UPDATE Jan 2016: The acquisition of Jemstep by Invesco could help their efforts to move upmarket. They have been selling primarily to smaller RIA’s but getting a lot of interest from larger firms. Jemstep needed a cash infusion to continue their growth and had a choice between more private equity money or selling the company to someone with deep pockets. They chose the latter. With Invesco, they gain a parent that can not only finance their expansion, but also provide other benefits, such as improved portfolio analysis, due diligence and model portfolios. All of these services would help Jemstep to become more of a TAMP and better compete with bigger players such as Foliodynamix and Envestnet. — Craig
UPDATE Feb 2015: The announcement that Envestnet has purchased Upside, while exciting news, doesn’t change much regarding which of these robo-platforms would be the best choice for an RIA looking to launch an online presence. Envestnet will most likely make it very attractive for their ever-expanding client base of RIA firms to try Upside for little to no cost and with (eventually) tight integration to Envestnet’s Tamarac platform. It would seem that the upside for Upside has just increased dramatically. — Craig
This is a summary of a panel discussion from the 2015 Technology Tools for Today (T3) Conference – Advisor Edition that was held in Dallas, TX.
This was one of the most anticipated panels of the day. Considering that the term “robo-advisor” was mentioned in almost every other sessions and by almost every other speaker, it’s not surprising. But this panel, was not comprised of robo-advisor firms, but technology companies that sell platforms to RIA’s that they can use to launch their own robos. A very different business model.
Moderator: Joel Bruckenstein, Founder, T3 Conferences
- Juney Ham, Co-Founder, President, Upside
- Simon Roy, President, Jemstep, Inc.
- Steve D. Lockshin, Partner, Betterment Institutional
- David Benskin, Founder & CEO, Wealth Access
What does the term robo-advisor mean to you?
A robo-advisor is a solution that helps investors to make investment decisions, Ham started out. Manual process such as account opening and financial planning are automated to increase scalability and ensure a consistent client experience. All of this is delivered to end investors through a technology-led interface. Upside marries the best components of a robo-advisor with the human touch of a traditional advisor, he pointed out.
The term robo-advisor is pejorative and should be made obsolete, Roy insisted. Clients do not only want technology. What they want is an integrated online experience that includes financial planning so they can access advice whenever they need it.
Betterment Institutional serves both the Business-to-Consumer (B2C) and Business-to-Business (B2B) markets, Lockshin pointed out. The personality profile of their typical customer is a Do-It-Yourself person who enjoys tinkering. This type of clients will be more inclined to self-select whether they want an advisor or not, he stated.
Mike Barad from Morningstar posted one of the funniest tweets of the conference:
Robo-advisor panel at #T32015 moderated by @FinTechie. I could swear they all look like real humans. pic.twitter.com/kM3oQQnag6
— Mike Barad (@MikeBarad) February 13, 2015
What is the opportunity that robo-advisors present to the industry?
The opportunity is for advisors to become more efficient and provide a better experience for their clients, Benskin stated.
Lockshin described the opportunity as reducing the time that advisors have to spend on back office tasks. This will free them up for the tasks where they add the most value, such as prospecting and client servicing.
Big technology companies such as Amazon and Netflix have changed consumer expectations of how they interact with technology, Roy observed. They slowly adapted the way they engage with technology and use it to manage their lives. (See The Changing Face Of Robo-Advisors)
Robo-advisors are leveraging this new consumer behavior, he continued. The opportunity is to make it easier for clients to say yes to an advisor’s services. Like the Amazon single-click button or the Netflix movie queue, wealth management firms can create similar expectations. This will re-frame the way clients are engaged and introduce efficiencies that his firm is already leveraging on behalf of their advisor clients, Roy stressed.
Audience poll of how many advisors want some kind of robo advisor solution for their clients? Half the hands went up. #T32015
— MichaelKitces (@MichaelKitces) February 13, 2015
What is the best way for advisors to integrate online services into their practice?
Should online advisor services be setup as a separate business line or as an extension of their traditional practice?
For advisors that already have portfolio accounting and portfolio management system, it’s plug and play, Benskin suggested. Wealth Access provides an private label dashboard that advisors can integrate into their existing web site.
One way for advisors to dip their toe in the robo-advisor pool would be for them to start with one or two of their smaller clients, Lockshin suggested. These are the ones who can benefit the most since they are usually under-served or over-charged. (See What Robo-Advisors Can Teach Us About Focusing on the Client)
Advisors should plan on integrating the online client experience into their existing infrastructure and processes, Roy said. “A robo-advisor in a box on the side of the firm will not work,” he insisted.
Jemstep understands how to encourage a client to take action via a digital conversation, Roy continued. Their user interface is designed to “nudge” prospects towards a decision.
Upside’s Ham disagreed with Roy and said that many of their advisors created a separate brand for their automated solution. This is because they felt that a robo-advisor offering would hurt the brand of their traditional business and possible impact their fees.
“A robo-advisor in a box on the side of the firm will not work…”
Simon Roy, President, Jemstep
The age of Upside users skews a little younger than a traditional advisor’s book of business, Ham noted. Automated solutions allow advisors to support clients without enough assets to meet their usual account thresholds. These usually younger clients will soon be benefiting from an inter-generational transfer of wealth. Advisors who integrate an online experience will be able to appeal to these new investors who have a different set of expectations.
Will robo-advisor platforms disrupt the sales pipelines of traditional advisors?
They average account size for robo-advisors is around $20,000 and their average fee for this size account is around $35. By attracting prospective clients in the earlier stages of wealth creation, when they are in the $50K-$100K asset range, will online platforms be able to hold onto them once they reach the $500K to $1 million range?
Source: A Wealth of Common Sense
According to Ham, advisors generally sign up with Upside for one of two reasons: 1) they do not support smaller account sizes and have no way to handle inbound requests from these prospects; 2) part of their existing book of business is smaller accounts and they are looking for a place to “park them” in a low-touch engagement model until they grow to a size that can support traditional advisory fees.
Some advisory firms want to create a distinct brand for their robo-advisor business separate from their traditional business, Roy explained. These advisors are more focused on engaging clients online irrespective of their asset levels. They need technology to direct prospective clients to the correct offer without losing them along the way.
It is more than Millennials who are engaging with online platforms, Roy noted. The average age of clients who are self-onboarding through Jempstep is over 40. They are also seeing 10 new account openings daily with an average account size of $100,000 through their recently announced relationship with custodian TD Ameritrade. (See Robo-Advisors Can Not Live by Millennials Alone: ASI’s Andrew Rudd)
Jemstep leverages account aggregation to gather critical data about prospective clients’ total wealth. For example, their system can direct anyone with under $500K in assets to the online offering, while sending prospects that have greater than $500K in total assets to an advisor in a local office.
Providing prospects with extra value during the discovery process encourages them to share additional information that can help the advisor to convert them into paying clients. They also are more inclined to review more of their portfolio from the privacy of their home. the firm now has a more valuable prospect that they can engage in any way they want.
Advisors do not see any reason to change what they are currently doing because it is still working for them, Lockshin stated. The total assets of all digital advisors is just a rounding error in the industry. Advisors will not worry about robo-advisors until they see significant assets start to flow to them.
What differentiates your firm from the other robo-advisors?
Wealth Access acts like an aggregator of aggregators by pulling data from over 20,000 financial institutions, Benskin described. They are an outsourcing provider for advisors, their platform is designed to be private labeled and supports all major mobile devices. Their technology infrastructure was designed for real-time access, which enables them to offer on-demand mobile reporting.
One area that differentiates Wealth Access from other robo-platforms are their features targeting high net worth (HNW) clients. Support includes trusts and multi-generational wealth views with the ability to link multiple family members together into a household. They market their services as “A high net worth Mint.com for advisors”. (See Bill Harris Takes a Dive at MMI during His Personal Capital Promotional Tour)
Betterment is the only robo-advisor that is also a full-service broker-dealer, Lockshin argued. Their competitors sit on top of another broker-dealer’s architecture, he claimed.
Lockshin used the analogy of a Tesla (Betterment) compared to a Chevy Volt (Other robo-advisors). Tesla built all of their technology from scratch in order to provide the best customer experience. He implied that his competitors (pointing to the other panelists) are utilizing older technology.
“These guys [other robo-advisors] are utilizing older technology”
Steve Lockshin, Partner, Betterment Institutional
Jemstep’s Roy immediately addressed Lockhin’s comment by pointing out the huge investment made in their firm by TD Ameritrade, which is known for being on the leading edge of technology innovation for custodians.
While they are custodian-agnostic, they have deep integration with TD Ameritrade and their Veo platform, which provides access to dozens of third party applications. This frees Jemstep from having to invest in every capability that an advisor might need. His implication is that the competition has to spend money building features that already exists from other vendors that advisors can access through Veo.
When Upside launched their service in early 2014, they were one of the only firms that were not focused on selling directly to end investors, Ham stated. This changed dramatically in just the past six months as many of their competitors, including Betterment, launched their own solutions targeting advisors.
Ham explained that his firm’s differentiator is their focus on making the client experience seamless and intuitive. Many advisors who have seen product demonstrations comment on the beauty of the user interface and its elegant design. The wealth management industry has not valued this in the past, he reported. (See What Robo-Advisors Can Teach Us About Focusing on the Client)
Another differentiator of Upside is that they are more than just a technology solution, Ham revealed. They also offer outsourcing. Their operations team can support all aspects of running an advisor’s practice.
Do any of your services support splitting household accounts between automated and traditional advice?
Upside helps advisors to inject themselves into a client’s financial lives, Ham stated. While some advisors will switch totally to a robo-advisor delivery model, they believe their technology has improved to the point where it is able to encompass the entire advisor workflow. The best solution will be a bionic\cyborg model with both aspects threaded into the client experience, he stressed.
Do you support any actively managed funds?
- Betterment = No
- Jemstep = Yes
- Upside = Yes, although they primarily offer commission-free ETFs.
- Wealth Access = Yes
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