#ItzOnWealthTech Ep. 60: Technology is the Front Door for Advisors to Work with Custodians with Lauren Wilkinson

“My point of view is that technology is the business. Technology is the front door for advisors to work with the custodian. In Schwab’s case Schwab Advisor Center is really the front door for our advisors to work with Schwab, and when I think about charging fees for technology, I think, well, technology has to be part of the package because it’s required to do business.”

–Lauren Wilkinson, VP of Digital Advisor Experience, Schwab Advisor Services

An experienced VP Product with a demonstrated history of working in the financial services industry, Lauren is passionate about working with great people, and creating great product experiences. Skilled in product management, user experience, agile methodologies, and leadership. Education includes a Masters degree in Information Management and Systems from UC Berkeley, and a Bachelor of Science degree from Brown University.

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This episode of Wealth Management Today is brought to you by Ezra Group Consulting. If your firm is evaluating new technology or looking to improve your current wealth platform, you need to contact Ezra Group. Don’t spend another day using technology that doesn’t offer an elegant user experience. Your advisors and clients deserve better and you can deliver it to them with the help of Ezra Group.

Companies Mentioned

Topics Covered in this Episode

  • TD Ameritrade Acquisition
  • Third Party Integrations
  • Will iRebal Be Merged into Portfolio Connect?
  • Schwab IMPACT Goes Virtual
  • Portfolio Connect Reaches 1,000 Users
  • Portfolio Connect Product Roadmap
  • Why Technology is a Differentiator for Custodians

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Complete Episode Transcript

Craig: When Lauren Wilkinson joined Charles Schwab almost 14 years ago, their assets were only $500 million. This year, they’re well on their way to hitting $2 trillion at Schwab Advisor Services, and technology has played a major role in that growth. I asked Lauren about the latest on the TD Ameritrade acquisition, increases at Schwab is seeing in digital adoption, how their new PortfolioCenter software reached the 1000-user milestone, and a whole lot more on this episode of the Wealth Management Today podcast.

Thanks for joining me here in the wonderful world of wealthtech. I’m your host, Craig Iskowitz, and I run a consulting firm called Ezra Group. We’re experts in everything related to wealthtech. We deliver growth oriented solutions to banks, broker dealers, asset managers, and their technology providers through our advice and research. On this podcast, I speak with some of the smartest people in the industry who are on the leading edge of both technology and innovation.

And I’m happy to present my guest for this episode of the Wealth Management Today podcast is Lauren Wilkinson, VP of Digital Advisor Experience for Schwab Advisor Services. Good morning, Lauren.

Lauren: Good morning, Craig. Great to be here.

Craig: It’s great to have you here on the podcast. I’m really happy you could make it. now you have a very busy schedule. I’m glad we could squeeze us into the time that you have, and it’s been a long time since we last saw each other back at the T3 Advisor Conference in February. Almost like a whole world ago.

Lauren: I know! Way before all of the shelter in place concerns about COVID hit. It definitely felt like a different lifetime ago, even though it was just a few months.

TD Ameritrade Acquisition

Craig: Just a few months, but a whole ‘nother world. We were talking back then and we did a podcast, but you were with a bunch of other people. So now you get this all to yourself, it’s just you, which is which I think is great. We can go into a little more detail on some things, I know there’s been a lot going on. And thing I wanted to jump into right away was the TD Ameritrade acquisition, which was approved last month. Do you have any updates on that?

Lauren: Yeah, so we are very pleased by the Department of Justice’s decision and appreciate their very thorough and diligent review of the transaction. We’re very pleased to have cleared this important milestone, and the other big milestone that happened last month was unanimous approval by the stockholders of both companies, both Schwab and TD Ameritrade. So really pleased by those accomplishments, we continue to expect that the transaction will close completely within the second half of this year. Once the transaction closes, the integration is expected to take between 18 and 36 months to complete following the close. So really looking forward to that., and as far as the technology, I personally am very excited about the opportunities this brings with technology. Our commitment to advisors is to bring the best of both worlds of the technology that will Schwab and TD provide. And as I shared at T3, when we were there together, we have made a pledge to advisors to provide best in class, open architecture technology, including a constant and rapidly growing network of third party providers. So we’re very committed to this space.

Craig: I think the last part, the commitment to best in class technology, is important to advisors. It’s interesting, as I’ve watched Schwab’s changes to technology, how you’ve navigated things very differently from other firms, when you sold PortfolioCenter to Envestnet, then launched Portfolio Connect, it seems like you’re really changing how you approach the technology space. Would you agree with that, or is there something else happening that I’m missing?

Lauren: Well, our strategy for technology is really to is really twofold. So first of all, to provide best in class custodial technology and that’s our Schwab Advisor Center and everything we have there. That does include portfolio management capabilities with Portfolio Connect, and I know we’re going to talk a little bit about that in more detail later. Then the other big pillar is deep and growing integration with third party providers. So I do think, as you alluded to, our decision on Portfolio Center really represented that strategy. We wanted to focus on Schwab custody and we really wanted to create something different with Portfolio Connect, a Schwab-only solution, lighter weight simpler, really targeted towards smaller advisors. And we’re deepening our partnerships with third party for advisors who need multi custodial, more complex portfolio management systems.

Third Party Integrations

Craig: So the third party connections, that’s becoming more and more important. I know for a lot of our customers, there seem to be a lot of problems where vendors over promise when it comes to connections, and I know one of the strengths of TD Ameritrade was their integration center. Is that something that’s going to continue? I guess it’ll be rebranded as a Schwab integration center.

Lauren: We are very committed to third party providers and continuing to grow that network. We’re in the planning stages right now of exactly what this is going to look like once TD and Schwab come together. But certainly the goal is to bring the best of both worlds. Our integration providers here at Schwab have been expanding extensively over the last year. We’re now at over 150 providers of third parties that we’re integrated with. And over the last year, year to date, we’ve seen a 100% increase in API calls. So the usage is very high. And right now this quarter, actually pretty much all year, we’ve seen record level of engagement from third party providers who are actively building out connections. Right now we have 41 active projects in the pipeline with providers who are building out those integrations using our API. So I would say we’re definitely all in on that space, and we’re still in the planning stages of exactly what are the overlaps with TD, how are we going to bring this whole thing together, but I can certainly assure advisors and the FinTech community that we’re very committed to this.

Craig: That’s great. That number you threw out, 100% increase in API calls. I just did a podcast a couple weeks ago about the API economy with Brian Ross from FIX Flyer. So order management systems, trade order management, and talking about how they’re building out API. It’s really becoming something that’s table stakes for any firm. And because it’s becoming easier, what we’re seeing is more companies are taking it upon themselves to build their own interfaces and then connect to the API in the backend. Is that something you’re seeing as well?

Lauren: Yeah. We definitely have advisors who are building their own interfaces with Schwab. And we work with them, we provide direct API access to Schwab. We have a number of them who have created very sophisticated workflows, for example within their CRM, and are doing things like moving money, opening accounts, practically from their custom built CRM. I would say one of our big strategies with integration over the last couple of years has been to move from more view-only data. When we first started integrations, it was a lot of views, like being able to see Schwab balances and alerts and stuff like that. And the transition we’ve made or the additions we’ve made over the last year or two, has to focus on transactions as well. So now you can move money from a third party system. You can change an address from a third party system. You can open an account directly from a third party system. We’re going to continue to move more in that direction, and we actually have a services first approach here at Schwab, when we embark on any new feature development for Schwab Advisor Center, we don’t just make it on Schwab Advisor Center, we create it as an API. And then that API is used by Schwab Advisor Center, which is our website, and at the same time made available to third parties for their consumption.

Craig: That seems a bit the best way to go. Ten years ago, or even five years ago, that was not the standard. Firms would keep their APIs separate from their internal development, as opposed to what a lot of firms call eating your own dog food, by building the APIs and using them yourself for your own systems that way you know they work. And then opening them up to third parties when it’s ready and secure and such. So I think that’s really the best way to go.

Lauren: Yeah. Hey, one other thing I wanted to mention back on TD for a minute is one example of a decision we’ve already made around bringing the best of these technologies together is iRebal, which is just a fantastic product offered by TD, that provides rebalancing capabilities. That one was just straight away, we see the value, and the more I learn about it, the more impressed I am with that product. So that’s one where we’ve already made the decision and we publicly announced we’re planning to include iRebal in the new platform. And that’s just an example of the way we’re thinking. That’s certainly not the only piece of TD that we’re planning to bring over.

Will iRebal Be Merged into Portfolio Connect?

Craig: Yeah. And I get it. People are never happy with change, or happy when things go away that they were using whatever it is. I’m happy to hear about iRebal, I followed it for a long time and portfolio rebalancing tools are something we’re experts in. I’ve written a lot about that, about different tools and about iRebal specifically. So I’m glad you’re keeping it. Will that be integrated? We keep jumping ahead. We agreed to talk about Portfolio Connect later. I keep jumping to it. So will iRebal be integrated into Portfolio Connect, or will it just be a connection to it?

Lauren: It’s too early to determine exactly how these things are gonna work together. But we’re looking at the strategy for all of that right now.

Schwab IMPACT Goes Virtual

Craig: Yeah. I’m glad you’re keeping it cause it’s a great tool and I know TD invested a lot in it since they bought it I think in 2007 it’s really become a great, a great tool for that. so moving off of TD onto the next, topic, we want to talk about how things have changed with the crisis. And one of the things that changes is the Schwab IMPACT conference is going online. Can you talk a little bit about that?

Lauren: So we have made the decision for IMPACT to be a virtual experience this year, really with the goal of keeping everyone’s health and safety in mind with everything going on with the concerns around COVID. I’ll say this was definitely a tough decision because, we all love the in person interactions. I mean, at Schwab, we’re very much a people company. I’m a people person. We love being in person with our clients and our colleagues, but it really felt like this was the safest decision for all involved. And we are in the process now of developing a virtual agenda. Personally, I’m really excited to see the opportunities this is going to bring for us to bring, influential speakers best in class intellectual capital and so forth. We certainly are going to do our best to keep up the spirit of IMPACT and the high quality that it’s known for in terms of bringing advisors together with top influencers in the industry and also with each other. So that’s our goal. It’s also our 30th year of IMPACT this year, which is kind of hard to believe. I personally have been going to IMPACT for 12 years now, and this will definitely be a fun experience for us to go through in the fall.

Craig: So one thing you mentioned about Schwab IMPACT is advisors like to go to connect with people. So with virtual, obviously the connection is a little bit harder, especially with thousands of advisors, who when they’re at the conference can all mill around and interact on their own. Is there any way you’re going to be allowing that kind of interaction directly between advisors and vendors, advisors and advisors virtually?

Lauren: Our events team is being as creative as they possibly can on that. And actually this decision to go virtual with our event was actually a decision we made for all of the events for this year. And we held our first virtual event called EXPLORE, just in the last month. And I would say it was a really good learning ground for us. Overall the feedback that we received from participants was very positive. They did miss being in person, and I think being virtual, sometimes you’re tempted to multitask and get distracted a little bit. So they did miss being in person, but overall had very positive feedback around the content and some of the things we were able to do. For example, we had some virtual small group sessions so people could network in smaller sessions. So that’s what we did in this first event, and we have another one coming up called SOLUTIONS this summer that’s more focused on operational issues and technology. So that’ll be another learning experience. I think by the time we get to IMPACT, we’ll have some really good experience on this, but the goal is to try to create as much of that close knit feel with small group opportunities as possible virtually.

Craig: It’s tough, it’s tough. And there’s a lot of new technologies coming out, like Zoom, we’re on Zoom now, but Zoom, isn’t the only game in town. There’s lots of new tools. We’re testing out a bunch of them now that give other opportunities and allow people to do different things and present different ways virtually. So I think that that’s really an exploding field.

Invest In Others

Portfolio Connect Reaches 1,000 Users

Craig: So let’s move on to, what we keep alluding to, Portfolio Connect. So I saw an article that Portfolio Connect had surpassed 1,000 users. Congratulations, that’s a big step. I saw a demo of it and I really like how you put it together and it seems very modern looking and intuitive. Can you talk about how you created it because you built it from scratch, and what were the guiding principles around how you designed the look and feel of Portfolio Connect?

Lauren: So our objective with Portfolio Connect was really to create a different offer in the marketplace. When we took a look at the portfolio management options, there are so many great options provided by the FinTech community. Advisors can find a variety of different portfolio management systems at many different price points in the market. So when we took a look at that, we thought, well, how can we create something that maybe fills a different niche in the market? And so what we identified as an unfilled opportunity was a simplified single custodian system. So that’s what we created with Portfolio Connect. And we had quite a lot of experience with Portfolio Center having managed that product for 20 years, so what we did when we came up with the design was we looked at what are the most popular features of Portfolio Center.

And those most popular features are what we brought to the front of Portfolio Connect. It’s a simplified system, it’s Schwab-only. And because it’s Schwab-only we have the data, advisors don’t have to do downloading and reconciliation, which you frequently have to do with a multi custodial system that saves advisors hours of time every week, just having the data right there. So because it’s all Schwab data we can have it right there. Instead of having advisors set up and customize their own reports, what we did was take the best in breed reports that we knew from Portfolio Center that were the most popular and we made those available right there on the screen at the of a button, you just, you get the most popular reports. And we made it free, so the system is simplified single custodian and free, really designed for smaller advisors who are getting started, just starting their businesses. For these smaller advisors, it’s saved them tens of thousands of dollars in portfolio management software. Now, what we found is once advisors grow to a certain size, frequently they do need more customization, more ability to edit the views, and the reports often go multi custodial. Our intent with Portfolio Connect is not to go there. We’re not trying to compete with a third party, multi custodial system. In fact it fits our strategy very well because we have very strong partnerships with those third party providers. So for advisors who do have more complex multi custodial needs, they can take advantage of our third party integrations.

Craig: It seems like it’s designed that way and really focusing on, as you said, what advisors are looking for the most. It covers performance billing and reporting, and hopefully iRebal will get plugged in there, I’ve got my fingers crossed that it also does portfolio rebalancing, and then it becomes more of an end to end solution. We just published an article on my blog, “47 Portfolio Management Systems Can’t All Survive”. So there were 47 portfolio management systems on the marketing wealth management, and actually after I published the article two more contacted me, “you forgot us!”. So it was really 49 or 50, I think I got the 50 afterwards. And yes, as you said, there’s a lot of solutions for advisors of different sizes and different scopes and have different needs. So having something that’s simplified for a very targeted market, which is smaller to midsize firms fills a good gap. And again, there’s a lot of also competition in custodians, right? So you need to find differentiation as well, and I think having this type of product that really focuses on a specific niche of advisors is a good thing.

Lauren: It’s been really fun to work with these entrepreneurs. A lot of the folks using Portfolio Connect are just starting their businesses and just getting going and having something out of the box that they can use right away, they’ve told us is just extremely helpful as they get started.

Portfolio Connect Product Roadmap

Craig: Yeah that’s one of the hardest things when you’re a small advisor and you’re just starting out, is getting your technology solution together. So having something simplified that’s seamless, as you said, it doesn’t require recon it’s all in one, helps them. They can focus on other areas like client service and growing their business. Are there any other new things coming down the pike? Can you share any part of the roadmap for Portfolio Connect to the next 6-12 months?

Lauren: The one thing that has come up with Portfolio Connect is while we did design it for smaller advisors and currently that’s really the user base that’s using it, our average AUM is a little under $50 million. But while we did design it for that segment, we are hearing more interest from some larger advisors who are willing to explore a more simplified approach for, in exchange for the efficiencies that it provides. So to that end, we’ve seen the interest and we have been exploring some things that might help those larger advisors. Like I said, we’re not planning to go multi custodial or add a lot of customization or anything like that. But there are some things like data export, that’s something that we just recently added, is the ability to export all the data so that if you wanted to do your own manipulation of the data, you could do that.

Another thing that we’re working on right now is tighter user management. So that as you grow, and as firms grow and they have more employees in the firm, they might want to segregate access to who can see what accounts. So that’s another thing that we’ve been working on. And one of the things we rolled out earlier in this year, which I’m particularly excited about, is firm management views. So if you’re a business owner, if you’re the owner of the firm, you can log in and see firm metrics like overall firm AUM exterior income, based on the billing calculations that we do, transaction history, net flows, things like that, that’s been a really exciting feature. We’re still planning to keep it within the simplified Schwab-only container, but for those larger firms that are interested in the efficiency that this model can provide, we’ve been working on some things that will make it a little more workable for them.

Craig: I’d like to see that. I find there’s no one size fits all. There’s no one solution for small firms. There’s no one solution for large firms. We do a lot of research at Ezra Group on different products and services for clients, and we were talking to a bunch of advisory firms about a product that our client, who is a FinTech, really thought was a small firm solution. And when we started talking to firms, we threw in some large ones just to have a comparison and they were interested too. So it really shocked the client that they were interested because some things you might think are only for one size of advisory firm could work in others. Every advisory firm is different and they all have different ways of doing it.

Lauren: Yeah, definitely.

Why Technology is a Differentiator for Custodians

Craig: It’s really a change from how other firms, if you compare yourself to Fidelity, they’re doing sort of the opposite. They’re building a hugely encompassing, fully functional, lots of options and systems in their platform. Whereas you’re really focusing very small and simplified. So you see that as being a differentiator for Schwab versus Fidelity or Pershing?

Lauren: I think it probably is. I think for us, we’re trying to be very focused on the investments that we make and really be best of breed in our sweet spot, which is being the best custodian. So that’s where we’re focused and heavily investing in our third party relationships for more sophisticated technology needs, particularly multi custodial type technology needs. So that has been very much our focus is create the best in breed custodial website with Schwab Advisor Center, including portfolio management capabilities. And we also have our automated investing solution, and then really go deep and broad with third party integration.

Craig: So one question I always wanted to ask that comes up a lot is that every custodian has technology and most of them give it away for free. And it seems as though it’s something that, the custody is obviously paying for it, so the technology is not a loss leader, but is something you kind of have to have. But will there be a point where you have to charge for technology? The price of custody is going down. There’s no ticket charges, there’s fewer charges for custody, and once that goes to completely free, then there still needs to be some way to make money. So do you ever see yourself charging for technology or is that something that’s always going to be free?

Lauren: We certainly don’t currently have plans to do any charging for any of our technology, that we offer currently.

Craig: Not you necessarily, I mean custodians in general. How much stuff can we give away in order to attract them to our services? Right. Cause that’s what it is. You’re giving stuff for free, you’re not making any money from it, but you’re expecting to make it back on the custody. So all custodians do, this is the Schwab question. Let’s change to a broad industry question. How long can custodians give things away for free in exchange for coming and using their services that you’re charging for? At what point does it become, well we can’t do that anymore because it’s not cost effective?

Lauren: Well, my point of view is that technology is the business. Technology is the front door for advisors to work with the custodian. So in Schwab’s case Schwab Advisor Center is really the front door for our advisors to work with Schwab whether they’re coming through Schwab Advisor Center or a third party integration, but that’s really their entryway into working with Schwab. So when I think about, charging fees for technology, I think, well, technology has to be part of the package because it’s required to do business.

Craig: So before we go, we were going through the list of things we want to talk about, and one thing that’s on top of mind is improving diversity. And I didn’t want to forget to talk about that, so can you talk a little bit about your thoughts on improving diversity in wealth management?

Lauren: Well, I think certainly with everything going on in our environment and all the social unrest and the national dialogue that’s been going on with diversity, it’s definitely been top of mind for advisors. So in Schwab’s conversations with advisors, we’ve heard a lot that advisors themselves are thinking about how do they improve diversity within their own businesses. Schwab recently co-sponsored a research study with the CFP board around this. And what we found was that only 3.5% of CFPs are African American or Latino. So very low percentage when you compare that to the national numbers. When we look at national numbers, 43% of millennials are nonwhite. I know we talked about that a little bit in our podcasts back at T3. Even among RIAs populations, only 12% of RIAs are nonwhite. There’s definitely an imbalance of diversity in our profession relative to the clients that we’re trying to serve, within the RIA industry. I know this has been top of mind for advisors, I wanted to, certainly recognize that we at Schwab are very aware of this, and we’re working with advisors to help identify action plans for how they can improve diversity. But it just felt like with everything going on in the national dialogue, it’d be remiss to not mention it at all.

Craig: I agree, I’m glad we covered it. I think we’re at a time now, I think we got to almost everything we wanted to. So, yay us. Thanks so much, Lauren Wilkinson, I appreciate you being here and looking forward to the next time you’re on the program and hearing more about all the great things you guys are doing over at Schwab Advisor Services.

Lauren: All right. Well, thank you, Craig. It was great to be here.

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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 craig@ezragroupllc.com