciary rules. To provide the service, RiXtrema built a proprietary database of advisory fees from public Form ADV Part 2 filings with the SEC (which is no small feat of image recognition and parsing text, given the non-standardized format of Part 2 of the ADV), and advisors can then query “typical” fees screened by account size, geography, services offered, and other factors. Ultimately, the tool will be available as a standalone, but for now is part of the company’s $225/month “IRA Fiduciary Optimizer” solution (which pulls in retirement plan costs and investment details via account aggregation, and pairs it with the FeeComp data, to produce a due diligence report to validate/justify a rollover for DoL fiduciary purposes). More broadly, the rollout of FeeComp (and the broader IRA Fiduciary Optimizer solution) is part of a growing category of providers positioning to provide rollover due diligence and fee benchmarking services to advisors under the DoL fiduciary rule, as in recent months McKinsey bought fee benchmarking provider PriceMetrix, and Envestnet acquired Wheelhouse Analytics to position for similar solutions.

Vanguard Launching A FinTech “Innovation Center” Incubator In Downtown Philadelphia – This month, Vanguard announced that it will be opening what is variously being called an “innovation center” and a “think tank” in downtown Philadelphia. Expected to launch in mid-2017, this Vanguard FinTech incubator is specifically intended to put capital into projects “not tied to short-term return on investment”, and instead is meant to be more of a skunk works space that tries to spot future ideas and opportunities – in essence, to stay ahead so that the highly industry-disruptive company doesn’t itself get disrupted someday. Notably, Vanguard leadership has explicitly stated that the purpose is not to develop yet another robo-advisor solution (beyond Vanguard’s already-wildly-successful Personal Advisor Services digital advice program), but instead similar to Fidelity Labs is meant to focus a couple of years beyond where the core business is today. The initial space is expected to be large enough to house 100 people – a combination of Vanguard insiders, and some outsiders as well – and Vanguard noted that its goal is to be near Center City and the strong base of local universities to forge academic and research alliances (who may not come out to the Philly suburb where Vanguard home offices are located). Given the sheer size and scope of Vanguard’s capabilities, one has to wonder if Vanguard can attract enough interest in the coming years to put Philadelphia on the map as a new FinTech home base, given the success of FinTech incubators in other parts of the country from Charlotte, to St Louis, and New York City’s “Silicon Alley”.

Will Quovo’s New API Could Make It The Essential Glue That Holds Together Robo-Advisor-For-Advisors Solutions? – For most of today’s robo-advisor-for-advisors solutions, the core value proposition comes down to tools that facilitate easy client onboarding, from basic data gathering and assigning an asset allocation model, to actually doing the onboarding process (including opening accounts and preparing transfers). However, in practice most robo tools struggle with the latter, given the limitations of many existing financial services providers to authenticate digital requests and verify account ownership. To fill the void, Quovo has announced a new Account Authentication API (separate from its existing Account Aggregation API), specifically designed to ease the process of verifying linked accounts and authenticating access to facilitate payments and cash transfers, not to mention streamlining the process of opening and funding new accounts, and allowing companies to create a better user experience by providing webhooks that allow for real-time responses to user activity. An example of the potential for Quovo’s new service might be easily initiating a version of Betterment’s SmartDeposit feature, where a user can specify a maximum amount to keep in their checking account and automatically transfer the excess (up to $500) into the Betterment account to be invested (a version of the “pay yourself first” strategy on automated steroids). But ultimately, Quovo’s new API opens up the potential for all sorts of automated user experiences tied to financial advice – not only pertaining to investment accounts and transfers, but also monitoring bank account and credit card activity, creating new prospect engagement tools, and whatever else the FinTech community can come up with!

Could Financial Planning Software Become An Insurance And Annuity Distribution Channel? – At the recent T3 Enterprise advisor technology conference, financial planning software provider MoneyGuidePro announced two notable new partnerships: the first with retirement consulting firm Milliman to bring their Retirement Income Security module directly into MGP, and the second with digital personal insurance provider Covr to pull out MGP data for Covr to analyze potential insurance gaps. And notably, while the Covr and Milliman modules are ultimately product neutral – they will illustrate the impact of guaranteed income vehicles or insurance products in general, but will not suggest any particular products – the Covr “Insurance Solver” solution will subsequently make it feasible to apply for directly for actual insurance products (and in some cases get immediate underwriting) by passing MoneyGuidePro information straight through. The upside of this approach is that it will finally be possible to illustrate more insurance and annuity solutions directly within a financial plan, instead of with a separate standalone product illustration (that may or may not properly account for other assets and income streams), and expedite the process of implementing insurance products (connecting directly to the outside Covr solution). And with the potential for a new generation of fee-only insurance and annuity products coming with DoL fiduciary, financial planning software could ultimately become the hub from which all insurance and annuity solutions are analyzed and recommended (and even purchased and implemented). On the other hand, the idea that financial planning software itself could become a conduit and a new distribution channel for insurance and annuity contracts puts a whole new burden on the objectivity of one financial planning software package versus another, and raises serious questions about the underlying economics of such partnerships, and when/whether the financial planning software company could be sharing in the revenue (or participating in the overrides) from product sales (though MoneyGuidePro maintains that at least for their version of the solutions, Milliman and Covr are simply integration partners, and not part of any revenue-sharing or pay-to-play agreement).

Can Broker-Dealers Successfully Reinvent Themselves As Tech Platforms? – One of the most fundamental challenges for the independent broker-dealer community with the DoL fiduciary rule is that the very essence of being an independent broker-dealer is to be an intermediary for product distribution, and the fiduciary rule is forcing advisors to shift from being product distributors to actual advisors. Which may ultimately be good for consumers, and is a manageable transition for many financial advisors, but is an existential crisis for the entire independent broker-dealer model. And as broker-dealers look to reinvent themselves as “advisor platforms” (instead of product distribution intermediaries), it’s increasingly clear that the advisor platform of the future is a technology platform. Of course, there are a lot of financial advisor servicing companies making a “platform” play right now, from asset management distributions like Envestnet (given its various acquisitions) to RIA custodians like Fidelity (with its eMoney purchase) to portfolio accounting solutions like Orion Advisor Services (with its open-sourced portal) and now Black Diamond (with its Salentica purchase last month). And now broker-dealers (not surprisingly) want to get into the game as well, with Cetera announcing this month that it wants to become a “technology ecosystem” that supports the delivery of best interest financial advice in a post-DoL fiduciary world. Notably, though, it remains to be seen who will really win the looming “platform wars”, as custodians, broker-dealers, portfolio accounting solutions, tech firms, and the rest can’t all win, and the very alliances that companies choose can alienate them; for instance, it was notable that despite having former eMoney Advisor founder Edmond Walters on its board, Cetera has chosen to build its new DoL fiduciary ecosystem around MoneyGuidePro, rather than aligning themselves to (and risk becoming beholden to?) the emerging Fidelity financial advisor platform.

New Product Watch: Twenty Over Ten Launches Enterprise Advisor Website Solution (To Complement Its Individual Advisor Platform). The world of financial advisor websites was very quiet for nearly a decade, and since the early 2000s there were just a handful of providers offering relatively simple (and usually not very good) financial advisor website templates. In recent years, though, the world of financial advisor websites has come back to life, driven in part by the growing awareness of the importance of building trust online and that a great financial advisor website is about more than just being a digital version of a marketing brochure. The success of companies like Advisor Websites has spawned new competitors building on more modern technology, including Advisor Launchpad, AdvisorFlex, and the latest being Twenty Over Ten, a financial advisor website design company that started with solo websites for independent advisors and is now ramping up an enterprise solution called "Providence" for broker-dealers (with the centralized compliance capabilities to monitor and review all the advisors' websites across the broker-dealer). Overall, the growth of new website providers, and the competition it entails, are definitely a plus for financial advisors, but the emerging solutions are also showing a disturbing new trend: building on top of their own proprietary "Content Management System" (CMS) platforms, which means the advisor becomes entirely beholden to and dependent on their technology solution. In many cases, the website company's proprietary solution isn't compatible with anything else, which means if the advisor wants to leave, they'll need someone else to completely rebuild the website; in other scenarios, the website company retains the right to the advisor's template or theme – which means if the advisor wants to leave, they can keep the text on the website, but would have to have the actual website entirely redesigned from scratch. For financial advisors working under broker-dealers with demanding compliance departments, there may be little choice but to be beholden to a website company that still "owns" the advisor's digital real estate, but unfortunately even independent advisors often seem to be taken in with proprietary solutions that drastically limit their choices (and are often just outright inferior to robust open-source CMS platforms like WordPress anyway). Thus far, the ranks of "we build it, the advisor owns it" website providers has been mostly relegated to the realm of "boutique" or independent website designers, like Out & About Communications and Zach Swinehart. At some point, though, we'll hopefully see more advisors demanding the right to retain control and ownership of their digital real estate (at a minimum, please do the due diligence and ask what happens to your website if you terminate with the service provider!), and advisor website design firms that allow advisors to do so with no strings attached!

For further coverage of AdvisorTech news, be certain to also check out Bill Winterberg’s FPPad, Joel Bruckenstein’s T3TechnologyHub, and Craig Iskowitz’ Wealth Management Today.

And if you’re an #AdvisorTech company who wants to submit a tech announcement for consideration in future issues, please submit to [email protected]!

So what do you think? Are "robo-advisors" as technology already on their way out? Is it good to have financial planning software illustrate insurance and annuity products directly, or does it present too much of a conflict of interest? Who have you used for website design (and were you happy or unhappy with the solution)? Please share your thoughts in the comments below!