Invest Conference

Digital Digest from the InVest 2018 Conference

The battle between every startup and incumbent comes down to whether the startup gets distribution before the incumbent gets innovation.

I pulled this quote from one of my favorite podcasts, a16z, which is produced by VC firm Andreessen Horowitz.

I felt as though I was witnessing this ongoing struggle live last week at the In|Vest NY 2018 conference.  There were the incumbents like JP Morgan, Wells Fargo and Charles Schwab doing their best to talk up their innovation while emerging players like Acorns, SigFig and Jemstep were talking about their expanding distribution.

In the end, it all comes down to execution. Who can best deliver on their vision and provide the best customer experience?

This was another well-run event hosted by my friends at Source Media. They are building a strong brand in the conference space across a range of financial services. (See 5 Keynote Takeaways from the 2018 Digital Banking Conference)

Beyond Investing: Helping Customers More Holistically

While I feel that “holistic” is an over-used buzz word in our industry, JP Morgan’s Kelli Keough managed to keep me engaged as she explained how a bank with a $2 trillion balance sheet was managing to insert innovations into their client-facing activities.

As the Global Head of Digital Wealth for one of the world’s largest financial institutions, Keough is able to see the impact of deploying digital tools at scale.  She shared some advice for firms that might be delaying their decision on deploying digital technology: “choose, use or lose”.

Keough explained that the bank’s digital wealth management strategy was divided into four components: 1) Customer-centric design, 2) Customer-obsessed Solutions, 3) Powerful data and analytics, and 4) Leading with guidance.

In the classic version of, “we’re the 800 lb gorilla of financial services, but still can innovate,” JP Morgan takes a page from the playbook of one of the most innovative firms in the space.  One of the primary drivers of Acorns’ success is their smooth and quick onboarding process.

True, but there’s a lot more investors in the under $100K segment and they lack the resources of the >$100mm segment to hire the very best advisors and setup their own family office. The less affluent investors rely on digital tools to try and level the playing field a bit and gain access to higher quality advice than they could have afforded previously.  >$100mm investors have always received great (or at least expensive) guidance.

AI: Adding Value to the Wealth Management Industry

Catherine Flax, CEO of Pefin, which claims to be the world’s first AI financial advisor.

A not very subtle swipe at the established robo-advisors. Wealthfront announced that they were working on AI-powered features back in 2016 under former CEO Adam Nash. This included an algorithm would let users know if they have enough cash in their emergency fund by analyzing all of their transactions.  (See Wealthfront Revs Up With AI, But Is Still Running on Fumes)

An artificial neural network can be described as a computer system that “learns” to perform tasks by considering examples, generally without being programmed with any task-specific rules.  According to their website, Pefin’s neural networks analyze a complex web of financial relationships for each investor, including:

  • changes in their spending patterns
  • their account balances and trends
  • the markets and risk exposure
  • federal, state, and payroll taxes
  • social security and gov’t rules
  • inflation and cost-of-living
  • property taxes and closing costs
  • mortgage and refinance rates
  • college tuition and cost increases
  • childcare costs in their area
  • and more…

They believe this allows them to provide more holistic financial advice which includes recommendations on how to handle both an investor’s assets and liabilities. (See 6 Ways AI is Helping Build Consumers’ Confidence in Banking)

I’m hoping that this anecdote was apocryphal because it’s too scary to be true. By the way, I have no idea what kind of computer is in this photo, I just picked something that looked really old. (See 6 Ways AI is Helping Build Consumers’ Confidence in Banking)

Will Hybrid Advice Make You Happy?

This is an excellent point that I have been making ever since the first robo-advisor opened their doors. Advisors have been relying more and more on automated software for decades.  Any bank, broker-dealer or RIA that uses portfolio analytics software or portfolio management software or other tools is in effect, a hybrid advisor of sorts. They are using a combination of human and technology to deliver financial advice.

Ron Carson, CEO of Carson Wealth Management, responded that the hybrid advisor model will not commoditize advice, instead it will make the client experience cooler and richer.  The hybrid model also improves scale, noted Marthin De Beer from MyBrightPlan. A human service model cannot scale advice to the majority of Americans, let alone the rest of the world, he pointed out.

A large part of this prediction is predicated on exactly what is meant by “advice”. As I stated above, most advisors rely on software to make decisions about portfolio constructions, asset allocation, rebalancing, etc. And they do it much faster and efficiently than any human could, especially at scale.

This was an overly provocative statement by Carson and he got the expected feedback from the audience. And it’s probably true in some respects because some systems can already provide a better client experience than human advisors can for specific subsets of clients. But not for every client.

And that’s the important bit. There will always be clients who want some human interaction, no matter how good the software is. And some clients who always want to interact with software no matter how good the humans are.

Carson dropped a bunch of truth bombs on this panel including the well-known problem of vendors making “powerpoint promises” but not being able to deliver.  This leaves a lot of advisors stuck with bad technology. (See Comparing The Best Digital Advice “Robo-Advisor” Platforms For RIAs)

There are around 1.7 billion people in the world who do not have access to formal financial services, as reported by the World Bank. Although, things are improving.  Almost 500 million previously “unbanked” people gained access to a bank account in the past three years.

The country with the most unbanked is China with 224 million followed by India with 191 million, Pakistan with 99 million and Indonesia 97 million.  That adds up to around 500 million or 30% in just those four countries.

Digital tools will allow advisors to increase their scale and support more clients, yet maintain the same level of service and customization. This means a reduction in the amount of time the advisor spends face to face with clients but increases their ability to help them solve their financial issues and reach their life goals.

Pecoraro also recommended that advisors “peel back the onion” ion order to discover what their clients are trying to improve.  (See Winners of Wealthtech: Angela Pecoraro)

Acorns Grows Up

An interview with Noah Kerner, CEO of micro-investing robo-advisor and now online bank, Acorns. Kerner is also the author of Chasing Cool: Standing out in today’s marketplace. Their cash back program

Right off the bat, when breaking down the firm’s incredible success, Kerner explained that it’s critical to address all the other aspects of a consumer’s financial life before trying to help them to save and invest.

It’s hard for consumers to remember what other financial services companies even stand for, Kerner noted.  That’s why everything at Acorns starts with mission and brand. (See Acorns: We’re Not Just Gathering Assets, We’re Building a Brand)

Their cash back program that partners with some of the largest retailers in the country, Found Money, now has 250 brand partner, Kerner reported.  It’s the best form of advertising, since the partners actually pay to promote their brand. Brilliant.

When asked about their focus on investors with less than $100,000 in investible assets, Kerner replied, “We’re not interested in serving millionaires, we want to grow millionaires.”

I can understand why he feels this way after launching both debit card and retirement account products in just the first few months of this year.  Clients do not seem to be overwhelmed yet as they are still opening 150,000-200,000 new accounts every month.  To put this perspective, Betterment has a total of 400,000 accounts. (See Why Acorns is the Only Roboadvisor That Could Be Worth $1 Billion)

I think Kerner just illustrated a great reason for Paypal not to partner with his firm.  While it’s not possible to determine how much interest income Paypal generates from customers’ unused cash deposits.  The number is most likely significant, considering that parent company eBay had $15 billion in cash on their balance sheet.

If more customers were encouraged to transfer their balances from Paypal to Acorns, Paypal would lose that income. Unless Acorns is kicking some small percentage of that transfer back to Paypal, there is no benefit to them except burnishing their reputation by being connected to an up and coming financial player with a motivated user base.

I couldn’t agree more. Acorns has quickly morphed from a standalone robo player into an online bank.

The conference organizers asked me to submit some questions that I would like to ask Kerner. While their interviewer didn’t use any, here are a few that I think would have been interesting:

  • After launching your own debit cards and checking accounts, would you consider Acorns to be more of a bank that offers wealth management or a wealth management firm that offers banking?
  • Can you share the amount of deposits you have attracted since launching the Spend debit card? (You have to open an Acorns checking account in order to use the debit card.)
  • Since you could be considered a bank now, do you plan to launch any lending products like auto loans (“Drive”) or home mortgages (“Cribs”)?
  • Many banks are building digital advice channels to try and move assets from core deposits into wealth accounts where fees are higher. Acorns does not have this incentive since you charge the same amount $1/month for both.

Acorns is already a force to be reckoned with in wealth management not only because of their incredible growth (4 million accounts) but also because they have a client base with an average age of just 32.

Another of my questions for Kerner:

  • Do you think your subscription pricing model will force the wealth management industry to change from asset-based pricing?

This is a real concern and more traditional firms should be worried about this, in my opinion. The subscription model works for Acorns due to their ridiculously low average account balance (<$400). But it will absolutely kill any other firm, like a typically mid-tier broker-dealer where the average account size is $150,000.

  • You have said that 66% of Americans can’t pass a basic financial literacy test. Do you believe that Acorns’ customers have a higher financial literacy level? If so, wouldn’t that make them more likely to move their money to a service that offers more investing options?

I just wanted to see if I could get a reaction out of him with this one.

  • Banks and wealth management firms all think that they can attract younger clients by launching their own robo-like offering, but they usually fail. Are you worried about the incumbents copying your spare change roundup feature for their own apps and siphoning off a large portion of future customers?

I’m thinking of Vanguard Personal Advisor Services here.  Betterment and Wealthfront create a new category and Vanguard just copies them and steals all the assets for themselves. Why isn’t JP Morgan or Wells Fargo adding this to their app?

Not only are they charging $12 a year for the debit card, they also are able to generate revenue from the debit card interchange, Kerner stated.

Using Artificial Intelligence to Grow Client Relationships

Good reminder from a CRM vendor about why advisors should build relationships with their clients’ children.  (See Will AI be an Advisor’s Best Friend or Worst Nightmare?)

The Business Case for Going Digital: Charles Schwab

Yes, this is true. Many of the consulting projects that my company, Ezra Group, delivers wind up being more about the people involved and less about the specific technology.  Prospective clients will reach out to us asking for our help selecting a new digital platform vendor, but when in our first call, we find out that they haven’t  done any thinking about why they need a digital platform, how they plan to use it, what is the business model, who are the stakeholders, etc.

One of the first steps in any of our digital strategy projects is a workshop to do some brainstorming about what the business is trying to achieve. It’s a future thinking exercise that helps move the internal team down the digital strategy path. Everyone involved in the project brings their own lens that they see the project through based on their background and experience. Getting everyone onto the same page and a shared understanding of what the business will look like in the future is a key first step in a success digital transformation. (See 3 Reasons High Net Worth Clients Are Driving Banks to Expand Digital Advice)

They’re not growing anywhere near as fast as Acorns. But still impressive. 3X Wealthfront and 2.5X Betterment with a higher average account size.

Charles Schwab is now the 14th largest US bank, Hathi reported. (See 4 Mistakes Banks Should Avoid When Launching Digital Advice Platforms)

It could also be because very few people trust the financial services industry. In the Edelman trust index, banks rank the lowest out of any industry.

60% of asset flows into ⁦Schwab⁩’s Intelligent Portfolios are from clients who are new to advice, Hathi noted.  Also, surprisingly, in 2017, 54% of their new clients were 40 or younger.

Boomers are the New Millennials

There are 75 million Baby Boomers and they’re underserved by the industry, according to Steven Dorval who is president of John Hancock Personal Financial Services and Head Of Innovation And Advice.

I loved the real-time graphics drawn by the ImageThink team.

I’d suggest that we have been concentrating too much on Boomers and Millennials and should be turning attention towards the next younger generation, whatever you want to call them.

Regardless of their generation, spouses should be treated like separate clients with a discrete advisor relationship in order to stay connected after one passes away, advised Renee Brown, Chief Marketing Officer, Retail Financial Services, TIAA.

Maybe the Retirement Enhancement and Savings Act (RESA) that is currently being debated in Congress could help increase these numbers?

This data should be shared far and wide since I believe most financial planning and other vendors use static expense estimates are maybe increasing slowly due to inflation.  But they certainly are not projecting this kind of volatility. How would that impact retirement planning if it could be properly estimated and built into the plan?  (See Rogue 4-0 One: Can Robo-Platform Vestwell Help Advisors Defeat The Retirement Deathstar?)

The New Robos for Retirement

This was a ballsy boast by the young Mr. Stinchcombe.  But probably true, given the nature of any company the size of Wells, whether bank or not.

I’d like to see the data to back up this claim.  My parents are on Medicare but need to pay for supplemental gap insurance as well as a lot of out of pocket costs for prescription drugs that Medicare doesn’t cover. Their inflation is definitely not negative!

Lofty goals indeed!  With so much competition in the digital advice space, targeting a niche is critical to gain any traction. I’m not sure that seniors are the best target for a digital solution, but they certainly need a lot of advice.

Stinchcombe ran the table in this session with everyone quote I pulled belonging to him. That’s what I call being well-prepared for a panel discussion!

Combining the volatility of retirement expenses along with longevity risk should throw quite a monkey wrench in most planning software’s Monte Carlo simulations.

Digital Transformation Leveraging Client Data

One of MyVest’s key marketing pitches is their single database that supports their entire wealth management platform. This can be a huge advantage over a best of breed approach that requires extensive integration work between disparate components and data sharing in order to present a unified experience to advisors and clients. (See The Game of Thrones Struggle Between Banks & Wealth Managers)

I think this is a great slide, but I don’t understand the comment.  Combining non-financial and financial detain order to generate relevant advice makes sense, but I wouldn’t refer to long-term planning as a “preoccupation”.

Data aggregation should be table stakes for any wealth management program and technology platform.  Since many HNW client spread their assets across multiple institutions, aggregation is a key part of a holistic solution. It also provides opportunities to poach assets from competitors or provide advice on retirement accounts.

Client Onboarding Solutions

Or perhaps it’s because vendors are configuring the default settings to Public and most consumers don’t bother to check.  The popular peer-to-peer money transfer app Venmo does this. A researcher in Germany spent a year analyzing users public Venmo transactions and discovered a lot of private information that the users probably didn’t realize they were sharing.

The Death of Robos: SigFig

SigFig CEO Mike Shia described four delivery channels going from pure digital to all human with hybrid in between.  He also broke out different client segments that would be targeted by each channel:

  • Pure Digital: $10K – $1M, Age 20-50
  • Digital-Led, Advisor-Assisted: $10K – $1M, Age 30-55
  • Advisor-Led, Digital-Assisted: $100K – $2M, Age 45-66
  • Pure Human: $500K – HNW, Age 50+

I disagree with these segments being solely based on assets and age. An attitudinal perspective should be evaluated first and demographics second.  Different components of a client’s attitude are broken out into cognitive, affective and behavioral. These all impact how a client will interact with wealth than age or assets.

I remember laughing the first time I heard the term “advisor-led” digital advice, as though it’s a revolutionary implementation. Isn’t this the way non-digital wealth management technology has always worked?  Advisors run the process, assisted by a software program that handles the risk assessment, outcome modeling, portfolio construction and onboarding. This is not a new concept!

As I wrote in my most recent digital advice products shootout (Comparing The Best Digital Advice “Robo-Advisor” Platforms For RIAs) there isn’t any such thing as kobo-platforms or digital advice any more. All of the vendors have morphed into full wealth management platforms. They all now offer “advisor-led” solutions, which are the way advisors have always worked with the technology.

Vendor Field Strategy Report

Hey! We’re finally up to my panel! I moderated this session with a group of distinguished industry veterans:

  • Doug Fritz, President, F2 Strategy
  • Gavin Spitzner, President, Wealth Consulting Partners
  • Will Trout, Head of Wealth Management Research, Celent

There were a lot more people than I expected when we kicked off at 8:20am. Thanks to Seb Dovey for the beautiful introduction and personalized anagram of my name, “Czarist Go Kiwi”. Which is probably why he asked me backstage whether I preferred Australia or New Zealand. Fortunately, I picked New Zealand, the eternal land of Kiwis.

According to a report from Aite Group, “In an increasingly competitive environment, wealth management firms realize they do not have a second chance to make a first impression.” This is what makes onboarding  such an important part of any wealth management solution.

In a recent survey, 85% of wealth technology executives placed high importance on improving their firm’s client onboarding experience.

Actually, this was Doug’s slide, so he’s the one who said that legacy providers can’t get into the digital lane. I believe his comments were that while Scivantage launched one of the earliest digital offerings, their platform has not stayed up to date.

There was only so much room on the slide and only so much time in the panel, but a few other current leaders include:

  • SigFig

And a few other market challengers would include:

  • Oranj
  • Riskalyze
  • Trizic (I would have shifted these guys from leader to challenger)
  • RobustWealth
  • Marstone

It absolutely increases Jemstep’s financial stability to have Invesco backing them.  Beyond that the number of doors that are open for them based on their new owners is night and day from when they were a startup.  Invesco has relationships with almost every bank, broker-dealer and advisory firm in the known universe. I imagine that Jemstep’s sales pipeline has been overflowing every since before the link was even dry on the deal.

Blockchain, Quantum Computing and AI

This session was a sort of hodgepodge of emerging technologies that impact wealth management. I think they could have broken each one out into its own session since I don’t think that 12-13 minutes per topic was enough to do it justice.

Just because a database is immutable (cannot be changed) doesn’t mean that’s inside is right. It takes the same amount of energy to write incorrect data as it does correct data.

Good analogy. Many companies, especially social media, rely on selling their users’ data to generate revenue. The problem is that people are just coming to the realization that regular invasions of their privacy are required in order for these companies to stay profitable.

I wanted to juxtapose this comment from Kelli Keough about data privacy with the previous one from Amber Baldet. I believe most clients would be concerned about banks using their data if they were aware of all the “spills”.

We have asked our own clients this question a number of times. The answer always involves a lot of shrugging and puzzled looks.

Tell Me Something I Don’t Already Know

This panel won the prize for most interesting title.

Obviously, generational differences are at work here. But it could also be that goals-based financial planning has only recently moved into the mainstream and it is more difficult for older advisors to adjust to the changes.

Or it could be that upper management is not encouraging advisors that own the relationships to create their own value added, as Kendra Thompson from Accenture pointed out. She doesn’t see the pivot happening fast enough. There is resistance from the workforce to the kind of thinking that experiences have value.

I think it will be much later. Not because digital advice isn’t  growing fast enough, but because the current installed base of human advice is so large. It will take more time to overcome the head start.

Software can do a better job of risk analysis than a human, but it can only work with the inputs it is given. Some platforms allow the advisor to adjust the risk score based on their knowledge of the client, because there can be factors that the software does not capture.

Can we just take the electronics away from the children for a few minutes a day?

The Rise of the Model Marketplace

There was a lot of useful comments provided by this panel.  Kunal Kapoor, CEO of Morningstar, said that a model marketplace allows an advisor to demonstrate their value to the end investor and show how they are helping clients reach better outcomes. (See 7 Model Hubs Battle for SMA Managers & Sponsors)

Fee compression has been an issue that has impacted every participant in the wealth value chain, except the advisor.  They have been pushing back on technology providers, custodians and asset managers to avoid taking a hit on their fees.

Now with model marketplaces providing low cost distribution for advisor-created models, it has allowed them to compete directly with the largest asset manager firms.  (See How Advisors Can Use Technology and Service to Fight Fee Compression)

I’m sure many US asset managers all exploring international distribution channels, but have to be wary of regulatory hurdles.  The UK is ahead of the US in some ways, but we are the innovators when it comes to investment model distribution.  (See Can Retail Model Marketplaces Challenge TAMPs for Assets?)

This study by TD Ameritrade is reporting that client acquisition, asset growth and revenue growth for the RIA segment dropped dramatically from 2014 to 2016.  These findings have been confirmed by other studies including a 2015 InvestmentNewsAdviser Compensation and Staffing Study.

However, I believe there is a stratification between the lower and higher performing RIA in terms of growth. The biggest firms can afford to invest in business development and are reaping the benefits while smaller firms suffer slowdowns:

The top-performing advisory firm giants — those that have more than $10 million in revenue and are the most profitable — generate more than 71% of new assets from firm business development, the study found. The rest of the $10 million-plus firms garner 44% of new assets from business development.

Digital Advice in Banking

This was a big win for Jemstep last August since KeyBank is in the top 20 in the US with $136 billion in total assets and $45 billion in AUM. of course, just a fraction of that is discretionary fee-based, which is where every other digital advice platform is constrained.

But Jemstep is unique in that their platform can also open commissions-based brokerage accounts. This provides more flexibility to a client like KeyBank that operates on both sides.  They are also a partner with Pershing and their integration has been up and running for almost four years, which gives them an advantage over other players in the space who haven’t had the same amount of time to work out the bugs in their account opening process.

We have been engaged by more than a few wealth management firms where the advisor and client experiences are managed by completely separate parts of the organization that rarely, if ever, communicate.  While they believe that they are optimizing each experience, they fail to realize that they’re intertwined and must be evaluated together since they feed off of each other.

What better way to close out this event than oysters and wine with some good friends?



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