The Latest In Financial Advisor #FinTech (April 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.

Schwab Pivots Away From Robo And Rolls Out Its “Un-Robo” Intelligent Advisory Solution. After having been announced earlier this year, this past month Schwab officially rolled out its new Schwab Intelligent Advisory solution for 28bps with a $5,000 minimum. The launch is notable, as Schwab’s new offering provides a comprehensive financial plan (using MoneyGuidePro and MyMoneyGuide), and unlimited access to CFP certificants, in addition to discretionary-managed model portfolios (through Schwab Intelligent Portfolios)… which means the service is a notable pivot away from its pure robo solution, into a tech-augmented human “cyborg” alternative to compete with the likes of Vanguard Personal Advisor Services and Personal Capital, even as other major firms are just launching their own pure robo solutions. Which raises the question of whether Schwab saw something it didn’t like in its data on the growth of Schwab Intelligent Portfolios, or simply viewed the addition of a cyborg solution as a means to round out their offering with a wider range of solutions for different client segments. Either way, though, the timing is almost certainly not coincidental – with Schwab Intelligent Advisory coming to market just in time for the DoL fiduciary rule to take effect, as Schwab makes a play for mass affluent and middle market clients who may be dislocated from broker-dealers in the fiduciary transition. (Though with the prospective delay of the fiduciary rule, Schwab may have to wait a bit longer for those particular market forces to come to bear.)

Major Firms Continue To Roll Out “Robo” Solutions. With the Department of Labor’s fiduciary rule looming, a number of major financial services firms have begun to roll out their “robo” solutions in recent months. First, it was the new Merrill Guided Edge platform, which is intended both to attract new assets and provide an automated investing home to its “small balance” investors who can’t meet the $250,000 threshold necessary to work with a Merrill broker, at a cost of just 0.45% with a $5,000 minimum. In the meantime, Wells Fargo announced the launch its Intuitive Investor robo-advisor solution, a partnership with the B2C-pivoted-B2B robo platform SigFig, which recently revealed in its ADV that it will have a $10,000 minimum and a 0.50% advisory fee and will go live in June. And asset manager T. Rowe Price announced its own “robo” solution, dubbed ActivePlus Portfolios, which will create investor-specific custom allocations of actively managed T. Rowe Price funds (and as a result, won’t charge a separate advisory fee at all, beyond what T. Rowe Price already makes from its mutual fund expense ratios). Which means the T. Rowe Price robo-advisor will be distinct in not allocating passively to ETFs, and instead will look more like a customized and personalized target date fund (an important reminder that robo-advisor tools could ultimately be the managed-account glue to bring together a number of active management strategies beyond mere passive strategic asset allocations).

Robo-Advising Is Pivoting From Investments To Tax Planning? In recent years, startups (and now major firms) have been trying to build “robo-advisors” with the capabilities to compete against human advisors; in the meantime, the world’s smart robot – IBM’s Watson – has been looking for new challenges. And now, the two are beginning to converge, with the recent announcement that Watson would be partnering with H&R Block to help its 70,000 tax professionals provide tax planning advice to 11 million consumers. In other words, robo-advising is no longer just about investment planning; now it’s expanding to tax planning as well, a domain that is notorious for its complexity. Yet just as computers have been shown as increasingly adept at taking large volumes of unstructured data – such as finding important details amongst reams of discovery documents in a lawsuit – the application of Watson to tax planning is surprisingly logical, as it sits at the intersection of individual tax data and the expansive documentation of the Internal Revenue Code and its supporting regulations and case law. In fact, Watson was “trained” by feeding it a combination of the tax code, and thousands of consumer tax preparation questions previously posed to H&R Block, with human tax experts then confirming whether Watson came up with good strategies and recommendations. The end result is not that Watson will prepare individual tax returns directly without human involvement, but the expectation is that Watson can help ensure more consistent tax recommendations, by spotting potential strategies that any individual human tax preparer might have missed. And the software will be used interactively with the human tax preparer, and the client, to improve the client experience. Which sounds surprisingly similar to the prospective future of financial planning software, used as a collaborative planning tool with clients, and a platform where the “robo-planner” analytics provide suggested recommendations that human financial planners can adapt as necessary and then deliver to the client.

NerdWallet Kills Its “Ask An Advisor” Service and FMeX Acquires AdviceIQ. In a world where financial advisors already struggle to get new clients, and especially in an online environment, both NerdWallet and AdviceIQ were trying to offer solutions. The former launched an “Ask An Advisor” platform back in 2013, providing advisors the opportunity to answer consumer questions and get some visibility (and hopefully, potential client leads) on NerdWallet’s personal finance site. While AdviceIQ gave advisors an opportunity to write content that would be published on the AdviceIQ platform, and potentially syndicated to large online publishing sites like CNBC or Forbes. But now, both solutions have come to an end. NerdWallet abruptly announced last week that it was terminating its Ask An Advisor service, with only 3 days’ notice before advisors would lose the ability to response to questions, and maintain their profiles. And Financial Media Exchange (FMeX), a new advisor tech solution that provides advisors a content library they can use for their online marketing, announced that it was buying the assets of AdviceIQ, including its existing library of advisor-written articles, and some advisor and enterprise relationships. From an industry perspective, the demise of both platforms is a good reminder that digital marketing for financial advisors is challenging and that even services that aggregate together lots of advisors and their content may still struggle to produce viable qualified leads. And from the advisor perspective, it’s just another reminder of the importance of building on your own website first, and the risks of spending time and effort to give away content for free to third-party platforms, where the advisor can lose all the equity value in what they’ve written/created if the platform fails or decides to pivot in another direction, and either delete their content, repurpose it for the platform to use in other ways, or, in the case of AdviceIQ, literally sell the content that advisors created for free to a third party that will monetize it by reselling it to their competitors!

AdvisorEngine Acquires WealthMinder, and Covisum Acquires PrairieSmarts. Continuing the theme of struggling advisor FinTech companies being acquired, the past two months also witnessed robo-advisor-for-advisors AdvisorEngine (formerly Vanare|Nest Egg) acquiring WealthMinder, and Covisum acquiring PrairieSmarts. For those unfamiliar, WealthMinder was another competitor in the world of generating advisor lead generation, including a matching service to help consumers find a financial advisor, and a lightweight self-directed financial planning tool consumers could use to better understand their financial situation. For AdvisorEngine, the primary value was likely WealthMinder’s financial planning software, which gives their “robo” tools a basic financial planning solution to plug into their digital onboarding stack (akin to how Fidelity is offering eMoney Advisor in their Fidelity AMP digital advice solution, and how MoneyGuidePro is offering MyMoneyGuide). In the case of PrairieSmarts – which was a portfolio risk analytics tool, an alternative to stress test modeling tools like Hidden Levers or RiXtrema – the acquisition by Covisum (which also makes a Social Security analysis tool and a retiree tax planning solution) adds another advisor technology product to their line… which hopefully Covisum will have more luck marketing, as PrairieSmarts had struggled to gain distribution and market share. On the plus side, the fact that both companies were acquired is at least a positive reminder that there’s enough hunger for advisor FinTech that even a struggling company will still have some exit options (though the terms of both deals were undisclosed). On the other hand, it’s also a reminder that getting attention and mindshare – whether of consumers or financial advisors – is still hard, even for an otherwise quality solution.

Trizic Reboots With $3.3M Funding And John Hancock Enterprise Deal. When the “robo-advisor” marketplace first began to shift from a B2C offering to a B2B advisor technology solution, Trizic was relatively early in making the pivot, with a particular focus of pursuing the bank channel (given the private bank background of founder Brad Matthews). And when Schwab launched its Intelligent Portfolio solution in 2015, Trizic claimed that its phones were “leaping off the hook” with interest. However, time passed, with no major deal announcements. But now, the news has come that Trizic has undergone a leadership change to Drew Sievers (co-founder of mobile banking platform mFoundry, which was sold to FIS in 2013), secured a new $3.3M round of capital, and affirmed its first enterprise deal to power an automated digital advice platform for John Hancock (to be called MyPortfolio) as well as an Investor Portal for John Hancock advisors’ own clients. Notably, that means Trizic still isn’t yet getting penetration in the bank channel it has been seeking, though the Hancock deal should lend substantial credibility for new deals. And arguably, “robo” solutions are uniquely suited to the bank channel, where the existing customer base drastically reduces the potential client acquisition costs when new business is simply about cross-selling existing clients, not bringing in new ones.

Blooom Raises $9M Series B To Scale Up Distribution. In a world where most “robo” solutions are struggling, Blooom has steadily built a 6,000 consumer client base by managing their 401(k) plan directly at a price of just $10/month. What’s unique about Blooom compared to most other “robo” solutions is that they don’t actually require that any assets be moved in order for them to be managed – instead, the consumer grants Blooom the right to log into their 401(k) account directly, in order to select investments upfront, and rebalance quarterly. And now that they’re gaining traction, with an estimated 6,000 clients x $10/month x 12 months = $720,000/year run rate, the company has raised a $9M Series B round to fund growth marketing and try to 10X their client base in 2017, through a combination of proactive marketing, fueling their growth through referrals, and even trying to get companies to purchase and pay for Blooom for their employees as an employee benefit/perk. Notably, Blooom also keeps a small team of human financial advisors available to answer any other financial questions its customers may have via virtual chat tools, raising the question of whether the company may also more fully expand into a digital human advice offering at a higher price point (as currently, advisor chat help does not have any additional cost).

Oranj Rolls Out New Iteration Of Its Client Portal & Dashboard. Most account aggregation solutions for financial advisors simply pull client financial information into existing financial planning or portfolio reporting software, or otherwise try to provide clients with a holistic view of their finances. Oranj aims to go further, by turning the client portal experience into a tool that helps advisors manage and oversee their entire client base, from identifying marketing and business development opportunities, to using the client portal to deepen engagement and the client relationship. To that end, Oranj recently announced the roll-out of their fully re-designed client portal, including new capabilities to help clients monitor their own progress towards (relatively simple) financial goals, as well as more digital onboarding tools to get started with new clients. On the one hand, the upside of a standalone portal solution like Oranj is that it’s easier to refocus clients away from “just” investment accounts into a more holistic look at their wealth (and how the advisor interacts with them). On the other hand, for advisors who actually do comprehensive financial planning in their own financial planning software, it’s unclear whether or how Oranj will be able to work effectively and not redundantly with existing financial planning software solutions.

Personal Finance Apps Gaining Bank Interest As Qapital Raises $12M Series A And Moven Partners With TD Bank. Even after the early success of Mint.com, Personal Financial Management (PFM) solutions have been slow to gain traction amongst financial advisors, with just a handful of solutions (from Oranj to eMoney Advisor to Wealth Access, and the more recent crop of financial planning software companies like RightCapital and Advizr) using account aggregation to provide clients with a holistic view of their wealth. Even then, however, most PFM solutions are primarily focused on investments and the client balance sheet, and not their cash flow and spending. But the success of financial apps to help people change their spending and saving behavior is catching the attention of banking institutions, that are becoming increasingly interested in PFM as a way for to improve their value-add for customers, improve savings behaviors (and thus new bank assets), identify cross-selling opportunities, and even expedite underwriting for quick-turnaround loans. As a result, even as PFM adoption amongst advisors continues to be slow, savings and finance apps are attracting money directly from investors and deals directly from major institutions. Thus, last month savings app Qapital announced a substantial $12M Series A to scale up its already hefty 180,000 users who have opened savings accounts in the past 2 years. And Moven announced a deal that extends its already-existing partnership with TD Bank in Canada into their US banking platform as well. Adoption with Moven has been especially impressive, as TD Bank notes they’ve already gained a whopping 850,000 registered users in just 9 months, with the average customer trimming their spending 4% to 8% just by using the software to better monitor their own spending. From the consumer perspective, that’s a huge victory for the ability of PFM tools to help facilitate spending behavior change. But from the financial planning perspective, if banks become the center of the PFM landscape, advisors may find themselves beholden to clients’ existing bank relationships, and unable to get clients to leave their existing PFM software to adopt the advisor’s client portal and financial planning software.

Quovo Expands Its Authentication API To Facilitate Account Aggregation. Quovo is primarily known as a platform with robust APIs to facilitate account aggregation, but last November it expanded with a new Authentication API, which allows consumers who link accounts to immediately authenticate them for the purpose of facilitating financial transfers. The significance of this is that it allows for the development of client onboarding tools that could support immediate transfers (at least from bank accounts) to fund new accounts and investments, as well as enabling better real-time flow of financial information. In turn, this creates the potential for financial advisors to not only have more quick-transfer onboarding tools (more akin to the solution of platforms like Betterment, where accounts can be opened and immediately funded via a smartphone), but also to automate financial transfers to facilitate goals (e.g., similar to Betterment’s “Smart Deposit” feature where clients automatically transfer and save ‘excess’ cash in their bank accounts above a targeted threshold). In other words, while a lot of financial services firms are talking about making better, faster, and easier “robo” onboarding tools, Quovo is trying to build the Authentication API framework to actually power it. And if they succeed, Quovo is increasingly positioning itself to be the glue that holds together the entire world of advisor account aggregation solutions.

PocketRisk 2.0 Expands Into Two-Dimensional Risk Tolerance Assessment. With the rapid growth of Riskalyze in recent years, risk tolerance assessment tools have become a “hot” category in the world of advisor FinTech. The challenge, however, is that the roots of risk tolerance assessment are the evaluation of just an individual’s pure risk tolerance – their relative willingness to accept (or not) volatility and uncertainty regarding investment outcomes; whether someone actually wants, needs, or can afford the risk (i.e., their risk capacity) is not always measured. However, a growing number of solutions are now adopting a two-dimensional approach to risk tolerance, where both tolerance and needs are assessed (and where either can impact/constrain the risk of the optimal portfolio), and now PocketRisk has launched its 2.0 version to incorporate questions about both risk tolerance and risk capacity into its assessment process. The new solution includes basic questions about client goals (including time horizon) and available assets, in addition to pure “willingness-to-take-risk” questions, as part of its assessment process (though not at the depth of two-dimensional risk tolerance competitor Tolerisk). Although as their Pocket Risk 2.0 demo highlights, the introduction of basic risk capacity and goals questions starts to make the risk tolerance assessment process feel like a less-sophisticated and redundant process to what financial planners already do in greater depth in financial planning software (regarding the projection and evaluation of a client’s financial planning goal), raising the question of whether risk tolerance assessment tools like Pocket Risk 2.0 (or Tolerisk) should be evaluating risk capacity themselves, or simply overlaying their pure risk tolerance results onto existing financial planning software and its own retirement projections.

New Product Watch: Wishlife. Historically, “estate planning software” for financial advisors was primarily about projecting the (income and estate) tax consequences of an estate plan, in no small part because it often supported the sale of a life insurance policy (inside of an ILIT) as a solution. Yet, as the estate tax exemption has risen and portability was introduced in 2012, the need for bypass trusts and ILITs is on the decline, and estate planning is less and less about estate tax planning, and more about actual estate planning – how to effectively facilitate the transition of the estate itself, and to ensure that the decedent’s desires are honored. Which has helped to fuel the growth of EverPlans Professional, which is specifically designed to let clients centralize all of their financial and estate information in one place, to facilitate a speedier and easier transition for heirs in the event of death (or incapacitation/disability). As this new category of “estate planning software” gets more popular, we’re now witnessing more companies come to the table. The newest entrant is Wishlife, which is similarly positioned as a tool to help facilitate the estate planning process, but is less about ensuring the transition of assets and accounts, and more about ensuring the transition of the family story, along with other guidance and instructions that the future-decedent wishes to have their heirs follow – or what WishLife calls a “Family Communication” platform. Clients can enter their wishes and guidance into the Wishlife platform, and even video-record their family story into their webcam (with a higher-end solution available where WishLife will come out and do the video recording and production directly). Which not only deepens the client relationship directly as the advisor facilitates this non-financial but highly-family-enriching experience, but can open the door to introductions to other family members as everyone in the family is invited onto the platform to participate in the process.

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 major firms too late to the game on "robo" solutions as Watson pivots robo to tax planning and Schwab pivots back to human-based (but tech-augmented) solutions? Is it helpful for risk tolerance assessment tools to include questions about goals and time horizon, or redundant to financial planning software? Is Wishlife a sign of what estate planning value-adds of the future will really look like? Please share your thoughts in the comments below!