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17 Takeaway From Envestnet’s Advisor Summit 2019

May 9, 2019 07:09 am 4 Comments CATEGORY: Conferences

Last week, Envestnet – the wealth management mega-platform that now touches nearly 100,000 advisors with their various technology tools – hosted their annual 2019 Advisor Summit in Austin, Texas. Fresh off the heels of its half-billion-dollar acquisition of MoneyGuidePro – a transaction that officially closed on the first day of the conference itself – Envestnet’s Advisor Summit provided a fascinating glimpse of what Envestnet plans to do with MoneyGuidePro, its recent purchase of Yodlee, and where the company sees its next opportunities… as communicated in a series of keynotes from the Envestnet leadership to over 3,000 attendees.

In the guest post, Craig Iskowitz – CEO and founder of Ezra Group, a financial technology consulting firm – provides a recap of the 2019 Envestnet Advisor Summit and shares highlights from various presentations as the company maps out their vision for creating an integrated wealth management platform that allows advisors to deliver solutions that support not just financial planning but the “financial wellness” of their clients.

From its roots as a TAMP and distributor of various third-party managed accounts, Envestnet in recent years has executed a series of industry-changing acquisitions, with two blockbuster deals announced just in the past few months, including the purchases of PortfolioCenter from Schwab in March and MoneyGuidePro in April. The newly-named Envestnet | MoneyGuide was out in force at the conference, as the company took the opportunity to point out that the deal aligns perfectly with their financial wellness marketing strategy, as they endeavor to differentiate themselves from an increasingly crowded wealth management technology space by building an integrated experience of portfolio management (via Tamarac), financial planning (via MoneyGuidePro), and centralized data (via Yodlee), to give advisors a more holistic platform to service their clients (and run their own businesses).

Envestnet executives also focused on data integration and analytics, as Envestnet’s acquisition of Yodlee back in 2015 continues to bear fruit, with the company touting that they’ve improved the accuracy of held-away data from 72% to the low 90s, and they continue to integrate their suite of tools and bulk up their data sources. Data also is also playing a big role as Envestnet builds a mobile budgeting app that advisors can white-label and offer to their clients, as well as in their plans to give advisors and firms the ability benchmark their performance and fees against 90,000 other advisors on Envestnet using the Advisor Analytics package (and to predict with 90% accuracy that a client is planning to jump ship within 90 days!).

Finally, Envestnet took the opportunity to highlight its recent introduction of its Credit and Insurance exchanges, which are seen as yet another game-changing development for the industry as the company seeks to address not only a huge area of opportunity for advisors who continue to seek ways to differentiate themselves in a crowded marketplace but a tremendous gap between client expectations of what products they should be receiving from advisors versus what advisors are actually able to provide, especially in the growing fee-based channel.

Ultimately, the 2019 Advisor Summit allowed Envestnet to present to the advisor community its vision for the future of the industry, and the massive technology platform it is building for them. Given how notoriously difficult it's been for businesses to successfully integrate complex systems into one cohesive platform, though, it remains to be seen whether Envestnet can realize its vision. Nonetheless, Envestnet has moved well ahead of the pack to dominate every part of the marketplace they’ve entered, and has, at the very least, put themselves in a position to deliver on their ambitious goals.

Risk Literacy And Interpreting The Probabilistic Risks Of Investing And Retirement Planning

May 8, 2019 07:03 am 2 Comments CATEGORY: Client Trust & Communication

The concept of “risk literacy” may be new to financial advisors, but it is not a new construct. In fact, risk literacy – or the ability to understand the probabilities of risk and internalize them to make a good decision – has been applied in the context of the behavioral sciences for years. Thus, why it is so common now to talk about the risks of a medical procedure in terms of the mortality or survival rates… so people can make a good decision with a thorough understanding of the risks involved.

Except the challenge of risk literacy is that not everyone truly understands probabilistic risks. Which is concerning not only in the world of medicine, but also financial advice. Especially with the rising popularity of econometric-style risk tolerance questionnaires that ask investors to choose from a series of probability-based trade-offs… without first clarifying whether the investor even truly understands how to weigh those trade-offs. Or similarly, making a decision about which strategy to pursue for retirement based on the Monte Carlo probabilities of success (that, again, not all prospective retirees may really have the risk literacy to understand properly).

The good news, though, is that it turns out risk literacy can be taught. It is a function of financial education, and investors can be helped to make better decisions with a supporting explanation and education about the probabilities. Which helps to ensure that investors or prospective retirees really are considering the odds properly.

The key point, though, is that it’s not safe to assume that everyone understands “the odds” when those probabilities are presented to them. In fact, researchers often use a (relatively short and feasible for financial advisors to use) risk literacy assessment to find out whether the individual really understands probabilistic risks, before making a decision. Which means perhaps it’s time for financial advisors to consider using such assessment tools as well. To either ensure that clients really do understand the risks they’re taking. Or at least, gain a better understanding of which clients need to have an additional explanation to really ensure they’re comfortable with the (potentially risky) path they’re choosing to take!

#FASuccess Ep 123: Buying Out A Retiring Founder & Funding Future Growth By Recapitalizing With Well-Aligned, Patient Capital, With Brent Brodeski

May 7, 2019 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 123rd episode of Financial Advisor Success Podcast!

My guest on today's podcast is Brent Brodeski. Brent is the co-founder and CEO of Savant Capital, an independent RIA based in Rockford, Illinois that oversees more than $6 billion of assets under management for nearly 5,000 clients.

What's unique about Brent, though, is not merely the trajectory of Savant's almost entirely organic growth to $6 billion of AUM, but the way the firm navigated the all-too-common challenge of buying out a co-founder, which in their case required raising more than $50 million of capital to fund both the buyout and the next stage of Savant's own growth, with a vision to 10X the firm in 10 years.

In this episode, we talk in depth about what it means to recapitalize an advisory firm by buying out a founder and taking on new outside investors to provide the cash for growth. The way that Brent interviewed financial buyers, private equity firms, and banks that were willing to lend, the key factors that he considered with respect to each type of investor in trying to decide who to work with and who to take capital from, and why he ultimately rejected them all and instead worked directly with some high-net-worth family offices to be his patient capital investors for the future, and how even his deal with a family office nearly blew up on the finish line when he had last-minute doubts that one of his investors was really properly aligned with his own vision for the firm.

We also talk about Savant's advisory firm business itself. How the firm shifted its organic growth from being primarily founder-led into being more broadly carried by a large number of advisors at the firm, how Savant has also shared opportunities for ownership in recent years across more than 50 employees in the firm, how Savant's advisor compensation is structured, with a combination of salary base and bonuses for both firm growth and individual business development, and how Savant has had to evolve its executive and leadership structure to effectively manage what is now 173 employees.

And be certain to listen to the end, where Brent shares the 8 distinct phases that he's seen his advisory firm go through over the past 25 years. The way his own role in the firm has shifted and changed as the business itself has evolved, the system they put in place to strategically plan for and execute the business's goals based on John Doerr's "Measure What Matters" approach, and what exactly Savant's plan is to try to 10X the firm in the next 10 years.

The Latest In Financial Advisor #FinTech (May 2019)

May 6, 2019 07:06 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the May 2019 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!

This month's edition kicks off with the news that Schwab’s PortfolioConnect is now available – for free – to all RIAs on its platform. Thus far, PortfolioConnect is a downscale portfolio performance reporting system that is meant to appeal to "smaller" RIAs, with less than $100M of AUM, for whom the other performance reporting tools may be too costly and who may be attracted to the Schwab platform for the potential cost savings of a free alternative. But the real question is what happens if and when Schwab adds more features to PortfolioConnect and it becomes a more head-to-head competitive offering to the likes of Orion and Black Diamond… but available for free, because Schwab can profit indirectly from its core custodial business simply by attracting RIAs and their clients’ assets to the platform.

From there, the latest highlights also include a number of other interesting advisor technology announcements, including:

Envestnet launches a new Credit Exchange to facilitate independent advisors offering mortgages and eventually business loans to clients as a part of a more holistic advice offering (and providing Envestnet yet another means to monetize transactions that occur across its platform)
Fidelity announces a further expansion of its Integration XChange as the company continues its shift towards a more open architecture approach (building around Consolidated Data as its unique value proposition instead)
MoneyTree financial planning software is acquired by Accutech as the company goes deeper into wealth management in the bank and trust channel (and raising questions about the fate of MoneyTree’s traditional financial advisor user base)
The former TradeWarrior leadership team relaunches as AdvisorPeak rebalancing software after a falling out with Oranj
Vestwell raises a massive $30M Series B round from Goldman Sachs to scale up its digital 401(k) platform for independent advisors (and giving Goldman Sachs another toe-hold into the RIA channel)

Read the analysis about these announcements in this month's column and a discussion of more trends in advisor technology, including Invent.us partnering with Envestnet to bring cloud-native software design to replace legacy broker-dealer technology systems, Allianz invests into Halo Investing’s tools for designing custom structure notes (and perhaps in the future, custom indexed annuities?), FINRA established a new Office of Financial Innovation to support FinTech developments, and “cash” becomes the new battleground to compete for assets as Wealthfront boosts its AUM by 8% in just a few months by offering a competitive cash yield over 2% (while RIA custodians continue to scrape the bulk of their profits from advisors’ client cash instead!).

And be certain to read to the end, where we have provided an update to our popular new “Financial Advisor FinTech Solutions Map” as well!

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 to [email protected]!

Weekend Reading for Financial Planners (May 4-5)

May 3, 2019 02:56 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with latest tracking report on mergers and acquisitions of advisory firms, that finds firms in the first quarter of 2019 doing deals at a near-record pace... but at a volume that is still ultimately a minuscule fraction of the total number of advisory firms in the marketplace, and with storm clouds looming that advisory firm sales could quickly grind to a halt if a bear market emerges (and firm owners may not want to sell at depressed valuations on reduced AUM revenues). Also in the news this week is the somewhat surprising revelation that the Department of Labor is working on a new fiduciary rule... but this time, one that will from-the-start be written to conform to whatever the SEC puts forth in its final Regulation Best Interest rule.

We have several other regulatory-related articles as well, including a look at how the SEC is stepping up its scrutiny on Chief Compliance Officers (and whether RIAs really have a bona fide compliance oversight program in place for their firm), the new expectations that the SEC is setting forth for advisory firms working with seniors (including establishing policies for the firm about how to handle senior clients experiencing cognitive decline), and a recent high-profile case of an RIA that was fined $150,000 by the SEC for failing to disclose over the span of a decade its revenue-sharing solicitor arrangement with Fidelity's custodial referral program.

From there, we have several articles on advisor marketing and specifically websites, from the reasons why most advisory firm websites are useless (as even when they laud the benefits of the firm, they typically do so in the exact same undifferentiated way as every other advisory firm), updates to focus on first to make an advisory firm website look more modern, common blogging mistakes of advisors who are creating fresh content for their websites but aren't necessarily distributing or leveraging it properly, and an interesting look in what Baby Boomers really search for online using Google's Search tools (and why advisors are less likely to get clients with "10 Reasons Why Fiduciaries Deliver The Best Objective Transparent Financial Advice" and more likely to find prospects with "The Best Retirement Cake Inscriptions" instead... with, of course, the advisor's contact information in the byline at the end!).

We wrap up with three interesting articles, all around the theme of how the advisory industry is forever growing and changing: the first looks at how entrepreneurs may actually be better off by launching their firms alone rather than starting with a team of 2-3 co-founders (at least, as long as they're ready and willing to hire outside help in the areas they need it when they do need help); the second explores the evolution of the famous Andreessen Horowitz venture capital firm, and how the company is restructuring itself into an RIA (rather than a traditional VC firm) to have even more flexibility to make big focused bets with their client assets; and the last is a fascinating deep-dive into the evolution of Charles Schwab, and how the company grew from a discount broker for do-it-yourselfers into a mega-firm that's increasingly focused on the full range of financial services... including a growing footprint in financial planning as well.

Enjoy the "light" reading!

NY Insurance Regulation 187: Are Life Insurance Policy Illustrations Too “Misleading” For Comparison Purposes?

May 1, 2019 07:04 am 4 Comments CATEGORY: Insurance

On July 18^thof 2018, the New York Department of Financial Services (NY DFS) issued a new Best Interest Rule (Regulation 187) that (re)defines the meaning of “clients’ best interests” for life insurance product recommendations effective February 2020, including the due diligence obligations that apply to life insurance recommendations. Previously, due diligence for life insurance product recommendations was governed by the National Association of Insurance Commissions (NAIC) Life Insurance Illustrations Model Regulation #582 (as adopted by each State).

And perhaps surprisingly, NY DFS Regulation 187 prohibits such life insurance policy illustration comparisons as due diligence for product recommendation (despite attorneys for the life insurance industry lobbying to “expressly include” illustration comparisons, which NY DFS rejected). The Rule's omission of illustrations comparisons is also consistent with guidance from other financial, insurance, and banking industry authorities warning against illustration comparisons as “misleading”, “fundamentally inappropriate”, and unreliable. Instead, NY DFS Regulation 187 requires product recommendations be based on a careful, skilled, prudent, and diligent evaluation of costs, performance, and risks relative to benefits.

In this guest post, Barry Flagg, an insurance expert and founder of Veralytic (which publishes pricing and performance research on life insurance policies), explores the details of the new NY DFS Regulation 187, the fundamental problems with life insurance policy illustrations (especially when used for comparison purposes), what Regulation 187 will require for life insurance due diligence in the future, and how fiduciary advisors must adjust when doing their own due diligence on behalf of clients.

The key issue, though, is simply that because of the number of “moving parts” that underlie life insurance policy illustrations for cash value life insurance, it’s not enough to merely look at which policy is projected to have more cash value, or requiring less in premiums, in the long run. Because underlying those projections are assumptions about returns (which may not be realistic relative to the company’s actual general account investments or historical results), along with assumptions about costs (which may not be guaranteed nor even stable and consistent with the company’s historical costs). And in fact, because life insurance policy illustrations have historically been used as a point of comparison, insurance companies have had unhealthy incentives to ‘game’ their policy illustrations to project cash value more favorably… without necessarily acknowledging the underlying risk of what may be very tenuous assumptions.

More broadly, the NY Best Interest Rule is also significant given the broad efforts to more clearly define clients’ best interests (e.g., the DOL Rule and the SEC Best Interest Rule), and given NY DFS “reputation as a first mover on important insurance regulation matters”, there is now an increased likelihood of additional state-level fiduciary regulation on life insurance, matching the recent trend of state fiduciary rules on investment advice and recommendations as well. And given the predominant use of illustration comparisons as supposed due diligence, the questionable use of illustration comparisons for product recommendations, the growing legislative and regulatory activity around re‑defining clients’ best interests for product recommendations, and NY DFS’s standing as first-mover on important insurance regulation, the NY Best Interest Rule for life insurance raises significant ethical and practice management considerations for CFP professionals and other fiduciaries advisors – both in and outside New York - about how advisors should do basic due diligence to determine whether one proposed life insurance policy is really better or worse than another.