Nerd's Eye View blog

Weekend Reading for Financial Planners (Mar 11-12)

March 10, 2017 02:56 pm 3 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a reminder that while most regulatory attention has been focused on the Department of Labor's fiduciary rule, the Treasury's FinCEN group is actively working on a new set of anti-money-launching (AML) rules that could impose new compliance burdens on RIAs (akin to what broker-dealers and banks already have to deal with for AML compliance). And in the DoL fiduciary news itself, the buzz this week is that with a potential 60-day delay on the table, asset managers have been slowing their development efforts on the new T-share class, at least until the dust clears.

From there, we have a number of articles this week about marketing and business development for financial advisors, including: how to think differently about crafting a (more unique) value proposition for clients; a structured process for trying to create and articulate your value proposition; some new research on why clients leave advisors (and how to start conducting exit interviews to understand for yourself why your ex-clients left, and what you might need to change); and an interesting article about whether in the world of digital marketing, it's better to stop thinking of potential new clients as "prospects" to sell at all, and instead think of them as an "audience" to engage instead.

We also have several articles specifically on how to create better engagement with clients and prospects, from how to create a "client persona" in your marketing to further refine your messaging and improve engagement with prospects, to the latest research about how people have different engagement styles, and the importance of adapting your own communication to match the client's style, and why it's so crucial to not just answer a prospect's questions but ask them questions and get them talking in a prospect meeting (as it better engages them and leads to deeper rapport).

We wrap up with three interesting articles that challenge conventional thinking in the industry: the first is an analysis by Wade Pfau, building on a prior article from this blog, about how the DALBAR behavior gap study is actually fundamentally flawed in the way it compares investor to market returns over 20-year time periods (as DALBAR compares investors to the returns of the market invested with a lump-sum all at once, even though most people didn't have all their wealth to invest 20 years ago); the second raises the question of whether the whole "passive revolution" is overstated, and whether the phenomenon is simply that investors (and advisors) are no longer stock-pickers and instead are "asset pickers" (for which index funds and ETFs are simply convenient active building blocks); and the last raises the question of whether, as robo-advisors continue to evolve, if eventually financial planning will be given away for free by robo-advisors... or whether the ongoing lead generation, engagement, and self-onboarding tools of financial planning software means eventually it will automate itself to the point that it doesn't need a financial advisor anyway (or at least, that the advisor has to provide a value proposition above and beyond just the software analysis itself!).

Enjoy the "light" reading!

How The Advisory Industry Has Stifled #FinTech Innovation

March 9, 2017 07:24 am 5 Comments CATEGORY: Technology & Advisor FinTech

Our whole world is currently being changed by technology. From smart appliances powering our homes, to the apps and software that help us manage our daily tasks, to the rise of autonomous vehicles that may eventually reshape how we travel... change is all around us. Yet, while technology has come a long way over the past few decades, the unfortunate reality is, for financial advisors, our technology solutions have lagged other industries.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, I discuss how it has been the advisory industry itself that stifled its own #FinTech innovation, and how our industry's structure and standard practices have caused advisor technology to lag so far behind other industries.

The first problem in the financial advisor marketplace is that we are incredibly fractured. By some estimates, anywhere from 80% to 90% of advisory firms are either fully or quasi-independent, which means that it is really hard for advisor technology firms to gain traction when they have to sell to each firm one at a time. Advisor tech firms do have the option of going through independent broker-dealers and custodians to try and reach a critical mass, but even then, the reality is that advisors aren't forced to use new technology, so firms must still convince advisors that adoption is worth the time and hassle... which is not a strategy that generally leads to fast adoption!

This dynamic wouldn't be so problematic if advisor tech firms had a good way to reach advisors en masse, but unfortunately, they don't! The most logical way to try and do it is to reach advisors through conferences as an exhibitor, but even this isn't feasible for most startups given the high cost of renting a booth at the typical advisor conference. Because the reality is that these startups must bid for booth space against huge financial product manufacturers (asset managers, insurance companies, etc.), which ultimately prices most startups out! And this dynamic is unfortunate not just because it means it's more challenging to launch new advisor tech firms and develop great technology, but also because it fills exhibit halls with companies that sell through advisors (to reach our clients) rather than selling actual solutions to advisors, meaning that advisors have little interest in talking to most exhibitors anyway!

The last problem worth acknowledging is that enterprises, such as large broker-dealers and RIA custodians, arguably control too much of the development of advisor technology. That's not to criticize these companies necessarily, but the reality is, they're in the business of getting and investing client dollars, which means that software they help develop ultimately focuses too heavily on those activities (gathering assets and selling products) rather than real financial planning advice. Thus why financial planning software hasn't developed great budgeting, cash flow, debt management, or dynamic retirement models; because ultimately, those are important for delivering advice, but not very relevant in gathering assets and selling financial products. Yet, to reach any level of scale, advisor tech companies have historically needed to work with these companies, but as they do, they become beholden to the enterprise companies focused on the old way of doing business, and innovation that would provide real planning value gets stifled.

The good news is that things are starting to change. Venture capital firms like Vestigo Ventures, which is specifically willing to fund startup advisor technology solutions, are beginning to emerge... companies are finding ways to grow through independent RIAs and pivot to enterprises and scale up... conferences are beginning to adopt more flexible exhibiting pricing that opens the doors to startup companies... and even some enterprises are becoming more flexible in their approach to advisor technology. But ultimately, the combination of these factors is why advisor technology has lagged, and we have not seen the technology growth that other industries have experienced.

Why Congress Should Allow Financial Planning Fees To Be Paid From A Retirement Account

March 8, 2017 07:00 am 7 Comments CATEGORY: Planning Profession

Acknowledging the need for and value of professional guidance in the long-term management of investment assets, the Internal Revenue Code allows investment advisory fees to be deducted as IRC Section 212 deductible expenses. Additionally, tax law also allows for Section 212 deductible expenses to be paid directly from the retirement account which accrued the expense, without fear of being treated as a taxable distribution (potentially subject to early withdrawal penalties) or a "prohibited transaction" (which could otherwise disqualify the entire account). However, while the benefits of investment advisory services are implicitly acknowledged in current tax law, the same is not true of financial planning services; unfortunately, financial planning fees cannot be paid from a retirement account without triggering the aforementioned adverse tax consequences... even though they may be equally (if not more) important in helping someone accomplish their long-term financial goals!

In this guest post, Derek Tharp – our new Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – delves into why it's problematic that financial planning fees can "only" be paid from after-tax accounts, the behavioral advantages of being able to pay financial planning fees from a retirement account instead, and explores how modifying current tax rules could allow more consumers to access financial advisors (while also creating better incentives for all advisors to be able to give advice that aligns with the clients' best interests).

The reason why the source of financial planning fees matters is Shefrin and Thaler's mental accounting framework, which finds that consumption is broadly divided into three buckets: current income, current assets, and future income (or the assets that support future income). We know from behavioral research that people treat these "buckets" of money differently, where certain purchases are more or less likely to occur from one bucket versus another (depending on the nature of the expense). When it comes to financial planning services in particular, which is generally associated with "long-term" planning, mental accounting alignment suggests that consumers would be most comfortable paying such expenses from the "long-term" (i.e., future income) bucket. However, as noted earlier, paying financial planning fees from a retirement account isn't permitted... unless the financial planning services are bundled into a primarily-investment-management AUM fee, or a product commission paid with IRA dollars, which isn't always feasible or desirable.

There are alternative options that could be considered for giving consumers more control over their future income assets, though. One simple solution is to allow consumers to write checks or transfer funds to licensed financial advisors directly from their retirement accounts, and make the expense permissible (without adverse tax consequences) as long as it's paid to a (registered?) financial advisor. Other possibilities include giving consumers greater flexibility to roll money out of employer-sponsored retirement plans (similar to current HSA rules), or opening up paths for consumers to pay for services without rolling their funds out of employer-sponsored plans in the first place. Though, perhaps the simplest solution of all is to modify IRC Section 212 to recognize financial planning fees, which would both allow financial planning fees to be deductible when paid from an after-tax account, and also to be "safely" paid pre-tax from a traditional qualified account (perhaps with a complementary safe harbor under Section 4975 to make it clear that "comprehensive" financial planning fees are not prohibited transactions).

But ultimately, if the aim of tax policy is to facilitate better outcomes for consumers, it's worth acknowledging that the current framework unintentionally exhibits poor behavioral characteristics by limiting the ability of consumers to pay for long-term financial planning advice from accounts that are ear-marked for long-term goals (or forcing those financial planning fees to be bundled with AUM fees or product commissions that may not be practical or feasible in all situations)!

#FASuccess Ep 010: From Unpaid Intern to Advisory Firm CEO and Successful Succession Planning With Eric Hehman

March 7, 2017 07:00 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the tenth episode of the Financial Advisor Success podcast!

My guest this week is Eric Hehman of Austin Asset, who over the past 20 years has completed an incredible journey from being an unpaid intern for the founder John Henry McDonald when he was still a solo practitioner, to now becoming the successor owner and CEO of what is today a successful independent RIA with $750M of AUM.

In this podcast episode, Eric gives us some background about Austin Asset today and its incredible growth since he started working for the founder in 1997, from how the firm established itself as an early fee-only pioneer in the Austin area, to how it adapted its business model from standalone financial planning fees to charging on AUM (and why the firm still often charges separately for a financial plan as well), the way the firm develops its younger financial planner by having them work with smaller clients to gain experience and confidence, and the firm’s current structure today with 16 staff (including 12 CFPs) serving about 300 affluent clients.

What’s fascinating about this interview with Eric, though, is not simply the story of Austin Asset’s growth, but how its succession plan unfolded over time, as told from the perspective of the successor. Eric details why the founder was willing to sell him a 10% stake at just 1X revenue, how the founder transitioned his own role away from client relationships and out of management over time, and the way ownership and salary was transitioned to maintain the founder’s income at a steady level for a period of time.

And be certain to listen to the end, where Eric discusses what led him to ultimately write a book about his succession planning experience – aptly called Success and Succession – and why it is that notwithstanding the industry’s focus on the crucial financial and management transitions of a succession plan, it’s the emotional issues that ultimately drive (or can ruin) the outcome.

So whether you’re simply looking for ideas on how to grow a large financial planning firm, or are specifically looking for perspective on succession planning – as the founder, or the successor – I hope you enjoy this latest episode of the Financial Advisor Success podcast!

The Latest In Financial Advisor #FinTech (March 2017): Takeaways From The T3 Advisor Tech Conference

March 6, 2017 07:00 am 7 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the March issue of the latest news in Financial Advisor #FinTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors and wealth management!

In this month’s edition, we recap the recent Technology Tools for Today (T3) Advisor Technology conference – the best dedicated FinTech conference specifically for financial advisors. Overall, the major themes of the conference – most of which were highlighted in the opening keynote session by Riskalyze CEO Aaron Klein talking about the “Advisor of the Future” – include the ongoing shift of “robo” tools to serve as the technology automation infrastructure of an advisory firm’s back office (allowing the advisor themselves to spend more client-facing time than ever!), to the opportunities in using technology for lead generation and a prospect engagement tool (though it remains unclear whether most advisory firms have the marketing savvy and resources to use them effectively!). And Riskalyze’s own rapid growth in recent years seems to have boosted “risk tolerance assessment tools” into a highly competitive category of its own, with almost half a dozen competing tools represented at T3 Advisor (whereas 6 years ago, Riskalyze was one of only two!).

Other major conference highlights included:

Riskalyze debuted a new Riskalyze “Premier” solution (with a new client dashboard and more digital account opening and onboarding tools)
MoneyGuidePro highlighted the recent growth of its MyMoneyGuide Lead Gen solution, and a new study suggesting that clients may find virtual financial planning meetings less stressful
eMoney Advisor announced its own new Lead Gen capture tool and more Advisor-Branded Marketing coming in Q2
Schwab announces it will be integrating eMoney Advisor into OpenView Gateway, alleviating concerns eMoney would become a Fidelity proprietary product
AdvisorEngine (fresh off its $20M round of capital and rebrand from Vanare) acquired advisor prospecting tool Wealthminder
New client engagement tools, including a safe withdrawal rate illustrator (Big Picture App), and an advisor-specific solution to facilitate mind mapping in the data gathering meeting (Asset Map)
The debut of two new risk tolerance assessment tools, Tolerisk and FinMason
A software developer called Chetu that can work with financial advisors to build their own software solutions
And the T3 Advisor Conference itself released the results of a major new survey of advisor software adoption (including both what’s popular, and how advisors actually rate the use of the software itself!).

You can view the analysis of these announcements, and more trends in advisor technology, in this month’s column, including highlights of the other T3 Advisor conference newcomers (from new robo tools, to software that helps clients maximize the yield on their “idle” bank accounts), how major custodians are responding with their own technology initiatives, and the emergence of new technology consults who can work with financial advisors to help them evaluate their own tech stack.

I hope you’re continuing to find this new column on financial advisor technology to be helpful! Please share your comments at the end and let me know what you think!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit directly to [email protected]!

Weekend Reading for Financial Planners (Mar 4-5)

March 3, 2017 02:49 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the details of the latest proposal to delay the DoL fiduciary rule by 60 days... which is shorter than the prior rumors that there would be a 180-day delay, and notably, is still only a proposal, that has to go through a public comment period and could take another month to be affirmed (which means a prospective delay in the April 10th applicability date may truly come down to the wire!).

Also in the news this week were a number of additional big announcements, including: a pricing war that erupted between Fidelity, Schwab, and TD Ameritrade, with each firm "voluntarily" imposing upon itself a 29%+ price cut in the cost to execute stock and ETF trades (down to $4.95 - $6.95 per trade); new guidance from the SEC on Standing Letters of Authorization (SLOA) and when they do and do not trigger custody or surprise audit requirements; an indication from the SEC that it may get more aggressive on trying to roll back the Accredited Investor requirements for private placements (kicking off a debate about whether limiting access to private placements is "unfair" to less affluent consumers who want to take some investment risks, or whether the bar to determine "financial sophistication" to invest in such opportunities should actually be higher); and a look at how the IRS is shifting its audit resources to increasingly focus on those with ultra-high incomes (e.g., $1,000,000+), in addition to doing far more correspondence-mail-based "lite audits" to ask for proof substantiating questionable line-item credits or deductions.

From there, we have a few more technical articles on financial planning topics, from a look at using Funded Ratios to evaluate retirement readiness, to how today's low-return environment can drastically increase the amount of savings prospective retirees need (or how much accumulators must save to get there), the important differences between arithmetic and geometric means (and how to calculate them), and new IRS guidance to 401(k) plans on hardship withdrawals that some fear will make it even easier for people to take advantage of the rules by simply being able to "self-attest" that they really had a hardship (and gamble that they won't be audited later to prove otherwise).

We wrap up with three interesting articles about supporting the success of younger financial advisors, including: ways to grow the financial planning talent pool, given that even with its recent growth, only about 6% of all four-year degree-granting institutions have a CFP Board registered program; career path advice for young financial planners trying to figure out how to put the right foot forward and get ahead (even while still a student); and a look at how just as financial success entails making investments for your future, advancing your financial planning career involves making investments into yourself, from advancing your formal and informal education (from CFP studies to post-CFP designations to reading books and industry news) to being certain that your own financial house is in order (both to ensure that you "practice what you preach" as a financial advisor, and because your personal financial stability is important if you want the flexibility to make job changes or someday launch your own advisory firm!).

Enjoy the "light" reading!

How To Transition Existing Clients To An Associate Advisor

March 2, 2017 12:27 pm 4 Comments CATEGORY: Practice Management

Even with today's technology tools, an individual financial advisor can only handle "so many" client relationships, until it's just too many people to meet with, and too many people to keep straight in your head. At some point, every financial advisor hits a wall, where it's necessary to either stop taking on clients altogether, or hire another advisor and begin transitioning some existing clients to free up room to accept more clients. Yet in a business that's built on the foundation of the advisor-client relationship, the actual process of transitioning clients to another advisor can be daunting!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss how to transition existing clients away from a senior advisor to a new/associate advisor, and best practices to maximize the odds that the transition is successful and goes smoothly.

Fortunately, if the need to transition clients isn't due to an urgent sale, but simply as a part of the natural growth process of the business, there's time to train and develop an associate advisor, and shift clients over time. Which helps to ensure a smooth process for all involved. My recommendation is that advisors plan to handle the transition as a 3-year process, made up of 3 different steps that I call the three L's: Listen, Learn, and Lead.

During the first phase – the listening stage – the responsibility of the associate is simply to listen. They'll gain valuable knowledge as they watch the senior advisor handle the meeting, direct the conversation, and explain common topics and talking points that come up. During the second year of the transition – the learning stage – it's time for the associate advisor to start talking more in the meetings. Since they have presumably completed their CFP education, they should know their information (even if they don't have a lot of experience delivering it yet), which means the senior advisor can steer client questions to the junior advisor to answer (and then give coaching feedback in a post-meeting "check-in"). Finally, in the third year of the transition – the leading stage – the associate advisor is promoted to a "full" advisor and actually begins to lead the meeting. They set the agenda, kick off the conversation, go through the talking points in each area with the client, and ultimately wrap up the meeting. The job of the senior advisor is to sit and observe – only intervening if it is absolutely necessary, and otherwise giving further coaching feedback after the meeting is over.

This last point is crucial, because undermining the trust the clients are developing with the associate can destroy the transition at this point. If the clients direct a question to the senior advisor, the senior advisor should steer it back to the associate. If the clients ask for the senior advisor's opinion, the senior advisor should affirm the opinion of the associate. And being open and honest with the clients about the transition (in year 3!) is the best way to help the associate advisor ultimately succeed, because it's one more clear affirmation from the senior advisor to the clients of the senior advisor's trust in the associate and the transition. Notably, this also means the senior advisor should be careful to not unintentionally undermine the associate. Beware jokes about an associate advisor's age, and don't call them a "junior" advisor (literally, use "associate" and not "junior"), because these both highlight the associate's relative lack of experience and can reduce client trust.

Ultimately, the biggest determinant of whether clients accept being transitioned to a new associate advisor is whether the existing senior advisor convinces them that the associate advisor really does have the capabilities and expertise to be a good advisor for them! Which sounds easier than it is to convey - because as the senior advisor, you may find yourself feeling very uncomfortable when clients actually do begin to transition, and it becomes clear that they don't actually need you after all. Which is a positive for the business, but can be a personal blow to the ego!

In the end, the reality is that some clients may still resist the transition, and in that case the advisor has to make a business decision to keep them (if the revenue and/or assets merit it), or acknowledge that the client is no longer a good fit and let them go. The fact that you agreed to be their advisor at the beginning does not commit you to being their advisor forever! If you want to grow your business, you have to do what's right for the business.

On The Bleeding Edge Of Financial Planning Fee-For-Service Regulation

March 1, 2017 07:00 am 20 Comments CATEGORY: Planning Profession

When we first launched the XY Planning Network in 2014, our vision was to expand access to financial planning for Gen X and Gen Y clients by championing a new financial advisor business model: getting paid for financial advice through an ongoing monthly retainer. A topic about which my co-founder Alan Moore and I literally wrote the book last year.

When we launched, we knew we would be at the cutting edge – or even the bleeding edge – of how financial advisors will get paid for financial planning in the future. What we didn’t know, however, is that we’d also find ourselves at the bleeding edge of regulation over how financial advisors are compensated for fee-for-service advice as well.

Because what we’ve learned in the 3 years since is that the word “retainer”, while relatively straightforward as an explanation to consumers of how services will be paid for – raises significant regulatory concerns. In some cases, we think the concerns are justified; while we’re confident on the value proposition of an XY Planning Network advisor to validate their ongoing cost, there will someday come a day where financial advisors begin to charge monthly retainers but don’t actually do any real work for clients. At that point, consumers become exposed to a new form of “reverse churning”, where similar to abusive AUM fees, the advisor might charge on ongoing fee (or even try to lock clients into an ongoing fee) but not actually provide any ongoing value.

Fortunately, the reality is that with a model like monthly retainers in particular, consumer risk is largely ameliorated by the fact that substantial fees aren’t actually being prepaid in advance (unlike a traditional long-term retainer arrangement); instead, consumers generally have the ability to terminate the advisor at any time, and immediately end what is effectively an ongoing monthly subscription fee they were paying to the advisor. Which is far better than paying an annual retainer fee, and then discovering one month later that the advisor is shutting his/her doors, and that the other 11 months of fees have been forfeited.

Nonetheless, even when paying on a monthly basis, there are still valid regulatory concerns about whether consumers will be protected. Should advisors be allowed to create longer-term retainer fee agreements as well? What kinds of notifications are necessary to ensure consumers are aware of and remember what they’re paying, which in turn helps to ensure the advisor remains held accountable for service and value? What needs to be done to ensure fee billing and the potential access to bank account or credit card numbers that may entail, doesn’t trigger custody of client assets? And how should regulators (and consumers) evaluate whether a fee is “reasonable”, particularly if it is primarily for non-investment purposes and bears no relationship to the size of investment portfolios?

The added complication is that because financial-planning-centric advisors may not manage portfolios at all, they will in practice be regulated predominantly by state securities regulators, which we’ve found over the past several years have quite varying views about the safety (or not) of charging consumers non-AUM fees (and in some cases, different opinions from different regulators in the same state!). In other words, there is little uniformity regarding the above regulatory issues about fee-for-service financial planning from one state regulator to the next. Accordingly, to the extent that the monthly retainer and other fee-for-service financial planning models are gaining momentum, perhaps it’s time for NASAA to consider a Model Rule that sets forth best practices in reasonable regulation and oversight of these new financial advisor business models?

#FASuccess Ep 009: Carolyn McClanahan On Using A Complexity-Based Retainer Model To Deliver Holistic Financial Planning

February 28, 2017 07:02 am 11 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the ninth episode of the Financial Advisor Success podcast!

This week, I’m excited to host Dr. Carolyn McClanahan, of Life Planning Partners. Carolyn is an emergency medicine physician turned comprehensive financial planner in Jacksonville, Florida, where she maintains a practice serving 80 clients and nearly $1 million of stable recurring revenue from financial planning retainer fees.

What makes Carolyn’s firm especially unique is the way she has applied the principles of a professional medical practice, into her advisory practice. Each of Carolyn and her three advisors all communicate and support clients directly – akin to a doctor with nurses and other support staff who all interact with patients directly – with each working in their respective area of expertise. And their holistic services are covered by a single “complexity-based” retainer fee, including both financial planning and asset management services.

In this podcast episode, Carolyn shares her journey from wanting to be an actuary, to becoming a physical therapist, and then an ER physician, and finally transitioning into financial planning. She also discusses why her plan is never to grow beyond 100 client families, the hard lessons she has learned about hiring, and the parallels she sees between professional medicine and the emerging professionalization of financial planning.

And be certain to listen to the end, where Carolyn talks about exactly how she prices and adjusts her complexity-based retainer fee for each client, and the “client engagement standards” document that she requires every client to sign to ensure she only works with considerate, responsive, and all-around “good” clients!

So whether you’ve been thinking about adopting some kind of retainer fee structure, or simply want insight on a unique kind of holistic financial planning lifestyle practice, I hope you enjoy this latest episode of the Financial Advisor Success podcast!

The Unbundling Of The TAMP And The Rise Of The Model Marketplace

February 27, 2017 07:01 am 10 Comments CATEGORY: Technology & Advisor FinTech

The Turnkey Asset Management Platform (TAMP) has been a popular solution for financial advisors who want to provide comprehensive wealth management to clients, but focus their time more on financial planning and client-facing duties than the actual investment management process and its implementation. Made feasible by the decline in transaction costs and rise of portfolio management tools beginning in the 1980s, the TAMP marketplace today is estimated to be more than $250B of AUM.

However, the growing capabilities in recent years of “robo” automation tools to handle the trading, rebalancing, and management of investment models, have made the need for a TAMP’s back-office support less and less relevant. And now, that robo-technology appears to be instigating a new competitive threat for TAMPs: the rise of the Model Marketplace.

In essence, a Model Marketplace is a centralized platform where financial advisors can select from a series of third-party-created investment models, but retain control and discretion to implement the trades themselves (in an efficient manner) by leveraging trading and rebalancing software. And in just the past month, both TD Ameritrade (via iRebal rebalancing software), Riskalyze (via its new Autopilot rebalancing tools), and Orion Advisor Services (via their new Eclipse trading and rebalancing solution) have rolled out Model Marketplaces. And the emergence of Model Marketplaces appears to be supported by asset managers themselves, who are seeking new paths to distribute their (otherwise increasingly commoditized) investment products, along with new revenue opportunities from adding a layer of fees for model management itself.

Ultimately, it remains to be seen whether Model Marketplaces will gain traction, and via which platform – from “robo” onboarding tools to portfolio accounting software or an RIA custodian – advisors will choose to adopt. Nonetheless, the transition of “robo” trading and rebalancing tools into the creation of Model Marketplaces represents a significant new disruptive threat, for both existing marketplace incumbents like Envestnet, and the entire world of TAMPs, as advisors gain newfound choices about whether to outsource just the creation of investment models, or their back-office implementation as well.