The Latest In Financial #AdvisorTech (December 2023)

Black Diamond Announces New CRM Solution To Target Mid-Sized Advisory Firms Who Don't (Yet) Need Salesforce

For financial advisors, the original way of keeping track of client relationships was literally a book, in which was written the name and contact information of every client the advisor did business with. And although there are still echoes of that system today in the way we refer to an advisor's client base as their "book of business", over the years and with the advent of computers advisors largely moved away from physical books and Rolodex cards, and eventually migrated their relationship management into the digital realm.

The first generations of Client Relationship Management (CRM) software weren't much more advanced than the book of clients that preceded them in terms of the client information they stored, but in the 2000s CRM systems grew more advanced, moving beyond managing contact information alone and into managing activities. Solutions emerged to manage and assign tasks and track their completion, and to document advisor-client interactions for compliance purposes as well as for the advisor themselves to reference later on. And for larger advisory firms, the demands for CRM system capabilities have grown further to include more in-depth workflow capabilities to handle multitask sequences (which potentially take place across multiple software systems), and for increasingly integrated data that can flow within software systems without being entered repeatedly into each destination. For which Salesforce, with its nearly infinitely customizable interface, has become the top CRM player in the AdvisorTech market, with the most recent Kitces Research on Advisor Technology showing that over half of all firms with 10 or more advisors use Salesforce as their primary CRM.

The caveat, however, is that Salesforce is among the most expensive CRM options on a per-user basis than competitors, at $500 per user /month and up for its full-featured version, while its less customizable competitors like Redtail and Wealthbox charge just $59. To that difference is added the significant cost of setting up and customizing Salesforce to make use of its full capabilities (and often dedicated staff devoted to managing it on an ongoing basis). And so in practice it's most common for small and mid-sized advisory firms to start with one of the less expensive CRM tools (since smaller firms typically don't need a fully customizable option to start with), before ultimately making the 'Salesforce leap' when they reach a point where they really do need the capabilities that Salesforce offers, and are able to pay the freight for doing so. Which on the one hand has driven Redtail and Wealthbox to expand their enterprise capabilities 'upmarket' to hold onto their larger firm clients at least a little longer (at a higher price point than their core offerings, but still less than Salesforce), and on the other, has led Salesforce to introduce less-expensive service tiers (via third-party CRM overlay providers as well as its own Financial Services Cloud platform) to make itself more accessible to mid-size firms.

Against this background, it's notable that all-in-one wealth management platform Black Diamond has announced the launch of a new CRM system (called simply the Black Diamond CRM Module), built on top of the Salesforce chassis but designed to be more easily used "out of the box" for mid-size firms, who have more workflow needs than the solo advisor but haven't necessarily reached the size or scale to move to full-featured Salesforce.

What's interesting about this news is that Black Diamond parent company SS&C already owns a CRM offering for advisors: Salentica, which originally was a Microsoft Dynamics overlay but which expanded into the Salesforce overlay domain as well. But while Salentica remains in the realm of large-firm Salesforce tools that smaller firms may struggle to adopt without dedicated resources to implement and maintain, Black Diamond's new CRM appears targeted specifically towards the market of small- to mid-size (5–10 advisor) firms that have enough complexity in their workflows and data integration needs to consider leaving their original CRM, but aren't quite ready to take the Salesforce leap to a fully customizable solution.

From the Black Diamond perspective, the rollout of the new CRM is appealing on 2 levels. First, because it allows SS&C to offer CRM capability to mid-size firms that just aren't ready for Salentica, and as Black Diamond notes, the new CRM is built to seamlessly upgrade to Salentica when firms are ready to get to that level, giving Salentica a strong incumbent advantage for Black Diamond CRM users ready to make the leap. Secondly, the new software allows Black Diamond to offer a CRM that is deeply integrated with its own portfolio management tools, which follows in the footsteps of Orion buying Redtail to integrate into its platform, Advyzon building its own fully-integrated CRM, and AdvisorEngine buying and subsequently rebranding Junxure as AdvisorEngine CRM.

From an advisor perspective, Black Diamond's CRM will be first and foremost appealing to existing Black Diamond users, which currently number around 2,000 firms – a significant portion of which are small and mid-size firms that didn't fit the target market for Salentica, and for whom a greater degree of native integration would be appealing compared to navigating third-party integrations with other CRM systems like Redtail or Wealthbox (although Black Diamond does still integrate with both). And its cost, at a reported $80 per user /month, falls slightly higher than Redtail and Wealthbox's standard tiers, but does align with Wealthbox's fuller-featured Premier tier (at $79), and lies well below the full $500+ cost of Salesforce and Salentica.

From the industry perspective, the news highlights the demand for CRM solutions that can fill the significant gap between where Wealthbox and Redtail's features end and Salesforce's (and its assorted overlays') begin. Black Diamond's CRM may appeal specifically to advisors who prefer an Apple-style experience in which everything is built into a fully-integrated whole. But for those who prefer a more Google-style, open-ecosystem style so as not to become too dependent on one system, it's worth noting that independent CRM providers' forays upmarket (as well as the rise of workflow support toolslike Hubly) have created the opportunity to maintain that approach as well. In other words, while there is an opportunity for Black Diamond to capture incremental market share for its CRM from users who want an all-in-one experience within Black Diamond's ecosystem, but overall it doesn't seem likely to disrupt the broader market for CRM.

Wave Of Leadership Replacements At PE-Funded Advisortech Companies Continues With Nitrogen's Aaron Klein And TIFIN's Jack Swift Stepping Down

Many AdvisorTech companies started out as homegrown solutions, where an advisor built out technology to meet their own needs and ended up selling it to others when it turned out to solve a lot of other advisors' needs as well. The list of such companies includes many of today's biggest established providers, such as iRebal, Orion, Tamarac, Redtail, and eMoney, among many others. And at least in the early going, most of these companies were self-funded by their founders. In part because they were often a 'side hustle' on top of the founder's responsibilities as an advisor with no immediate plans to expand and scale. But also because there usually was no other place to find funding; the market for AdvisorTech in the 1990s and early 2000s was so small that it didn't attract much attention (or investment) from venture capital firms, so the only way for an advisor to launch a technology company was to cross-fund it from the profits of their own advisory firm.

The investment environment for AdvisorTech has shifted in more recent years, spawned in large part by the rise first of retail robo-advisors and then of 'robo-advisor-for-advisor' solutions, and then amplified in the mid-2010s by multiple high-profile transactions including Northwestern Mutual buying LearnVest for $250 million, Fidelity buying eMoney for $250 million, and Envestnet acquiring MoneyGuide for $500 million. These eye-popping figures suddenly awakened venture capital investors to the idea that there really were meaningful financial opportunities in AdvisorTech to invest in early-stage companies, and for private equity firms to invest in midstage companies, and successfully exit with a large enough valuable capable of generating a high enough return to make it worthwhile. And so starting around 2016, venture capital and private equity firms began pouring money into advisor technology, funding everything from newer startups to larger mid-size firms, as well as a nontrivial amount of M&A activity as some of the largest companies sought to achieve the next level of size and scale by bolting together multiple providers into one Voltron-like machine.

Over the past 18 months, however, the environment has shifted again, in part as a result of rising interest rates that have led investors to apply more scrutiny to the quality of companies they invest in and the prices of the deals they buy into given the higher cost of capital. But more broadly, with the current funding cycle being about 7 years old, a growing number of AdvisorTech investments are simply getting 'long in the tooth' for PE investors who are past the early stages of building new capabilities, making acquisitions, and growing market share, and into a later stage where it's more about successfully integrating a much larger tech enterprise and driving it to profit growth to show a return on its investment and support a strong valuation for an exit.

For founders and senior leaders of AdvisorTech firms, the shift from a slow-and-steady self-funded growth cycle to the rapid growth expectations of outside capital is challenging… and the subsequent transition from the rapid growth phase to a larger, more mature enterprise presents even more challenges. For some, the difficulty is figuring out how to integrate multiple product lines and team cultures into a well-functioning whole. For others, the size and complexity of a mature firm presents challenges for a founder who has never led as large of a firm as the business has become. And for some, it's simply exhausting to manage a high-growth firm for an extended period of time, with a constant flow of new employees to be trained and acclimated to the company culture, an ever-changing competitive landscape as fast-growing firms tend to attract more competition, and an ongoing push-and-pull between delegating old responsibilities and acquiring and adapting to new ones.

It's notable, then, that this month saw both the news of Jack Swift departing his president role at TIFIN, and Aaron Klein stepping down from his CEO role at Nitrogen. These departures come on the heels of similar moves at other PE-funded AdvisorTech firms this year, including Eric Clarke stepping down as CEO of Orion, Evan Rapoport stepping down as CEO of SmartX, and John Wise departing from his CEO role at InvestCloud.

At a company level, every founder/CEO transition has its own story. Some may be attributable to growth expectations from PE investors that haven't materialized, leading boards to make the change. Others can come about when the firm achieves revenue and user growth, but struggles to translate that growth into greater profitability. And some founders may simply be tired of the frenzied growth pace to meet expectations that comes along with taking a significant amount of OPM (Other People's Money).

From an industry perspective, though, the trend of senior leadership (and in particular a slew of long-term founder/CEOs) departing in quick succession from PE-funded firms late in the investment cycle is hard to ignore. Although the toll taken by investor demands of growth and profitability on firm employees isn't unique to AdvisorTech, it may be particularly grinding in this industry given how rare it is to see the rapid adoption of new technology that would help meet those growth expectations. According to Kitces Research on Advisor Technology, the average advisor only turns over tech systems at a 6% rate, equating to an average holding period of 16 years for any particular technology tool, which makes it brutally difficult for any AdvisorTech firm to take outside capital and grow rapidly when there just aren't that many advisors in the market for a new solution in any given year (unlike certain segments of consumer fintech, where the next big thing can become dominant in just a year or 2). All of which raises questions about whether PE investing, with its common 3–5X in 3–5 years growth goals, is really a good fit for AdvisorTech in the first place.

In the long run, this doesn't mean that taking outside investments to develop AdvisorTech is necessarily a bad thing – a 'prudent' amount of capital allows for businesses to bring products to market faster, and scale themselves as the moderate growth does come – but the trend of high-profile leadership departures does at least highlight that perhaps there really can be such thing as raising too much money at too high of a valuation, because it creates expectations and demands from investors that simply may not be realistic in an AdvisorTech market that tends to move in long-term cycles, not in waves of viral adoption.

Envestnet Rolls Out Packaged 401(k) Plans From Empower, But Will That Make More Advisors Want To Manage 401(k)S?

Wealth management for individuals and management of 401(k) plans have historically been largely separate channels. While wealth management evolved out of stockbrokers and mutual fund and insurance salespeople who eventually shifted to managing portfolios and ultimately offering more holistic financial planning, the roots of 401(k) plans were in asset managers (primarily mutual funds and insurance companies) that packaged 401(k) and 403(b) offerings around their own proprietary mutual fund and annuity products. With the shift to increasingly open-architecture 401(k) plans, however, as well as regulations from the Department of Labor around increasing cost transparency and reducing conflicts of interest, a class of specialized 401(k) plan advisors eventually emerged to help plan administrators fulfill their fiduciary duties towards their plan participants.

The trends of cost transparency and regulatory changes around conflicts of interest have also had the effect of driving down profit margins for 401(k) plan providers. Many 401(k) platforms have increasingly sought ways to combat margin compression, including merging and acquiring firms for greater size and scale, 'upselling' wealth management and other higher-margin services to a subset of more affluent 401(k) plan participants, and migrating away from smaller 401(k) plans to serve larger and more lucrative plans.

As a result, there has increasingly been a gap in the availability of 401k plans for small businesses in particular, from whom major 401(k) providers seeking scale have increasingly migrated away. The smaller providers that historically served the space with higher-margin (proprietary) offerings have been less able to do so due to regulatory developments that have undermined their business model, which has led in turn to a growing number of 401(k) plan providers trying to reach independent advisors in the wealth management business to cross-sell 401k plans to their small business owner clients. But while making sense in theory (since offering 401(k) plan management could create a new pool of assets under management from which an advisor can earn revenue), in practice the wide gap in regulatory requirements between traditional wealth management and serving as a 3(38) fiduciary for a 401(k) plan – as well as the different systems that have evolved for serving 401(k) plans apart from traditional AdvisorTech – has seen plan providers have little success in convincing financial advisors to manage 401(k) plans when doing so isn't already a core part of their business.

It's notable, then, that this month Envestnet has launched a partnership with 401(k) plan provider Empower to offer a turnkey system for advisors to offer 401k plans to their small business owner clients, and in the process have an opportunity to expand their asset base as a 3(38) fiduciary offering.

From the companies' perspective, the partnership makes sense. Empower is large national 401(k) plan provider who in Envestnet's user base of advisors now has a distribution channel to small businesses at likely a lower cost than it would incur to power that distribution on its own, while Envestnet's deep base of advisors (particularly in broker-dealer channels), who are accustomed to selling solutions to clients, now have a new arrow in their quiver.

For advisors, however, it's not clear what the appeal is in taking on additional complexity and compliance obligations to manage and support clients in a 401(k) plan business that isn't core to their wealth management offering. Additionally, given that a substantial amount of 401(k) plan assets for small businesses tend to be those of the business owner(s) themselves, advisors can instead use a solution like Pontera to manage (and bill on) those assets directly in the 401(k) plan without taking on the obligations of managing the plan itself, generating most of the additional revenue that the advisor would have gotten from managing the whole plan with none of the additional complexity.

Ultimately Envestnet and Empower's offering represents yet another solution geared towards advisors offering more services and solutions to more and different types of clients. However, given the reality that advisors have historically been "all-or-nothing" on the 401(k) business (either going deep and specializing in the specifics of qualified employee retirement plans, or sticking to individual wealth management entirely), as well as our own Kitces Research showing that adding an increasing number of services actually undermines advisor profitability, the question remains whether an 'easier' 401(k) solution is actually going to attract more advisors into managing 401(k) plans – especially since solutions like Pontera are widely available to manage much of the assets in those plans!

Elements Unveils New RIA Partnership For Small Clients, But Can Advisors Get Enough For It To Add Up?

The large-scale shift in the advisor industry away from its commission-based roots and into a fee-based recurring revenue model has largely been a boon to advisors and their clients. Advisors can wake up on January 1 with at least a reasonable expectation of their revenue for the year ahead (notwithstanding market movements and some baseline level of client attrition), and a strong incentive to simply focus on giving clients the best service possible to retain them (with no need or pressure to buy anything new), while clients benefit from fewer conflicts of interest (from the lack of sales pressure) while getting the benefits of an ongoing planning relationship (and an advisor incentivized to keep investing into that relationship).

The caveat, however, is that with the rise of the fee-based model there is concurrently a shrinking number of people who are able to become clients of financial advisors – namely, those who can meet the asset minimums of AUM-based advisors or pay hundreds of dollars per month in retainer fees that it takes to cover the costs of a year-round ongoing advice relationship. Because while commission-based advisors could always make a quick sale to a small client without affecting their capacity to sell to bigger clients later on, ongoing-model advisors only have a limited number of client "seats" available at any given time, which means that taking on a smaller client could result in having to turn away a bigger client down the line. And as advisory fees and asset minimums have increased on average over time as firms have gone upmarket in search of clients who can put an ever-greater financial value on the advisor's time, the pool of consumers who don't have enough to pay those fees has also grown – and hence many advisors inevitably find themselves needing to turn down a rising number of prospective clients who can't meet their latest minimum fee.

AdvisorTech companies have long tried to address this issue of expanding accessibility to financial advice, most recently through robo-style solutions like Betterment for Advisors and the early AdvisorEngine (nee Vanare|Nest Egg), which offered features like digital onboarding and automated rebalancing to reduce the back office requirements for smaller clients while the advisor can offer some segmented level of advice (e.g., one meeting per year) that allows them to serve such clients profitably. However, these solutions never really took off among advisors for the purpose of serving small clients, because most advisors still weren't actively looking to serve small clients to begin with, and the technology could only do so much to support and automate what was still an unprofitable relationship for the advisory firm. Which led to the emergence of a new wave of firms like Facet Wealth, that outright sought to take over, buy out, or service those small clients on behalf of advisors directly, and simply share a portion of the (hopefully more scaled) profitability back to the advisory firm.

In this vein, it's notable that now Elements, which has developed a financial monitoring and prospecting tool for advisors to interact more scalably with a large volume of (potentially smaller) clients, has announced Elements Money, a new partnership model where Elements will staff its own RIA to provide a base level of advice to small clients who don't fit an advisor's traditional model and share a portion of the profits back to the advisory firm. Effectively, advisors refer clients who don't meet their minimums to Elements Money, and the client experience is co-branded between the advisor and Elements. Advisors and Elements share in the revenue generated by the program's monthly subscription fees (especially helpful for firms that get prospects who may have some financial affluence, but simply don't have enough of liquid investable assets to be a client at the moment), and if the client does ultimately grow enough wealth and income and portfolio assets to meet the advisor's minimums, they can transition back over to the advisor's "core" services.

From an advisor perspective, it's appealing to have a comfortable place to refer small clients who don't fit the advisor's services but whom the advisor wants to ensure will be well-served, as well as a way to monetize clients who aren't a fit for the firm's core services but still have an interest in the advice that the firm offers. Especially when the arrangement is with a 'friendly' party that is ready to refer the client back when they're a fit for the advisor's core services. And for Elements, it stands to reason that many advisors who use Elements' financial wellness-focused tools would encounter a flow of prospective clients who want that type of advice but aren't ready or able to pay for the full scope of the advisor's services – for which Elements Money will fill the gap, grow its own revenue by operating on the chassis of its existing technology, and serve as part of the advisor's top-to-bottom marketing and growth funnel by offering a "parking spot" for today's small clients with the potential to meet the advisor's minimums someday.

The caveat, however, is that similar to the challenges of the first generation of robo solutions that sought to facilitate serving small clients profitably, and firms like Facet that also pivoted away from the "acquire and work with other advisors' small clients" approach, most advisors aren't actively courting small clients to begin with, and the flow of small clients who are only there because they booked a meeting with the advisor only to find they couldn't pay the minimum fee might not result in a sustainable level of revenue growth (especially given the costs to find and set up the relationship with each individual advisory firm, only to get a handful of small clients from them). Add that to the fact that advisors are already struggling to generate organic growth and a healthy flow of prospects – large or small – in the first place (with the typical advisory firm achieving only 3.1% organic growth in 2022, according to the InvestmentNews Adviser Benchmarking Study), and the subset of prospects who don't meet the advisor's minimums but are interested in an 'advice-lite' solution like Elements Money could make it a challenge for Elements to get enough volume to scale the offering. Or put differently, building a business around capturing the 'accidental' mismatches between advisors and clients who contact them but can't meet their minimums seems unlikely to work unless there's an active push from more advisors to draw in more small clients – which is exactly the opposite of what most advisors have been trying to achieve with their marketing.

From an industry perspective, Elements' new offering laudably addresses the widening challenge of providing financial advice to clients who are increasingly marginalized by growing industry concentration into the AUM model, for which Elements is bringing a new lower-cost subscription model to address the gap. But the question remains that, even if such models are effective for serving clients who don't have assets to meet the advisor's minimums but do have wherewithal to pay something for advice, is the answer really to refer those clients out to a third party service, or is it for advisory firms to offer their own subscription fee models and build into that market themselves? Which in turn raises the question of whether Elements can best scale its growth by trying to use its tech to serve other advisors' small clients, or simply take their solution directly to the consumer marketplace and attract and scalably serve those smaller clients neglected by other advisors all by themselves?

FMG Announces Premium Website Design Offering As Advisor Websites Move Beyond The Stock Template Era

Websites took a long time to have a significant role in advisor marketing. Even as the internet matured in the 2000s and 2010s, advisors predominantly built up their business in person, by networking and building relationships either with potential clients or with centers of influence who could refer clients. As life has gotten increasingly digital, much of this activity has shifted to social media and other online forums, but in these instances too the advisor needs to put themselves 'out there' in some way. Just as few advisors have found success by sitting in their office and waiting for their phone to ring, it's also tough for advisors to generate business by waiting for their website to ring.

Still, a website is generally a necessity for an advisor today, because often after engaging with the advisor in some way – be it in physical or digital channels – the next step for a prospective client is to do some Internet sleuthing for due diligence. And so while the website may not often be the first thing a prospect sees, it's almost a guarantee that they will see it at some point. For an advisor seeking for clients to invest their life savings with them, there's a lot of pressure to show up well on their website, and at the very minimum look like a bone fide professional.

Historically, advisors have had 2 options for building a website. First, they could hire an agency to build a custom site on a platform like WordPress; or second, they could buy a site from a specialized financial advisor website provider, which often came in the form of a standard template using common advisor website pages (Services, About Us, Contact Us, etc.). While the first (custom) option typically provides a better-looking website, it can also be many times more expensive than a templated version (particularly when accounting for the need to update it regularly to keep up with current design standards). Meanwhile, although the second (template) option comes cheaper (and can usually be counted on to include necessary disclosures for compliance purposes, which a non-advisor-focused agency might not be aware of), using a template by its very nature makes it harder to stand out and make a positive early impression.

When polled on website providers in the 2021 Kitces Research Study on Advisor Technology, advisors gave much higher satisfaction scores to standalone platforms like WordPress than industry-specific solutions like FMG Suite, Twenty Over Ten (since acquired by FMG), and Advisor Websites, showing that despite the cost of building a custom WordPress site, advisors clearly preferred having a site that felt like their own. However, a shift has occurred in the last 2 years: in the 2023 Advisor Technology Study, mega-advisor marketing platform FMG Suite rose nearly to the top of the rankings in advisor satisfaction, suggesting that it had made progress towards offering websites that advisors like, at a price point that doesn't scare them away.

It's notable, then, that in the news this month is FMG's announcement of a new "premium website design" service, consisting of a bespoke website (notably chosen from among 3 potential "design concepts", as distinguished from templates), designed to be specific to the advisor's approach and clientele, while built on the FMG chassis with its built-in compliance support layers and advisor-specific experience in website design.

From FMG's perspective, the move makes sense as the modification of FMG's back-end in recent years has allowed for a deeper level of design work, while meanwhile there's clearly demand for advisors to market themselves in unique ways. Furthermore, going 'upscale' from a tech-only platform to a tech-plus-premium-service model can drive significantly more revenue growth than just selling the technology itself.

And from an advisor perspective, given the desire for websites that can stand out amid a sea of sailboats and lighthouses, the premium solution from FMG will likely be appealing as it provides the customization of a standalone platform like WordPress with someone who actually understands the advisor space and potential stumbling blocks like required disclosures and the requirements of the new SEC Marketing Rule. With the caveat that advisors who build a custom site with FMG are bound to that platform, whereas a site built on WordPress can be supported by one of countless different providers.

From the broader industry perspective, advisors will likely continue to have an interest in both the custom and advisor-specific paths – as like so much in the AdvisorTech space, some want the all-in-one curated experience that allows them to work with only one provider at a time, while others prefer independence between solutions so as not to be overly reliant on a single vendor. But the deeper significance in a category that has struggled to find solutions that are competitive with more generic non-advisor-specific options (which has plagued other categories like digital marketing with Mailchimp and Hubspot, and lead generation with Google Reviews and Yelp), FMG has appeared to break the pattern when it comes to advisor websites by providing a solution that outranks its generic competitors based on both quality and value based on its competitive pricing.

Tech-Powered Marketplaces And Tech-Enabled Services Emerge As New Growth Channels For Tech Providers In A Slower-Growth SaaS Environment

The typical advisor, per the latest Kitces Research on Advisor Technology, uses technology to cover around 15 different business functions, and spends 4%–6% of their revenue on the technology they use. With over 280,000 financial advisors in the U.S. alone, that adds up, in the aggregate, to a lot of technology use (and revenue potential) for advisor technology vendors. But at the same time, as the number of different AdvisorTech providers has mushroomed from dozens to hundreds of options in recent years, it's become challenging to build and scale software-as-a-service advisor solutions – in part because of the sheer amount of competing vendors for any given place in an advisor's tech stack, plus the fact that the total advisor headcount has been relatively stagnant (so the market in the aggregate isn't growing), and also simply because so few advisors actually change out their technology from year to year. With a Kitces-Research-estimated turnover rate averaging around 6% each year, the typical advisor holds onto a technology tool for 16 years before making a switch – or essentially replaces just one item in the advisor's tech stack each year.

Compounding the challenge of distributing technology to advisors is that one of the primary ways of reaching advisors – booths at industry conferences and events – often cost as much as $8,000–$15,000 for a sizable event. Which might make sense for an asset manager for whom signing up one advisor could be worth hundreds of millions in assets and hundreds of thousands of dollars in revenue, but for a technology vendor selling software subscriptions at $49/month, it's sometimes impossible to realistically generate the number of signups needed to be worth the cost of the booth.

In recent years, technology companies have sought other ways to expand the reach and distribution of their software. Tools often integrate with other pieces of advisor technology, particularly common advisor "hubs" like CRM, custodial platforms, and portfolio management software, with the hope that offering seamless integration with the advisor's other tools will make it more enticing to incrementally turn on the next new piece of tech. Others announce partnerships with adjacent vendors that aim to synergize the respective providers' offerings. And still others simply merge and acquire their way to adoption, hoping that acquiring other tools will interest those tools' users in the provider's own offerings.

But more recently an increasing number of AdvisorTech firms have experimented with different business models in an effort to find different ways to expand the monetization of their technology beyond selling it on a standalone software basis.

One path has been the rise of tech-facilitated marketplaces, in which the technology is used to matchmake what buyers are seeking with what sellers are selling, while the technology's provider takes a percentage of the transactions that move across the platform. Arguably the first firm to see wide success under this eBay-matchmaking style model was Envestnet, having built its roots around matchmaking registered broker-dealers with its marketplace of SMA and UMA providers, but in more recent years other firms have established themselves in the tech-facilitated advisor marketplace model – particularly in areas such as alternative investments (e.g., CAIS and iCapital) and annuities (HALO and FidX) that are harder than traditional funds and ETFs for advisors to find and research on their own. For advisors, the appeal of the marketplace model is that there's no direct cost for using the technology itself – the technology just facilitates a transaction, and in practice the sellers typically just share a portion of their revenue and profitability growth back to the platform only gets paid once a transaction occurs.

On the other end of the spectrum is the rise of tech-enabled services, where firms offer what is fundamentally a service wrapped in, around, or on top of their technology tools. Which on the one hand makes the solution more expensive (sometimes, significantly more expensive) than an otherwise self-directed technology tool, given that there is a professional human interaction involved (although likely less expensive than other similar services given the tech-enabled efficiencies); but on the other hand might raise the advisor's interest in the solution more than if the provider were selling the technology alone – since after all, the potential time savings of any technology is dampened by the time it takes to learn and use the new tech, but if someone else does that work, then the advisor's time is actually freed up meaningfully. While from a provider perspective, the appeal of the tech-enabled service is that they can charge what might be 3X, 5X, or even 10X the fees as a service than what they could reasonably charge for 'just' a standalone technology solution. All while being able to deliver the engagement profitably because of their own in-house technology, and in an ideal world, binding the advisor more deeply into the offering by providing a superior all-around service.

From an industry perspective, arguably any and all tech-enabled efficiencies are a good thing: By reducing administrative frictions and staffing costs, they allow advisory firms to either run more profitably, expand their services more cost-effectively, and/or serve clients more deeply. With the technology at their core, the 3 models of advisor technology – traditional software-as-a-service, tech-facilitated marketplaces, and tech-enabled services – can improve advisory firms' performance in those domains.

But from an advisor perspective, the rise of tech-enabled services and tech-facilitated marketplaces – which are still most commonly referred to under the big umbrella of AdvisorTech – is resulting in growing confusion about what the advisor is actually buying. Looking at a range of options, an advisor might see a price of effectively $0 (when the solution is actually a tech-facilitated marketplace that earns its fee on the completed transaction when assets move/transact), $40-$300 per month (for a typical piece of standalone advisor software), or $1,000+ per month (for a tech-enabled service). And beyond knowing how the provider gets paid, it's important more generally just to know what exactly that fee pays for. An advisor with an in-house marketing department won't likely need a tech-enabled service tool, just as an advisor who selects all their investment options and implements them directly with their custodian doesn't need a tech-powered marketplace for more investment solutions.

In the long run, however, each technology model will likely continue to survive and thrive, because each solves a fundamental problem: Scalably providing services, efficiently delivering products (at least a subset of which clients really want to buy, and advisors want to help to choose from among the offerings), and offering standalone software which advisors use at their core to use and scale their own firms.

But from an AdvisorTech Map perspective, we've continued to try to maintain it as a resource purely for standalone software-as-a-service providers that advisors pay an outright SaaS fee for. However, as tech-enabled services and tech-powered marketplaces continue to grow – compounding advisors' challenges in figuring out what they're actually paying for (which was the original point of the Map and its distinction of putting companies in only the category of the thing they really 'do', to alleviate the fatigue of choosing between a host of self-proclaimed "all-in-one" options) – it seems at least plausible that a Tech-Enabled Services Map and a Tech-Facilitated Marketplace Map might be necessary for the Kitces team to roll out in the future!?

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In the meantime, we've rolled out a beta version of our new AdvisorTech Directory, along with making updates to the latest version of our Financial AdvisorTech Solutions Map (produced in collaboration with Craig Iskowitz of Ezra Group)!

So what do you think? Is it worth switching to a "mid-tier" CRM to bridge the gap between the capabilities of Salesforce and less-expensive alternatives? Would a streamlined 401(k) plan solution make you more likely to offer 401(k) plan management to business owner clients? Would Elements Money be an enticing option to refer small clients – or even convince you to try to attract more prospects below your asset minimums? Let us know your thoughts by sharing in the comments below!