Executive Summary
Welcome to the September issue of the latest news in Financial Advisor #FinTech - where we look at the big news announcements, and the underlying trends and developments that are emerging, in the world of technology solutions for financial advisors.
This month's edition kicks off with the launch of two new categories of financial advisor technology - AdvicePay, a payment processor to facilitate monthly, quarterly, or annual retainer billing directly from a client's credit card or bank account (without running afoul of RIA custody rules!), along with Snappy Kraken, a comprehensive automated digital marketing platform for advisors, both premiering at the #XYPN16 #FinTech competition in September.
Also in the news over the past month is: McKinsey Consulting buys PriceMetrix, a financial advisor data platform to do benchmarking of advisor fees (necessary to determine "reasonable compensation" in the future under DoL fiduciary!); the launch of a new risk tolerance profiling system called TrueProfile, and the news that the Financial Planning Association is participating in the venture (putting it in competition with companies like Riskalyze and FinaMetrica, which also sponsor FPA events!); RIA In A Box wins its second consecutive "Best In Show" award at the Fuse Orion hackathon (who says compliance tech solutions aren't exciting!?); a new hybrid Robo/TAMP solution named "RobustWealth" launches, aiming to compete with alternatives like Betterment for Advisors but with the capabilities of a full-fledged TAMP; Betterment rolls out a new "Tax Coordinated Portfolio" service, threatening to commoditize Asset Location in the same way it has with Tax-Loss Harvesting; the Balance Financial PFM solution for advisors shuts down (but may live on as a proprietary HD Vest solution); transactional "robo" platforms Motif and Robinhood pivot to an AUM-like fee-based wrap account subscription model, but at a cost that could be drastically higher than other robo-advisors for small Millennial accounts; and a new product called "Screenmeet" launches for advisors, aiming to compete with (more expensive and complex) alternatives like GoToMeeting and WebEx for advisors who just want to do a simple screen-share of a document while speaking to a client on the phone.
I hope you're continuing to find this new column on financial advisor technology to be helpful! Please share your comments at the end and let me know what you think!
*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!
New AdvicePay Solution Will Allow Financial Advisors To Charge Retainers To Client Bank Accounts And Credit Cards. With the rise of robo-advisors and the commoditization of investment management, there is a growing buzz amongst advisors that eventually, we’ll all need to shift to a fee-for-service model, charging hourly, project, or retainer fees, in lieu of AUM… and at a minimum, that retainer models can expand access to financial planning to those who can pay for advice but don’t have assets to be managed. However, there is a challenging practical reality to charging retainer fees to clients – that they’re typically paid by actually writing a physical check, which can be both time-consuming for the advisory firm to process, and increases the saliency of the fee in a way that can make clients even more fee-sensitive. And while advisors can try to work with a payment processor to automatically debit a client’s credit card or bank account, few providers are willing to work with financial advisors, and most are “too” flexible, allowing the advisor to have so much control that the billing arrangement could be deemed custody. To fill the void, XY Planning Network has launched a compliant billing solution called AdvicePay, specifically designed to automate financial advisor retainer billing to bank accounts and credit cards, with the consumer protections necessary to ensure that the custody rule is not triggered. Initially, AdvicePay will only be available to members of XY Planning Network (given its focus on championing the monthly retainer business model for financial advisors), with a potential offering for the broader financial advisor community in 2017. More details about the retainer billing solution are available on the AdvicePay website.
Snappy Kraken Wins Advisor FinTech Competition. This past month, XY Planning Network hosted its first Advisor #FinTech competition, created to recognize innovative technology solutions that will help financial advisors serve Gen X and Gen Y clients. Entrants included an in-depth financial aid analytics tool called EFC Plus, financial planning software newcomer RightCapital (which also debuted a new lead generation tool at the event), risk tolerance analytics tool Totum Wealth, a new all-in-one client communication tool called Ambitient, and a new client financial personality profiling tool called Data Points. The last entrant (and winner) of the competition was Snappy Kraken, an automated digital marketing platform for financial advisors that is being designed to provide support on a wide range of digital marketing strategies, from buying Facebook ads to engaging in email drip marketing campaigns. What’s notable about Snappy Kraken is that, unlike ‘industry neutral’ digital marketing solutions like MailChimp or ConvertKit, it’s being built with the necessary systems to automatically capture the requisite archiving for compliance purposes. In addition, Snappy Kraken is aiming to offer a wide range of drip marketing campaign templates relevant for financial advisors, in contrast to industry competitors like Vestorly and Gainfully that are built primarily to curate and share third-party articles, rather than actually execute a digital marketing campaign with messaging directly from the advisor themselves. Snappy Kraken is currently accepting new advisors on a limited basis, with a wider open beta expected in the coming months.
McKinsey Consulting Buys PriceMetrix Advisor Benchmarking Solution. A key aspect of the Department of Labor’s fiduciary rule is that advisor compensation must be “reasonable”, which in the existing ERISA case law is defined as being “not excessive” (relative to the services provided). Thus, going forward advisory firms must benchmark their fees and expenses against peers (who perform similar services) to validate whether their costs are excessive or not. Which means there will soon be a rising demand for detailed benchmarking services for advisory firms, not just for practice management purposes, but to set prices in a manner that doesn’t run afoul of DoL fiduciary. In this context, it is perhaps not surprising that McKinsey consulting has decided to acquire PriceMetrix, an advisor analytics technology company that has since 2000 been integrating with major brokerage firms to pull data from their platforms about what clients are typically paying, through their CommissionCheck and FeeCheck services. From the McKinsey perspective, this appears to be an effort to ramp up their North American Wealth Management practice to go deeper on DoL fiduciary consulting and be able to leverage what will now be its own proprietary benchmarking data set. From the broader advisory industry perspective, this is a good leading indicator that “advisor benchmarking” data and consulting services is about to become a big thing, as benchmarking shifts from being about determining “best practices” for business management to a crucial fiduciary compliance step for advisors to evaluate their pricing for clients.
FPA Launches Joint Venture Risk Tolerance Software TrueProfile With Partner Capital Preferences. At the FPA BE annual conference, it was announced that the Financial Planning Association is partnering with Capital Preferences to “co-produce” a new risk profiling tool for advisors called TrueProfile. Aiming to extend beyond “just” the classic risk tolerance questionnaire, TrueProfile provides interactive tools where clients can choose from a spectrum of risk/return trade-offs to identify what kinds of investment choices they’re comfortable with (roughly akin to how Riskalyze works). The real news, though, is not simply that another risk tolerance/profiling solution is launching – it has become an increasingly popular advisor technology category in recent years, with multiple newcomers including Tolerisk, PocketRisk, and Totum Wealth, all competing with existing leaders Riskalyze and FinaMetrica – but that it is being done as a joint venture with the FPA. From the perspective of the membership association, the FPA’s decision to become a FinTech partner is a significant opportunity to leverage and monetize its 24,000 membership base with substantial “non-dues revenue” (i.e., income outside of annual membership dues). And the FPA’s reach is clearly an opportunity for TrueProfile. However, the FPA’s decision to go deeper on a partnership with one provider in particular puts it in substantial conflict with other risk tolerance software providers like Riskalyze and FinaMetrica, who are long-standing sponsors of the FPA (and exhibitors at FPA BE!) and who have reason to resent the potential preferential treatment the FPA will give to its new partner (especially since TrueProfile did in fact receive its own standalone session on the FPA BE agenda just to market its new solution). Which raises the question: Will membership association joint tech ventures become the new necessity for organizations like the FPA to thrive on non-dues revenue (and an opportunity to spur new advisor tech startups), or will the FPA’s conflicted diversion undermine its relationship with the existing sponsors it currently relies upon to survive?
RIA In A Box Compliance Solution Wins Orion Fuse Hackathon (For The Second Time In A Row). The Orion Fuse event is an advisor fintech “hackathon” that brings out developers from all of Orion’s numerous integration partners for a weekend of hands-on coding to create new solutions for advisors. Now in its third year, the event has become a place for companies to showcase their new ideas and solutions, from workflow process engines like Orchestrate to CRM providers like Redtail and investment proposal tools like AdvisoryWorld. The event celebrates the “best” solutions in a variety of categories, including “Best User Interface” and “Best Work Saving Development for Advisors” and “Best Newcomer” award, but the grand prize is the coveted “Best In Show” award… which for the second year in a row, was won by compliance provider RIA In A Box. Showcasing how technology can ease the compliance burden, last year RIA In A Box won Best In Show with a solution that would automatically draw all client household data from Orion, cross reference it against the advisor’s ADV, and identify any states where the RIA needs to add a state registration (i.e., because the number of clients there exceeds the state’s de minimus law). At Orion Fuse 2016, RIA In A Box won again, this time with a solution that draws in all Orion trade data for advisory firm employees, cross-references it against trade data for all of the RIA’s clients, and identifies any situations where the employee made a trade within 48 hours of when the client bought/sold the same security, so the Chief Compliance Officer can review the transaction for potential front-running. Who says compliance software can’t be exciting!?
RobustWealth Debuts New Robo/TAMP Hybrid Solution. Also debuting at the XYPN16 conference was RobustWealth, with a solution that aims to blend together the best of both what “robo” tools and TAMP solutions provide for an RIA. Similar to a robo, the service provides tools to do online account opening, gather client goals and risk tolerance, and automatically map the client’s responses to a portfolio. However, the available portfolios are whatever the advisor creates; in other words, RobustWealth allows advisors to build their own customized investment models (in addition to offering its own TAMP-like models, where the advisor becomes an IAR of Robust’s own RIA). And when it comes to implementation, RobustWealth also functions more like a TAMP, providing back office services that handle the trade execution and rebalancing on behalf of the advisor. The end result, as noted earlier, is a blend of back-office and trading execution capabilities of a TAMP, but with the flexibility of custom portfolios, and modern “robo”-style onboarding tools to interact with clients digitally. RobustWealth reports that it will overlay “seamlessly” on top of any custodial platform, though ultimately the best-fit advisors are probably not the ones who use a custodian’s full capabilities, but those who primarily want to outsource their investment management process and execution (beyond just designing the investment model portfolios), but find today’s “robo” tools to be too narrow and limiting. More details are available on the RobustWealth website.
Betterment Rolls Out Automated Asset Location Strategy For Additional Tax Alpha. In the world of portfolio management, there are many opportunities to add “tax alpha” – long-term wealth enhancements that rely not on generating excess risk-adjusted returns, but leveraging available tax laws to improve wealth without investment risk. In recent years, robo-advisors have generated significant buzz by automating the tax alpha of tax-loss harvesting, and making it the minimum “table stakes” that any investment provider (or financial advisor) must deliver to stay competitive. And now, Betterment has moved on to the next stage, rolling out a new “Tax-Coordinated Portfolio” (TCP) service designed to automate the process of doing Asset Location (optimizing which accounts hold which investments, across the available taxable, tax-deferred, and tax-free account types). In fact, with correctly figuring out when stocks (or bonds, or alternatives) go in a brokerage account or an IRA worth an estimated annual tax alpha ranging from 10bps to as much as 80bps, the value of asset location may be even greater than the value of tax-loss harvesting (at least once it’s calculated correctly!). From the Betterment perspective, offering Asset Location services is a huge plus, as it’s a tremendous incentive for investors to consolidate all their assets with Betterment (as it’s impossible to implement Asset Location across taxable and retirement accounts until/unless Betterment manages all those taxable and retirement accounts!), and the potential tax alpha can easily offset the robo-advisor’s low fees. Notably, the reality is that Betterment is not the first to offer automation of asset location services – it’s been possible for advisors to implement for a decade, using industry “rebalancing” software tools like iRebal, Tamarac, and TRX. Going forward, though, advisors who haven’t adopted rebalancing software to automate tax-loss harvesting and now asset location will find themselves under increasing pressure to explain why they aren’t implementing these strategies as a natural part of their investment management services.
Balance Financial PFM For Advisors Quietly Shuts Down (But Its Spirit May Live On?). In the “early” days of personal financial management (PFM) tools meant to be an alternative to Mint.com (circa 5 years ago), there were relatively few options, particularly ones that actually captured information about a household’s cash flow and spending (and not just its investment assets). A notable exception (besides eMoney Advisor) was Balance Financial, which from its early days used account aggregation to capture and track household cash flows, though it was targeted primarily at accountant and bookkeepers who provided financial management services (e.g., small business accounting and even household bill-paying services) more than financial advisors. Accordingly, it was perhaps not surprising that Balance Financial was acquired in 2013 by TaxACT, one of the major tax preparation software packages. However, Balance founder and CEO Devin Miller actually left TaxAct last year, and a few weeks ago the company sent out a notice that effective October 31st of 2016, it would “no longer be supporting automated bank transaction downloads for financial institutions” and would cease its ($49.95/month) monthly charges and any dedicated customer support – i.e., it appears that Balance is shutting down (though advisors and clients will still be able to download and export client information for a period of time), just a month after Guide Financial closed its door (to outside advisors) as well. Notably, though, this may not necessarily be the end of the Balance Financial core – as TaxACT is owned by Blucora, which made major waves last year when it acquired accountant-centric broker-dealer HD Vest. In other words, like Fidelity (which last year bought eMoney Advisor), and Envestnet (which last year bought Yodlee), Blucora’s HD Vest/TaxACT is now one of the few platforms that owns its own proprietary account aggregation software for advisors. So it remains to be seen whether Balance Financial was just a platform that Blucora couldn’t monetize, whether its key features were simply fully pulled into TaxACT, whether it is another casualty of the shutdown of Intuit’s Financial Data API (and another provider that didn’t want to switch to Finicity), or whether Balance is really “just” shutting down for third-party financial advisors and will eventually see a second act as part of the internal technology stack for HD Vest advisors in the coming year. In the meantime, though, there are still far too few comprehensive PFM solutions available for advisors!
Transactional “Robo” Platforms Motif And Robinhood Both Pivot To “AUM-Like” Models… With An (Expensive) Twist. In September, Motif Investing announced that it is pivoting away from its original transactional model where investors could buy “motifs” (packages of up to 30 stocks built around thematic “motifs” from “3D printing” to “rising food prices” to “shale oil stocks”) for a mere $9.95/trade, to a subscription service that includes auto-investing and auto-rebalancing with monthly fees of $5/month (to trade a single motif) or up to $20/month (for active motif traders). And similarly, in September the competing online stock trading platform Robinhood – famous for its “free” stock trading (while it makes money on the back end like other investing platforms, including interest on margin accounts and uninvested cash balances) – announced its own new subscription service, “Robinhood Gold”, which for $10/month allow deeper margin lines (with higher pricing tiers for larger accounts receiving more margin credits), pre- and after-hours trading (ostensibly where Robinhood can benefit from better bid/ask spreads on trade execution and more favorable order flow?), and more financial capacity to do “instant deposits” (extending credit to invest immediately while funds transfer in). Notably, while both companies emphasize in their announcements that the new services are meant to maintain the affordability of their trading capabilities (as ‘traditional’ $9.95 trades for online brokerage firms can be destructive for investors making “small” ongoing savings of several hundred dollars a month), including “free” trades in the subscriptions, the services are arguably just a spin on the industry’s existing AUM-style “fee-based wrap account” structures. And while avoiding per-transaction charges may be appealing to save the scrape of ongoing trading costs on each contribution, Motif and Robinhood are also well known to be “Millennial-friendly” – which means small account balances as well. For instance, the average account at Betterment is about $24,000, and at that account size Motif Blue’s first tier costs 0.25% (similar to Betterment’s pricing), but its higher tier ($20/month) would amount to a 1% AUM fee. And for a Robinhood investor, accounts at $10,000 are actually charged $50/month for margin (amounting to $600/year, or a whopping 6%), and accounts up to $50,000 are charged 5% - which in truth is not unreasonable as a rate for margin loans, except arguably first-time Millennial investors should not be using margin loans in the first place, and it appears that Robinhood Gold fees apply even if the investor doesn’t actually fully utilize the margin services (which makes Robinhood the most expensive “robo” ever for those who opt into the Gold services but then don’t actually actively trade with margin and use the pre- and post-market trading capabilities). Which raises the question – if these pivots to subscription models prove to be more financially viable for Motif and Robinhood, will that also mean at some point regulators might start asking about potentially expensive “reverse churning” for investors who opt into the premium fee-based wrap account subscription services if they don’t end out actively trading?
New Product Watch: ScreenMeet As A Simple Screen-Sharing Alternative For Advisors. With the ever-growing availability of high-speed internet, and rising consumer adoption of tools like Skype and FaceTime, financial advisors are increasingly using various forms of video conferencing and screensharing tools with clients. Popular solutions include the stalwarts GoToMeeting and WebEx, along with more recent newcomers Join.me and Zoom.us. However, these tools can still be cumbersome for some financial advisors, their premium versions (including dedicated virtual meeting rooms and white-labeled branding for advisors) aren’t cheap, and sometimes a deluxe “video chat” solution isn’t necessary, because the goal is really just to screenshare a document (e.g., an investment review, a product illustration, or an agenda and action items). Accordingly, a new platform called ScreenMeet launched at the recent FPA BE conference. The software’s key differentiator is aiming to be “incredibly simple” to use, with no requirements for any downloads or plug-ins for clients to connect, and the ability to quickly and easily share via a standard browser window to any device (which means clients can connect on their smartphone, tablet, laptop, or desktop, as they prefer), with pricing as low as $15/month (sharing from mobile devices) or $25/month to share from any platform. However, as noted earlier, the software does not provide video camera capabilities – it’s just for screensharing – and it does not provide an audio connection either (the advisor would be expected to simply call the client directly to complement the screenshare). Ultimately, it remains to be seen whether this particular combination of “screenshare document and call the client, but no video chat” will gain traction amongst the financial advisor community, but ScreenMeet’s founder Ben Lilienthal hails from Citrix (maker of GoToMeeting) and before that founded and sold a VoIP audio conferencing platform, which means he should have the technical chops to build the platform deeper to financial advisor needs and use cases, if it gains initial traction. (So try ScreenMeet out, and let me know what you think!)
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 a solution like AdvicePay appealing to help facilitate charging financial planning upfront and retainer fees directly to a client's bank account or credit card? Is FPA's joint venture with TrueProfile a sign of the future for membership associations, or a dangerous conflict-of-interest precedent with its current sponsors? Will RobustWealth be able to pick up "robo" market share where others have struggled to gain momentum? Is ScreenMeet really a viable alternative to GoToMeeting or Join.me or Zoom.us? Please share your thoughts in the comments below!
(Disclosure: Michael Kitces is a co-founder and owner of XY Planning Network, and AdvicePay, both of which were mentioned in this article.)
