The Latest In Financial Advisor #FinTech (October 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.

Envestnet Expands Its TAMP Empire With FolioDynamix Acquisition. The big news in advisor technology this month was the announcement that Envestnet was acquiring multi-TAMP platform provider (and competitor) FolioDynamix for $195M. The deal turns Envestnet into even more of a behemoth, with nearly $2 trillion in assets and 10 million client accounts. And what makes the deal particularly lucrative for Envestnet is its strategic value, given that FolioDynamix has far deeper penetration in commission-based independent broker-dealers than Envestnet – which gives Envestnet a new list of firms and advisors to grow within the industry’s ongoing transition from commission-based to fee-based accounts. In addition, FolioDynamix’s more modular approach to its software will give Envestnet a new flexibility to compete for firms that don’t necessarily want to go “all-in” to the fully-integrated ENV 2 platform. Notwithstanding the strategic value, though, some were surprised that Envestnet was willing to pay what is rumored to be almost 5X FolioDynamix’s $40M of net revenue, although Envestnet CEO Jud Bergman indicated that the deal was expected to be about 7X post-integration EBITDA… suggesting that with synergistic cost savings, Bergman anticipates a whopping 70% margins from the FolioDynamix business! For advisors using FolioDynamix, it remains to be seen whether or how much of the FDx technology will be folded into Envestnet or not, although it seems likely that Envestnet actually wants the more modular FDx tools and may even build on them further, while FolioDynamix advisors may get access to the even wider range of Envestnet managers… although the FDX Advisors team (which is FolioDynamix’s own RIA advisory solutions) may end out being folded into Envestnet’s PMC.

iPipeline Acquires Laser App To Digitize More Financial Services Product Applications. Laser App is a popular provider of digital form-filling software, with a massive library of tens of thousands of custodian and broker-dealer account applications and related paperwork, which can then be integrated into an advisory firm’s workflows. Although less familiar to the independent advisory community, iPipeline fulfilled a similar function in the world of life insurance, providing form-filling and facilitating straight-thru processing of insurance and annuity account applications. Accordingly, iPipeline has announced that it is acquiring Laser App, giving the company the opportunity to expand its current insurance agent focus to the broader financial advisor community, given Laser App’s existing library of financial services forms and existing reach to independent broker-dealers and RIAs. And given the potential economies of scale in maintaining a single master database of industry forms, and maintaining the data feeds for various integrations to pre-populate those forms, it’s not surprising to see e-signature provider consolidation. Particularly as financial advice increasingly becomes product/channel agnostic… as now one of its leading digital forms providers will be, too. Though for existing Laser App users, not much will likely change – given that those advisors likely already have all the forms they need, or they wouldn’t be Laser App users – but given how iPipeline has pushed the envelope of not just form-filling, but e-signature, straight-thru processing, and even e-delivery, expect to see a further deepening of potential Laser App integrations, especially in the enterprise market, in the coming year or two.

Fidelity Launches AMP, Its Planning-Based Robo-For-Advisors Solution. Last year, Fidelity announced that it was developing a “robo-advisor-for-advisors” solution called Automated Managed Platform (AMP), built in conjunction with its eMoney Advisor subsidiary to be a more planning-centric digital advice solution. This month, the Fidelity AMP program went into wide release – at least for advisors who use Fidelity and have an eMoney Advisor license – and will allow clients to onboard themselves into the eMoney planning software, open and fund their accounts (with Fidelity), and have their assets invested. Notably, the initial release of the software will somewhat controversially constrain advisors to certain pre-created model portfolios for a 15bps platform fee (in addition to the cost of the eMoney Advisor license if the firm doesn’t already have one). Nonetheless, the fact that AMP connects directly to Wealthscape (with deeper performance measurement integrations coming), and clients will enter their planning data directly into eMoney Advisor, should make it easier for advisors to centralize their AMP clients and the workflow processes around them – especially compared to so many robo-for-advisors alternatives that partially or fully compartmentalize their robo solutions from the rest of the advisor’s investment management processes (e.g., Betterment for Advisors or Schwab Institutional Intelligent Portfolios). Nonetheless, it remains to be seen whether the limitations of Fidelity AMP will impair advisor adoption, as Schwab has already acknowledged that advisor uptake of its Institutional Intelligent Portfolios has been lackluster, and advisors increasingly emphasize that they don’t want a pre-packaged robo solution but instead prefer the “robo” onboarding and execution efficiencies embedded into the full-scale custodial systems they’re already using. As is, Fidelity has already acknowledged a 2018 development and API roadmap that makes Fidelity AMP seem less like a standalone “robo” solution and more like an extension of its existing Wealthscape capabilities. In the meantime, advisors who are interested in exploring further can sign up for a Fidelity AMP guided tour directly via the Fidelity website. 

eMoney Advisor Launches Advisor-Branded Digital Marketing Tools. At last week’s eMoney Advisor Summit, the company announced the official rollout of its new Advisor Branded Marketing (ABM) solution. The core of Advisor Branded Marketing is a robust library of more than 2,000 pre-approved articles, which can be white-labeled to the advisor, targeted for clients based on their age, stage of life, or particular financial planning needs and issues (e.g., charitable planning, estate planning, etc.), and distributed via both email and linked social media accounts (with built-in analytics to track which content prospects are actually engaging with). However, content distributed through ABM is limited to only the already-created eMoney Advisor content, unlike competitors Vestorly and Financial Media Exchange (FMeX) that can support distributing advisor-created content, though eMoney reports that it plans to add the ability for advisors to include their own content in the future (and the majority of its existing content library is actually part of a licensing agreement with FMeX). In addition, the eMoney Advisor ABM solution doesn’t have the ability to actually collect prospect email addresses on the advisor’s website with on-site Calls To Action (unlike Vestorly, or standalone modern digital marketing tools like SumoMe or OptInMonster) beyond its basic Lead Capture solution, which means the software is really little more than a $1,500/year content library with basic tools to distribute that content via email and social media (but the advisor must still do the heavy lifting to build their mailing list). Nonetheless, the potential remains for eMoney Advisor to use ABM as a feeder system to bring prospects into the entire eMoney Advisor portal – akin to how Personal Capital markets its own advisory business – which can both pre-qualify prospects, and automate much of the data gathering process (as prospects pre-populate their own data before even becoming clients), and eventually link directly to the Fidelity AMP solution to become an end-to-end digital marketing “robo” solution. Until then, though, arguably the eMoney Advisor tools are inferior to simply pulling together far less expensive standalone digital marketing tools like MailChimp (email) and HootSuite (social media), particularly for advisors who are actually creating their own content to actually demonstrate their expertise, and is really only a good fit for advisors with no digital marketing presence, and no inclination to create their own content (though even then, ABM appears far less capable for list-building than Vestorly, and a far more expensive content-only solution than FMeX, especially given that ABM is largely using FMeX content already).

YCharts Launches Corporate Events YData Feed For Professional Traders. Most financial advisors who are “active” in their portfolio management focus on the selection of mutual funds and ETFs and manage asset allocation, rather than delving down to select individual securities… for which tools like Morningstar are popular for analyzing the available investment options. For the subset of advisors who do delve into the realm of individual stocks and bonds, though, it quickly becomes necessary to move into the realm of “professional trader” tools, from a Bloomberg terminal to subscriptions to FactSet or Thomson Reuters. Yet the sheer cost of those platforms is also a market opportunity for upstart FinTech competitors, and one that YCharts has been aiming to tackle directly. In its early years, YCharts simply sought to replicate the financial data feeds of other platforms, and then began to differentiate itself with an Excel Add-In that make it easier to collect all the data feeds directly into spreadsheets that would be automatically updated with new data over time. And now, YCharts is aiming to add its own proprietary feeds with YData, that will offer a “Corporate Events” data feed that directly screens a wide range of online sources (e.g., product launch and other company-hosted events, press conferences, webcasts, industry conferences, and more) in an attempt to glean relevant information that might not yet have been announced in a formal press release. The shift marks an interesting strategy for the company to differentiate itself in a hyper-competitive space, and while the current Corporate Events feed may only be relevant for a smaller number of advisors (or their investment/trading teams) who analyze and trade individual stocks, the YData service is worth watching as more proprietary feeds (that may be even more relevant for advisors) will inevitably come online in 2018.

Advent Rolls Out Genesis Rebalancing Software For Large-Firm Moxy Users As Models Go Mainstream. Historically, the only way to effectively manage a large volume of individual investors into a common model portfolio was to literally pool their investments together… thus the rise of the (actively managed) mutual fund. Yet the ongoing decline of transaction costs (thanks to technology), combined with the rise of rebalancing software that makes it feasible to manage model portfolios consistently across multiple households, means suddenly it’s less and less necessary to use pooled investment vehicles at all, and increasingly feasible for advisors to manage their own models with technology instead (which in turn is disintermediating mutual fund managers), or to simply choose available models from a “Model Marketplace” inside their rebalancing software. Yet at the same time, executing on such strategies requires financial advisors to be responsible for their own rebalancing software… a burden that not all wish to shoulder, which has led to the ongoing rise of Turnkey Asset Management Platforms (TAMPs) and Separately Managed Accounts (SMAs). For those asset managers, though, the challenge is to handle the model manage of their own model strategies, across not just multiple accounts and households but multiple advisors and platforms, entails an additional order of complexity for both model management and trade order management. Accordingly, Advent recently announced the launch of Genesis, a new rebalancing software solution that ties directly to their Advent Moxy platform, which is typically used by larger enterprise investment management firms. While the software won’t impact financial advisors directly – who if they use any Advent product, would likely be running Black Diamond with its own rebalancing software or a more robust third-party integrated one – the significance of Advent Genesis is that it will continue to support the rise of new TAMPs, SMAs, and other ways for investment managers to distribute (and remotely manage) their model portfolio strategies. Which continues to bode poorly for actively managed mutual funds.

FinFolio Launches Version 2.0 Of Its Portfolio Management Software. When it comes to portfolio reporting and management software for financial advisors, according to the 2017 Advisor Tech Survey the most popular solutions in the RIA channel include Schwab’s PortfolioCenter, Tamarac, Orion Advisor Services, and Black Diamond, while broker-dealer-based advisors tend to use Morningstar Office, Albridge, or Envestnet’s ENV 2 tools. From there, the marketplace is rounded out by a range of small players with just a few percent of market share, including BlueLeaf, AssetBook, Advyzon, Croesus, and FinFolio. In an effort to grow its competitive positioning, FinFolio has announced the release of its new v2.0 platform, aiming to provide the ‘full-stack’ portfolio management solution, including not just performance reporting but also integrated rebalancing tools, order management, billing capabilities, client portals, and a robust series of advisor dashboards for business intelligence. And notably, FinFolio CEO Matt Abar is not new to growing competitive portfolio reporting tools, having previously been the CEO of TechFi before Advent bought it back in 2002. At the same time, though, it appears that FinFolio desperately needed a refresh, as its FinFolio 1.0 adoption was near the bottom of the list in the latest Advisor Tech Survey, with some of the lowest user ratings as well. And so it remains to be seen whether FinFolio 2.0 finally help the company gain traction… or if their recent Wealthlab.io launch, which makes the core FinFolio portfolio management tools available for programmers to build their own customized middleware layer via REST APIs, ends out being the most popular path instead.

Portals Aren’t Just For Clients Anymore, As Mineral Interactive Launches Prospect Portal. Client Portals have become increasingly popular in recent years, as a way to centralize all of the relevant information in the advisor-client relationship, typically allowing clients to access shared documents via a vault, see their investment performance, and even more holistically track their overall net worth and financial planning goals (e.g., via the eMoney Advisor PFM portal). Yet the very name of the solution – a “client portal” – suggests that such portals are only for people who already have become clients, despite the fact that one of the most successful digital advice challengers, Personal Capital, has succeeded specifically because it gives away its PFM solution for free, and then uses it to prospect for clients! And the rise of robo-advisors in general makes it clear that there is an opportunity to more effectively digitally engage with prospects before they become clients, and/or as part of the client onboarding process. Accordingly, Mineral Interactive (which provides digital marketing solutions for RIAs and broker-dealers) has designed a new kind of “Prospect Portal”, which allows advisors to begin engaging with prospects before they become clients, from offering a risk assessment tool (e.g., Riskalyze), to facilitating file sharing (to deliver relevant information that prospects need, including marketing materials, GIPS-compliant performance track records, Form ADV Part 2 delivery, etc.), and even account-aggregated balance sheet reporting (via WealthAccess). And notably, the prospect portal is built in WordPress, which makes it feasible to integrate the portal directly to advisors’ standalone websites, and with other digital marketing prospecting tools (unlike most client portals, which exist in their own silo’ed technology). The Mineral Prospect Portal was previewed at the Orion Fuse Hackathon in early September (where it won a “Best Advisor Innovation” award), and formally announced at the Orion Ascent conference, and will be initially available to Orion users (a natural connection, as Mineral Interactive founder Jud Mackrill has a prior employee relationship with Orion), where the Prospect Portal can automatically transfer relevant household information directly into Orion upon becoming a client.

United Income Launches New Retirement Planning Software… For Itself. While financial advisors have a wide range of financial planning software solutions available today, the unfortunate reality is that even the leading solutions are still built primarily for accumulators saving towards retirement, not those actually in retirement. As a result, most of today’s financial planning software is incapable of illustrating dynamic spending plans (even though in the real world, most people adjust their spending to changes in wealth over time), can’t illustrate real-world tax-sensitive withdrawal strategies and proper sequencing of retirement account liquidations, and can’t even illustrate already-popular retirement strategies like a safe withdrawal rate approach. To fill the void, Matt Fellowes – who previously founded Hellowallet, a Financial Wellness PFM solution that Morningstar bought for $52.5M in 2014 – has launched United Income, which aims to fill the void on retirement planning software with a more sophisticated tool that actually can illustrate withdrawal advice, account sequencing, Social Security timing, and even managed health spending plans. The caveat? It’s only available to financial advisors who work for United Income… as the company has decided to hire financial advisors itself and distribute its human-advisor-augmented-by-technology digital advice solution directly to consumers, charging up to 0.80%/year in advisory fees for a full-service financial advisor relationship (or 50bps for those who want to “self-serve” with United Income’s investment management process but using the software for themselves instead of with an advisor). Accordingly, United Income operates most similarly to Personal Capital, which also crafted its own financial planning and PFM software solution (and the latter is arguably superior to anything financial advisors have available today), which like United Income uses as proprietary software to power its own employee financial advisors (to great success, as the company recently passed $5B of AUM). On the one hand, it’s frustrating that advice-centric financial advisors must still languish with product-centric financial planning software companies whose own development roadmaps are beholden to product-centric broker-dealer enterprises; on the other hand, perhaps a breakthrough from United Income will finally help advisor software companies realize how much they are still missing, and spur the creation of the next generation of financial planning software. In any event, stay tuned to what United Income is building – the company is reportedly just coming out of Beta, and already has $210M of AUM, targeting prospective retirees aged 55 to 70 with $300k to $3M to invest. (Which is also another good reminder that Digital Advice isn’t just about Millennials!)

RIA In A Box #RegTech Wins “Best In Show” 3-Peat At Orion Fuse Hackathon. Compliance obligations are a regulatory reality for financial advisors, and the fact that many of those compliance burdens are annually (or more frequently) repeated tasks make them especially conducive to technology automation (or at least technology efficiency). Yet thus far, the #RegTech category has experienced relatively slow growth amongst the financial advisory community. But tech-savvy compliance consulting firm RIA In A Box is showing the potential for how technology can transform the compliance obligation for the independent RIA community, with its third consecutive “Best In Show” win at the Orion Fuse Hackathon. This year’s innovation, which was coded entirely in the 48-hour time period of the hackathon, allows financial services providers to upload all of their information security documents to a central database, and financial advisors who use those particular software platforms can then access the documents via their Orion portal and have their RIA In A Box compliance tracking tools automatically record that they’ve reviewed the documents to fulfill their cybersecurity vendor due diligence obligations. Prior year innovations from RIA In A Box included a plug-in that uses the Orion household address information to catalogue how many clients the advisor has in each/every state and notifies the advisor if they need to register (or file notice) in a new state because the firm crossed the client de-minimis threshold, and another plug-in that automatically downloads all client portfolios in Orion, cross-references them against advisory employee portfolios (which employees can now link directly to RIA In A Box), and identifies any similarly-timed trades to flag for potential review (so the Chief Compliance Officer can verify employees weren’t front-running client portfolios). With three Best In Show wins in a row, is #RegTech about to become the hot new category of Advisor #FinTech?

Will Advisor Innovation Labs Create The Ultimate Advisor Integration Hub? One of the greatest pain points for advisor #FinTech, particularly in the independent advisor community, is the lack of in-depth integrations and the inability of key data to flow cleanly (or in some cases, at all) between the core tools in the advisor technology stack. These blocking points result in manual and redundant data entry, inefficient workflows that can’t be automated across multiple systems, a struggle to get effective business intelligence, and expensive data migrations (or an outright lack of data portability) if/when advisors ever want to change key software systems. In an effort to fill the operational void, two advisor operations heavy hitters – Pershing’s former COO Lori Hardwick, and eMoney Advisor’s former COO Mike Zebrowski – are teaming together in a new venture dubbed Advisor Innovation (AI) Labs, which aims to create what they call “Systems of Engagement” apps that can form the connective tissue between disparate advisor software tools. In essence, the idea appears to be that the AI Labs product would become a middleware layer that actually houses core data, connects as a central hub to all the core tools of the advisor technology stack, and is responsible for ensuring that all data flows and is synced up (with the opportunity to layer workflows on top). Notably, this approach is not entirely new, as Genesis Smartware sought to create a similar form of middleware integration hub several years ago, but never gained substantial traction. And AI Labs itself still appears to be in the building stage, with a launch announcement to the media but no products/solutions yet featured on their website. Nonetheless, the potential is tremendous, especially given the caliber of the founders involved (Hardwick and Zebrowski), as a central integration hub could theoretically be the “silver bullet” of cross-software workflow automations, alleviate the pain of the industry’s lack of consistent data standards (as the hub would become the central filter), and make it far easier for advisors to make technology changes in the future (as the data in the hub would ostensibly migrate more easily into a new provider).

Envestnet’s Yodlee Wins Finovate Fall 2017 “Best In Show” For FinCheck PFM App Providing Spending Guidance. While various Personal Financial Management (PFM) tools have been available for several years now, few have figured out how to actually leverage the mass of PFM Big Data to actually provide relevant insights for users. But now Yodlee, whose PFM account aggregation tools ultimately power nearly 23 million users (mostly through Yodlee’s powering of third-party applications), is trying to leverage its massive data set to provide those insights, with a new app called “FinCheck”. Built around the Center for Financial Services Innovation (CFSI) framework for assessing a consumer’s financial health, which focuses on 4 core domains – Spending, Saving, Borrowing, and Planning – the FinCheck app provides the user a holistic score (and sub-categories color-coded to green, yellow, and red) of their financial wellness. And for people who aren’t scoring well, and need to make a change, the user can see, through the app, how other users in a similar situation are overcoming their challenges (e.g., to see what people with similar incomes in the area are spending on rent, or how much other people of similar income are spending in various categories). In addition, the data can also power advisor PFM tools (that use Yodlee for data feeds), and provide a means for advisors to collaborate with their clients on fixing their problematic spending behaviors. Currently, the solution is part of Yodlee’s Personal Financial Wellness tools, which are used primarily in the employer financial wellness domain, but Envestnet clearly anticipates that the tool may be leveraged by financial advisors in the future as well – perhaps finally beginning to fill the void for cash-flow-centric PFM solutions for financial advisors. For those who are interested, further information on FinCheck is available directly on the Yodlee website.

So what do you think? Do you plan to use the Fidelity AMP or eMoney Advisor ABM solutions for digital marketing and “robo” portfolios? Would you use the Yodlee FinCheck app with your accumulator clients that need cash flow and spending advice? Are you interested in the “integration hub” that Advisor Innovation Labs is looking to create? Please share your thoughts in the comments below!