The Latest In Financial #AdvisorTech (February 2023)

Elements Raises $5M In Seed Extension Round As Demand For Advice Engagement Grows

Traditionally, financial planning software was designed around building “The Plan”: Advisors would gather data from the client, run it through the software’s calculators, and produce a voluminous financial plan assessing the client’s ability to reach each of their various financial goals. This type of software was introduced in a time when much of financial planning revolved around the sales of investment or insurance products, with “The Plan” being built and delivered just once – and often being provided for free upfront – as a way to identify a gap and demonstrate the client’s “need” for a particular financial product (which the advisor could then get paid a commission for selling to them).

As many advisors went from selling financial products on commission to managing diversified asset-allocated portfolios for their clients for an asset-based fee, financial planning software also evolved to reflect the shift from a transaction-based model of financial advice to an ongoing relationship-based one. At this point, financial planning software wasn’t just about identifying gaps and demonstrating needs that the advisor could sell into, it was about making the client feel understood so the advisor could establish and deepen the client relationship. And so as the technology improved, financial planning software made it easier to update plans as clients’ financial circumstances changed over the years of that relationship, and features like account aggregation made it possible for certain parts of the plan to be updated automatically. The software also evolved to become a hub of sorts for all of a client’s financial information – from balance sheets to investment holdings to tax returns and other financial documents – enabling advisors to have a deep understanding of their clients’ financial situations at all times.

But as the industry has continued to evolve, managing diversified asset-allocated portfolios on an ongoing basis has become more commoditized, and the pressure is growing on advisors to demonstrate more ongoing value than ‘just’ the ongoing advisor-client relationship itself– which in turn has led to a push towards providing more year-round value through financial planning. Traditional financial planning software, however, is at its core still about “The Plan” and its long-term projections of retirement scenarios. Which is fine for when a client comes in once a year for an annual review, but doesn’t bring much additional value when revisited throughout the year, since a financial plan with a 30+ year time horizon isn’t likely to see much change from one month (or often even one year) to the next.

As a result, there has been increasing demand for tools that reflect the evolution of financial planning from a one-time or annual plan to a continuous process of planning. Which involves not only giving advisors continuous and reliable information with which to give recommendations, but also keeping the clients themselves engaged in the process and recognizant of the value it provides. Consequently, “advice engagement” technology – i.e., solutions that draw clients into the ongoing and continuous process of financial planning – has been one of the most rapidly-growing categories on the Kitces AdvisorTech Map in recent years.

Elements has been one of the early platforms that is beginning to capitalize on this advice engagement boom. Originally developed by Reese Harper as a proprietary financial planning system for his own RIA, Dentist Advisors, Elements was launched as a standalone “financial monitoring software” in 2022, and reportedly is now being used by around 300 advisory firms. Elements’ key innovation is distilling a client’s financial health into 12 separate “vital signs”, which creates a standardized set of metrics for each client that advisors (and clients themselves) can track and monitor over time via their financial dashboard. Another feature is its primarily-mobile-app-based user interface, which make it far more compelling as a tool to easily check in with more regularly than ‘traditional’ financial planning software (that requires substantive inputs to run a single update). In other words, by eschewing the (often-overwhelming) comprehensiveness of traditional financial planning software and focusing on a handful of simple (but meaningful) numbers, the Elements app leans into the notion that less is often more when it comes to getting clients to act on advice (a fact amplified by Elements’ recruitment of Carl Richards, the foremost evangelist of pared-down financial planning, as its Chief Brand Officer in June of 2022).

Elements has kept the momentum going into 2023 with a new $5 million seed extension round led by tech venture firm Flyover Capital (which notably includes RIA entrepreneur Marty Bicknell as its General Partner). The latest Elements funding round comes just over a year after its initial $4 million seed funding round in late 2021.

This latest $5 million round is projected to fund about 24 months of operating expenses, meaning that while Elements works to expand its footprint, it is still burning cash in its early growth phase. By Harper’s own estimates, Elements’ current annual recurring revenue is around $1 million, which would mean it will need to more than triple its current revenue just to break even and start turning a profit.

Which in a way makes it even more impressive that Elements has continued to raise funds, especially given the gloomy overall environment for venture capital fundraising. Clearly investors see that there is plenty of untapped demand from financial advisors for advice engagement tools – and given that one of the Flyover Capital partners who led this round was Marty Bicknell, CEO of Mariner Wealth Advisors, some of that demand might come from enterprise-level RIAs (that could provide a much quicker boost to Elements’ revenues).

As a relatively new and fast-growing software category, it’s difficult to predict how advice engagement will shake out in the coming years. There’s certainly demand for tools that can help advisors provide value on an ongoing basis, but it’s too early yet to know which tools will become the most widely adopted by advisors, and there will almost certainly be new additions in the space before the dominant players emerge. Nonetheless, what’s clear now is that Elements is aggressively staking out a foothold for itself in the new space, before it gets even more crowded – which is notable inasmuch as the first-movers who gain market share are often very difficult to displace later as they become established and accepted stalwarts in a no-longer-new AdvisorTech category.

TradingFront Shuts Down Because Most Advisors Don’t Grow Fast Enough To Pay For Onboarding Solutions?

Robo advisors experienced several years of rapid growth as direct-to-consumer platforms in the years following the 2008 financial crisis. This growth fueled speculation that the robo-advisors could be a threat to financial advisors given their ability to provide automated asset management and an attractive, tech-friendly platform at a fee as low as 25 basis points (far less than the traditional 1% AUM fee of traditional [human] financial advisors). But by the mid-2010s the growth of direct-to-consumer robo-advisors had stagnated and it was clear that human advisors – at least those who focused on the personalized financial planning and advice that the robo-advisors couldn’t automate – would be sticking around after all.

As robo-advisors saw their growth numbers decline in the direct-to-consumer market, an increasing number of firms began to pivot their business model to “robo-advisor-for-advisor” solutions, and at the same time a new generation of startups emerged that offered solely B2B robo advisor technology. Seeing a need from advisors to streamline their own technologies for client onboarding, electronic account opening, and efficient trading and rebalancing of model portfolios, these firms now saw themselves as a natural solution to provide back-office support for the human advisors they had previously positioned themselves to disrupt.

However, more recent years have been tough on B2B robos as well. After a few years of splashy acquisitions at high valuations for early players in the B2B robo space (e.g., BlackRock buying FutureAdvisor, Invesco buying JemStep, and Principal buying RobustWealth), the market for B2B robos has slowed significantly, and has even resulted in some robos being shut down entirely – as Principal did with RobustWealth in 2021 – leading the B2B robo category (now simply dubbed “digital onboarding”) as one of the fastest-shrinking segments of the Kitces AdvisorTech Map.

At its core, the issue with most B2B robo advisors is that they exist as a third-party technology overlay on an existing custodial platform, either in an effort to ‘modernize’ an existing legacy player, or as an advisor interface/layer on top of the more technology-forward brokerage platforms such as Interactive Brokers or Apex Clearing. Which means that in order to offer these solutions, advisors must either pay more to get an additional digital onboarding technology layer on top of their existing (“free”) RIA custodian, or they must first move existing clients from their ‘legacy’ custodian over to the new one (with all the back-office work that entails) and then pay the robo advisor a percentage of their AUM to use the platform (on top of any fees the RIA custodian itself charges).

But as it turns out, most advisors just aren’t interested in paying more and/or re-papering client accounts just to get better onboarding technology. Instead, they would rather have their existing custodian provide – for “free” as part of its existing offering – the type of digital onboarding and automated asset management experience that B2B robo advisors charge for. And given the reality that individual advisors don’t typically even onboard lots of new clients in any given year (e.g., the average annual new client growth rate for advisory firms was just 5.1% per the most recent Schwab RIA Benchmarking Study), the ability to streamline onboarding – one of the main selling points of B2B robo advisors – didn’t actually solve a major advisor pain point to begin with. Or stated more simply, most financial advisors aren’t actually growing enough (and/or experiencing enough growing pains) to make it worthwhile to pay a premium for a more efficient onboarding solution.

This month, TradingFront – a white-label B2B robo advisor on the Interactive Brokers custodial platform – became another casualty of the inhospitable environment for B2B robo advisors providing digital onboarding and related ‘robo’ automation tools, announcing that it was shutting down its US operations as of March 1. The explanation given for the news was that TradingFront’s parent company Tiger Brokers was winding down its “introducing broker” business, which is both what allowed TradingFront to offer its paperless account opening, trading, and transactions features… and also was necessary for TradingFront to get paid for those services. Going forward, Tiger Brokers will pivot its business focus to the Asian market (and interestingly, TradingFront will continue to operate in Singapore, where it was rolled out in 2018).

While the official explanation is that TradingFront ‘had to’ shut down because its parent company pulled the plug on a core part of its business model, the part left unspoken is that shutting down wasn’t necessarily TradingFront’s only option. If Tiger Brokers had felt it had a successful business on its hands, it might have found a way to keep it operational (such as not winding down its introducing broker business to begin with). If it felt that TradingFront just didn’t fit in with the long-term business plan, it could have found a buyer willing to keep it going. Instead, TradingFront is simply closing its doors, suggesting that although the shutdown of its introducing broker may have been the immediate cause, deeper down was the fact that TradingFront just wasn’t seeing enough traction from advisors willing to pay for its digital onboarding (and other automation tools) to sustain its operations.

Luckily for advisors who used TradingFront, the news of its closing doesn’t necessarily mean that clients will need to be moved to a completely different custodial platform. TradingFront clients will remain on the Interactive Brokers platform, though without the white-label overlay that TradingFront provided. (And as Interactive Brokers somewhat snarkily noted in its response to the announcement, “80% to 90%” of the functionality that TradingFront brought was simply an extension of what is already offered on the Interactive Brokers platform.)

For the industry as a whole, this news highlights the continuing struggle for B2B robo advisors to convince advisors that re-papering their clients with a new (more ‘digitally-savvy’) custodian and/or paying up (with a basis point fee) for a more streamlined client onboarding experience is actually worth the cost. In part, though, this may simply be a cost structure issue, as notably most “all-in-one” platforms that now offer robo-like capabilities – such as Orion and Tamarac – do so for a flat per-account fee, meaning that the potential hit to an advisory firm’s profit margins is reduced as a firm gets bigger, whereas the basis-point fees charged by platforms like TradingFront grow in tandem with AUM. Which means, ironically, B2B robo advisors were trying to sell “scalability” with a bps fee structure that doesn’t actually scale as the firm grows larger, while all-in-one platforms that charge ‘software fees’ do (and at a comparatively smaller fee in the first place, as most advisors only spend 3% to 5% of revenue in total on technology, far less than the bps fees that most B2B robo advisors sought to charge).

In the meantime, as traditional custodians like Charles Schwab continue to (slowly) improve their technology offerings for advisors, and as technology-first custodians like Apex (which once was only designed to build third-party platforms on top of) look to begin offering custodial services directly to advisors, the window for B2B robo advisors to differentiate themselves will only narrow further. Furthermore, the problem that B2B robo advisors were introduced and marketed to solve – that is, ugly and inefficient account opening and portfolio management processes at legacy custodians – is becoming less and less of a real problem for advisors as they find ways to solve those problems with the custodian they already have. Which means we may be likely to see more B2B robo and other ‘digital onboarding’ firms either pivoting (yet) again to a new business model, or shuttering as TradingFront did.

Zoe Launches Digital TAMP For Small Clients To Complement Its Referral Service For RIAs

In the mid-2010s, when robo advisors that had previously used a solely direct-to-consumer business model began to reinvent themselves as digital onboarding and portfolio management solutions for advisors, one of the main sales pitches for the new generation of B2B robo advisors was: “We’ll dramatically reduce the time it takes for you to onboard and serve clients by making it possible for new clients to sign up on your website, open an account, and start investing with just a few mouse clicks – which will unlock your ability to efficiently serve the next generation of clients (even if their accounts are smaller than your traditional minimums).”

It sounded revolutionary, but those well-intentioned predictions didn’t pan out in reality. For one thing, advisors who adopted B2B robo advisors generally didn’t use the time they saved on onboarding and investment management to serve a greater number of small-account clients; instead, they used it to increase the breadth and depth of their financial planning for each client (which ironically often allowed them to attract bigger more and affluent clients, and subsequently charge higher advisory fees per client – contrary to the claims that robo technology would “democratize” financial advice for underserved populations by reducing its cost!).

But even if advisors had opted to use B2B robo advisors to serve a wider range of clients, there was still one major problem that the technology didn’t solve for: How to actually bring potential next generation clients to the advisor in the first place. After all, having a tech solution that makes it easy to sign up and invest on an advisor’s website means little if no next generation prospects are coming to the website to begin with. And for all their other features, B2B robo advisors didn’t bring small clients to RIAs by virtue of their own existence. Advisors still needed to market to and sign on new clients, and to put it bluntly, it wasn’t good enough to put a “Millennials, sign up here!” button in between the lighthouse and the Adirondack chairs on a retirement-centric RIA website and expect to get an onslaught of new next-generation-client assets. In the same way that “if you build it, they will come” didn’t work for direct-to-consumer robo advisors for getting next-gen clients, it didn’t work for the B2B generation of robo advisors either.

In that context, it’s notable that in January Zoe Financial, a lead-generation platform for fee-only RIAs, announced the launch of its new Zoe Wealth Platform exclusively for advisors in its network. The platform includes features such as digital account opening, automated rebalancing, options for pre-selected or customized investment models, and a client-friendly dashboard - effectively making it a TAMP-like solution for Zoe's clientele of advisory firms. But unlike similar investment management tech solutions that have struggled or faded away in recent years, Zoe Wealth Platform actually comes with a way for prospective clients to find their way to the advisors using it – in the form of Zoe’s already-popular lead generation service, which it claims to have referred over $2 billion of client assets to the RIAs on its platform since its launch in 2018.

Why would Zoe want to launch a TAMP, considering both (1) the well-documented struggles of previous robo advisor and TAMP offerings to attract new clients and (2) a user base limited only to firms already using Zoe's lead generation service? It's possible that, even with a reported 500 advisory firms on Zoe's platform, there are still more prospects who go to Zoe looking for a financial advisor than there are advisors who can actually handle them. Meaning that if a prospect doesn’t have a certain level of assets (or the income to pay for a monthly flat fee), they may not be able to find an advisor willing to work with them – especially since, as noted above, advisory fees and investment minimums have broadly gone up in recent years (and advisors must also generate enough in client fees to cover Zoe’s marketing costs, too). Yet as Zoe’s popularity increases via word-of-mouth and mainstream press attention, along with its own marketing efforts to attract more prospective clients, that backlog of prospects who aren’t able to meet traditional advisor minimums only grows – with each prospect representing a lost opportunity for new revenue for Zoe as long as they aren’t matched with an advisor.

In other words, while historically the digitally-savvy robo-TAMP solutions struggled to help advisors actually scale up with next generation clients because the advisors couldn’t get those clients in the first place, Zoe’s offering is unique because their challenge is that the platform was already generating those leads but didn’t have a way to refer and monetize them all. Whereas with Zoe Wealth Platform, the company combines the scalability of digital onboarding and trading technology with a lead generation service to deliver the clients for advisors to serve at scale.

What remains to be seen is how advisors on Zoe’s network will use the new TAMP, or whether they will do so in numbers significant enough to justify Zoe’s investment in yet another investment technology platform. Because although advisors have proven willing to pay a high price – 25% of their ongoing advisory fee or more – for Zoe’s core service of referring quality prospects, they historically haven’t been willing to pay a significant basis-point fee for a third-party investment technology solution.

Still, the news of Zoe’s expansion from lead generation service to small-client TAMP highlights how successful the company has been at generating leads for advisors – to the point that they’re making further investments to monetize even more of their prospective client lead flow. And further signals that despites naysayers’ questions about whether it’s really worthwhile to pay a percentage of revenue for lead generation, Zoe is still seeing more than enough demand from advisors willing to pay for a scalable growth channel to further invest into its lead flow. And ultimately, even if the TAMP doesn’t meet expectations, there are no signs that Zoe’s core lead generation service is slowing down. In fact, given that Zoe recently raised an as-of-yet undisclosed amount of capital from several of its own client firms, it seems that RIAs are not only willing to pay good money for reliable lead generation – they are also willing to invest in the platform that provides it.

Advisor360° Acquires Agreement Express To Expand Its Reach Into Existing (Insurance Broker-Dealer) Enterprise Clients

Advisor360° began life as a proprietary advisor technology platform of the independent broker-dealer Commonwealth Financial Network, existing to provide CRM and other business workflow support to Commonwealth’s network as it grew to more than 2,000 advisors. But as the platform grew and became more complex in scope, it became so costly to run that, even with Commonwealth’s ongoing growth in advisor headcount, the market of ‘only’ Commonwealth advisors wasn’t big enough to sustain it and amortize its development costs.

And so in 2019, Commonwealth made a big splash by licensing Advisor360° to MassMutual and its network of over 9,000 insurance broker-dealers, instantly increasing its potential user base by over 5x from 2,000 to 11,000+. Simultaneously, Commonwealth spun off Advisor360° into its own standalone tech company, sacrificing the platform’s exclusivity with Commonwealth advisors for the ability to reach a much broader market of broker-dealers. Furthermore, in 2020 Advisor360° hired a new CEO with a background in enterprise-scale technology, signaling the newly-independent company’s ambitions to position its software as a solution for large-scale enterprises.

In the years since then, however, there have been no further announcements of Advisor360° partnering with additional firms of the likes of MassMutual. Which highlights two points: First, it shows just how difficult it is to get a foot in the door with large enterprise clients – for whom the costs of migrating thousands of reps to an entirely new, multifaceted technology platform can be immense. Second, it suggests that the risks that were brought up at the time of Advisor360°’s spinoff – that a technology platform developed solely for Commonwealth’s own advisors might not “generalize” across the industry – might prove founded after all.

Still, Advisor360° has ground on, looking for new ways to expand its capabilities, and more importantly to get its technology in front of potential new enterprise clients. In March of 2022 it introduced a strategic partnership with State Street’s Charles River Development, a managed account platform for enterprise wealth management firms. In June of 2022 it rolled out new capabilities for viewing and reporting on beneficiaries for clients’ insurance products, representing a doubling down on features that would primarily appeal to insurance brokers after its MassMutual success. And in January of this year, it announced its first-ever acquisition of another software company, the digital onboarding technology firm Agreement Express.

In terms of how the acquisition will impact Advisor360°’s technology offering, it serves to deepen Advisor360°’s digital onboarding capabilities by adding Agreement Express’s integrations with multiple RIA custodians and CRM software, allowing Advisor360° users to, for instance, auto-populate multiple types of brokerage account applications using client information directly from the advisor’s CRM fields. All of which is nice, but given that Advisor360° already has digital onboarding capabilities, and almost certainly has the resources to develop them further in-house to bring them to the level that Agreement Express offers, the question is why Advisor360° decided at this juncture to acquire a separate firm, rather than investing to improve its own solution.

Which brings us to the other thing that Advisor360° will be getting in this acquisition, along with the Agreement Express technology itself: the list of Agreement Express’s existing enterprise clients, who are coming along with the company. And while there isn’t any indication yet of who is on that list, given how Advisor360° has continually doubled down on features and partnerships that would make it appealing to enterprise clients, including both insurance and investment account applications, one has to imagine that there are some (insurance-broker-dealer) enterprise names that Advisor360° would like to get in front of.

Notably, existing clients of Agreement Express won’t automatically become clients of Advisor360° – it will continue to operate as a standalone firm for the time being. However, simply gaining the opportunity to cross-sell Advisor360°’s solutions to Agreement Express’s clients could prove highly valuable, particularly if the main issue over the last few years has been Advisor360°’s challenges in just getting its foot in the door with the types of enterprise firms it seeks to work with more holistically.

Overall, Advisor360°’s acquisition of Agreement Express serves as a reminder that while the bulk of advisor headcount (and therefore, revenue and growth opportunities for advisor tech firms) is in larger enterprises, it’s incredibly difficult for technology platforms to get in front of enterprise-level clients. With its apparent struggles to sell its technology on the open market following the initial coup of landing MassMutual, Advisor360° has taken a new tack, first demonstrated by its Charles River Development partnership, and now more substantively with its acquisition of Agreement Express: by partnering with or acquiring firms with complementary offerings who have their own roster of enterprise clients, Advisor360° can not only improve its own offering, but also gain access to an established list of enterprise clients that may have proven elusive to it so far.

BridgeFT Launches Wealthtech API To Provide A Centralized Source For (Multi-) Custodial Data

In the early days of portfolio performance reporting, advisors would download custodial data each day to their in-office servers, then manually clean up and reconcile that data to be able to calculate clients’ portfolio performance – a process that took up a huge amount of back office resources. It also meant that every single firm needed to download what was essentially the same asset price and transaction data, and make the same adjustments for itself (e.g., allocating basis to shares in the case of stock splits or company spinoffs, properly classifying corporate restructuring events, etc.). Eventually, outsourced back-office solutions arose to perform the data reconciliation process for several firms at once on a somewhat-more-centralized basis, but it still made for an inefficient one-database-at-a-time process.

With the rise of the internet and cloud computing, however, firms like Orion, Black Diamond, Tamarac, and Addepar (among many others) were able to streamline the process of data reconciliation immensely: They could essentially download all of the custodial data to one centralized database in the cloud, clean it up themselves, and create tools such as performance reporting or billing automation for their clients that were built off of the data they stored. Which meant thousands of downloads and reconciliations by each firm were consolidated down into one single centralized process on their behalf. Furthermore, all this custodial data was now kept on the cloud by a firm specifically entrusted to its safekeeping, rather than on local server in an advisor’s office, significantly reducing the risk of a flood, theft, or some other misfortune inadvertently wiping out all of the firm’s financial data.

But for everything that cloud-based reporting solutions did to streamline advisory firms’ back-office requirements, they did have one potential downside: The RIAs no longer directly owned and controlled their own custodial data. As such, they were limited to whatever tools the third-party reporting platform made available to them to access and utilize that data. If an RIA wanted to build anything such as a customized client dashboard off of that data, they had little choice other than to keep downloading data directly from custodians and warehousing it themselves.

BridgeFT has been around for several years as a lower-cost performance reporting competitor to the bigger players like Orion, Black Diamond, and Tamarac, providing streamlined billing and client reporting through its core product, dubbed Atlas. But in January, it announced a major new offering, called WealthTech API, that will offer client firms access to the underlying custodial data that BridgeFT uses to power its Atlas tools, so that advisory firms (or even other AdvisorTech firms) can build their own tools on top of centralized and fully reconciled custodial data.

Simply put, if an advisory firm wants to build a software tool based off of custodial data – client portals, billing tools, practice management dashboards, you name it – without needing to download and warehouse all the data themselves, they can now plug into WealthTech API’s Application Programming Interface (API) for a direct feed to that data, while BridgeFT handles the downloading and warehousing of the data itself.

What’s interesting about this news is that, while BridgeFT’s original Atlas product is primarily used by smaller firms (given its lower price compared to more robust offerings like Orion), its WealthTech API seems more geared toward larger-sized RIAs (and even some mid-to-large-sized broker-dealers). After all, a firm would need to be fairly sizeable to have the resources to invest in building a ‘middleware’ software layer that could run off of BridgeFT’s data to begin with –a sharp contrast from the typical firm that would be using BridgeFT’s other product, the low-cost Atlas reporting platform. Which means that BridgeFT may effectively be starting from scratch in finding a market for WealthTech API (although given the fairly small market share of Atlas among financial advisors – only 1.2% in the 2021 Kitces Report on Financial Advisor Technology – that may be an intentional shift in strategy towards bringing in more firms with deeper pockets than Atlas was able to attract).

Either way, with WealthTech API’s introduction BridgeFT joins a small but growing group of platforms specializing in managing and integrating custodian and other financial data, that also includes MileMarker, Skience, and Wealth Access. The expansion of this category of AdvisorTech reflects the growing need for solutions for advisory firms to manage data across their own expanding tech stacks, as well as an opportunity to provide solutions for firms who want more control over their data to be able to build their own custom software layers as a way to differentiate themselves. Against this backdrop, BridgeFT might have better luck standing out from the crowd as an outsourced data warehouser/integrator of data, than it did as an outsourced performance reporting platform.

Kwanti Expands Its Focus On Advisors Managing Models With New Screening Tool To Help Advisors Find New Model Additions

Morningstar has long been the dominant player in investment research and analytics for financial advisors with its Morningstar Direct platform. It established its foothold in the 1980s and 1990s by providing performance data and ratings for mutual funds, back when the typical financial advisor was paid a commission to sell those funds, and needed a useful tool for comparing one fund to another and nudging clients toward a decision (of why the mutual fund they were offering was better than what the prospect or client already had).

As the industry shifted away from sales of individual funds and towards creating diversified asset-allocated portfolios, however, the tools that advisors need to analyze investments also shifted from individual fund analysis to a more holistic portfolio analysis, which in turn required a different set of more-portfolio-centric analytics tools. For instance, the ‘style box’ or star rating of an individual fund might matter much less to an advisor than how it contributes to the diversification, asset allocation, and average expense level of the entire portfolio.

In more recent years, many advisors’ needs for investment analytics have narrowed even further. Many advisors now use model portfolios to systematize their investment management process across all clients of the firm, with some even outsourcing the creation of those models to institutions like Vanguard, Fidelity, and BlackRock. And although such advisors may have little need for tools to facilitate individual security selection, they do need tools to help them compare existing client portfolios to the advisor’s own models, and to find new potentially better investments that they might add to their model portfolios.

This shift has led a growing number of startups to try to chip away at Morningstar’s dominance by providing more focused investment analytics solutions. Because although Morningstar may have one of the most robust analytics suites out there, many of today’s advisors don’t necessarily need – or even want – everything that Morningstar offers. And by offering ‘just’ the tools that advisors need – and none of the ones that they don’t – it’s possible to sell a valuable product to advisors at a lower price point than Morningstar’s across-the-board platform.

Kwanti is one such tool that has emerged as a more focused alternative to Morningstar. Its core product is based around analyzing model portfolios, comparing them to existing client or prospect portfolios, and generating proposed recommendations for prospects to transition to the advisor’s recommended model. And even though there isn’t much more to it than that, advisors don’t seem to miss the bells and whistles of a broader feature set: In the most recent Kitces Report On Financial Advisor Technology, Kwanti actually received the highest satisfaction rating among all investment analytics tools, while also having among the lowest price of such tools on the market.

Considering the tight focus of its core product, it rates as newsworthy when Kwanti rolls out an additional feature – as it recently did when it announced a new investment screening feature (called, in keeping with the no-nonsense personality of the platform, “Screener”). Like the rest of the platform, the screener emphasizes utility over flashiness: It allows advisors to screen for funds based on one or more categories of their choosing (such as expense ratio, yield, trailing performance, asset levels, etc); to sort funds by category within those results; and to compare several funds in any of these criteria. It also features a tool to suggest similar funds to a selected fund (which could perhaps be a simple way for finding similar-performing but not "substantially equal" replacement securities when performing tax-loss harvesting). As shown in the demonstration video below, there isn’t much more to learn:

While it might seem strange that Kwanti, which has been so focused on its core function of analyzing and comparing model portfolios, has introduced an individual security analytics tool, the new feature more likely represents a modest enhancement to its existing model portfolio analytics capabilities than the start of a larger-scale shift in focus. As even advisors who rely almost exclusively on model portfolios know, sometimes the need for customization crops up, and it’s useful to have a tool that narrows down the enormous universe of fund options to the few that might work best in a client’s portfolio. In addition, finding potential new investments to add or use as improvements to existing holdings within the advisor’s model portfolio is very explicitly a “screening”-style process of deciding what kind of investment would incrementally add value, and then screening the universal of available investments to find a solution that best plugs that particular hole.

It will always be difficult, if not impossible, to match the breadth of Morningstar’s investment analytics. But as Kwanti has demonstrated, solving a specific need for advisors – such as facilitating the implementation of diversified asset-allocated model portfolios – and keeping narrowly focused on that need (and being able to price accordingly), can be a very viable path to growth even in a crowded AdvisorTech category.

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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 with several new companies (including highlights of the “Category Newcomers” in each area to highlight new FinTech innovation)!

So what do you think? Do advice engagement tools like Elements help you demonstrate ongoing value to your clients? Would your firm take on more small clients if a lead generation service like Zoe brought them to you (and provided the software for you to serve them efficiently)? Is it more appealing to have a focused, model-centric investment management analytics platform like Kwanti, or a more comprehensive platform like Morningstar Direct? Let us know your thoughts by sharing in the comments below!