The Latest In Financial Advisor #FinTech (May 2017)

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.

Major Leadership Turnover At Major Financial Planning Software Providers. This month, the news hit that two major leadership changes had happened at two of the three largest financial planning software companies. First, it was announced that Kevin Knull had left his role as President of MoneyGuidePro after 4 years, with long-time CTO Tony Leal stepping into the President position. And just days later, it was announced that Phil Cunningham was stepping away from his role of CEO at Advicent (makers of NaviPlan) after just over 3 years, to be replaced by COO and President Angie Pecoraro. The reasons for both departures are unclear. Cunningham was based in Chicago, and commuting to the Advicent offices in the suburbs of Milwaukee, which may have simply taken its toll after four years. Yet within weeks of his departure, news hit that Advicent was being shopped by its owner Vista Equity Partners (which originally acquired the Canadian NaviPlan-maker EISI back in 2011), raising the question of whether there were leadership differences about the direction or trajectory of the company, especially since Advicent’s market share has lagged dramatically in recent years (from a 17% market share for NaviPlan and Profiles in 2011, to less than 10% market share today, and also scoring the lowest User Ratings of major planning software providers in a recent advisor software survey, despite a 2014 acquisition of Figlo that was supposed to help turn the company around and get it "caught up" in the competitive marketplace). On the other hand, MoneyGuidePro has been enjoying the momentum of recent wins, from a major deal with Cetera last fall (whose board includes former eMoney Advisor CEO Edmond Walters!), to the decision of Schwab to use MoneyGuidePro and Knull's brainchild MyMoneyGuide as its backbone for their new Schwab Intelligent Advisory offering. In fact, Knull announced his transition in a somewhat cryptic LinkedIn post about his recent adventure climbing Kilimanjaro (which included a near-death experience), suggesting that he was ready to find his next professional mountain to climb (and that his departure was more about new opportunities than any current company struggles). Nonetheless, as the advisory industry experiences a major inflection point with technology, and rumors abounding that eMoney Advisor is seeing major growth under its new Fidelity ownership (and has now launched an entirely new Enterprise division where it competes most heavily against MoneyGuidePro and Advicent), while newcomers like Advizr and RightCapital making market share inroads, it remains to be seen whether the new internal leadership appointments from MoneyGuidePro and Advicent can reset the visions to lead their companies forward through an increasingly competitive environment.

Lack Of Data Portability Is Inhibiting Growth In Advisor Software. For years, the leading advisor tech survey was the annual study produced by Financial Planning magazine. But for the first time in 2016, Financial Planning made the decision to lock up most of their results behind a research paywall, opening the door to competing media publications. Sure enough, in 2017, we’ve seen the launch of a new advisor software survey from Advisor Perspectives (produced in collaboration with advisor tech guru Joel Bruckenstein, and industry commentator Bob Veres), and a major expansion of Investment News’ Advisor Technology survey. What’s unique about the new Advisor Perspectives software survey in particular was that it not only surveyed what software advisors are using (to determine market share), but also solicited advisor ratings of the software, allowing a first-ever glimpse into not only what software advisors use, but what they’re happy with. And what’s striking about the results is that, despite the classic expectations of market efficiency, the highest rated solutions are not always the most widely used; for instance, Salesforce is heavily adopted amongst advisors, but scores poorly, while the Concenter/XLR8 add-on to Salesforce scores the highest but has a fraction of the adoption. Similarly, the top portfolio management software solution is still Schwab’s PortfolioCenter, despite the fact that its user ratings are substantially lower than more modern competitors like Orion, Tamarac, and Black Diamond. In financial planning software, Advicent’s solutions in the aggregate (between NaviPlan, Profiles, and Figlo) have the third-highest market share, but substantially lower ratings than MoneyGuidePro and eMoney Advisor. So why do so many advisors stick with software that at least a material number are quite unhappy with? The answer appears to be the lack of data portability – as any advisor who’s ever been through a transition knows, portfolio accounting software migrations are feasible but extremely painful (and expensive), CRM migrations rarely turn out to cleanly migrate all the data, and financial planning software companies make it impossible to port out all of your prior financial plans and take them with you. Which raises the question: could letting advisors more easily own their data, and take it with them, become the next new competitive marketing advantage for advisor software? In the meantime, if you’re curious to see what’s ranking well (or not) in advisor software, you can check out the full Advisor Perspectives survey here.

Notable New Product Rollouts From TrueLytics, Orion, MaxForAdvisors, And Snappy Kraken. This month saw a number of major new software releases from existing advisor tech players. TrueLytics, which markets itself as a “business intelligence platform” (think practice management benchmarking, but done year-round as a continuous monitoring and management tool), announced the V1.5 version of its software, including an “eValuator” tool that allows advisors to enter their business metrics and get a discounted cash flow valuation estimate of the business. Orion Advisor Services launched a new “Social Support” platform, which both provides a system for advisors to manage their support inquiries, instructional videos, and also the ability to ask and share Orion best practices with other advisors (though some critics have suggested that the peer support platform may just be a mechanism for Orion to defray its own support ticket volume from not-always-well-trained support staff). MaxMyInterest, which has a MaxForAdvisors solution that helps advisors shift client cash holdings across online banks for better savings yields, announced a new streamlined account setup process that allows clients to set up new bank accounts without a trial deposit step, allowing a near-instant account opening process for clients to shift cash to new (higher-yielding) bank accounts. And Snappy Kraken, a marketing automation technology solution that won the 2016 XYPN FinTech competition, announced the rollout of its individual advisor solution (to complement its existing enterprise offering), starting with a “Visual Market Insights” system starting at $39/month that will compete with generalist solutions like MailChimp to automate the distribution of an advisor’s email newsletter and social media content.

Oranj Portal Solution Acquires (Majority Share Of) TradeWarrior Rebalancing Software. This month, Oranj announced the acquisition of TradeWarrior rebalancing software. Oranj is most commonly known as a “portal” software solution that advisors can use as a collaborative portal with clients, including tracking financial information through account aggregation (leveraging Yodlee, Quovo, and ByAllAccounts), but also facilitates online account opening (a/k/a “robo onboarding” tools), and supports additional client-facing workflows. And now, with the acquisition of TradeWarrior’s rebalancing solution, Oranj effectively becomes more of an end-to-end tech platform for advisors, supporting both the client-facing portal (through Oranj) and the back-office trading (through TradeWarrior), while still being capable of supporting advisors who are hybrid B/D-RIA or multi-custodial RIAs (unlike solutions like WealthScape that will be only for Fidelity advisors, or the free version of iRebal that requires advisors to fully custody at TD Ameritrade). Notably, TradeWarrior was not a very large player in the rebalancing software space – although they have a competitive rebalancing software feature set, they reportedly had “just” 150 advisory firms as users,  though TradeWarrior’s appealing pricing for small-to-mid-sized firms aligns well to Oranj’s small-to-mid independent advisor base. On the other hand, with a reported 1,800 Oranj users (who pay $175/month to start), and TradeWarrior’s 150 firms (likely no more than $2M of revenue given TradeWarrior’s 13-employee head count), Craig Iskowitz of WM Today cautions that it remains to be seen whether the combined $6M of revenue is enough for the upstart to really be competitive with even-more-comprehensive end-to-end solutions from behemoths like Fidelity (WealthScape) or Envestnet (Advisor Suite). Not to mention that Orion has recently built its own rebalancing solution (Eclipse), Morningstar bought tRx rebalancing, and Riskalyze is rolling out a rebalancer with AutoPilot… which means the competition for full stack advisor technology is getting fierce. Will Oranj be able to take advantage of the Innovator’s Dilemma facing the incumbents today? On the plus side, its growth to date means it’s at least off to a promising start…

Quovo Raises $10M In Series B Funding. This month, data aggregation platform Quovo announced a new $10M Series B round, building on its prior $3.8M Series A from July of 2015. What’s notable about Quovo is not simply that it helps to power a wide range of client portal solutions for financial advisors, but that its account aggregation is increasingly being used across a wide range of financial services sub-industry verticals. For instance, student loan refinancer SoFi is using Quovo to authenticate asset and income information to make rapid lending decisions, and Quovo is aiming to expand the use of its technology as a front-end to facilitate account-aggregation-based data gathering with the rollout of its Quovo Connect (a tool that third parties can embed into their websites to facilitate customers entering account aggregation credentials securely), and its Bank Authentication API to facilitate easier and more rapid bank account openings and transfers. In other words, while most account aggregation providers have simply focused on providing the data, Quovo is positioning itself in the stickier position of being the facilitator of those data connections, and building APIs that make it possible to execute financial events based on the information the data providers. It will be interesting to see what Quovo does next to extend its approach further, given its substantial amount of new capital, as financial services firms grow increasingly hungry for account aggregation to power big data.

Will Electronic Tax Filing Become The New Advisor Lead Gen? This year’s tax season had a notable shift: a dramatic increase in the number of solutions, from TurboTax to H&R Block, to “outsiders” like Credit Karma, that decided to offer tax returns for free to an increasingly wide range of low-to-middle-income consumers. But as a recent article in the Wall Street Journal noted, this wasn’t just about a gracious giveback to the masses – instead, the companies appear to be hoping that the data gathered in the process of helping to prepare a tax return can become lead generation for other related products and solutions. In other words, we appear to be reaching the crossover point where the ability to leverage the big data insights from consumer tax data is worth more, per user, than just asking them to pay for tax services. Of course, many financial advisors have long observed this phenomenon as well – that providing tax preparation can be a good way to gain additional insight into a client’s situation, or a way to open the door with a prospect; similarly, advisors often build relationships with CPAs to generate referrals for the same reason. But if tax prep providers are realizing this for themselves, it potentially presents a new competitive challenge for advisors who aim to generate new business from tax preparation (or referrals from CPAs), especially since one of the major tax software competitors – TaxAct – is, since 2015, under common ownership (via Blucora) with H.D. Vest, which has long been known as the primary broker-dealer platform for CPAs who do tax returns but also want to help clients implement financial products. In other words, if Credit Karma can turn tax services into credit card leads, TurboTax can turn tax services into QuickBooks users, H&R Block can upsell more in-depth services, and a wide range of providers can profit on solutions like Refund Anticipation Loans… at what point will a provider like TaxAct give away its software for free, to generate leads for its related tax-oriented CPA advisors (akin to how Personal Capital gives away its PFM software for free, and then solicits a subset of its users for investment management and financial advisory services). And will that impact the ability of CPAs and financial advisors to charge for tax preparation, offer it as a value-add, or use it as their own source of prospective client leads or referrals in the future?

Investopedia Expands Advisor Insights as NerdWallet Ask An Advisor Shuts Down. Last year, Investopedia – the consumer website that provides a wide range of information and education on investment and personal finance topics, with a whopping 20M+ unique monthly visitors – launched a new Advisor Insights platform, which would give advisors an opportunity to answer consumer questions and post articles to demonstrate their expertise… relying on Investopedia’s strong consumer traffic and SEO capabilities to attract potential clients. And now, Investopedia has announced they’re expanding the platform with a new “Priority Leads” solution, which will more directly solicit Investopedia readers, and offer them access to a financial advisor. The Priority Leads solution will reportedly be free to advisors, but will require advisors to answer a minimum number of questions and/or write a minimum number of articles in order to qualify for leads. Notably, though, the question remains open about whether Investopedia can actually generate bona fide leads for advisors, especially since the reality is that it will be profitable (by selling advertising next to advisors’ written content) even if the advisors themselves never get any leads (a dangerous misalignment of incentives). And Investopedia’s expansion comes on the back of competitor NerdWallet’s “Ask An Advisor” service abruptly shutting down last month, as apparently its multi-year effort to operate a substantively similar program did not yield sufficient fruit… leaving its advisors in the lurch. All of which serves as an important reminder for financial advisors: beware relying on platforms like Advisor Insights if you haven’t already built your own robust financial advisor website and blog first, or you risk watching your invested marketing time and effort vanish if a third-party platform decides to pivot in another direction. Don’t say you weren’t warned.

AdvisorEngine Robo-Advisor-For-Advisors Platform Acquires Kredible. Last fall, WisdomTree ETFs made a substantial $20M investment into Vanare, a robo-advisor-for-consumers platform that was early to pivot into the robo-advisor-for-advisors business. With the investment, Vanare was rebranded to AdvisorEngine, and dramatically ramped up its push into the advisor channel in the increasingly popular “digital advice” category – technology that facilitates the delivery of financial advice. The capital was used not only to hire more engineers, but is also increasingly being deployed to help AdvisorEngine acquire technology that rounds out its offering. Back in February, it was announced that AdvisorEngine had acquired WealthMinder, a direct-to-consumer lead generation service that had built its own basic online financial planning software tools. And now, the news has come that AdvisorEngine is acquired Kredible, a practice management consulting firm that helps advisors to improve their online presence. The acquisition makes sense, as ultimately the greatest challenge for most financial advisors who want to deploy digital advice isn’t actually the technology to deliver it, but the fact that most advisors don’t have a strong digital presence to attract a tech-savvy (and often younger) clientele in the first place; in other words, robo tools won’t help most financial advisors reach Millennials until/unless they get better at digital marketing in the first place, because financial advice – both online and offline – is not an if-you-build-it-they-will-come solution. Thus, Kredible gives AdvisorEngine a way to help its advisors actually get better at attracting prospective clients into the AdvisorEngine digital advice tools in the first place. Notably, accompanying the news of the Kredible acquisition, WisdomTree also announced that it was making another $5M commitment to AdvisorEngine itself, suggesting that the company is encouraged with the adoption they’re seeing so far.

Are New Robos For Advisors Just Reinventing TAMPs And Rebalancing Software? With the recognition that robo-advisors are really just another distribution channel for asset managers, there has been growing interest from the asset management community to support and fund more robo-advisor platforms as a means to get their investments into the hands of consumers. It started with Schwab launching Intelligent Portfolios, predominantly with its own Schwab ETFs, to validate that the strategy worked. Then Blackrock acquired FutureAdvisor to bring robo tools to financial advisors (and ostensibly as a distribution channel for Blackrock iShares ETFs), and soon thereafter Invesco (maker of PowerShares ETFs) acquired JemStep, and WisdomTree invested into Vanare (now AdvisorEngine). Now, a new crop of robo-advisor-for-advisor solutions are launching, including Investment POD and ActiveAllocator. Investment POD frames itself as a digital investment platform that provides “dynamic investment strategies” (a proprietary risk-managed investment process) with robo-advisor tech at robo-advisor prices, while ActiveAllocator positions itself as an online asset allocation and portfolio construction portal that features traditional and alternative investments. In other words, Investment POD is simply a TAMP that provides technology, and ActiveAllocator is rebalancing software (with some capability to help advisors research and design portfolio models as well). Both platforms bill themselves as “robo” and/or “disruptor” FinTech platforms, but it’s hard to see how either is substantively different than a wide range of other TAMP, rebalancing software, and investment model proposal solutions that they will have to compete with. Have we finally reached the crossing point where attaching labels like “robo” and digital advice “disruptor” to new FinTech have become meaningless and undifferentiated from what’s now available to advisors?

New Morningstar CEO Announces Model Marketplace In 2018. Last week was Morningstar’s annual investment conference for advisors, and new CEO Kunal Kapoor announced the company would be launching a new Model Marketplace in early 2018. For those who are unfamiliar, a Model Marketplace is a system where third-party asset managers provide models for advisors to use, but it’s up to the advisor to actually implement the model and make the trades. The emerging trend burst onto the scene earlier this year, with TD Ameritrade announcing that it would offer a new Model Market Center through its iRebal rebalancing software – allowing external managers to supply the models, but advisors would retain control and be able to implement themselves through the rebalancing software (thus allowing the process to be largely automated, but without the advisor relinquishing discretionary control). Shortly thereafter, Riskalyze made a similar announcement, that it would be using its recent $20M Series A funding to build a Model Marketplace through the rebalancing software it was building in AutoPilot. And then Orion announced its new rebalancing software platform Eclipse, which will include a Model Marketplace where advisors offer their models to other advisors (dubbed Eclipse Communities). For Morningstar, given its existing relationships with asset managers – and an existing Managed Portfolios service – the move is a logical progression, especially now that Morningstar acquired tRx rebalancing software and can use it as a means to distribute and allow advisors to implement the models in the marketplace (when it arrives in 2018). Though with Morningstar’s size and clout, it may be bad news for much “smaller” players like Riskalyze and Orion, who may struggle to compete and monetize when faced with the sheer size and reach of major incumbent platforms like TD Ameritrade and now Morningstar. In fact, with so many major players on board so quickly, the only question now is how much momentum Model Marketplaces can gain, for all those advisors who want to retain discretionary control of client portfolios but don’t actually want to be responsible for making design and reallocation decisions for them models… and how much the current TAMP marketplace gets squeezed in the process, given that early model marketplace pricing is coming in drastically lower than what most existing TAMP platforms charge today. Though in the near term, it seems that the prize is simply trying to carve out a slice of Envestnet's profit margins!

Robo-Advisor Wealthfront Pivots To Wall Street Tactics With Securities-Based Lending Solution And Marketing. As traditional robo-advisors like Wealthfront face declining organic growth rates in the face of competition from human-tech hybrid digital advice platforms like Personal Capital and Vanguard Advisor Services (as well as pure robo competitors from incumbents like Schwab Intelligent Portfolios), the pressure is on to find new ways to grow revenue. The most straightforward path is to simply raise fees, yet with human-advisor solutions like Vanguard Personal Advisor Services and Schwab Intelligent Advisor, which price at 30bps and 28bps respectively, the robo-advisors are boxed in and can’t raise fees any higher than that without eviscerating their core value proposition (that “robo” advice is cheaper because it eschews costly humans). For Betterment, the path forward was to raise fees for its most affluent clients (accounts over $100,000) by 66% from 15bps to 25bps, and roll out human services at an even higher price point. But for Wealthfront – which already prices at 0.25% - there’s no room left to raise fees, forcing the company to look for alternative revenue lines. And so this month, Wealthfront decided to further monetize its most affluent users by announcing Portfolio Lines of Credit – the “opportunity” to engage in Securities-Based Lending for up to 30% of the client’s account value, with ‘near-instantaneous’ access to borrowing (apply in 30 seconds, get your money in 24 hours, according to their own announcement, though their article conveniently forgets to point out that most of the interest rate savings on the margin loan over a HELOC would be lost to the fact that the margin loan interest won't be tax deductible, while the HELOC would have been [for non-AMT taxpayers]). Of course, while Wealthfront rolled out the new "portfolio line of credit" service as a novel solution, the reality is that Securities-Based Lending has already been all the rage in Wall Street wirehouses for years, to the point that even back in 2014, it was already being dubbed the “rich man’s subprime”, because of the risk that the loans provide too-easy access to borrowing for people who may make irresponsible decisions with the loan proceeds, only to face problems later when they are either unable to repay, or worse if they’re caught in a liquidity squeeze if there’s a market decline and the margin loan is called. Wealthfront defended itself by pointing out that it was limiting loans to “just” 30% of account value, reducing the risk of a margin call, but when called out on the footnote-disclosed risks of margin loans in a NY Post article, CEO Rachleff was cited as saying “You’re getting hung up on the disclosures. Look: we have to do these things, we have to make these disclosures for regulatory reasons, but very few people read these disclosures. And if you don’t read the disclosure, you don’t get confused about it.” A stunning shift for Wealthfront, given that just two years ago they were held up by then-Secretary of Labor Perez as the paragon of transparent fiduciary advice.

The Compliance Archiving Gap In Screensharing Solutions For Client Meetings. Advisory firms have long had a requirement that any forms of digital communication – from email correspondence to website materials – must be captured and archived for compliance purposes. And technically, that includes electronic chats – from dedicated website tools, to the chat functionality embedded in common online videoconferencing solutions that advisors use like GoToMeeting, WebEx, or Zoom.us. Except, as pointed out in a recent white paper from Screenmeet, most video conferencing and screensharing solutions – which are built for a wide range of industries – don’t necessarily capture, record, and archive that communication, nor do they capture any “whiteboarding” of the presentation (i.e., any digital marks or drawings made on top of a screenshared presentation). Which means advisors who are currently using those solutions may be facing a compliance oversight gap – especially FINRA registered reps, who may be in direct violation of FINRA Rule 07-59 (though there’s an obligation to oversee digital communication for RIAs as well). So what’s the alternative? Either come up with a process that does capture any of that additional chat or whiteboarding activity (e.g., record and archive all meetings, where the technology allows), or use a solution that just does basic screensharing and doesn’t allow digital chat or whiteboarding on top. Not coincidentally, the latter is precisely the solution that ScreenMeet offers – a simple screensharing solution, with no digital chat capabilities (as you can simply call the client directly to talk to them while you view a document together). Which means ScreenMeet’s white paper does make a rather self-serving point… though in this case, that conflict doesn’t make it any less valid.

XY Planning Network Announces Second Annual FinTech Competition At XYPN17 Conference. This month, XY Planning Network announced its second annual FinTech competition, to be held at the XYPN17 conference from August 28^th to 31^st in Dallas. Given XYPN’s focus on providing fee-only financial planning advice to Gen X and Gen Y consumers, the competition is specifically intended to highlight new FinTech solutions that help advisors serve that younger demographic of clientele. Entrants must either be companies that have launched in the last 12 months, longer-running companies that still have less than $1M in revenue, or, for an established company, be an entirely new product line that is substantively different from its existing offerings. Judges include yours truly (Michael Kitces), advisor tech guru Bill Winterberg (who will also host the event), and representatives from conference sponsors Betterment for Advisors and Quovo. Prizes will be awarded for the best innovation that is pertinent to financial advisors, and include both free passes and a free booth to exhibit for the more-than-400 XYPN members at the conference, a promotional video feature, facilitated media introductions and a supporting press release from PR agency FiComm, an interview opportunity on the XYPNRadio podcast, and coverage on the Nerd’s Eye View blog. Last year’s inaugural competition included 19 entrants, and the winner was Snappy Kraken, which noted substantial sales growth, enterprise agreements, and investor interest, after their win. Interested FinTech applicants can get more information and apply for the XYPN17 FinTech Competition here (entry deadline is May 31st).

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? Will Model Marketplaces be the next big thing? Will rising opportunities for free tax prep cut into advisor referrals from CPAs? Are you going to participate in Investopedia's new Priority Leads platform? Are you concerned by the leadership changes at the major financial planning software providers? Please share your thoughts in the comments below!