MMI Fall 2015: Conference Summary – Day 1

It is already a month into Fall, but you would never know it from the weather in midtown Manhattan today.  It was 75 degrees and sunny.  Unfortunately, I wasn’t able to go outside and work on my tan since I was busy attending the Money Management Institute’s 2015 Fall Solutions Conference at the Grand Hyatt Hotel.

The theme for this year’s conference was disruption and how to thrive in the face of it.  Here is my quick summary of Day 1 of the conference.

Opening Remarks

  • Roger Paradiso, Governor and Treasury, Money Management Institute
  • Robbie Cannon, CEO, Horizon Investments

While I don’t believe that Wealthfront, Betterment or any other stand-alone B2C robo-advisor will become the of wealth management, they have started a Race to Zero in fees.  The Schwab Intelligent Portfolios model of generating revenue from cash, trade flow and other methods (that don’t generate a direct conflict of interest) will become more commonplace.

I disagree with this statement by Robbie Cannon.  I don’t think most investors know what they’re invested in.  Maybe a small percentage of very involved investors are tired of too many financial products, but I haven’t seen any hard evidence that this is the case, in general.

More choice is usually better.  Plus, most choices are targeted at investors with specific needs or in specific markets, so they only see a subset of the whole.

Keynote Presentation

  • Gregory J. Fleming, President, Morgan Stanley Wealth Management

According to Fleming, the wealth and asset management industries are the most attractive form of financial intermediation around, from a growth standpoint.  They are not capital intensive and have predictable and stable revenue that is mostly fee-based.  This demands a premium multiple based on their earnings streams, he stated.

While this clearly falls into the “shameless plug” category, I still found it to be an interesting statistic.  Morgan Stanley has leveraged these deposits to help embed their advisors into the liabilities side of their clients’ balance sheet using mortgages and other loans.   This increases client engagement and makes them stickier.

Data aggregation firms are in the drivers seat.  Everyone needs them to provide holistic advice because they have all the data and the analytics to go with it.  Firms that didn’t build their own or buy an existing player will be at a competitive disadvantage. (See 5 Reasons That Envestnet Acquisition of Yodlee Will Succeed)

I believe the opposite is true.  Millennial-age potential investors have become comfortable conducting running every aspect of their lives online.  From shopping to paying bills to keeping in touch with friends and family, they are used to interacting through a device rather than directly with a human being.  It is only natural for them to be open to manage their investments in the same way.

Everyone has heard the statistics that the vast majority of active managers don’t beat the market on a consistent basis. According to Standard & Poor’s, 89% of fund managers underperformed their benchmarks over the past five years.

I recently read a book, called The Incredible Shrinking Alpha, that went in depth on the reasons behind active manager underperformance and how it is an unavoidable fact of how the markets work.  From the book:

In his famous 1991 paper, “The Arithmetic of Active Management,” Nobel Prize winner William Sharpe explained that before costs active management is a zero-sum game, and after costs it is a negative-sum game: He writes: “Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs.

Solutions Spotlight

What do you get when you give the presidents of two leading wealth management technology vendors ten minutes of stage time in front of an audience of their peers?  TED Talks!  I like how MMI tried to disrupt their usual conference format by introducing these short, ten-minute segments.

I admit it.  I’m a UMA geek.  Having helped so many vendors enhance their UMA programs and so many clients select and implement them, my ears perk up whenever I hear the words ‘sleeves’, ‘models’ or ‘ rebalance’.

According to Klapprodt, ‘dynamic sleeve generation’ is a feature of the Vestmark platform that allows a firm to pick and choose when to use sleeves on an account by account basis, instead of all or none, as is the standard for other vendors. When an account needs sleeves, in the case where a third party manager requires trade discretion or for specific cash management purposes, the system will create the sleeves.

I’m not clear exactly how this works or if there is any manual effort required to create the sleeves, but it sounds like a pretty cool concept that could provide a hybrid UMA solution for firms.  Since there is some operational overhead involved when using sleeves, there could be cost savings if they are only implemented on certain accounts that actually need them.

I’ve covered this before. There are two strategies for RIA’s to build a robo-platform channel.  Setup a separate platform and run it in parallel, to save setup time and avoid disrupting your existing processes.  Or, create an offering that is part of your overall brand and integrated into your existing infrastructure.  (See Jemstep Advisor Pro Helps Convert Prospects into Clients) 

This is exactly what clients want to hear from their technology partners.  Don’t just give us data, but help us understand how to turn that data into actions to increase revenue, reduce costs and improve investor outcomes.

Fiserv is the 800 lb. gorilla in the managed accounts space.  They have 60% of SMA assets and 60% of UMA assets from the most sponsor clients of any technology vendor out there.

How can advisors get their brand out into user-generated recommendations without running afoul of regulatory issues? There are a number of tools that can help reach out to different prospective demographics with curated, targeted content that is compliance-friendly.  (See 25 Awesome Financial Advisor Technology Tools – Winterberg)

Robo-Advisors: Game-Changers or Washed Up?

  • Gauthier Vincent, Principal, Wealth Management, Deloitte Consulting
  • Tricia Rothschild, Head of Global Advisor Solutions, Morningstar
  • Adam Schneider, Principal, Financial Services, Deloitte Consulting

This projection was for 2025.  While anything could happen in the next ten years, I doubt those kind of number will be headed to B2C robo advisor firms.  There is just too much competition and too much low cost or free technology available to enable every advisor to have their own digital wealth channel up and running in no time.  Once online is ubiquitous, the appeal of the stand-alone robos will fade.

Exactly.  And that’s including Vanguard $17+ billion that they accumulated in around five minutes after launching their platform.  While a lot of it came from existing clients, it still gives them tremendous scale to bludgeon their competition. Wake me when the total for all firms not named Vanguard hits that number…

Which is why a lot of industry watchers don’t see a future in the VC-backed robo firms.  They just can’t gather enough assets to justify the hundreds of billions they have taken in.  The smart ones will find willing suiters from name brand firms and hope they can break-even for their investors.  The rest are doomed to die a slow death.

Exactly.  This is mainly because financial advice isn’t the same as instant messaging (Whatsapp), searching for restaurants (Yelp!) or social media (Facebook).  These disruptive ideas are frictionless.  You can signup to use them at no cost.  It doesn’t require a huge commitment to buy a book on Amazon or do a Google search.  But signing an ACAT or wiring someone a chunk or all of your life savings is a completely different transaction.  It has a lot more friction that will hold consumers back.  That’s why we haven’t seen the ‘hockey stick’ of exponential growth for robo-advisors similar to user growth in other Internet-based areas.  And we won’t see it anytime soon.

Related WM Today Content
Jemstep Advisor Pro Helps Convert Robo Prospects into Clients
Robo-Advisors Shakeout: Who Will Be The Last One Standing?
5 Serious Concerns About the Envestnet Acquisition of Yodlee



The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at