Executive Summary
Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the news of yet another legal victory for the Department of Labor, as the request from the National Association of Fixed Annuities (NAFA) for a preliminary injunction to stop the DoL fiduciary rule was denied (though NAFA's appeal for its original loss to the DoL is still pending).
Also in the news this week was the launch of Schwab's new Intelligent Advisory service, an expansion of its "robo-advisor" program for the mass affluent that will provide access to a CFP certificant who provides a personalized financial plan (in addition to investment management), all for a mere 0.28% AUM fee (plus the cost of the underlying ETFs) with a $25,000 minimum - a bold competitive shot across the bow of Vanguard's Personal Advisor Services (with a 0.30% AUM fee and a $50,000 minimum), but also to a wide swath of independent financial advisors who also work with mass affluent clientele (some on Schwab's own Institutional platform!).
From there, we have a slew of advisor technology articles this week, including: the latest results of the annual Financial Planning tech survey (though unfortunately, this year FP magazine is limiting access to the survey results!) and only highlighting the top few companies in each category; a review of new advisor marketing tools Snappy Kraken and Twenty Over Ten; a discussion of the new PFM app Moven, which competes primarily in the banking space but could see adoption from the clients of financial advisors; a look at "sleeve accounts" in portfolio accounting software and why they can be more efficient than just creating multiple accounts to separate clients' assets; a review of the latest (and pending) tech developments at the major RIA custodians (Schwab, Fidelity, and TD Ameritrade); how Riskalyze intends to deploy its new $20M of private equity (by pivoting from "just" a risk tolerance assessment tool to a broader "robo" solution that supports acquiring and onboarding new clients); and a look at the explosion of new DoL compliance technology tools (and why there may already be "too many" for what most advisors really need).
We wrap up with three interesting articles, continuing the technology theme: the first is a look at the ever-expanding impact and power of social media tools, which aren't just a marketing channel but are allowing people to organize new social and political movements in ways that simply weren't feasible in the past; the second is a review of several financial-oriented websites and apps that are increasingly pivoting towards becoming "automated financial assistants", from Digit to Mint to Credit Karma, which could begin to compete with financial advisors, or simply complement areas they don't typically advise on anyway; and the last is an overview of the empirical research that still suggests, in the end, that technology and automation really don't cause mass unemployment, and can even boost employment in some sectors (as the number of bank tellers increased after the introduction of the ATM), but with the accelerating pace of technology change, suggests that at a minimum we need to get better about helping people prepare for new jobs and industries (which has both job training and financial planning implications!).
And be certain to check out Bill Winterberg's "Bits & Bytes" video at the end, which this week includes coverage of the new Schwab Intelligent Advisory solution, the news that Finicity has raised $42M of venture capital to begin development again on the "old" Intuit Financial Data APIs, and the rollout of Yodlee account aggregation capabilities on the Envestnet|Tamarac Advisor Xi platform.
Enjoy the "light" reading!
Weekend reading for December 17th/18th:
Appeals Court Denies NAFA Motion For Emergency Injunction Of DOL Fiduciary Rule (Mark Schoeff, Investment News) - On Thursday, the D.C. Circuit Court of Appeals denied the request of the National Association of Fixed Annuities (NAFA) for a preliminary injunction of the Department of Labor's fiduciary rule. The NAFA request was intended to halt the rollout of the rule, while NAFA continues to appeal their prior loss of a lawsuit seeking to have the fiduciary rule struck down. Notably, legal experts have pointed out that the likelihood of NAFA being granted an injunction was not high, as the legal requirements for the courts to stop a published regulatory rule are quite stringent. Nonetheless, the NAFA failure to get an injunction compounds on its prior loss to have the rule struck down, and a similar court ruling in favor of the Department of Labor in its parallel lawsuit from Market Synergy Group, are continuing to build momentum for the DoL and its fiduciary rule enforcement date in April. In the meantime, of course, there's still a question of whether or how President Trump, or incoming Labor Secretary Andrew Puzder, might seek to at least pause the fiduciary rule... but it's looking less and less likely that the rule will be struck down entirely.
Charles Schwab To Combine Robo-Advice And Financial Advisers In New Hybrid Model (Liz Skinner, Investment News) - This week, Charles Schwab announced the launch of a new financial planning service. Dubbed "Schwab Intelligent Advisory", the solution will be a combination of its existing Schwab Intelligent Portfolio solution paired with a CFP financial planner who provides a customized financial plan and is available for ongoing advice (albeit virtually, through a combination of telephone, chat, and email), along with access to financial planning software to monitor their progress towards goals (through MoneyGuidePro and their MyMoneyGuide solution). The solution will have a $25,000 minimum, and is priced at just 28bps (plus the cost of the underlying investments in the portfolio itself), up to a maximum of $900 per quarter, with no separate trading commissions or account service fees, and Schwab states that it is intended primarily to serve the "mass affluent" marketplace (households with less than $1M of assets). Notably, while some have noted that the Schwab pricing (28bps) and minimum ($25,000) appears to be a direct stab at Vanguard's Personal Advisor Services (which charges 30bps with a $50,000 minimum), others have pointed out that Schwab's service also puts it in very direct conflicts with the advisors who use their custodial platform to serve households under $1M of AUM.
Seismic Moves For Digital Wealth Management (Joel Bruckenstein, Financial Planning) - Every year, Financial Planning magazine does an industry-leading survey of tech adoption amongst advisors, unique in that it actually controls the sampling process to avoid the risk that advisor tech companies just promote the survey to their users and bias the results. Unfortunately, though, for the first time this year the survey results are not available to advisors directly, and instead must be purchased separately (which sadly will make this survey much less relevant and followed amongst financial advisors in the future). Fortunately, at least Bruckenstein's write-up of the results highlights some of the notable trends, including: in the world of CRM, the software is evolving from "just" client relationship management, to a platform for systematizing processes and workflows, and to aggregate business intelligence, with the leaders including the affordably-priced Redtail for independent advisors, Salesforce for large firm enterprises, and upstart Wealthbox amongst the independent RIAs (especially "smaller" solo advisors), while ACT, Goldmine, and Outlook (which isn't even really a CRM!) are on the decline; in Financial Planning software, MoneyGuidePro and eMoney Advisor are the clear market leaders (with Advicent's NaviPlan not far behind), along with newcomers Advizr and RightCapital; in the world of risk assessment tools, Riskalyze has the largest share of the marketplace (and growing market share rapidly), while FinaMetrica continues to maintain some presence (primarily amongst older independent RIAs), and most broker-dealers still rely on compliance-department-created questionnaires; when ti comes to portfolio management software solutions, Morningstar is the overall leader (given their dominance in the broker-dealer category), with strong showings from Envestnet's Tamarac Advisor Xi, Black Diamond, and Orion, though it remains to be seen how the landscape will shift in the next few years as Schwab and Fidelity both launch their own new solutions; and when it comes to "digital advice"/robo platforms, the leaders are Schwab's Institutional Intelligent Portfolio solution, Betterment for Advisors, and Riskalyze's Autopilot. The other notable stat from the survey: almost 1-in-7 advisors were the subject of an attempted (or successful) cyberattack last year (or more, since some may not even be aware they were targeted!).
Snappy New Tools For Adviser Marketing (Dave Grant, Financial Planning) - Grant profiles two new solutions for financial advisor marketing. The first is Snappy Kraken, winner of the inaugural FinTech competition at XYPN, and brainchild of former advisor marketing consultant Robert Sofia. Snappy Kraken is designed to automate an advisor's digital marketing, from running marketing campaigns to prospects via email or social media platforms, to creating landing pages that convert visitors into prospects, where advisors can choose from a library of available content, and then customize it to their business and personalize it to their clientele. The software is expected to launch in Spring of 2017. The second solution is Twenty Over Ten, a website design firm for financial advisors, which built its own proprietary Content Management System (CMS) and features as its key differentiator a built-in compliance engine that does website backups, sends website edits to compliance before publishing, and provides a support team to make adjustments as needed. The company also recently launched Providence, an enterprise version of its website design platform specifically for broker-dealers.
A PFM App Pushing Clients To See The Bigger Financial Picture (Penny Crosman, Financial Planning) - A growing number of mobile apps are helping consumers track their spending and saving, but most are focused on directly money to a particular investment solution, or to give people nudges about profligate spending. A new player in the space, called Moven, is aiming to not just track spending and saving, but functions as a (digital-only) bank that tries to help people adjust their saving behaviors in the long-run as well (by nudging about both near-term and long-term financial goals). Ultimately, the key question about tools like Moven is whether and to what extent they actually can help consumers adjust their behavior, and whether some behaviors are more conducive to be changed by technology versus others that need a human (e.g., financial advisor) intervention. So far, internal tests of Moven by its enterprise users (e.g., TD Bank Canada, which has compared Moven-user results against control groups), is finding that spending really can be moderated, and savings increased, with the use of the technology, at least to some extent. So far, Moven is still targeted primarily to consumers, but one wonders whether an advisor-based version could be available in the future, and where the intersection is between technology-driven behavior change, and the use of an advisor to support the process.
Are Sleeve Accounts Right For You? (Eric Clarke, T3 Technology Hub) - Historically, using multiple separate managers (or segregating special assets) for clients necessitated having multiple separate accounts, as it was the only way to create a clear delineation between them and avoid mixing up the clients' accounts and assets. Yet in practice, this can create substantial administrative hassles for both clients and advisors, from maintaining the accounts themselves, to handling transfers across accounts to rebalance, or managing across multiple accounts when clients need to free up cash. The alternative? Using "virtual sleeve accounting", where assets are held consolidated in a single account, but the portfolio accounting software itself segregates the assets for reporting and management purposes into separate "sleeves", even without creating separate accounts. Using sleeves can be helpful when you want to allow multiple managers to handle different parts of a single client account (without seeing what the others are doing in the account, and without splitting accounts), or if as an advisor you have multiple management strategies for the same client and want to be able to manage them in the same account. Sleeve accounting is also useful to group together some but not all accounts (if there have to be multiple accounts). And sleeve accounting can be effective if you need to "set aside" legacy stock positions for the client, or a substantial cash allocation, ensuring that they're not unwittingly "managed" and traded, but without needing to administratively create a separate account.
Custodians Raise The Bar (Joel Bruckenstein, Financial Advisor) - Given the rising demands on (independent) financial advisors, from compliance obligations and cybersecurity, to client service and business efficiency, RIAs are increasingly turning to their custodians for support, and in this article Bruckenstein reviews the latest from leading RIA custodians Schwab, Fidelity, and TD Ameritrade. For TD Ameritrade, the current focus is on improving the client experience, and their biggest initiative is the rollout of VEO One, the successor to its existing VEO advisor workstation, which will roll out with a growing feature set in 2017. Other TD Ameritrade initiatives in the coming year include better business data analytics and benchmarking (after their acquisition of FA Insight earlier this year), new account opening tools to facilitate "near real-time" digital account openings, and a new native Salesforce app, along with the integration of their recent Scottrade Advisor Services acquisition (which will mean Scottrade advisors getting upgraded to the full TD Ameritrade Institutional platform). At Schwab, there haven't been any "blockbuster" announcements for advisor technology, but a lot of substantial incremental developments, including more enhancements for its Institutional Intelligent Portfolio offering (including access to more than 950 ETFs, and the ability to create up to 45 advisor-defined asset classes) and a streamlined account-opening process, and in 2017 Schwab is preparing a new client-facing app for smartphones and tablets (still advisor-branded), the ability of advisors to upload advisor agreements to Schwab so that clients can digitally sign them alongside the Schwab account opening agreements, and new cybersecurity resources. For Fidelity, 2017 will be a big year, with the looming launch of its new total advisor platform "Wealthscape", a combination of the predecessor Streetscape and WealthCentral workstations and including deep integrations with eMoney Advisor's emX suite, along with their custom-built "digital advice solution" Fidelity Automated Managed Platform (AMP), and a new portfolio management solution called Wealthscape Portfolio Tools.
How Aaron Klein Plans To Make Riskalyze The Epicenter Of RIA Business With $20M Of Private Equity (Brooke Southall, RIABiz) - In just 5 years, Riskalyze has grown rapidly to a 105-employee, 15,000-user advisor technology solution, and this fall the company took a substantial $20M infusion of private equity capital to fuel its future growth. Notably, though, while Riskalyze is thus far known primarily for its risk assessment tools, it is aiming to expand further into an entire "robo" solution that turns the onboarding process for every client into a positive digital experience (rather than the current approach of using "robo" tools for smaller clients and traditional solutions for the more affluent prospects). The opportunity is especially appealing with the looming Department of Labor fiduciary rule in April, which will create newfound pressures for all financial advisors to both improve their new client acquisition and onboarding process, better document client goals and risk tolerance, and ensure the two are appropriately linked together. On the other hand, alternative solutions like Hidden Levers and Totum Wealth also see an opportunity to bring together their technology and the looming compliance needs of the DoL fiduciary rule, but given Riskalyze's head start on market share, and substantial new capital, it remains to be seen whether their competitors can catch up, or if Riskalyze will simply pull further ahead.
DoL Compliance: The New Growth Industry (Jerilyn Klein Bier, Financial Advisor) - Despite the recent ambiguity about whether or how President Trump will repeal or at least defang the DoL fiduciary rule, advisor technology providers continue to ramp up prospective DoL fiduciary solutions. The list includes expansions of the Envestnet platform to accommodate DoL fiduciary requirements, eMoney Advisor rolling out a new "Fiduciary Framework" initiative (including a "best interest facts" tracker), new DoL compliance features from Riskalyze, a partnership between SEI Advisor Network and Redtail CRM, broker-dealer Cetera's new "iAnalyze" tool, and more solutions being announced from RiXtrema, AssetMark, and Fi360. In fact, one of the looming challenges now is not a lack of DoL compliance solutions, but a struggle to figure out which ones are actually necessary for any particular advisor, especially as DoL compliance solutions are being found in CRM, financial planning software, portfolio accounting solutions, and more, all at once. Accordingly, advisors who are considering new solutions should at a minimum look at the solutions of their existing solutions first (rather than just figuring out how to integrate new technology), evaluate whether there are any real gaps, and when testing new software, challenge the vendor to walk through exactly what their solution really does, how it differs from what the advisor already has, and how exactly it would fit into the advisor's workflow.
Social Media's Globe-Shaking Power (Farhad Manjoo, New York Times) - In the aftermath of the election, both Google and Facebook have altered their advertising policies to limit the ability of fake news sites to make money from spreading their fake news. However, Manjoo suggests that these reforms – and the fact that they're even necessary – are really just a part of the growing realization of just what a cultural and political force today's social media platforms have really become. It's no longer just about the relative competition between mainstream media and social media, but how society itself is reorganizing its networks and connections through social media channels, create the potential for once-marginalized groups to gain substantial social influence and reach, from the rise of the "alt-right" white supremacists in the US to Brexiters in the UK and ISIS in the Middle East, as well as the success of President Trump himself (who was entirely written off by the mainstream media but using social media to deliver messages that ultimately resonated to the point of getting him elected). For some, this raises the question of whether social media platforms need to be better controlled or managed – to "prevent" this kind of re-ordering of social networks and communication – but Manjoo suggests that at this point, it's simply a reality that we need to face, and give better consideration going forward. In fact, the ability of people with once-maligned views to now find each other, organize together, and push their views into the mainstream, suggests a fundamental shift in the balance of power from centralized elites to the collectives that can be organized via Facebook... which means we may see even more 'insurgent' candidates coming forward in the future, as society adjusts to its newfound connectivity.
Automated Assistants Will Soon Make A Bid For Your Finances (Nathaniel Popper, Dealbook) - There are a growing number of startups aiming to help people save more – companies like Digit, which uses 'basic' artificial intelligence to monitor a person's spending, figure out when they've got a few extra dollars in their checking account that they won't miss, and automatically withdraw it to a separate savings account. But the more information it gathers about consumer behavior, the more Digit is aiming to move "upmarket" and become an increasingly automated financial assistant for the masses – a goal that is shared by its competitors like Credit Karma and Mint, which have both signaled that they, too, are about to roll out new features that will make them feel more and more like (robotic) financial advisors that give consumers helpful nudges when needed. Of course, so far most of these solutions still require a lot of human input as well, and it's not clear how soon they'll really be fully automated; nonetheless, they are applying their machine learning and artificial intelligence capabilities to figure out what kinds of proactive advice they can give, which should only improve over time as they're more and more widely adopted. And notably, unlike the first generation of products, which often gave nudges that would push people into their own proprietary solutions, the new crop of automated financial assistants are aiming – at least so far – to function more like neutral advice intermediaries, giving consumers nudges towards whatever is the best product solution (albeit still often taking a commission after the fact when the consumer implements). Ultimately, it remains to be seen what behaviors the technology can drive, and whether the platforms can maintain their objectivity, but the key point is that the competition for consumer attention regarding their finances isn't just a robo-advisor investment phenomenon, but is occurring from multiple different directions simultaneously (albeit while focusing on somewhat different segments of the consumer marketplace).
Automation Can Actually Create More Jobs (Christopher Mims, Wall Street Journal) - There has long been a fear that with automation would come mass unemployment, as "robots" and automation eliminate available jobs; yet a recent study finds that since the Automated Teller Machine (ATM) arrived in the 1970s, the number of bank tellers has more than doubled instead, as the efficiencies created by ATMs allowed banks to profitably open more branches than ever before, ultimately increasing the number of jobs. Of course, some industries fare better than others, as jobs in agriculture and manufacturing really do seem to be more substantively (and potentially, permanently) impacted; nonetheless, there's still no evidence that it's happening across the entire economy. Instead, the ongoing trail of empirical evidence still finds that technology automation ultimately increases productivity and leads to more wealth, cheaper goods, increased consumer spending power, and eventually, more jobs. However, the transitions that are forced by automation can be disruptive and cause real-world suffering – at least until workers find new jobs or even industries – and the accelerating pace of change may be making these transitions more difficult. In addition, it's not clear that all segments of society benefit equally, a concern being raised in today's environment as skilled workers in complex jobs grow, but a middle class that relied on jobs in more impacted sectors (e.g., factory manufacturing) bear the brunt (and see wage stagnation). Which means at a minimum, if our long-term goal is to avoid mass unemployment, we may need to increase our resources to support mass retraining and transitions to help people shift from one job or industry to another as technology marches on (not to mention the financial planning support to help them make the change successfully!).
I hope you enjoy the reading! Please let me know what you think in the comments below, and if there are any articles you think I missed that I should highlight in a future column!
In the meantime, if you're interested in more news and information regarding advisor technology I'd highly recommend checking out Bill Winterberg's "FPPad" blog on technology for advisors. You can see below his latest Bits & Bytes weekly video update on the latest tech news and developments, or read "FPPad Bits And Bytes" on his blog!
We made the move to become an independent RIA back in 2007. (Great timing for a transition to a AUM fee-only model. We had our own stress test, and passed!) In our research we determined that Schwab was effectively in competition with IAs who used it as a custodian. Looks from here like we have a validation.
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