The Latest In Financial Advisor #FinTech (October 2019)

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.

Digital Zero-Commission RIA Custodian Startup “Altruist” Debuts But Can It Gain Market Share? The RIA custodial marketplace has been rather staid for more than a decade, led by the “Big 4” of Schwab, Fidelity, TD Ameritrade, and Pershing Advisor Solutions, coupled with a handful of small niche players (e.g., SSG with no asset minimums for new RIAs, Trust Company of America for RIA TAMPs, and National Advisors Trust Company for firms that do a lot of trust business), and a subset of self-clearing broker-dealers that have bolted on their own custodial services for their hybrid advisors (e.g., LPL and Raymond James). Fortunately, intra-custodian competition for RIAs has still been relatively effective at sustaining enough competition to continue to drive down trading commission and other costs for RIAs, but the sheer size and longevity of the main RIA custodians has also resulted in slow development of RIA custodial technology, as the major players all have to contend with decades-old legacy internal systems that limit their pace of innovation. In this context, it is notable that this past month marked the launch of a new competitor in the RIA custodial landscape at the recent XY Planning Network FinTech Competition – a company called Altruist, founded by serial advisor entrepreneur Jason Wenk (who also founded the multi-billion-dollar TAMP FormulaFolios). Built on a modern technology framework (and without the burden of legacy technology), Altruist claims that it can deliver RIA custodial services at a fraction of the cost of the traditional players, which it translates into being a “commission-free” platform that doesn’t charge any fees for investment execution (and also suggests that it will offer more competitive money market yields). Notably, though, Altruist is aiming to be more than “just” a raw RIA custodial platform for trading and execution, and is also building out a suite of technology tools for model management and portfolio rebalancing, performance reporting, and even an account-aggregated portal for clients to see all their investments, at a starting cost of just $1 per account (though final costs when its full portal is released may be higher). Which positions Altruist as not only a competitor to RIA custodians, but also effectively a competitor to portfolio management and reporting platforms like Orion, Black Diamond, and Tamarac, and in fact Altruist is positioning its software to also be able to overlay other RIA custodians for advisors who don’t want Altruist’s custody services and simply want to use its technology to manage and report on their client accounts held elsewhere. The caveat, though, is that advisors are still often loathe to move clients and re-paper accounts, and it’s not clear whether Altruist’s technology is so much better that advisors and their clients will be willing to go through the trouble of moving to an unfamiliar new brand, especially when advisors aren’t necessarily price-sensitive to RIA custodians that are already perceived as providing “free” services (especially with this week’s collapse in RIA custodian trading commissions that largely eliminates Altruist’s “commission-free” differentiator within its first month of launch). And while Altruist’s technology may itself be a competitor to portfolio management and performance reporting tools even when advisors remain at other RIA custodians, this raises the question of whether Altruist, in the end, is actually an RIA custodian competitor at all, or “just” a new competition in the world of portfolio management and reporting tools instead. Either way, the good news from the broader industry perspective is that even just the threat of a new competitor with different pricing and better technology can drive change in the broader industry – as occurred when robo-advisors showed up 7 years ago – but when it comes to Altruist in particular, the question will be not just whether they really can execute and deliver tools that are cheaper and better, but how much cheaper and better enough they have to be to actually compel advisors to make a shift and gain material market share?

Will The Collapse Of RIA Trading Commissions Catalyze The Growth Of Direct Indexing? This month, the ever-rising pressure against online brokerage firms earning trading commissions on US stock and especially ETF trades finally triggered a collapse, with first Interactive Brokers, then Schwab, then TD Ameritrade, and then E-Trade all announcing that they were eliminating their trading commissions (which in the case of at least Schwab and TD Ameritrade, applies to both their retail and RIA customers), tanking their stock prices as much as 25%. The significance of this, however, is not merely that investors (or clients of advisors) will have reduced costs to invest, but all of the secondary effects that may emerge as trading commissions (and thus also asset-based wrap fees) disappear. On the one hand, some have raised concerns that when it comes to retail investors, zero-commission trading could actually just induce retail investors to trade even more often, in a world where most retail investors are not very good at market timing and thus might just harm themselves more. Similarly, the question arises as to whether the elimination of trading commissions will also encourage at least some of their RIAs to engage in more active management strategies for their clients without the prospective cost drag from ticket charges (again raising the concern of how many advisors can actually trade effectively on behalf of their clients). But the real breakthrough may be the emerging world of direct Indexing 2.0 strategies where investors eschew index ETFs and mutual funds altogether, and instead directly buy the underlying stocks that comprise the index. Thus far, direct indexing has been slow to take hold, in part because the cost layers of the technology provider and the asset-based wrap fees that are necessary to facilitate buying hundreds of stocks in small increments (e.g., all 500 individual stocks of the S&P 500) have stacked so high that it was more expensive than just keeping an inexpensive index fund or ETF (or at best breaking even after considering direct indexing’s unique tax loss harvesting benefits). But with the elimination of trading commissions (and ostensibly the associated asset-based wrap fees that were used in lieu of them in certain cases), suddenly direct indexing technology providers have the opportunity to compete more directly with index funds and ETFs, putting a technology wrapper cost (which is then reduced by tax loss harvesting benefits) directly against the wrapper cost of a mutual fund or ETF. Which means, ironically, the biggest legacy of online brokerage firms eliminating trading commissions on ETFs is that it could spell the beginning of the end of ETFs themselves?

Fidelity Partners With “Ethic” To Drive The Growth Of Customized Direct-Indexed ESG Portfolios. For years, one industry survey after another has suggested a growing interest in portfolios designed with an Environment, Social, and Governance (ESG) framework, but in practice, the adoption of ESG funds has languished, with Morningstar showing total flows of just $5.5B into ESG funds in all of 2018 (out of a total of $157B of inflows to long-term US funds last year). In part, the challenge appears to be that what, exactly, constitutes a proper ESG portfolio is open to debate, not only because there are a large number of data sources (that don’t always agree with each other) trying to rate stocks on their ESG factors, but also because investors in practice don’t always weight the factors similarly; for instance, one client might be fine with energy stocks but has a passion for companies governed by a gender-diverse board, while another may not prioritize governance but have a strong aversion to coal stocks and tobacco stocks. And unfortunately, this breadth of preferences can only be accommodated so well by the limited range of ESG-oriented mutual funds available in the marketplace today (which in turn led Morningstar to provide Globe ratings to virtually all mutual funds in an effort to expand the potential marketplace for ESG investors). Except, with the rise of increasingly sophisticated model management tools, it is becoming feasible for investors to eschew the limitations of a particular basket of stocks held in a particular mutual fund or ETF, and instead use technology to create broad-based diversified baskets of stocks directly in an individual client’s account. Dubbed “direct indexing”, the first generation of such stock baskets simply replicated existing index ETFs or mutual funds, offering the additional tax benefits of being able to engage in loss harvesting on each/every stock in the index instead of just the index fund itself. But now, a second generation of direct indexing solutions are beginning to emerge, that don’t just replicate an index fund, but customize it – such as by underweighting or removing stocks that don’t meet certain ESG filters, and overweighting other stocks that score especially well – finally making it feasible for a wide range of clients who each have their own specific ESG preferences to have their own ESG-customized portfolios. Accordingly, it’s not surprising that earlier this year, Fidelity helped to back a $13M Series A round from Ethic Investing, which is aiming to create and implement the technology specifically to provide such direct-indexing-customized ESG portfolios. And now, Fidelity has announced a broad-based partnership to make Ethic Investing’s solution available directly on the Fidelity platform. In essence, Ethic Investing is an SMA (Separately Managed Account) provider that both provides ESG model portfolios, or through a direct indexing offering allows RIAs to customize their own ESG models for the firm or even down to the individual client (but with Ethic as the SMA manager still responsible for the actual trading execution and implementation). Priced at 28 to 35 basis points (depending on whether the firm uses Ethic’s models at 28bps, RIA-customized models at 30bps, or client-customized models at 35bps), Ethic is arguably already a competitively priced SMA offering, and especially when it can drive down to firm- or even client-level customization, and skips the additional cost layer of mutual funds or ETFs (a key benefit of direct-indexing with the stocks themselves). Though thus far, Ethic still has “only” $180M of assets under management, and in the end even with competitive pricing, it can often be challenging to gain distribution to RIAs that don’t necessarily like to change their current strategies (especially since customized-to-the-client portfolio management can actually reduce the scalability of the firm’s advisors, even with technology automating the portfolio management process itself). Still, though, with Fidelity having an incentive to introduce Ethic to its RIAs – both because Fidelity is an investor in the platform, and is reportedly participating in the economics of Ethic’s fees through a revenue-sharing arrangement –  arguably Ethic may be in the best position yet to see if ESG-driven direct investing can really begin to gain momentum in the RIA community, perhaps especially for RIAs that want to differentiate their investment offering by having an alternative to the ETFs that “everyone else” uses (in addition to the ESG customization itself).

Orion Embeds Its ASTRO Direct Indexing Directly Into Its Eclipse Rebalancing Software For Firms To Insource Their Direct Indexing Implementation. While a growing range of technology tools make direct indexing 2.0 strategies feasible, the question remains for interested advisory firms about how exactly to implement them. Because in practice, the issue isn’t just whether the firm has rebalancing or model management tools with sufficient sophistication to track and set allocations for the requisite basket of stocks replacing a traditional index ETF or mutual fund (possibly with adjustments for various factors). It’s also a matter of how, exactly, the firm will handle the trading implementation of what may be hundreds of stock trades at once, across dozens or hundreds of client portfolios at a time. Because the risk is that by having a large number of clients trade simultaneously in a wide range of individual stocks – some of which might not have significant market depth at the exact moment the trades are implemented – runs the risk that the advisory firm actually moves the market with its execution, in a way that wasn’t a concern in the past for mutual funds (which always trade daily at the market close anyway) or at least most ETFs (that generally have more-than-sufficient market depth to absorb one RIA’s trades without moving the market). For some advisory firms, the solution has been to find a separately managed account provider that will allow the advisor to customize but do the trading implementation for them – from direct indexing pioneer Parametric and its Custom Core solution, to more recent technology-driven platforms like OpenInvest or Ethic Investing. But for others, particularly larger advisors firms that do have a dedicated individual or team to handle investment trading implementation for all clients and who can be mindful of individual stock trade execution, the preference is to save the cost of the SMA provider and instead implement themselves. In this context, Orion Advisor Services announced this month that its ASTRO (Advisor Strategy and Tax Return Optimization) direct indexing module is being integrated directly into its Eclipse rebalancing platform, allowing firms to fully implement direct indexing strategies themselves (and from within a single rebalancing and model management platform for their directing and ‘regular’ investment clients). Ultimately, it remains to be seen how many advisory firms will choose to implement the high volume of potentially-execution-sensitive stock trades of direct indexing themselves, versus paying a direct indexing SMA provider to take on the responsibility to do it on their behalf. But at a minimum, the availability of Orion’s ASTRO in Eclipse will give interested firms a more direct choice than ever about how exactly they wish to approach their direct indexing implementation.

Is Wealthfront’s Explosion To $20B Of “Assets” A Rising Threat For The Traditional Brokerage Firm Business Model? This month, Wealthfront announced that it had crossed $20B of assets on its platform, up nearly 100% from last February when Wealthfront first launched its high-yield cash account (and was reporting only $11B of AUM). Notably, though, Wealthfront’s recent ADV notes that the firm is still “only” at $11.4B of regulatory AUM, suggesting that virtually all of Wealthfront’s growth this year is its high-yield cash offering (which the company notes is drawing in billions of assets even with very little marketing, driven only by the word-of-mouth of its extremely competitive [now 2.07%] yield). From the Wealthfront perspective, the fact that virtually all of its year-to-date “asset” growth is on cash that is not a “managed” (i.e., billable) asset means that Wealthfront hasn’t yet turned its dramatic growth of cash assets into much actual revenue growth for the company, and that it’s not clear its cash offering will actually accelerate the company towards profitability (though clearly there is significant potential for its users to convert their cash holdings at Wealthfront to long-term managed portfolio assets that Wealthfront does manage over time). From the broader industry perspective, though, attracting nearly $9B of cash assets away from traditional banks and brokerage firms – which make as much as a 2% net interest margin on cash holdings – means that Wealthfront has effectively sucked as much as $180M(!) in profits (as at the margin, additional net interest margin on cash typically drops straight to the bottom line) away from its competitors in less than a year. Which means even if Wealthfront isn’t growing its own revenue much (yet?), its cash gambit is introducing non-trivial pressure on the broader industry, especially when considering the other players, from Betterment to Personal Capital, that have followed on with their own high-yield cash offerings. All of which raises the question of whether broker-dealers and RIA custodians will be under more pressure soon to substantively change their overall business models, as the firms have collapsed their own trading commissions in competition with each other just as the lucrative spread interest on cash begins to come under attack from robo-advisors and other competitors as well?

Morningstar Launches Financial-Planning-Lite “Goal Bridge” Solution For Investment-Centric Broker-Dealers. When it comes to financial planning software (and most advisor technology), there are two types of advisors: financial-planning-centric firms that want their planning software to be increasingly comprehensive and sophisticated to demonstrate their financial planning value; and investment-centric firms that find financial planning software too time-consuming and tedious to use in gathering and implementing a client’s portfolio. And in recent years, with the ongoing pressures of commoditization on asset allocation, more and more investment-centric firms have begun to express interest in at least some kind of (not terribly time consuming) financial planning software. Which has led to the launch of MoneyGuidePro’s “Blocks”, eMoney Advisor’s “Foundations”, Orion’s acquisition of Advizr… and now Morningstar has entered the frey with the launch of its own goals-based financial-planning-lite solution, dubbed “Goal Bridge”. The essence of Goal Bridge is relatively straightforward – clients select from and prioritize amongst a master list of a dozen common goals (or customize their own), take a basic risk tolerance questionnaire, then use Morningstar’s ByAllAccounts to aggregate current investment accounts, and finally receive an investment proposal that shows how the advisor’s models (or some other investment strategies) will (hopefully) improve their plan projections and help them achieve their goals (leveraging Morningstar’s capital markets assumptions). Notably, Morningstar itself fully acknowledges that Goal Bridge is not meant to be a competitor to “full blown” financial planning software, and instead is designed primarily for broker-dealer reps using Morningstar’s Advisor Workstation to begin doing at least ‘some’ financial planning (which means, again, it’s more likely to complete with MGP’s Blocks or eMoney’s Foundations than the full-blown version of either), and in fact is not yet even integrated or available for RIAs using Morningstar Office. And while the industry has taken note that Morningstar’s Goal Bridge appears to be a response to Envestnet buying MoneyGuidePro and Orion buying Advizr earlier this year, it’s notable that Morningstar has reportedly had a full development team in place on the project since 2017, suggesting that the company long ago decided it would be more efficient to build its own (able-to-be-more-deeply-integrated) capabilities than acquire a third-party solution and that it wanted to target the mass of broker-dealer reps not using planning software already. In the long run, though, the real question is whether Morningstar can actually gain material adoption of broker-dealer reps in the first place, as historically even financial planning “lite” software tools have struggled for adoption with investment-centric brokers that simply don’t care to have financial planning conversations with clients in the first place. And whether, if Morningstar actually can convert a subset of brokers into doing more financial planning, they’ll eventually just ‘outgrow’ Goal Bridge and move on to competing planning software solutions anyway?

Startup Tax Planning Software Holistiplan Wins XYPN FinTech Competition. As the ongoing commoditization of asset allocation pressures advisory firms to add more value, more and more firms are adding more and deeper tax planning as a key component of their advice offering. The appeal of offering tax planning is that, unlike so much of financial planning that provides only long-term hard-to-measure benefits, effective tax planning strategies can provide immediate and tangible tax dollar savings. The challenge, however, is that many of the leading financial planning software platforms have little or no capability to do proactive tax planning (or even produce accurate current-year tax projections), one-off tax planning tools are generally limited with outdated interfaces and client output, and many advisory firms simply don’t have the time and expertise to review every client’s tax return in the first place. Enter Holistiplan. Debuting at the recent 4^th Annual XYPN FinTech Competition and taking home the crown as the winner, the core of Holistiplan’s software is to use Optical Character Recognition (OCR) to scan a PDF version of a client’s entire (potentially-hundred-page) tax return, and in seconds surface all the relevant data (e.g., the client’s filing status, adjusted gross income, and other key tax data points), provide relevant observations (e.g., eligibility for tax-deferred retirement accounts or use of an HSA), and then calculate the client’s true marginal tax rate (considering various phase-outs) to determine the benefits of additional forward-looking tax planning strategies (e.g., a partial Roth conversion). Which essentially turns what can be an hour-long process of reviewing a tax return to find planning opportunities into mere seconds, with prepared output for advisors to immediately use with their clients, and done in a manner that can be consistently replicated across an entire advisory firm. Of course, the caveat is that not all advisory firms are comfortable to provide tax planning advice in the first place (even if the software makes it easier to do), and advisors that generate referrals from local CPAs must still be cautious to work in coordination with clients’ accountants and not go into competition with them. Nonetheless, as demand rises for more sophisticated financial planning tools, and the void in effective tax planning tools within financial planning software itself grows increasingly evident, Holistiplan seems well positioned to effectively create an entirely new category of “tax planning software” in the advisor technology stack!

RegTech Heats Up As SmartRIA Compliance Software Acquires GreyTwist And ComplianceHero For All-In-One RIA Compliance Solution. One of the key benefits and also fundamental challenges of operating as an independent RIA is that every RIA has an obligation to appoint a Chief Compliance Officer (CCO) and oversee its own compliance obligations (such to SEC or state examination). The good news of being able to internally manage compliance is that it’s more feasible to adapt compliance processes and procedures to the specific circumstances of the firm and its advisors (unlike a traditional broker-dealer’s large firm environment, where compliance processes and procedures have to be completely standardized to the lowest common denominator). The bad news, however, is that independent RIAs are typically small businesses that lack the systems and scale to handle even routine compliance processes very efficiently. In recent years, this has led to the rise of a new form of “RegTech” (regulatory/compliance technology), designed to ease the compliance burdens of especially the small-to-mid-sized RIA, including RIA In A Box and SmartRIA. The core of such RIA compliance platforms is an annual (or monthly) compliance calendar, that sets forth the relevant compliance-related tasks that the RIA’s Chief Compliance Officer must execute, from ADV updates to reviewing advertising and client correspondence to tracking employee personal holdings and quarterly transaction reports, and then helps to document that the tasks were actually done. However, the reality is that many compliance tasks still rely on outside tools and resources to obtain the necessary data to review and analyze… creating an opportunity for such RIA compliance software solutions to (more) deeply integrate with other RIA systems. Or, alternatively, to simply buy them and create an all-in-one platform. Which is what SmartRIA has begun to do, by recently acquiring both GreyTwist Data Governance (which provides tools to support cybersecurity best practices in vendor due diligence and protecting a firm’s own PII data) and ComplianceHero (which archives advisory firm websites, social media profiles, and email). The end result for SmartRIA appears to be a huge win – assuming they were able to acquire GreyTwist and ComplianceHero at a reasonable cost (as deal terms were undisclosed – allowing the platform to handle more and more of the full breadth of an RIA’s compliance obligations, all facilitated from a single centralized platform, which allows for both potential cost efficiencies in the software itself, and greater ease for advisors to actually use the software to manage their compliance obligations. And raising the question of whether RIA In A Box will soon buy or build its own archiving solution as well in a similar move towards becoming a competing all-in-one solution?

WiserAdviser Buys Paladin Registry As First Generation Of Advisor Lead Gen Comes To A Close. In the early days of the internet, companies like Google powered their growth by allowing companies to pay for ads that would appear alongside the ‘organic’ results of a user’s search query. At the time, little was known about the online behavior of consumers in how they search and shop, leading to the opportunity for early adopters to quickly gain significant growth by maximizing both the “best” pay-per-click ad keywords, and figuring out how to create content that would come up for free in the organic search results and lead prospects right to their doorstep (a process known as Search Engine Optimization or SEO). In the advisor world, one of the earliest players in this space was the Paladin Registry, which aimed to create a directory (a “registry”) of advisors who would pay to be listed on the site, and then use those dollars to invest into the emerging Pay-Per-Click (PPC) and SEO techniques that could bring prospects to their listed advisors (enough to justify paying the ongoing Registry fee). Yet while sites like Paladin Registry and competitors like Fee-Only Network had some early success, the challenge with any marketing strategy that works is eventually, competitors make the same discovery, compete for the same eyeballs and attention, and eventually drive up the price of ads and the effort requires to get the same results. In the case of Paladin Registry, this led to several shifts in their business model over the years, starting with a shift away towards increasingly costly PPC ads (as other large financial services firms eventually showed up and started to bid up the keywords), then increasingly towards competing for organic search through SEO… and now, alas, announcing that the cost of online client acquisition has reached the breaking point and it is effectively throwing in the towel, shutting down and selling what’s left of its lead generation assets to WiserAdvisor (another competitor that uses a combination of organic SEO and PPC ads to generate leads for advisors listed on its website). Notably, the death of Paladin Registry doesn’t necessarily mean the entire effort of competing with PPC ads or organic SEO for advisors is necessarily dead, as competitors like Fee-Only Network are still going strong (albeit in part because it happened to pick a platform name that has on its own become increasingly popular and sought after in recent years [“Fee-Only”]), along with a number of Find An Advisor portals on platforms like NAPFA, XYPN, Garrett Planning Network, and the CFP Board. And Paladin itself is aiming to live on as Paladin Digital Marketing, a consulting solution that create more customized solutions for advisory firms’ own websites that can be hyper-targeted to their ideal clientele (rather than trying to create one central registry to drive leads to all of them). The end of “OG” advisor lead generation platform Paladin Registry does highlight, though, that the future of advisor SEO and PPC success is likely to be found in the domain of more niche-oriented solutions (which all of the preceding are), as the combination of major financial services firms bidding up PPC ad rates and major personal finance/financial media sites dominating on SEO appears to have crowded out advisor generalists (or generalist advisor lead generation platforms) from being able to compete in the online marketing space.

Yet Another Advisor Q&A Platform Fails As Investopedia Advisor Insights Shuts Down. One of the biggest challenges for virtually all advisory firms that want to attract clients online is that it’s hard to establish an advisory firm’s website with enough online credibility to score well in search engine results in the first place. As a result, many advisory firms seek out existing high-profile third-party media sites and try to submit articles or post content there instead, in the hopes that it will get more visibility from potential prospects. In recent years, this has led to the rise of various advisor article syndication and Q&A sites like NerdWallet’s Ask An Advisor, AdviceIQ, and more recently Investopedia’s Advisor Insights Q&A platform. The caveat of this approach, however, is that distributing advisor content on third-party websites doesn’t necessarily help the advisor’s own SEO (Search Engine Optimization), gives the advisory firm no way to offer up a lead magnet to actually convert a reader into a prospect, and it’s not entirely clear that people who type questions into online Q&A sites are necessary the kinds of people who were going to hire an advisory firm anyway. As a result, such services have struggled over the years, with NerdWallet’s Ask An Advisor platform ultimately shutting down (stranding all the advisor content where advisors couldn’t leverage it anymore), and AdviceIQ being sold off to Financial Media Exchange (with advisor content actually being sold to another platform that repackaged the advisor content to be used for other advisors’ marketing!), leading to warnings even on this Nerd’s Eye View blog for advisors to be very wary about using Investopedia’s Advisor Insights platform. And now, after an ominous sign last December when Investopedia stopped accepting new advisor submissions, the company has announced that its Advisor Insights Q&A platform is shutting down as well, including not only its Q&A platform itself, but advisor articles, and the advisor pages and their Investopedia “followers”. To its credit, Investopedia is winding down the platform in a far more advisor-friendly way than other platforms’ prior shutdowns, allowing advisors to take their articles and re-use them on their own website, and providing exports of the advisors’ Q&A content. And going forward, Investopedia has indicated that it still aims to support advisors, continuing to use them as sources for Investopedia’s own content, continuing its Investopedia 100 list (which it states will be expanded to additional categories in the future), and in the future building a directory of financial advisors that consumers can search through directly. Nonetheless, while Investopedia still profited from years of advisor-generated content that created traffic for Investopedia to monetize with advertising, for advisors that had spent time trying to build visibility, followers, and traffic to their Investopedia articles for several years, they effectively have a total loss for years’ worth of marketing efforts with Advisor Insights shutting down. Which once again provides a powerful reminder that while it’s fine to amplify content on third-party platforms to build visibility, it’s crucial that advisory firms building on online presence for marketing purposes to always start by building on their own foundation (their own website first), not a third-party platform that may or may not change the rules or be able to stick it out in the long run (as we previously warned).

Zoe Financial Raises $3M To Scale Advisor Lead Generation But Will It Be Able To Acquire Leads Cost-Effectively? As more and more financial advisors obtain their CFP certification and offer increasingly comprehensive financial planning advice to clients, the good news is that clients are served better… and the bad news is that it’s increasingly difficult for any one financial advisor to differentiate themselves from all the rest doing the exact same thing. This ongoing crisis of differentiation that causes organic growth rates to fall for most firms then leads to advisors going one of two directions: either focus into a niche to create a more differentiated offering in the first place, or “outsource” lead generation altogether by paying a third-party platform to provide leads. Unfortunately, though, competition for online lead generation is itself getting harder, as more sites compete for organic SEO, and more financial services firms bid up popular keywords, leading to recent shutdowns of both NerdWallet’s Ask An Advisor, Investopedia’s Advisor Insights, and the Paladin Registry. Nonetheless, the demand for new leads continues to spur new startups entering the space, most recently including Zoe Financial, which last year raised a $2M seed round to create its own vetted directory of financial advisors and an algorithm to match prospects to advisors. What’s unique about Zoe, though, is not that it’s soliciting prospects and seeking to match them to advisors – which is no small feat unto itself, as most advisors are such generalists it’s difficult to matchmake them in the first place – but its decision to act as a full-on RIA solicitor, and claim an ongoing revenue-share arrangement from advisors who get clients from Zoe (akin to advisor referral programs from the RIA custodians). From the advisor’s perspective, paying ongoing revenue-sharing for a one-time lead is arguably an absurdly high client acquisition cost to pay in the long run, but has become acceptable to most advisory firms that simply don’t have the upfront capital to invest into scalable marketing themselves (and thus would prefer a variable cost structure, even if it’s substantially more expensive in the long run). From Zoe’s perspective, though, it gives the platform drastically better economics than most other advisor lead generation platforms, as even if Zoe “just” gets 10 basis points as a referral trail (when advisor custodial referral programs charge as much as 25 basis points), referring a single $1M client from Zoe can generate the platform more than $10,000 in revenue-sharing fees over the next decade. With the caveat that Zoe itself must still invest the upfront capital to attract a steady flow of leads (that convert into clients that pay off in the long run). Accordingly, as it reportedly crosses $140M of client assets that have already been generated as converted leads, Zoe announced this month that it is raising up another $3M in capital to further scale up its lead generation efforts. Ultimately, the question will be whether Zoe can actually scalably deploy this capital and sustain growth in the volume of its lead generation, or if it will quickly strike the point of diminishing returns (as others like Paladin Registry have before). Nonetheless, the fact that Zoe is building with an actual ongoing revenue-sharing arrangement (that advisors are willing to pay because they don’t have to pay unless than actually get results!), rather than “just” charging a flat fee to be listed in its directory, gives Zoe better economics to try and continue to scale its advisor lead generation than any other platform that has come before!

CFP Board Announces (Client-Centric) Technology Content Will Become Eligible For CFP CE Credit! Historically, the CFP Board has only granted CFP continuing education (CE) credit for content that fits its 72 “Principal Topics” of knowledge that a CFP professional must know in order to practice. Notably, though, this list of CFP-CE-eligible topics pertains entirely and solely to the “technical” body of knowledge for CFP certificants, and not the practice management nor technology issues that CFP professionals must contend with to advance their own careers and advisory firms. To a large extent, this is simply because educational content on practice management, technology, and other essential skills and knowledge for running an advisory business is presumed to be a reward unto itself – advancing the career and business (and income potential) of the professional who attends the session. However, as the nature of both financial planning and money itself become increasingly technology-centric, the dividing line of where the principal knowledge ends (how to use an HP-12C calculator) and where modern financial planning begins (how to use Excel to do essential financial planning calculations) has become increasingly blurred. Especially given that how to be prudent with your money “online” is increasingly a money survival skill for clients themselves. Accordingly, it’s notable that this month the CFP Board announced that it would be expanding its list of available topics for CFP CE credit to specifically include a component for certain technology content. New technology-related CE topics going forward will include strategies to protect a client’s personal data and privacy, understanding and leveraging technology to diversity portfolios, cryptocurrency and blockchain, and cybersecurity. However, in order to receive CFP CE credit, advisors must still attend technology sessions that pertain to the client’s technology needs, and not the advisor’s; thus, for instance, a session on “practical cybersecurity steps for your firm” would not be eligible for CE credit (whereas “practical cybersecurity steps to teach your client” would be), and practice-management-related technology topics like training on Microsoft Office, or education on sales and marketing technology tools, would not be CE eligible either. Ultimately, the CFP Board’s overall list of principal topics will be revisited again in its 2020 Job Task Analysis (that evaluates the real-world tasks that CFP professionals engage in, in order to decide what the topic list for CFP education and also continuing education should be in the coming years), which will introduce an additional opportunity for technology topics to be revisited (and potentially further expanded). In the meantime, though, the good news at least is that when it comes to learning more about the digital technology issues that pertain directly to client needs, content from cybersecurity and strategies to help clients protect their personal data to blockchain and cryptocurrency will now be eligible for CFP CE credit.

In the meantime, we’ve updated the latest version of our Financial Advisor FinTech Solutions Map with several new companies, including highlights of the “Category Newcomers” in each area to highlight new FinTech innovation!

So what do you think? Will Altruist be able to gain market share against the existing RIA custodians? Will the drop to zero-commission trading really be a catalyst for direct indexing? Is there a gap in tax planning software for advisors that Holistiplan can fill? Should more technology content be eligible for CFP CE credit? Please share your thoughts in the comments below!

(Disclosure: Michael Kitces is a co-founder and owner of XY Planning Network, which was mentioned in this article.)