The Latest In Financial Advisor #FinTech (January 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 Goes Beyond “Robo” With Schwab Intelligent Advisory Launch. The biggest advisor FinTech news in the past month was Schwab’s announcement of a new “Schwab Intelligent Advisory” service launching in the first half of 2017. While initially dubbed by the media as yet another Schwab “robo”, the reality is that it’s actually much more. Schwab Intelligent Advisory will offer a comprehensive financial plan (rumored to be powered by MoneyGuidePro and its MyMoneyGuide self-onboarding solution), 24/7 access to CFP certificants via telephone, video chat, or email, a customized financial planning dashboard (perhaps powered by the recently announced MX integration with MoneyGuidePro), and portfolios implemented using the Schwab Intelligent Portfolios solution… all for a mere 28bps (plus the cost of the underlying ETFs) with a minimum of only $25,000. Given the comprehensive financial planning and availability of CFP-certified Planning Consultants, the service falls squarely into the hybrid cyborg/bionic advisory solution, more akin to Personal Capital and Vanguard Personal Advisor Services than pure robo platforms like Betterment and Wealthfront. The launch of SIA coincides with the effective date of the DoL fiduciary rule, which undoubtedly is not a coincidence, but a direct attempt by Schwab to capture a portion of the mass affluent market share likely to be dislodged from the broker-dealer community in the fiduciary transition. However, in reality, the new Schwab digital advice solution isn’t just a competitor to brokerage salespeople – and Personal Capital, and Vanguard whom they undercut by 0.02% – but also the independent RIA community as well, as many advisors will struggle to explain why their “comprehensive financial planning” for a 1% AUM fee is that much better than Schwab’s at just 28bps… and may create a substantial channel conflict backlash from RIAs, especially those already using Schwab as a custodian, who will be very unhappy when Schwab’s marketing push for Intelligent Advisory makes existing clients question their existing advisor’s own pricing and services. On the plus side, at least Schwab and Vanguard are finally demonstrating that the mass affluent really can be served without commissions under a Level Fee Fiduciary environment!

Smarsh Compliance Acquires MobileGuard Text Message Archiving. In December, Smarsh announced that it was acquiring MobileGuard, a text message archiving solution for mobile phones. In reality, MobileGuard was already a partner of Smarsh, powering the SMS archiving of their mobile archiving solution; nonetheless, the acquisition signals what will likely be a deeper level of integration of MobileGuard’s SMS archiving into the Smarsh comprehensive Archiving solution – ostensibly including their solution for financial advisory firms that need to archive all client communications for compliance purposes. What’s unique about the MobileGuard solution is that it pulls SMS activity directly from the mobile carrier, allowing advisors to continue using whatever text messaging app they prefer, rather than being forced to use a special “compliance-approved” text messaging solution. Archiving of client communication isn’t exactly the most exciting part of advisor technology, but a compliance solution that captures and archives the necessary information without the requirement for special software is definitely a plus for advisor ease-of-use!

eMoney Advisor Launches New Data Gathering/Client Onboarding Solution. One of the most time-consuming elements of doing comprehensive financial planning is just gathering the data and getting it into the financial planning software in the first place. While the process could be expedited by simply letting new clients enter their own data, up until recently no financial planning software provided a means to do so, forcing advisors to buy third-party data gathering software like PreciseFP that could then import the client data in. However, the DoL fiduciary rule, and its pressure to have a thorough and consistent data-gathering process, is forcing institutions to demand a more standardized workflow, and the financial planning software companies are filling the void. Accordingly, Advicent has improved the DoL compliance capabilities of its data gathering tools with its Compliance Blueprint, last fall MoneyGuidePro announced its Best Interest Scout “DoL-compliant” discovery tool, and now eMoney Advisor is rolling out its own Onboarding workflow solution to support DoL compliant data gathering. Of course, for a certain subset of high-net-worth clientele, they may insist that the financial advisor do the data gathering and data entry work, but for a growing number of tech-savvy (or at least tech-proficient) clientele accustomed to filling out information online, these onboarding software solutions have the potential to make the financial plan creation process more efficient (by cutting down the advisor’s data entry time), expand the potential marketplace of clients who can be served, and make the financial planning process more consistent as well. And at the same time, advisors will enjoy a cost savings by no longer needing to buy third-party data gathering tools like PreciseFP just to get the information into the software. It’s just unfortunate it took the compliance obligations of the DoL fiduciary rule, and pressure from large broker-dealer enterprises that needed a standardized solution, to get financial planning software companies to finally roll out something that independent planning-centric advisors had been begging for since about 2005.

Orion Advisor Services Launches Fee Benchmarking Tool. One of the key requirements of the DoL fiduciary rule is that advisors must receive “reasonable compensation” as part of the Impartial Conduct Standards, which means that their fees be “not excessive” compared to what other advisors would charge for rendering similar services to the client. The good news is that what constitutes “reasonable” is not set directly by the Department of Labor, and instead is a peer-based standard of looking to what others in the marketplace charge. The problem, however, is that it’s impossible as an advisor to evaluate your compensation relative to others, when there’s no data to benchmark your pricing in the first place! Accordingly, over the past several months, numerous companies have been positioning to offer DoL fiduciary fee benchmarking services, from McKinsey buying PriceMetrix and Envestnet buying Wheelhouse Analytics for what will likely be solutions in early 2017, to RiXtrema launching a fee benchmarking service called FeeComp in November, and now Orion Advisor Services launching its own Fee Benchmarking tool. Similar to the RiXtrema solution, Orion’s fee benchmarking tool will allow advisors to look at Orion’s aggregate fee data, and then screen it based on the type of firm, services provided, account types, and account sizes (based on publicly available ADV data). Notably, though, Orion’s solution “just” pulls from its 1,000+ user database, while RiXtrema’s FeeComp is aiming to draw from an even wider database of advisory fees (having written a tool that will scrape and parse the unstructured data directly from ADVs filed with the SEC). At this point, no clear standard has emerged as to what constitutes the “minimum” or “best” version of an advisory fee benchmarking solution, but expect to see more options coming out in the next few months as the DoL fiduciary rule’s first enforcement date looms closer.

Finicity Raises $42M In Series B For Financial Account Aggregation Solutions. Early last year, Intuit announced that it would stop servicing its Financial Data API, and existing API users could transition to Finicity, which in addition to its existing Mvelopes budgeting app, would develop a façade API to translate Intuit API calls into Finicity API calls (allowing software to transition to Finicity without needing to rewrite their own software). But now, Finicity has announced a whopping $42M Series B funding round, to build out new services around its data aggregation and API hub. Initially, Finicity indicates that it will focus primarily in the “credit decisioning” market, using account and data aggregation tools to help expedite the process of loan origination and underwriting (including digitizing asset and income verification). But the infusion of capital also suggests that the “old” Intuit APIs are here to stay, as Finicity scales up its account and data aggregation capabilities, which could position it as more of a competing data aggregation provider to Quovo, particularly for the wealth management industry that are wary to rely on Yodlee’s capabilities given that it is owned by potential competitor Envestnet.

Envestnet Rolls Out “Mint.com-Like” Yodlee App For Tamarac Advisors. In mid-2015, Envestnet surprised financial markets by acquiring data aggregation provider Yodlee for a whopping $590M, and its stock price still hasn’t recovered from the hit it took when the announcement was made. Now, though, the fruits of Envestnet’s acquisition are beginning to show, as in December it announced that a new Yodlee app would be integrated into the client of their Tamarac portfolio management solution. Featuring “Mint.com-like” capabilities, the new app will let clients aggregate in all of their outside assets and liabilities (including credit cards, loans, and mortgages), turning the portal from a mere investment summary into a fully holistic view of the household’s entire net worth (and then follow how their results trend over time). When combined with Envestnet’s FinanceLogix financial planning software, this effectively makes Envestnet’s full advisor technology stack akin to the upcoming Fidelity Wealthscape release, which similarly will include an integrated portfolio accounting solution alongside the eMoney financial planning software and PFM dashboard for clients… and drawing a more stark contrast to the more purely-investment-centric Schwab platform capabilities, or the integrate-it-yourself open architecture structure of TD Ameritrade’s VEO strategy.

TD Ameritrade Institutional Rolls Out New VEO One Platform. One of the key distinguishing factors of TD Ameritrade as an RIA custodian is its Veo Open Access platform, an open architecture structure that now has nearly 100 different tech integration partners and makes TD Ameritrade the preferred custodian for advisors who want to piece together their own technology stack to best match their needs. One of the key challenges of Open Access, though, was that while some data flowed between them through APIs, actual navigation by the advisor required separate logins to each platform, and a rather compartmentalized user experience. Accordingly, this fall TD Ameritrade has rolled out its next generation version of the platform, dubbed “VEO One”, and designed to facilitate both a single-sign-on (SSO) capability across integration partners, and to more deeply integrate external tech provider widgets and data directly into the VEO One dashboard (updated in real time). For TD Ameritrade advisors, the primary benefit will simply be an improved user experience and more ease in navigating amongst the various integrated solutions, but from the broader perspective VEO One is simply another step in the technology arms race amongst custodians, as Fidelity gears up to release Wealthscape later in 2017 and Schwab’s new Portfolio Connect looms in 2018.

XTiva Rolls Out New Enterprise Sales Management Solution For Financial Services. In the world of financial advice, “sales” is often viewed as a dirty word, associated with the “old school” world of product sales and not an advice-centric future. Nonetheless, the reality is that sales and business development ultimately matters for any business, and the process of tracking and managing that activity gets exponentially more complex in larger firms (from broker-dealers to big independent RIAs). So far, the number of solutions in this advisor tech category is miniscule, but XTiva is making a push, and last month announced an expanded solution that leverages Matt Lynch’s Strategy & Resources consulting firm to build customized compensation structures directly into XTiva’s sales tracking and management tools. For most independent advisory firms, the scope of XTiva’s sales management solutions are probably beyond their needs, but as the world of independent RIAs continues to grow (and as broker-dealers shift from a product-centric to advice-centric focus), XTiva is likely at the front end of what will become a popular new category of enterprise software for financial advisory firms and platforms.

Blucora’s Tax Act Partners With Legg Mason’s Financial Guard Robo-Advisor. Back in the late 1990s, InfoSpace was one of the leading internet search engines, and its stock price peaked at $1,305 in March of 2000, only to plummet to $2.67 over the next 27 months as both the tech crash, and the rise of competitors like Google, took their toll. However, the company itself survived, still generating revenue from metasearch sites like Dogpile, WebCrawler, and MetaCrawler, and in 2012 it aimed to start reinventing itself with the acquisition of the tax preparation software TaxAct, and renamed itself to Blucora. And over the past several years, the company has begun to further ramp up its financial services focus, garnering a great deal of attention when it bought the CPA-centric broker-dealer H.D. Vest in 2015 for $580M, with the expectation that the company would generate client leads from TaxAct to refer to its H.D. Vest brokers. And now, Blucora has announced a partnership with Financial Guard, one of the many unsuccessful B2C robo-advisors that was acquired last summer by Legg Mason. The company’s most recent ADV still lists only 662 total clients, and negligible assets under management since Financial Guard was built not to direct manage assets on a discretionary basis, but simply “link” outside investment accounts and provide recommendations (that the consumer must then implement). But Blucora seems to think that they can generate a material volume of small-account leads for Financial Guard, primarily by encouraging TaxAct users to direct their tax refunds directly into a new IRA with/through Financial Guard (and ostensibly taking some kind of revenue-sharing cut, or payment for lead generation to Financial Guard). Notably, it’s not clear whether Financial Guard will actually begin to manage the accounts directly, or still provide their existing ‘oversight’-style service, nor what the pricing will be. But at a minimum, it helps to illustrate once again that the secret to robo-advisor success wasn’t about operational efficiencies, but solving the thorny challenge of client acquisition at a reasonable cost.

Personal Capital Raises Another $50M Of Debt And Equity Capital With $1.5B Of AUM Growth. Back in May of 2016, Personal Capital raised a $75M Series E round, with $50M invested immediately, and another $25M contingent on hitting growth targets a year later (by Q2 of 2017). Except as it turns out, Personal Capital blew through its growth targets in half that time, up $1.5B in 2016 to a total of $3.4B of AUM. As a result, Personal Capital not only released the last $25M tranche of its Series E, but also announced an additional $25M of debt financing. What’s notable about this success is that while Personal Capital is often dubbed one of the “robo-advisors”, it’s actually not – it’s staffed by human financial advisors (primarily based in Denver), who meet with clients virtually using technology, akin to Vanguard Personal Advisor Services and the new Schwab Intelligent Advisory solution. And while the company has “just $3.4B” of AUM, compared to more than $4B at Wealthfront and nearly $6B at Betterment, it also charges “human advisor” prices, with a fee schedule that starts at 0.89%; as a result, while it’s not larger than over robo-advisors when measured by AUM, Personal Capital is larger than all other pure robo-advisors combined when measured by actual client revenue, once again reinforcing the staying power of hybrid “cyborg” advisors (tech-augmented humans) over pure tech-only robo solutions. Though ultimately, in the end, the real “secret” to Personal Capital’s success is not merely being a tech-augmented human advisory solution, but their genuinely innovative client acquisition strategy of developing a high-quality consumer-friendly PFM solution, and using that data to do targeted outbound lead generation.

Betterment For Advisors Partners With The Financial Planning Association. Last fall, the B2B Betterment Institutional platform rebranded as Betterment For Advisors and expanded its investment offerings beyond “just” the core Betterment portfolios; now, the robo-advisor-for-advisors platform is looking to ramp up its distribution efforts with a newly announced “strategic partnership” with the Financial Planning Association. In the context of FPA, a “strategic partnership” really just means a broad-based sponsorship deal, including its national conferences (FPA Retreat, BE, and Chapter Leaders), and sponsored thought leadership opportunities (e.g., Betterment white papers, webinars, participation in Knowledge Circles, etc.). From Betterment’s perspective, it’s an opportunity to get in front of a large swath of financial advisors – ideally for them, ones not already tied to an existing full-service RIA custodian, but perhaps smaller/newer advisors, those breaking away from a broker-dealer with limited AUM, or those who are “planning-only” and looking to add a component of AUM to their services. From that perspective, the partnership makes sense… but it remains to be seen whether Betterment For Advisors is too late, as while their initial pivot to work with financial advisors in late 2014 was a potential game-changer, two years later Betterment For Advisors indicates that it only has about 300 advisory firms, while the landscape has gotten dramatically more competitive with the introduction of B2B robo competitors including B2C-pivoted FutureAdvisor, SigFig, and JemStep, along with newer built-first-for-advisors solutions like Riskalyze’s Autopilot, Marstone, and RobustWealth.

Digitizing (And Someday Automating?) The Valuation Of Financial Advisory Firms. One of the under-the-radar-but-now-emerging technology tools being developed for financial advisors are solutions to ease the process of valuing an advisory firm itself. Historically, these kinds of solutions weren’t very relevant, because the reality is that advisory firms themselves either weren’t saleable, didn’t sell for much, or if they did the valuation was purely a revenue-sharing agreement where the “old” advisor would earn a percentage of commissions/revenue earned by the “new” advisor from the handed-off clients for a period of time. But the growth of the AUM model, and its stable recurring revenue, is creating real enterprise value for advisory firms, and when combined with the rapid growth in the size of the average advisory firm over the past decade, and now the emerging availability of bank financing from players like Live Oak Bank, means a growing importance for getting a quality valuation of the firm. Initially, this created a cottage industry of advisory firm valuation experts, that has now grown into a small group of valuation consulting firms like Echelon Partners, DeVoe and Company, Succession Resource Group, Advisor Growth Strategies, and Gladstone Associates, along with the “big player” FP Transitions. But since the reality is that the majority of the “inputs” to a valuation model are purely numerical, such solutions are also conducive to self-directed “calculator”-style tools, which are now beginning to emerge, including 3XEquity, and Gladstone’s new digital “eAnalytics” platform Truelytics. The promise of these platforms is to allow advisors to get a reasonable estimate of valuation with more ease and a lower cost… but to me, the real opportunity is to use account aggregation or even direct RIA custodian feeds to fully automate the process of valuing an advisory firm (at least, the objective data components of the valuation). It remains to be seen whether this will emerge from platforms like 3XEquity or Truelytics (or another newcomer), become a Business Intelligence feature of portfolio accounting software solutions like Orion Advisor Services, Black Diamond, or Tamarac, or get rolled out directly from the RIA custodians… but with the digitization of advisory firm valuations now getting underway, my bet is that it’s only a matter of time, and probably not more than a year or few.

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? Is Schwab Intelligent Advisory a competitor to Vanguard and robo-advisors, to broker-dealers, or a risk to cannibalize (or create a backlash from) its own independent RIA community? Would Smarsh's text message archival solution be easier to use, or just capture more text messages than you really wanted to share? Would a continuously-updated and fully-automated advisory firm valuation tool be useful for you? Please share your thoughts in the comments below!