The Latest In Financial #AdvisorTech (June 2021)

Zoe Financial Announces $10M Series A Round From SoftBank As Advisor Lead-Gen Demand Heats Up.

According to Kitces Research, the average financial advisor spends more than $3,100 (in some combination of hard-dollar marketing spend and the cost of their time) to get a single client. Relative to the lifetime value of a client – which in a recurring revenue subscription or assets-under-management model can amount to tens of thousands of dollars – the reality is that a client acquisition cost of $3,100 can still be a remarkably “good deal”. Yet, in practice, most advisory firms are "capital constrained” – they don’t have much cash available to spend on marketing – and consequently end out primarily spending their time instead… which is finite, limited, and unable to scale as the advisory firm grows. And of course, some advisors just aren’t naturally inclined towards prospecting to find new clients in the first place.

As a result, there has been growing interest in recent years for advisory firms to find ways to proactively spend dollars on marketing to generate more new clients, for which the economics are remarkably compelling for lead generation firms. After all, the RIA custodians have long since set a benchmark that a 15% - 25% revenue-share on recurring advisory fees is “reasonable” and has shown that at least some advisory firms will pay it… which can amount to a lifetime value of thousands of dollars for a single referred client relationship! Given these economics, it is not surprising that “advisor lead generation” has become one of the hottest categories of AdvisorTech in recent years.

For which the latest announcement is Zoe Financial announcing a new $10M Series A round to fuel its own advisor lead generation service. Launched more recently than some others in the category, like SmartAsset and WiserAdvisor, the lead generation service from Zoe Financial is unique in that the firm ‘only’ charges a success fee for clients who actually close (rather than the pay-per-lead approach of the others), but in turn requires a revenue-sharing payment from clients that do close (for the lifetime of the client in the case of AUM fees, or for 5 years when the advisory firm charges retainer fees). In turn, the success-fee approach also strongly aligns Zoe with the firms that it serves to ensure both that the leads themselves are “quality” (qualified by assets and likely to close), and that it works with “quality” firms (that have a strong offering and will close the qualified client, which also helps to ensure that Zoe gets paid!). Accordingly, Zoe will only permit fiduciary RIAs to participate (no advisors from broker-dealers), and has skewed towards larger advisory firms that tend to have more systematized service and sales processes (with the average RIA in Zoe’s network managing $1B of AUM).

Thus far, Zoe reports having referred $12B of assets across “tens of thousands” of households (which at 30,000 referrals would suggest the typical prospect is a respectable mass affluent household with $400,000 of investable assets), though it remains unknown what percentage of leads are actually closing (albeit clearly it's “enough” to attract the interest of SoftBank!).

Also notable in the deal is the role of SoftBank itself, which has previously invested in a number of major “disruptors”, including DoorDash, Kabbage, OpenDoor, SoFi, and WeWork, and more recently allocated a massive $100B “Vision Fund” to fuel innovation around the world, with a particular focus on supporting founders from underrepresented populations (which Zoe founder Andres Garcia-Amaya specifically noted as an important factor in choosing SoftBank). Although the focus on supporting founders from underrepresented groups also raises questions of whether Zoe will similarly hold spots in its advisor network for newer advisory firms founded by advisors from underrepresented populations (of which there are very, very few amongst the $1B+ RIAs that Zoe is currently attracting).

Though ultimately, the real question will simply be whether Zoe can truly scale the reach of its lead generation, in a world where SoftBank ostensibly sees a big market opportunity in advisor lead generation (and the chance to earn a revenue-sharing referral-fee slice of an estimated $85B of AUM fees?), and where after the pandemic more and more consumers are willing to work with an advisor virtually (leading them to search online for an advisor, instead of just via a local referral)… but there are only “so many” consumers who are actually actively looking for a new financial advisor at any particular time?

Tifin Group Announces Plan To Acquire $100M Of Financial Media Sites To Power Advisor Lead-Gen.

One of the biggest challenges in marketing is simply figuring out how to get in front of prospective customers/clients who might be interested in buying your product or service. As a result, the major focus in Advertising Technology (AdTech) over the past decade has been figuring out how to leverage the data of the internet to get the right ad messages in front of the right people (leading to explosive growth for platforms like Facebook and Google, that have the most data to leverage to get in front of the right prospects).

When it comes to the financial services industry, the matter is further complicated by the fact that the majority of affluent consumers already have a financial advisor, and the typical financial advisor has a 95% retention rate, which means it’s especially difficult to find a prospective client who doesn’t already have a financial advisor. Accordingly, it is perhaps not surprising that one of the most popular paid lead generation channels in recent years has been referrals from RIA custodians like Schwab, Fidelity, and TD Ameritrade, who get compensated for steering their “retail” customers to become the clients of advisors on their platform… effectively turning a self-directed investor (who was previously using their online self-directed brokerage services) into an advised client.

In this context, it is notable that Tifin Group announced this month the acquisition of the Adam Mesh Trading Group (AMTG), a publisher of dozens of financial education and investing newsletters (that reportedly had more than 11,000 paying subscribers and over 1,000,000 registered users)… with the express intent of trying to identify some subset of AMTG’s self-directed investor readers who may be ready to start working with an advisor, and get paid for referring them to an advisory firm. In turn, alongside the acquisition of AMTG, the Tifin Group announced that it was aiming to deploy as much as $100M of capital (following on the heels of its $22M Series B round last month) to acquire more financial media sites for self-directed investors to find those who might be ready and willing to begin working with an advisor.

Of course, the reality is that even by owning a financial media property that may have some self-directed investors ready to make a change, it’s still necessary to figure out how to engage them. For which Tifin Group indicated that it plans to leverage some of the FinTech tools already under its umbrella – from Totum Risk for risk assessments to Magnifi for investment comparisons and Positivly for behavioral finance – which via API may be embedded into the targeted financial media sites as a way to attract prospects (similar to how SmartAsset leverages its Captivate tool to embed some of its calculators and other data visualizations into media sites to drive engagement and lead generation).

Ultimately, the question will be whether Tifin Group can actually convince self-directed investors engaged with various niche financial media sites to work with an advisor, given that those who read and especially purchase newsletters from self-directed investor services (like AMTG) are likely the most hardcore of the self-directed and the least likely to ever engage an advisor. Nonetheless, given the incredible economics of advisor referrals, where the lifetime value of a single mass affluent client can be worth thousands of dollars to the referrer, the reality is that Tifin Group needs to convert only a remarkably small percentage of readers from its media acquisitions to drive a phenomenal ROI. Time will tell?

Altruist Raises $50M To Move Past Custody To All-In-One RIA Platform?

In 2019, Altruist first launched what it suggested could become the next Charles Schwab for advisors (i.e., the next major RIA custodian), and in the process built one of the most amazing waitlists of any AdvisorTech company.

In the beginning, Altruist was aiming to compete with the big behemoths by providing a better custodial technology experience, and to be the first zero commission fractional share RIA custodian. But just weeks after their formal launch, much of this unique value proposition was cut off at the knees by Schwab’s ZeroCom announcement… even as shortly thereafter, Schwab announced the acquisition of TD Ameritrade (and the likely wind-down of its popular open-architecture VEO hub for advisors) and opened an opportunity back up for Altruist.

CEO Jason Wenk has run a large RIA and a large TAMP using the best-of-breed software in our space, and he learned what we have all learned… integrations to today’s custodians just don’t cut it. This is why they are losing their place as the central dashboard and operating system for most firms. However, custody is a crucial and required piece of the stack for advisors.

I’ve seen it in our space, and I believe.

Still, though, an interesting thing has happened in the past twelve months. Not only has Altruist raised a lot of money, but they have shifted their messaging away from being a custodian, to an “all-in-one” platform for RIAs instead, as nearly two years of discussions with its advisor base appears to be leading to the conclusion that custody isn’t actually as big of a pain point as the lack of modern platform to match modern custody.

Altruist has built a bunch of really great custody-related features that sit on the infrastructure of Apex Clearing. Apex has been a sleeping giant alongside the advisor space for a while, having powered most of the early stage robo-advisors with a superior custody/clearing technology infrastructure… but one that required advisory firms to build their own technology layer on top, such that Apex didn’t have a platform to offer to RIAs out of the box and had to rely on other “robo-for-advisor” partners instead.

Yet even after Vanare/NestEgg/AdvisorEngine, RobustWealth, Trizic, InvestCloud, and FolioDynamix all announced Apex integrations in recent years that never seemed to gain traction, Altruist seems to have found a pathway to RIA adoption by leading with its low-cost ($1/account) portfolio performance reporting tools (chipping away at a particular high-cost pain point for RIAs). Still, though, while Altruist offers a very elegant RIA experience on top of Apex for portfolio management, and allows advisors to pull their legacy accounts at legacy custodians into their elegant modern platform to use going forward, there is no other custodial option on Altruist. The experience is built on Apex, and that’s it.

Which ultimately raises the question of whether/how Altruist will be able to sustain its momentum. As older, more established firms will likely be multi-custodial at best, and may not necessarily be willing to move and consolidate to Altruist/Apex (though clearly, Altruist hopes it can entice them to do so, and Apex would be happy to see that outcome!). On the other hand, Altruist can – and already has – pursue younger next-generation advisors who expect a modern platform, and either may just be starting and not have a custodial relationship yet, or who may be feeling left in the lurch after the TD Ameritrade acquisition and ongoing concerns that Schwab is most focused (and providing the most service) to its largest RIAs.

At best, it appears that Altruist’s race to scale will be a function of continuing to build features that move it ‘upmarket’ to at least mid-sized RIAs, and whether Altruist can build what RIAs want to see not just to use Altruist’s technology but actually move their existing assets from other RIA custodians to Apex Clearing. Which is where Altruist’s latest $50M capital round comes into play. This is not about the next 1-2 years, but rather the next 10-12.

How is advice going to change over the next decade? What is the TikTok generation going to expect when it comes to advisor technology platforms? No one has a crystal ball, but Altruist has targeted the advisors of those generations, that will serve those generations. For which even Vanguard (as a participant in Altruist’s latest funding round) wants a seat at the table to future-proof their own business!?

Vise Raises Capital At Head-Scratching $1B Valuation As Silicon-Valley Goes All-In On Direct Indexing!

One of the most startling announcements in AdvisorTech this month was when the relative newcomer TAMP, Vise, announced a new $65M Series C round of capital, on a whopping $1B valuation… with a mere $250M of AUM and barely over $1M of revenue (at their 0.50% fee schedule), which is on par with what successful solo lifestyle advisors can generate!

To be clear, though, the firms putting money into Vise are quite sharp. Its initial round was led by Sequoia, one of the most successful venture capital firms ever, period. Ribbit Capital, who led this most recent round of funding, has been the most prolific and successful fintech investor in the game as of late. They know what they’re doing, and they look at the world with very long time horizons – long enough for “things to change from the way they are today”.

Direct-to-consumer fintech has been beyond red hot, but it only contains a fraction of the amount of assets held by financial advisors globally. Venture capital firms appear to be realizing that while direct-to-consumer has the headcount, financial advisors drive the assets (and therefore the real economic opportunities). Consequently, a shift is happening, where VC firms are starting to back the companies that are aiming to deliver disruption to (or at least, through) the advisor space.

There are three opportunities at play regarding Vise in particular. First, Direct Indexing is perceived to be the next big thing, and recent acquisitions (e.g., Morgan Stanley acquiring Parametric via Eaton Vance, and Blackrock acquiring Aperio) have validated it. The natural extension of goals- and values-based investing is to customize Portfolios down to the stock level to be as personal as the individuals investing in them, and technology makes this easy now. Second, there is arguably no digital-first TAMP in the industry, and it’s long overdue. Vise doesn’t bill themselves this way, but it’s what they are. Third and lastly, even though Vise itself may not look substantively different from other TAMP competitors, this can still play out in a similar manner to the ultimate dominance of Dropbox. That was a commoditized product where Dropbox won big because they had the best engineers, the best investors, and they received the support of Y-combinator. Their product wasn’t different from Google Drive or Box or any of the thousand other file-sharing companies, but it was the coolest (and they had the capital to get the word out accordingly).

At this stage, Vise is the type of company that will either be wildly successful or will flame out in a big way… so in all actuality, valuations don’t matter. If they are someday a $10B+ company that dominates direct indexing the way Dropbox did with file-sharing, the valuation will end up looking very cheap. The market for SaaS and software is proving to be bigger than anyone ever imagined it would be. Who in their lifetime would have thought that we would see a company with a $1T market cap, let alone several? In a few years, a $5B or $10B valuation for a company won’t seem as crazy as it does today.

If ETFs become a thing of the past and everything goes to direct indexing buying individual stocks, meme stocks, and cryptocurrency personalized to each investor – isn’t it feasible that Vise could become as large as Blackrock or Vanguard? Not in a year or two, but in twenty? Who knows? It is more than possible. Which is enough of a case for firms like Sequoia and Ribbit to place a bet and want to be part of the action… and give Vise enough capital that, if direct indexing is the Next Big Thing, they will be able to pay for the talent it takes to figure it out.

InvestCloud Acquires Advicent To Make NaviPlan Its Financial Supermarket Gateway For Enterprises?

At some point in their career, virtually every financial advisor experiences the pain of trying to migrate from one technology solution to another, from the limitations on moving data to the pain of re-training and re-integrating into the advisory firm’s workflows. Yet, in the end, independent advisory firms are still relatively ‘small’ and lean and far more capable of making technology changes than large-scale enterprises, where the switching costs can quickly add up to hundreds of thousands or even millions of dollars.

The end result of this phenomenon is that ‘legacy’ software often becomes deeply entrenched in large-scale enterprises, to the point that even newcomers with more features and benefits at lower costs cannot unseat legacy enterprise deals with the existing incumbents. For which at least one final strategy is: if you can’t beat ‘em, buy ‘em.

And that’s the strategy InvestCloud appears to be pursuing with yet another major acquisition of a ‘legacy’ AdvisorTech player, having acquired Tegra118 earlier this year, and this month announcing the acquisition of Advicent and its substantial base of NaviPlan enterprise users as well. Advicent and its Naviplan financial planning software have steadily been losing market share for some time, but that narrative has been more overblown than most realize, and they still boast an impressive roster of enterprise clients… quite similar to Fiserv/Tegra118 in fact.

Still, though, InvestCloud’s acquisition strategy appears to be about far more than ‘just’ acquiring legacy incumbents and their market share (and ostensibly deploying capital into those players to help further modernize their offerings). As this month, InvestCloud also rebranded its Tegra118 purchase to become InvestCloud Financial Supermarket, where Tegra118’s enterprise chassis can be used not just to track and account for various financial assets, but to outright facilitate their distribution.

In other words, InvestCloud is taking a page from the current Envestnet playbook (and its various managed-account, insurance/annuities, credit, and services Exchanges), shifting its business model from one of traditional SaaS software sales, into a more classic “platform” model where the company can actually facilitate the distribution of financial services products themselves… and earn a small cut of every transaction. In fact, InvestCloud’s marketing for Financial Supermarket expressly positions itself as an “Amazon-like” cloud-based marketplace for financial products (for which InvestCloud, like Amazon, can earn a platform cut of every purchase).

Which is where NaviPlan comes in. Because ultimately, every supermarket still needs a storefront through which its goods can be sold, whether a physical storefront or a digital one. And when financial advisors are the ones that drive the volume of financial services product purchases (whether as commission-based brokers, or fiduciary advisors who still have to make recommendations to clients), the pathway to financial advisor recommendations for implementation is through their financial planning software.

Here, again, the strategy is not unique. Envestnet acquired MoneyGuide in large part to turn it into the digital storefront for its own ‘financial supermarket’ of exchanges, embedding the ability for advisors to purchase insurance and annuities for their clients directly into the financial planning software. And now, InvestCloud will have the same opportunity with NaviPlan (along with a natural existing base of enterprise customers into which its Supermarket storefront can be deployed), as financial planning software increasingly continues to become the driver of not just the advisor-client relationship, but a vertical integration of the advisor, client, platform, and vendor?

FMG Suite and WealthTender Launch Testimonials Tools As New SEC Marketing Rule Takes Effect.

Human beings are social animals, hard-wired to act in a manner that is consistent with “the herd”, and as a result, we often look to what others are doing in moments of uncertainty. As a result, it’s long been recognized that one of the most powerful tools in marketing is to leverage “social proof” – to try to reassure a prospective customer that they’ll be happy with the product or service by highlighting how others who have already made the purchase were happy with their decision. Yet ironically, the reality is that testimonials can actually be so persuasive, that for decades they have been banned amongst investment advisers, as regulators feared that advisors might “cherry-pick” the few most compelling testimonials and omit the rest (in a manner that could be deemed misleading about the advisor’s overall quality of services and results).

However, in late 2020, then-SEC-Commissioner Clayton announced that for the first time in nearly 50 years, the SEC marketing rules for RIAs were being updated, and for the first time would allow advisers to share and highlight client testimonials… a new rule that officially took effect at the beginning of May. Yet the caveat is that while testimonials are now permitted, most advisory firms don’t have any tools or templates to facilitate the collection, dissemination, and oversight of these testimonials (to be certain they are still used in an appropriate and SEC-compliant manner).

Accordingly, this month a number of advisor marketing platforms began to announce their new support tools for testimonials… with varying approaches. In the case of advisor website provider FMG Suite (and their recently acquired subsidiary Twenty Over Ten), the offering includes new Testimonial Page Templates that advisors can configure on their websites, a homepage carousel to rotate through client testimonials, and a button to connect visitors to the firm’s Google Reviews page to view or leave a review. On the other hand, newcomer WealthTender is launching a more centralized “Advisor Reviews” platform, where advisors can sign up for a page on WealthTender that centralizes all of their Google, Yelp, and other third-party website reviews, and repackages them as “Certified Advisor Reviews” (reviewed by WealthTender) for which the advisor can add a Reviews badge to their website (linking to their WealthTender profile).

Ultimately, it remains to be seen whether advisory firms will have more success highlighting client testimonials on their own website (FMG-Suite-style), or centralizing them in a single location (WealthTender-style)… and whether clients will even be interested enough to leave enough advisor reviews to reach a critical mass of testimonials for marketing purposes.

Nonetheless, the reality is that because testimonials have long been recognized as such a powerful marketing tool – including in financial services, where for decades they were only banned because they were deemed too influential and at risk for abuse! – it seems inevitable that client testimonials will soon become a core part of advisor marketing. The only question is how, exactly, advisory firms will find it best to collect and share them for the (right) prospects to see?

OnRamp Launches Platform To Help Advisors Track Clients’ Held-Away Crypto Holdings.

After years of suggesting that cryptocurrency is nothing more than a fad or the latest tulip bubble, a recent FPA Trends In Investing survey finds that after years of <2% of advisors looking to recommend cryptocurrency into client portfolios, suddenly 15% of advisors are making crypto recommendations to clients, and 26% are looking to increase their crypto allocations. Furthermore, a recent Kitces survey found that nearly 50% of advisors are at least open to letting clients invest their own dollars into cryptocurrency (and aren’t actively trying to dissuade their clients anymore).

Enter OnRamp, which is positioning itself as one of the first “cryptoasset integration platforms” for financial advisors.

Similar to Altruist, OnRamp Invest has been another recent AdvisorTech launch that generated substantial pre-launch buzz… and not coincidentally, is led by CEO Tyrone Ross, who was previously Director of Community for Altruist and likely learned quite a bit in his time there about building anticipated launches. Consequently, OnRamp already has a long waitlist of folks who want to see what it is all about.

Given the broader media buzz about investing into crypto, many people seem to think that the goal of OnRamp is to get advisors into a position to actively help clients acquire crypto for their own clients. Yet while that may be a useful feature down the road, there is a much more immediate pressing need that OnRamp is solving for.

It is estimated that 46M Americans currently own at least one share of Bitcoin, let alone any of the other cryptocurrency products. Therefore, there are 46M people who need financial advice around one of the most volatile (and for many, confusing) asset classes to ever come about.

OnRamp’s initial launch aims to help advisors bring their client’s crypto holdings into view of the rest of the portfolio, as well as educate those advisors on the ever-changing tides of crypto.

It also seems as though OnRamp aims to allow “fiat” technology platforms to integrate cryptocurrency data into their more traditional advice tech offerings. Advyzon is the first out of the gate to integrate with crypto via OnRamp, so that advisors can perform performance reporting activities on those holdings in view of the rest of the portfolio.

Ultimately, it remains to be seen if OnRamp will be a long-lasting player in facilitating the integration of cryptocurrency into traditional advisor portfolios, if only because at some point the major players in the traditional space may attempt to compete by way of offering their own direct integrations with Coinbase, Gemini and Prime Trust (the primary cryptocurrency custodians). Nonetheless, the reality is that OnRamp has launched and already built the first round of integrations, while existing incumbents continue to tread slowly… which means as client demand for crypto continues to build with advisors, and advisor demand to at least facilitate held-away crypto reporting rises, OnRamp is well-positioned to capture the early leader market share as existing AdvisorTech providers look for a way to quickly implement such integrations.

In the meantime, though, OnRamp does appear to be positioning itself for a longer-term play to advisors proactively investing into crypto as well (and not merely ‘accommodating’ clients who want to buy it themselves), with a separate announcement that Wisdomtree was partnering with OnRamp to offer crypto-based model portfolios. But are financial advisors really ready to start en masse investing into something with cryptocurrency-level volatility?

Riskalyze Ignites Debate About Risk Tolerance Methodologies In Battle With HiddenLevers And RiXTrema.

Long before advisor technology (or computers themselves) were available to help facilitate it, regulators have required that brokers and advisors must “Know Your Client” (KYC) and understand their financial circumstances and tolerance for risk before making any recommendations, with a particular focus on ensuring that investors do not receive a recommendation to take on more risk than they are willing. Because these KYC requirements pre-date the rise of AdvisorTech, though, in practice such assessments were historically either enshrined on the new account forms to open a brokerage account (with a series of basic questions about time horizon, need for income, investor experience, and willingness to take risk), or accompanying it with a standalone “risk tolerance questionnaire” designed by the firm’s compliance department. Yet “risk” itself is a challenging concept for most to intuitively understand, and recent research has highlighted that most homegrown risk tolerance questionnaires do a remarkably poor job of actually assessing the client’s tolerance for risk.

With the rise of AdvisorTech, though, has come a new wave of tools to both analyze the risk of a portfolio, and to illustrate those risks and help assess a client’s tolerance for them. Which has resulted in three broad categories of risk tolerance assessments: ‘risk preferences’ tools that provide clients with a series of risk trade-off to assess their preferences (e.g., Riskalyze and Capital Preferences); ‘stress testing’ tools that highlight the risks that clients may be exposed to in times of market stress to ensure that they’re comfortable with the risk (e.g., Hidden Levers and RiXtrema; and ‘psychometric questionnaire’ tools that assess risk tolerance without specifically framing it in terms of investment trade-offs (e.g., FinaMetrica and DataPoints), under the auspices that how investment trade-offs are presented can itself taint the objectivity of the assessment.

In this context, it was notable that in May, Riskalyze launched a new marketing campaign, tied to a Riskalyze-controlled website UnhiddenLevers.com, that criticizes portfolio stress testing tools like Hidden Levers and RiXtrema as employing "predictive guesswork" that Riskalyze claims is "wildly inaccurate" in predicting how markets would react in various economic environments. In response, RiXtrema highlighted how its stress testing methodology has been vetted via peer-reviewed journals, and Hidden Levers noted that ultimately its tool is designed to highlight to clients the potential risks they may be exposed to but not to specifically design portfolios for those scenarios (as most advisors hold broadly diversified portfolios anyway), and Riskalyze subsequently 'updated' their critique later in the week, stepping back from calling out individual competitors by name but continuing to highlight the differences between the various risk tools on a new "Guesswork" page on Riskalyze's own website.

At its core, though, the debate really highlights the fundamental differences in views about the purpose of risk tolerance software in the first place. After all, Riskalyze notes that ‘competitors’ stress testing tools in March of 2020 predicted that markets would fall far more than they actually did (and instead they were up for the year!), and that showing clients such negative scenarios could scare them out of the market; yet on the other hand, if clients were comfortable with the risks as highlighted in the stress test, and the portfolios in practice performed better than predicted, then clients clearly did not experience losses in excess of what they could tolerate (the original regulatory purpose of the RTQ in the first place).

More generally, though, when in practice the T3 Advisor Technology Survey shows that only 1-in-3 advisors use any risk tolerance software in the first place, and Riskalyze’s already holds the dominant portion of advisors who do use risk tolerance software, arguably the real opportunity for Riskalyze is not whether advisors use their ‘risk preferences’ versus a competitor’s ‘stress testing’ approach to assessing risk tolerance, but highlighting that any of them are better than the status quo for the majority of advisors still using a not-likely-well-written pre-packaged questionnaire their compliance department ostensibly provides?

Skience’s Salesforce Overlay Goes Beyond Salesforce With SkienceONE CRM-Central Advisor Dashboard And Tech Hub.

One of the biggest fights that has been simmering just below the AdvisorTech surface over the past decade has been the battle for the advisor dashboard. As historically, advisors were in the business of selling products… which meant their “dashboard” was controlled by the insurance company or broker-dealer that facilitated the products that they had for sale, or in the case of RIAs, by the RIA custodian through which they traded for their clients.

But as advisors increasingly shift from products to advice, and the service model shifts away from a product or portfolio focus towards more holistic advice, the reality is that managing an advisory firm itself spans far beyond “just” logging into the advisor’s broker-dealer or RIA custodian platform; instead, the advisory business is increasingly about systematizing and scaling an ongoing service delivery, which increasingly lives in the advisor’s CRM system. Accordingly, advisor CRM systems like Redtail, Wealthbox, and Junxure have increasingly been building out workflow management capabilities, and a number of advisor-specific providers from XLR8 to Skience have facilitated the same via Salesforce overlays.

And now, Skience has announced it is going one step further, with a new platform called SkienceONE that is intended to function as a standalone “wealth management operating platform” that is CRM-neutral (i.e., can be integrated with and overlaid onto any advisor CRM system, not just Salesforce). Notably, because SkienceONE is meant to be an open-architecture overlay to the advisor’s CRM system, it doesn’t replace the CRM; instead, it primarily supports client workflows that feed into the advisor’s CRM (e.g., account openings, transfers, and other repapering tasks), as well as serving as a consolidating hub to be the ‘single source of truth’ for the advisory firm’s data (given that advisory firms may draw in data from multiple custodians and broker-dealers, performance reporting and trading tools, financial planning software, etc.).

In turn, though, this means that SkienceONE will add an additional cost layer to the advisor’s tech stack, which means it is more likely to attract larger advisory firms (where the additional cost is worthwhile to achieve better scalability of the firm’s data and workflows), or for advisor platforms themselves that want a unifying hub for advisors who may themselves be using multiple different CRMs, multiple custody/clearing firms, and multiple other data systems (e.g., independent broker-dealers or various advisor aggregators and networks).

Ultimately, though, the real significance of SkienceONE isn’t simply that Skience is shifting from overlaying Salesforce to any/all advisor CRM systems, but that the demand for technology to automate the back-office workflows of advisory firms is helping to drive an entire shift in the ‘central dashboard’ that advisory firms use, from their broker-dealers and RIA custodians to the advisor’s CRM system (and CRM overlay) as the advisor technology hub of the future?

Betterment Launches Co-Pilot To Surface Opportunities To Add Value For Clients.

When robo-advisors first launched, they declared that they would make financial advisors irrelevant, and that they could deliver (and automate) the value that advisors provide at a fraction of the cost. Now nearly a decade later, it has become clear that robo-advisors were not going to replace human advisors, and instead primarily gained adoption with self-directed investors who didn’t want to hire a financial advisor and preferred to self-serve directly from a technology platform… along with a subset of advisors who adopted “robo” tools (including Betterment’s own advisor platform) because they wanted to automate the purely administrative investment-related tasks so that they could spend even more time giving advice to their clients!

Yet just having more time for clients isn’t necessarily an advantage for financial advisors unless they can focus that time in a manner that actually adds value to clients. As just having “more meetings” isn’t something that clients are even receptive to if the reality is that there’s nothing relevant to actually talk about or plan for!

Yet several years ago, Morgan Stanley began to pioneer a new technology solution to support this. Dubbed “Next Best Action”, the software scans all available data about clients to spot potential opportunities for advisors to reach out and have specific conversations with their clients about timely and relevant topics that impact those clients directly. And now, Betterment has announced its own  “machine-assisted technology offering”, dubbed “Co-Pilot”, to help advisors using its Betterment-for-Advisors platform to know what their next best action is with their own clients.

Such Next-Best-Action style offerings are increasingly becoming a hot new area in AdvisorTech. However, in practice, they are incredibly difficult to execute without robust and clean data. Which is why thus far, they’ve largely been built by either proprietary platforms that own all the data (e.g., Morgan Stanley), or overlays to the advisor’s CRM that tends to house the most data (e.g., ForwardLane).

Betterment has a lot of portfolio data, and potentially even goals-based data on clients that go through some of its onboarding tools… but they don’t necessarily have the rich CRM data that is typically required for successful Next-Best-Action execution. Accordingly, even Betterment acknowledges that its initial Co-Pilot offering is mostly just about facilitating actions related directly to (just) the client’s Betterment accounts, including reminding clients to accept invitations to open accounts, sending reminders to approve account openings, prompting advisors to get the clients’ missing beneficiary information, and notifying the advisor of pending and failed ACAT transfers. All of which certainly are relevant Next-Best-Action prompts to come from an investment platform like Betterment. But won’t necessarily support the entire holistic advisor-client relationship.

On the other hand, one could also make the case that Betterment would argue that it’s incredibly difficult for one platform to provide a comprehensive next best action offering in the first place, and that it will need to be segmented (where each software solution in its category surfaces actions in its category, to feed into a centralized location like the advisor’s CRM). Betterment is at least trying to position itself to own its segment.

Still, though, the struggle for Betterment – not unlike the woes that Apex has seen – is that while it is investing quite a bit into its platform for advisors (as they have Altruist as a very fierce competitor now!?), advisors have been hesitant to trust some of the most critical components of their business and livelihoods to a company that doesn’t primarily focus on them and began as a direct-to-consumer adversary. Which means Betterment may still struggle to gain interest and adoption, even if the Next-Best-Action approach is philosophically and directionally correct about where the advisor business is going. Though if Betterment can implement a version that executes well and has a real impact for advisors, perhaps its Co-Pilot feature can begin to sway more advisor adoption?

RIA In A Box Acquires Itegria As Compliance And Cybersecurity Increasingly Overlap.

One of the most unique aspects of the independent RIA model is that even a solo advisory firm is permitted to operate with the founder/owner overseeing themselves as their own Chief Compliance Officer. Yet the fact that an independent RIA founder can be their own CCO doesn’t mean it’s a “free pass” when it comes to compliance oversight. The SEC and/or state securities regulators still expect firms to implement, and be able to document that they have implemented, appropriate compliance policies and procedures.

Nonetheless, the practical constraints of being a solo advisor (or one with a half dozen to a dozen employees) mean that most RIA founders struggle to shoulder their compliance duties along, and in practice outsourcing and leveraging technology for compliance efficiencies is very popular.

RIA In A Box has increasingly become a leader in this space, particularly for small-to-mid-sized RIAs, and steadily continues to build out a very robust offering so that firms can have one contract, one vendor, and a tightly integrated solution where their compliance tools integrate to all of their other key technology platforms. In fact, the irony is that while most AdvisorTech firms are fighting over the incredibly valuable real estate to be the screen that advisor uses when they are meeting with a client to deliver advice, or are fighting over the real estate to be THE screen where an advisor executes the plan… RIA In A Box has quietly found an adjacent vertical – to be the technology that oversees it all – and continues to expand its capabilities to capture more compliance-related technology functions.

For which the latest is not simply to offer more tech-savvy compliance tools, but to actually become the outsourced IT provider that supports those tools, with its acquisition of Itegria.

Given the growing regulatory scrutiny of cybersecurity, the deal makes sense. In practice, cybersecurity lives squarely at the intersection of IT support and compliance oversight, for which Itegria offered both a secure virtual desktop approach (AdvisorCloud), and a full outsourced-IT option (AdvisorCare), along with a standalone cybersecurity monitoring service (AdvisorGuard). With the acquisition, RIA In A Box expands itself more squarely into the supported-cybersecurity world, and gains a natural partner both to cross-sell its existing firms the Itegria virtual desktops and outsourced IT solutions, and to offer RIA In A Box compliance capabilities to Itegria’s RIA clients.

And bear in mind that RIA In A Box is funded by private equity firm Aquiline… which means it has access to capital, such that Itegria will likely not be its last strategic acquisition as the firm continues to expand capabilities beyond its compliance core.

ScratchWorks Opens For Season 4 With AdvisorTech Pitches To Occur At T3 Advisor Conference.

While the world of FinTech has exploded in popularity over the past decade, from the rise of “robo-advisors” like Betterment and Wealthfront to next-generation investing platforms like Robinhood and Acorns to lending-oriented platforms like SoFi and Credit Karma, not to mention the growing domain of payments (Stripe) and blockchain and Bitcoin… the reality is that “AdvisorTech” has remained a relatively small domain of the larger FinTech world, and one with far less venture capital funding.

In large part, this is simply due to the more limited market opportunity, when there are more than 100 million US households but “just” about 300,000 financial advisors, which means even a “large” advisor technology company can only get so large. Still, though, a growing number of sizable AdvisorTech exits, with MoneyGuidePro being acquired by Envestnet for $500M and TA Associates reportedly seeking a $2B valuation for Orion Advisor Solutions last year, means AdvisorTech is attracting more attention lately, including and especially amongst successful advisors themselves who have intimate knowledge of their own industry, and some free cash flow to invest.

A case-in-point example is ScratchWorks, which first launched in 2018 with a Shark-Tank-style approach of having prospective AdvisorTech startups pitch to a panel of advisory firm founders who are looking to invest. In recent years, ScratchWorks has put dollars into marketing technology Snappy Kraken, Lifeworks digital automation tools, and the ReAllocate platform that aims to facilitate direct investments for advisors into real estate, all of which were early-stage Angel or Seed rounds. And now, ScratchWorks has announced that it is open for its Season 4 applications, with finalists being invited to pitch their solutions to the investors at Joel Bruckenstein’s T3 Advisor Technology conference in late September.

Ultimately, ScratchWorks ‘only’ selects 3 finalists for pitches, and in practice not all the companies that present even end out getting an investment at the event, which means many advisor startups will still have to look elsewhere for opportunities for capital and visibility. Nonetheless, when it’s especially hard for AdvisorTech founders to get early rounds of Angel and Seed capital – or even get the attention of VC firms that view the entire AdvisorTech vertical as “too small” of a market opportunity because many companies “only” exit for tens of millions (and will never be the next unicorn) – ScratchWorks both fills an important gap in AdvisorTech funding, and provides a chance to glimpse the next emerging innovations in AdvisorTech.

For those who want to see it for themselves, check out the T3 Advisor Technology Conference in September in Denver, and for AdvisorTech founders still looking for capital, the application window remains open through June 15^th!

In the meantime, we’ve updated 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? Will Zoe Financial and Tifin Group be able to find enough ‘unattached’ prospects to refer to financial advisors? Will Altruist be able to compete as the next big RIA custodian? Are client testimonials going to become part of the mainstream marketing approach for financial advisors? Please share your thoughts in the comments below!

 Disclosure: Kyle Van Pelt is the Executive Vice President of Sales at Skience and on the Advisory Board for OnRamp Invest both of which were mentioned in this article