The Latest In Financial Advisor #FinTech (August 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.

Redtail and Wealthbox advisor CRMs getting aggressive on new technology integrations. For the past decade as advisor CRM solutions have been migrating from servers to the cloud, the demand has quickly grown for more and deeper (web-based) integrations to other key components of the advisor technology stack, including broker-dealer and custodian platforms, portfolio management and reporting solutions, and financial planning software. But now, we're beginning to see a new wave of integrations, targeted towards a wider range of technology partners. For instance, this month Redtail CRM announced an integration with FMeX (a platform that provides advisors content to do email marketing to prospects and clients), and another integration with Vanare's "robo" account opening platform, while Wealthbox CRM announced a new integration with popular office messaging platform Slack. In recent months, Redtail and Wealthbox have also announced the ability to support integrations via Zapier as well, and since then Redtail users have been a few Zapier integrations to scheduling apps Calendly and ScheduleOnce, and Wealthbox has built similar integrations to Calendly and ScheduleOnce, along with MailChimp and Wufoo to further support advisor digital marketing efforts (though notably, Salesforce still includes far more Zapier integrations than all the rest combined, albeit mostly for Salesforce users in other industries and not necessarily pertinent to financial advisors). As advisors increasingly adopt digital marketing strategies (which rely heavily on a central CRM), and more generally CRM continues to become the hub of financial-planning-centric advisory firms, expect the growth of integrations to an ever-wider range of platforms to continue (especially through central integration 'hubs' like Zapier, in addition to 'traditional' ones like TD Ameritrade's VEO).

InStream financial planning software is back for round 2? Five years ago, inStream launched as a new competitor in the financial planning software category, with the bold vision of providing the software to financial advisors for free and monetizing through the (appropriately anonymized) insights that could be gleaned from wide adoption by financial advisors and clients, and with what at the time was a novel approach of a very proactive alerts-driven approach to financial planning (where the software would use account aggregation and third-party integrations to better monitor the client's financial situation, and alert the advisor when there was a planning opportunity). And within two years inStream had a so-called "dream team" of RIA executives, and more than 1,000 users who were at least kicking the tires. However, the software never seemed to gain wider adoption, struggling in the hypercompetitive environment for financial planning software where it's difficult to differentiate, eventually forcing it to revert to a more "traditional" financial planning software model (currently charging $115/month), and cutting a major deal with the Buckingham/BAM Alliance platform in 2014 that at the time was rumored to be a major financial lifeline for the software platform. Now, however, InStream appears to be gearing up again, with the hire of David Lau (former COO of Jefferson National and former CMO for E-Trade) to head up its distribution efforts, along with recruiting a number of the key members from Jefferson National's distribution team. Given Lau's bona fides as a successful marketer, expect to hear a lot more about InStream as a competing financial planning software provider in 2017.

Advisor PFM provider WealthAccess announces its newest V3 enterprise version. Having positioned itself as "an aggregator of aggregators" that gathers account aggregation data from multiple sources, to serve up into useful insights for advisors and clients, this month WealthAccess announced the newest V3 version of its solution. Changes included not only an upgrade of the user experience, but an overhaul to the underlying architecture, which going forward should make it easier for WealthAccess to integrate with third-party solutions by providing 50+ "widgets" (e.g., for the client's net worth, cash flow, asset allocation, etc.) that other software platforms can embed (and populate via WealthAccess data). The restructuring should also make it easier for WealthAccess to integrate to proprietary platforms, opening up more broker-dealer channels to complement its early distribution amongst RIAs (especially as broker-dealers are looking for a wide range of new technology solutions to support their DoL fiduciary needs, although PFM solutions aren't directly necessary for DoL compliance). Accordingly, WealthAccess also announced the hire of a new Chief Revenue Officer Jeff Bloedorn (formerly VP of Strategy and Business Development at FIS), to lead its new enterprise business unit.

Guide Financial shuts down its advisor PFM solution. Earlier this year, Intuit announced that in November it would be discontinuing its Financial Data API (the external API version of the data feeds that power Mint.com), and as the deadline looms closer, it has claimed its first victim - Guide Financial - which has announced that it will discontinue its PFM solution for advisors and their clients on October 11th. As a cash-flow-centric PFM solution, Guide primarily used the Intuit Financial Data API, and it appears that John Hancock (which acquired Guide Financial last year) decided it was better to wind down their advisor solution rather than transition their data feeds to another provider (or switch to Intuit's replacement Finicity solution). Notably, the Guide Financial team itself is not being disbanded; instead, it will continue its work internally as a solution for John Hancock agents under the John Hancock Digital label. Nonetheless, in a landscape that is already relatively sparse for cash-flow-oriented PFM solutions for advisors, Guide's loss will be felt, as most existing PFM solutions for advisors remain focused primarily on investment portfolios, though I believe financial planning software solutions like eMoney Advisor, RightCapital, and Advizr provide at least some level of household cash flow tracking and reporting, along with standalone PFM WealthAccess (albeit all at much higher price points than what Guide was charging). In the meantime, the deprecation of the Intuit Financial Data API should open the door for raw data feed providers like Yodlee and Quovo to capture more of the emerging market opportunity for cash-flow-oriented advisor PFM solutions.

Social Security Timing and Tax Clarity rebrand as Covisum. The world of financial advisors has a long history of practitioners creating software solutions to solve the problems they faced in their own businesses, and then selling the software to other advisors who might be interested, from Greg Friedman creating Junxure CRM to Sheryl Rowling founding TRX rebalancing software. And another good case-in-point example is Social Security Timing, a Social Security optimization tool launched 5 years ago by financial planner Joe Elsasser. However, while most advisors who launch software companies simply do it once, Elsasser is unique in that last year, he launched a second platform as well, called Tax Clarity (to help illustrate income-tax-planning strategies to clients). And now, to accommodate his growing suite of niche financial advisor software solutions, Elsasser is rolling up Social Security Timing and Tax Clarity into a newly branded company called Covisum (which means "shared vision" [with advisors]), implying that there may be more software solutions coming for advisors in the future as well. What makes this notable is that Elsasser may be one of the first advisor-turned-software-developers to become a serial entrepreneur creating advisor technology solutions, and that he's doing it largely through bootstrapping and selling viable products to advisors, unlike many competitors in recent years that launched with huge amounts of venture capital and fanfare but without a good product fit for real advisor needs. So stay tuned to see what else Covisum comes up with in the future, to complement their already-increasingly-popular Social Security and tax planning solutions for advisors.

FutureAdvisor may be running away with the B2B enterprise deals for bank and broker-dealer "robo" solutions. This month, the Blackrock-owned "robo-advisor-for-advisors" solution FutureAdvisor announced another blockbuster enterprise deal, this time to offer its "robo" tools for US Bank (the 5th largest commercial bank in the US). The deal is much larger in scope than FutureAdvisor's prior bank deal with BBVA Compass back in January, and complements FutureAdvisor's big deals with broker-dealers including RBC Wealth Management in February and the largest independent broker-dealer (by advisor headcount) LPL in April. While FutureAdvisor isn't the only platform announcing B2B enterprise deals lately - for instance, last month Vanare announced a deal to overlay its robo solution on top of Apex Clearing, and Emotomy recently inked a deal to offer its digital advice tools via Trust Company of America. And arguably the UBS deal with SigFig back in May is substantively similar in its scale implications as the recent FutureAdvisor deal. Nonetheless, the fact that FutureAdvisor is putting together one big enterprise deal after another is highly notable, as once enough banks and broker-dealers see that their peers view FutureAdvisor as the "safe" choice, it may quickly become the default standard for large enterprises that want to check the "robo" box for their offering. And frankly, this momentum shouldn't entirely be surprising - the sheer trust and stability implied by having the Blackrock brand overarch FutureAdvisor, in an environment where one of the key enterprise fears of picking a robo partner is "will they still be around in 3-5 years", is a key selling point. As I've noted in the past, IBM built its early computer dominance by being a trusted brand and the "safe" choice for enterprise deals - the old saying was "no one ever got fired for buying IBM", and now FutureAdvisor is gaining momentum under the "no one will get fired for buying Blackrock" approach. Which means Blackrock is well positioned to justify the $150M it spent to acquire FutureAdvisor... though if FutureAdvisor runs away with the B2B marketplace, it means $150M may represent the highest that any established firm ever pays to acquire a robo solution, effectively capping the marketplace.

Betterment opens the door to small asset manager distribution with Cambria deal. One of the themes I've been repeating to my asset manager consulting clients for the past 3 years is that, from the perspective of an ETF or mutual fund provider, the robo-advisor is a distribution channel. The strategy was fully validated when Schwab brought several billion of AUM to its proprietary ETFs in just the first 6 months after Schwab Intelligent Portfolios was launched, and is the primary reason that Blackrock bought FutureAdvisor (because Blackrock produces iShares ETFs, and FutureAdvisor is a robo distribution channel for them), and was likely also a factor for Invesco buying Jemstep earlier this year (which, again, was an ETF provider - PowerShares - buying a robo distribution channel). However, there aren't very many robo-advisors left in place - at least with any substantive size and scale and reach - which means for asset managers who want to pursue the strategy from here, it's necessary to either build it themselves (as Fidelity did with Fidelity Go), or find an existing partner. In this context, it's notable that last week, Cambria Investment Management announced it would be partnering with Betterment Institution to offer a managed account of Cambria ETFs, leveraging Betterment's most appealing features (no trading commissions or rebalancing fees) and offering the solution at a lower cost to consumers than what Cambria could previously provide for a managed account (a simple 0.15% platform/wrap fee, plus the underlying cost of the Cambria ETFs, but with no other management fee). For Cambria, the deal makes sense as a means to outsource and leverage Betterment's "robo" technology features (from automated rebalancing to tax loss harvesting) and appealing cost structure, as another means to (inexpensively) distribute its managed account strategy (which includes a partial blend of its own ETFs). For Betterment, the deal is notable not only because it introduces new ETFs to the Betterment platform, and a new asset gathering opportunity (based on whatever asset flows Cambria can drive with its own marketing). From the broader industry perspective, if a growing number of asset managers adopt the same strategy, it creates a new potential for asset managers to go "direct to consumer" with managed accounts (or even to other advisors as a TAMP) using robo tools, while entirely cutting out traditional brokerage and custodial firms from their distribution strategy (which turns "robo" from an advisor disruption threat to a custodian and broker-dealer disruptor, unless Schwab and Fidelity can build momentum for their own robo tools as a "custodian 2.0" platform for RIAs!).

Newcomer digital marketing platform AdvisorStream gets accused of using fake advisor testimonials. While digital and content marketing has been explosively popular as a growth strategy in other industries for years, the category of digital marketing platforms for financial advisors is a relatively new one, starting a few years ago with Vestorly and Gainfully, and gaining momentum this year with newcomers like FMeX and AdvisorStream. Yet in the end, the world of financial advisor fintech is very small, which is why the buzz quickly went viral in the industry when the news broke that AdvisorStream was using fake advisor testimonials on one of its marketing websites, touting benefits like a 25% increase in web traffic and 17 new leads a month paired with pretend advisor names and titles and photos of anonymous models from Shutterstock. Within two days, AdvisorStream has posted its response, that the marketing website in question was just a micro site being used by a contracted marketing agency to test various sales messages (and using testimonials, photos, and client names/logos that hadn't been reviewed or approved by AdvisorStream), and that the content in question had been removed immediately (and had never appeared on the official AdvisorStream website in the first place). Nonetheless, the fact that the micro site was being used to "test sales messages" ostensibly means that advisors were being directed to it at some point (how else could the conversion rate of the sales messages be tested?), fake testimonials and all, and may have been used to turn advisors into paying users. While one would hope that AdvisorStream will be extra cautious about how it "tests" marketing messages in the future (and the company acknowledged that it will "strengthen [its] internal review process with all marketing and communication materials" going forward), the incident is a good reminder of how small and close-knit the advisor community is... and that questionable behavior is likely to be spotted quickly, and spread quickly... so newcomers beware!

New Product Watch: a Risk Tolerance Software Bonanza. It has "always" been a requirement that financial advisors of all types must "know your client" before recommending investment products or managing an investment portfolio, which includes understanding both the client's goals and time horizon, and also their risk tolerance. Nonetheless, the world of risk tolerance software was a quiet and sleepy space since the 1990s, with FinaMetrica as the only major player for years, and little demand for alternatives as most advisors just use whatever (often overly simplified) questionnaire their home office provides. That all changed when Riskalyze arrived on the scene in 2011, with its meteoric rise over the past 5 years, as the company now shows upwards of 100 employees via LinkedIn, and last year opened an Atlanta office to complement its headquarters in northern California near Sacramento. And now, risk tolerance software is a "hot space" for technology companies. Recent entrants include Tolerisk, PocketRisk, RiskPro, and Totum Wealth is pivoting towards "risk discovery" analytics as well. However, it remains to be seen whether and how any competitors can crack the Riskalyze formula, which is not merely a "risk tolerance questionnaire" process, but also a means to instant relate the client's risk tolerance score back to their existing portfolio (which almost inevitably shows their portfolio has excessive risk, since consumers rarely build effectively diversified portfolios on their own) and create a sales opportunity. In other words, Riskalyze's success is not just about being the "best" risk tolerance questionnaire, but also being a portfolio proposal tool and an effective sales tool to disturb consumers about their existing poorly constructed portfolio - a distinction that helps to clarify why Riskalyze has grown so much more rapidly than their long-entrenched FinaMetrica competitor. In turn, it remains to be seen whether any of the new competitors will be able to figure out how to outcompete Riskalyze, as it won't just be about coming up with a "better" or "more holistic" or "more sophisticated" way of analyzing risk tolerance itself, but about developing a more effective and usable tool that actually drives prospective clients to action. Nonetheless, with increased pressure on due diligence on prospective clients under the looming DoL fiduciary rule, expect to see a rapidly rising demand from banks and broker-dealers (and some RIAs) for more robust risk tolerance assessment tools, which means the door will definitely be wedged open for new opportunities and new players in the coming year to give their best shot.

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 you a Redtail or Wealthbox user who likes this new direction of tech integrations (or considering them because of their new partnerships)? Are you using any form of PFM portal for clients to track their finances? What's your risk tolerance software solution of choice? Please share your thoughts in the comments below!