“We weren’t the only ones that identified this challenge facing advisors, but it was important when we were designing our marketplace so that it wouldn’t become a one-trick pony. It wasn’t just putting a bunch of strategist models on a shelf to make it easy for advisors to adopt into their practice. That’s a component, but it’s not the only thing that our marketplace does.”
–David Lyon, Founder & CEO, Oranj
David Lyon is founder and CEO of Oranj, a wealth management platform that gives financial professionals everything they need to run an efficient practice and provide investors with an interactive and engaging experience. Lyon launched Oranj after spending nearly 10 years growing his own financial advisory firm in Chicago.
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Companies & People Mentioned
- AssetMark [11:07]
- Cerulli Associates [14:29]
- Live Nation [35:37]
- Morningstar [33:00]
- TD Ameritrade [32:58]
- TradeWarrior [19:11]
- ROBO Global [25:14]
Topics Covered in this Episode
- Why Start a Model Marketplace?
- Third Party Manager Solutions
- Marketplace Rebalancing
- How to Locate Best of Breed Managers
- Marketplace Competitors
- #WinnersOfWealthTech Ep 11: David Lyon, CEO of Oranj
- 50 Portfolio Management Software Solutions For Advisors Can’t All Survive
- #ItzOnWealthTech Ep. 60: Technology is the Front Door for Advisors to Work with Custodians with Lauren Wilkinson
Complete Episode Transcript:
Craig: David Lyon’s first job out of college was working for the Chicago Bulls during their last championship year with Michael Jordan still playing. A lot has happened in David’s career since then, but he believes he’s put together another dream team at his current wealthtech firm Oranj. I spoke to David about their model marketplace, how they can compete with free custodian models, why advisors are adopting more third party investment solutions and a whole lot more on this episode of the Wealth Management Today podcast.
Welcome friends to the wonderful world of wealthtech. And this is episode 63 of the Wealth Management Today podcast. 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, as well as technology providers through our premium 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.
I’m happy to present David Lyon, the founder and CEO of FinTech company Oranj. Hey, David, welcome to the program.
David: Thanks for having me.
Craig: It’s a pleasure. It’s been over a year, a year and three months since you were last on you were on in May of 2019.
David: Time flies when you’re having fun, right Craig?
Craig: Especially when we’re having fun. So there’s a lot to talk about, but I’m most interested in talking about model marketplaces, that’s going to be the focus of this episode. But before we do that, can you give us a 30-second elevator pitch on Oranj?
David: Oranj is a platform that streamlines portfolio management and client service. So when you think about everything that happens in the back office from portfolio management, trading, rebalancing our tools and our platform handles all of that. In the front office we help advisors connect with prospective clients so they can connect digitally with prospective clients without having to meet with them in person, and really streamline the process to identify areas of opportunity that they can help a prospect with. Then from a client perspective, really the same thing, but it’s a little bit more involved as the relationship is a little bit deeper when you’re serving a client. There’s all the tools that they need to communicate, collaborate, and service their clients as well.
Why Start a Model Marketplace?
Craig: Excellent. So let’s talk about the most recent reason why I thought it was interesting to get you on the program now, besides your platform, which is really interesting in general, but the model marketplace. So I’ve been doing a lot of writing on model marketplaces and research, and I think it’s an interesting phenomenon and a big change in how asset management is delivered to advisors. So can you talk a bit about why you guys started your own model marketplace?
David: We started our marketplace about three years ago and it was really something that we identified as a gap between the front office and the back office of an advisory firm. So one thing that we identified is that advisors were going into a variety of different tools for different functions, but they were all kind of disparate and not connected. And so from the time that you go and you try to research a fund or security and then you build a model and then you assign that model to a client or a household, and then you decide to rebalance that model through to a custodian or clearing firm is very disconnected and is not seamless and it doesn’t save advisors time or efficiency. That’s where we kind of generally came up with the concept of a marketplace.
And we were one of the first, we’re definitely not claiming that we were the first ones, but right around the same time that we came out with ours, a couple of others came out with marketplaces. So we weren’t really the only ones that identified this challenge that advisors face but it was really important to us when we were designing our marketplace, that it wasn’t a one trick pony. It wasn’t just putting a bunch of strategist models on a shelf that made it easy for advisors to adopt into their practice. That’s a component of our marketplace, but it’s not the only thing that our marketplace does. So whether an advisor wants to use a third party managed model or sleeve strategy through a couple of TAMPs that are partners of ours on the marketplace, if they wanted to take a strategist model and adopt that into their practice from one of our asset manager partners, or if they wanted to build a model themselves on the security level or the class level, they can do all three of those things within our marketplace.
And the beauty of it is that it’s really seamless. From the time that you start to research different securities and funds to constructing your own model, to evaluating prebuilt models, or even using a combination of those two, as well as a third party managed solution. All of that is in one place instead of having to go to these disparate systems and platforms to do those independently, there’s one single place that advisors can do that gain the efficiencies and user friendliness of that. Really just try to simplify advisor’s life in the back office, is really what it’s all about.
Craig: You noticed a gap in the market. Can you explain a little bit more about what that is? When you talk about third party manager models, sleeve strategies, strategist models, if I’m at a broker dealer, the home office picks the models that I have available, and I just pick one of those. Or if I’m an RIA, I just call up an asset manager and get his model. So what is the advantage of your marketplace versus what they had before? Why is it simpler and easier to use?
David: Well, one it’s fully integrated and embedded within the Oranj platform, right? So they’re not going to a disparate system to build a model, import it into a rebalance or rebalance it, and literally have to do that every single time that, that you decide to make an allocation change. So it helps solve for that, but every advisor runs their business slightly differently. So it’s really all kind of individualistic on the advisor part. But one of the things that we noticed was an advisor was going to like a TAMP platform for their third party managed solutions. They were going to an asset manager’s website to download a CSV file of their strategist model, which then they have to upload to their portfolio management system and then download and upload to the rebalancer sometimes they’re one in the same system.
So we felt that there was kind of a gap there. We also saw that there was a really low adoption, particularly in the independent RIA channel, of third party managed solutions. And we’ve started to see and track an increase by independent RIAs of using third party managed solutions. There’s a lot of tailwinds in the industry, not just data we see internally at Oranj, and there are definitely significant tailwinds around asset managers coming out with their own models. But the majority of the industry still really act as Rep-as-PM. And they’re building their own models, they want to have that hands on aspect to portfolio management, investment management and their practice. And we don’t want to have to make them choose one or the other. We see value in all three of them. I think sometimes it comes down to ease of use and cost, and sometimes advisors feel like paying an extra 10 or 15 basis points to have a third party managed solution isn’t the right thing for their practice, and they’re obviously they’re free to choose. We don’t want to have to make them choose, just be able to use Oranj and adopt Oranj into their practice.
Third Party Manager Solutions
Craig: That’s what I was looking for, building the model in one application and then importing into the rebalancer, and then exporting it to the other platform. And a lot of advisors will work with multiple different model providers, multiple TAMPs, and so going to the asset manager website, every TAMP has their own website or tools. Firms like an AssetMark have their own portfolio construction tools for working with their platform. So yeah, there becomes a lot of task switching or tab switching as they switch, click, click all the different tabs to get things done. We definitely see there are a lot more programs coming out but we don’t really know what the adoption is. So when you said you’re seeing an increase in adoption of third party manager solutions, can you quantify what that increase is?
David: I can’t. Internally we track it, but across the industry and whether you’re talking about the broker dealer segment or the independent RIA segment, I just know a couple years ago, I want to say it was somewhere around 6% of independent RIAs use third party managed solutions, which is really low given how long TAMPs have been around. I think that certainly looking at what’s going on around the industry with a lot of acquisitions, particularly around the TAMP space, they’re driving market growth just because there’s so many different things to look at and think about as an advisor. Not to put on my old advisor hat, but I was in the dark about even what a TAMP was after eight years in the business.
So I think that a lot of the consolidation that we’re seeing of technology providers offering more investment management solutions within sight of their ecosystems is going to help that trend. And I think there’s a lot of value for advisors who do decide to adopt third party managed solutions without giving up building it themselves, or even leveraging the IP of some of the asset managers. It’s lifting up our segment of financial services to really be in line with what you see at wirehouses, right? Where if you go to a wirehouse and if you cracked open, let’s say a $5 million household, you’re not gonna see Rep-as-PM models in there. You’re going to see a little bit of third party managed solutions. You’re going to see some strategist models. You’re going to see some custom solutions that maybe that advisor built. And I think it’s giving independent advisors the same competitive solution set and toolbox that that advisors at wirehouses have had for decades.
Craig: When I asked about the percentages of RIAs adopting third party solutions, I was interested in what you saw for your firm, but I know in general, when you said the 6% number that rang a bell, cause we actually did some research on this for another client. I think the number we found from Cerulli in terms of portfolio construction was that it’s around 12% now.
Craig: But that’s just a snapshot. It used to be 6% now it’s 12%, as far as I know. So that’s a doubling of usage of third party models, which is still small because I think 68% of advisors, this is all advisors, not just RIAs, use in house models.
David: 68% use in house models, meaning like at a broker dealer models that our broker dealer creates? Yeah, yeah, yeah. More or less like an OCIO kind of internal OCIO kind of offering. There’s a lot of value to that I think within independent broker dealers, and that’s probably why a lot of advisors are attracted to them. Advisors that are independent RIAs are a slightly different breed, where they want to be the asset allocator, the relationship manager, the asset gatherer, you name it. But I think just like in many other industries technology can break down the barriers that have inhibited adoption for other types of products and services. And that’s a lot of what we’re trying to do, the strategist models that we offer on our platform don’t add any basis points to the client’s account or household.
And obviously building it themselves, doesn’t either third party managed solutions do as well. they do add basis points, the third party managers do need to get paid. But I think you’re seeing the cost, at least from a management fee perspective, come down on those quite a bit. You can find them for, for under 10 basis points which is significantly lower than just a couple of years ago. I think you’re going to start to see some other creative solutions. Everyone is rethinking their business today. Strategists within the industry who would get paid for their own IP just to build models, they’re not managing anything. They’re just handing over the blueprint to the advisor on what to do. I think that you’re going to start to see a lot of those strategists start to come out with some, some interesting offerings as well.
Craig: When I was going through your website and looking at the different functionality of your marketplace, it looks like there’s a lot of integration here, and I know you purchased rebalancing software from TradeWarrior. So we say simplify rebalancing, when you download the model it goes into what used to be TradeWarrior, that’s now integrated into Oranj?
David: Yeah, yeah. They TradeWarrior had built a really robust trading platform that, was initially a desktop app. And they moved that desktop app into the cloud just before we acquired it and it still needed quite a bit of work. I’d say we, we rebuilt probably about 65% of the application. We did a lot of UI and UX work on the front end of the application to make the workflows more streamlined and seamless, and we rearchitected it from a backend architecture perspective so it would just run faster and handle more accounts. We’ve been really pleased with how it’s turned out and advisors who never used rebalancing software in the past, or maybe used something that was provided by their custodian have really loved the platform.
In my former days as an advisor, I was guilty of that. I was guilty of being the advisor with a spreadsheet, and I wish I had something like what we have today. There was rebalancing out there, but they were so expensive that I felt like my money would be spent better someplace else, but that was an incorrect assumption that I made. But I think that it’s a hard piece of software to educate advisors on the value of right in general, until you start to use it. I know you’re an Apple guy, I’m an Apple guy, it’s like when they first came out with the Apple wallet, I thought that that thing was so unneeded. And then you start to use it and you’re like, this makes my life so much easier. It’s amazing. Rebalancing softwares is really the same thing, you know? It makes it easier, more efficient everything can be tracked. So it’s been great. And the team, our team has done an amazing job of rebuilding that platform and making it really user friendly for advisors.
Craig: So you don’t have to sell me on the benefits of rebalancing. I’m a big proponent having built the rebalancer for another company many years ago when I first got into wealth management, and understand the complexity. And they’ve gotten more and more functional over the years, but going back to model marketplaces. Now there’s a lot of them out there, we’ve been writing about them and covering them in different parts. Everyone seems to have one now. Do you think the model marketplace is going to be table stakes for any firm offering a wealth platform to advisors these days?
David: That’s a really good question. It depends on the application, right. I think it’s table stakes with anything that involves portfolio management, rebalancing, or trading. You really are not going to be able to have those types of applications without some kind of marketplace inserted into the mix.
Craig: Yeah. I’m seeing that too. It seems like everyone feels that they need that. And then that’s going to be putting a squeeze on asset managers because not every model marketplace is going to have access to every asset manager. So will you be limiting the asset managers in your marketplace to only a certain number of each type, or you’re going to be open to any asset manager that wants to get on or any advisor that wants a particular asset management you’ll put them in the marketplace?
David: Our goal is to not be a supermarket, but to have the best of breed. We don’t do any due diligence on the asset managers in our marketplace, we leave that up to the advisors, that’s what they do for a living. It’s a mutual selection process, right. We’re not sitting there picking out the ones that we want. But we do go through a process that’s fairly involved and we want to make sure it’s a good fit. Largely at the highest level that is, are you looking to help advisors with more than just your investment solutions? Do you believe in taking a holistic approach to the relationships that you have with your advisors? And if they’re a good fit just from an overall way of how they view the industry then we kind of go into the second phase of our discussions with them and ultimately it’s just like any other type of partnership.
It’s not just predicated on how much money they are going to pay us, or how much product do they want to move through a market marketplace. It’s got to really stem from what their overall ideology is of how they approach their business. That’s where we find the best partnerships, and we’ve been really lucky. I mean, we have some of the top asset managers in the country but we also have some boutique ones. Ones that we think add a lot of value to advisors. We recently brought on ROBO Global which again is a boutique manager, and they’re really hyper focused in on just having ETFs that are in the technology space, and they’re a really nice addition. Do they bring hundreds of ETFs to the table? No, but they bring an investment solution to the table that honestly today, if you look at what’s propping up the S&P 500 it’s technology. And you look at ROBO Global’s performance relative just to any index they’re outperforming everybody, and it’s not going to slow down anytime soon. I mean, if anything, unfortunately, the current situation in our country is a little challenging with the pandemic going on. But I think it’s educated people about the need for technology, right? Not just FinTech and what we’re talking about here within wealth management, but in every part of their lives. And it’s only getting stronger. So we continually look for unique managers like that because we think that there’s a good value proposition to advisors that may not have otherwise given them a second look, or even a first look.
How to Locate Best of Breed Managers
Craig: There’s something you mentioned, I just want to go to the next level down here. So I understand this is a mutual selection process, are they a good fit, but you mentioned you’re looking for best of breed, but you don’t do the due diligence. So how are you finding best of breed without doing due diligence? I’m just questioning, what do you mean by due diligence? Obviously you’re not recommending models, right?
Craig: Are you checking, for example, how long they’ve been in business, who their management team is, how you, how you defining that they’re best of breed besides that they’re a good fit for you? What is involved in your process to verify that they’re the best of breed?
David: So we’re not looking into their management team, any of the 12-15 things that other companies kind of hold themselves out as doing due diligence. When we look at best of breed we’re looking at what is their position in the marketplace? Certainly some semblance of how long they’ve been in business, things along those lines, and the majority of our managers are in the top quartile within the industry, that’s something that we look at but we’re looking at it more through the lens of how is this providing value to the advisor? And we think just because they may not be in the top quartile today, or they may not have as much assets under management as another one.
We’re also looking at where are we within a market cycle being somewhat thematic? And what would potentially add value to an advisor’s practice that maybe they wouldn’t have uncovered otherwise? So it’s a very subjective process that we go through, but at the end of the day, we want to provide advisors with choice. They can certainly go outside of our partners, we do have a premium upgrade path where if an advisor wants to have a manager that is not partnered with us through the free part of our application, they can pay us a subscription fee to unlock the marketplace and use whatever managers or funds or securities that they want to use. So, at the end of the day we’re still very open architecture. Who we choose to partner with is a very subjective process, but in no way, do we hold ourselves out as saying, these managers have the Oranj stamp of approval. We’re a technology company. We do have a major passion for investing, but we definitely do not advise on that.
Craig: One thing we had mentioned earlier, which you just brought up, I wanted to talk about was you’re paying a subscription to unlock the marketplace. And you said, it’s like an in-app purchase on your phone. That’s an interesting analogy, and I think Oranj is unique in that you have a freemium model. I don’t know any other tech vendor besides custodians, that if you custody with them, they give you the software, but that’s not really free. You’re giving them assets, which they are then making money on those assets. But your software, when you say freemium, it’s really free. So how does this in-app purchase work to unlock the marketplace?
David: So really from the start, it’s free to sign up. Advisors can onboard at their own pace without having a subscription meter running which we identified early on is really one of the big inhibitors for advisors to adopt new modern technology, of which is the barriers are time and money. And we want to make it easy for advisors to adopt new technology. So that was the premise of going to the freemium model, and then once they’ve signed up and we’ve automated a lot of the onboarding process, there is a couple of manual things that have to be done, we try to take care of as much of that as possible for the advisor.
Then they can go in and they can build models. They can invite their clients and prospects to use the portal and connect with them digitally. And then from there, if there’s not a manager or a fund family in our marketplace that they want to use, they can choose to upgrade which unlocks that marketplace. And then they can build whatever types of investment solutions with whatever funds or securities that they want to. It’s really a no pressure kind of situation for advisors. They can do it at their own speed. They can choose to use our partner funds and models if they want to. If they don’t want to, they pay us, there’s a subscription of $4,700 a year that they would pay us on the firm level, regardless of how many advisors or how many assets or clients that they have, or that they get portfolio management system, rebalancer, client portal, account aggregation, and they have a pretty nice tech stack there.
Craig: It sounds like it, it’s definitely a unique offering. I don’t see a lot people copying it, but I expect there to be soon, some firms copying it, depending on if they start losing clients to you guys, they’ll start copying that. But you mentioned custodians before, and there are more custodians launching modern marketplaces, like TD Ameritrade has a model marketplace. I wanted to say Morningstar, they’re not a custodian, but Morningstar is also very big in the market and they’ve also announced a free model marketplace. And of course, all of your clients who are using your product have to have a custodian. So now they have a custodian’s model marketplace, as well as the Oranj model marketplace. So you see that as a competitor, does that conflict any way? Are they complimentary?
David: I think that they’re competing in some ways. It would be a little silly for me to say that they wouldn’t be competing. But I think everybody has their own different flavors of ice cream, if that’s a halfway decent analogy, of comparing that. The marketplaces that we’ve seen from custodians are really just focused in on strategist models, where if an advisor wants to lift a model off the shelf from an asset manager and utilize it with their client’s accounts, they can do that. We’ve taken a slightly different approach where that’s a component of it alongside of the other investment options that I mentioned earlier and it just comes down to how good of a feature set are you providing to the advisor?
How easy is the rebalancer to use? How cumbersome is it? These are all things that we spend every minute of the day thinking about, and that’s at the top of our minds and that’s the business that we’re in. We are not in the business of clearing and custodying assets, right. It’s very difficult, I’m sure you can appreciate this from your seat, it’s very difficult to be good at both of those things. So advisors have to get in, they have to choose and they have to find out what works for their practice, but there’s competition everywhere. You know, custodians are trying to ramp up their game from a technology perspective. Technology companies like ours are making a move to be not just a feature, but a platform, and we’re not the only ones out there doing that. I think other technology companies out there see the need for it because custodians have lagged behind so far with a lot of their technology. Is it gonna always be that way? No, but in 18 months, Craig, you and I are going to be talking about some other feature or some other benefit. It’s always a moving target with technology. It’s just who can stay on top of it the best.
Craig: Well, that’s why people need technology consultants because technology’s always changing. If it doesn’t change, they wouldn’t need us. And if it worked as well as people said it did, they wouldn’t need us either. Do you plan on staying a technology company, you ever plan on becoming an RIA or sort of a pseudo TAMP?
David: No. No. We’re going to always be a technology company. That’s what we’re good at, that’s where our passion is, and I think that’s where we feel like we can make the biggest difference. There’s no end of TAMPs out there and custodians and there’s no shortage of other folks that want to enter the custodial space either. I think that’s going to be an interesting development, to watch some of the new entrants, some of the big institutions who are going to start to get into the RIA custodian business. We’re happy just trying to blaze a trail, being a technology company, to help advisors run a more efficient business and better serve their clients. That’s where we feel we can make the biggest impact.
Craig: Before we wrap, I just want to just talk about when we talked last year, we really got deep into your life before Oranj, when you worked at Live Nation and did a lot of live concerts and met great bands like Guns N’ Roses, when am I gonna be able to go to concerts again?
David: They’re starting! I’m really happy you brought that up. They’re starting to, I don’t know if you’ve seen this Craig, they’re doing drive in concerts. Have you seen or heard of it?
Craig: I saw in England, I just saw a picture on Twitter that they had little booths for each little family on this huge field in England. They did a live concert. Everyone had their own little walled off, fenced off little area with tables and chairs.
David: In Chicago maybe about three weeks ago or so, they did a drive in concert downtown. It makes it challenging. Concerts, as we know them in arenas and clubs I think are not going to be back.
Craig: Mosh pits.
David: I think it’s going to be a while until those concerts come back. I think promoters and artists are being hopeful. A lot of them are rescheduling their tours for next summer. Hopefully they’ll be able to tour, but I think you’re going to see a rebirth of the outdoor amphitheater. Let’s just put it that way. The outdoor amphitheater in the 80s and 90s were really big deals, and then they kind of went away because there weren’t too many artists that could fill a 30,000 seat outdoor amphitheater in whatever city you live near.
And they started to get smaller, concerts started to get smaller, now they’re going to get bigger and being outdoor amphitheaters. And at least in the near future, there’ll be drive in concerts. But I hope it gets back there, I think that the world needs more music and more reasons to come together now and sharing those experiences. And it’s unfortunate that we can’t do that right now, but the one thing that you can count on with the music industry is to innovate and to adapt and to change. And we’ve seen that industry do that over and over again over the last 50 years.
Craig: Why shouldn’t they have to change? We’ve got to change, so they got to change too.
David: That’s right. That’s right.
Craig: David, we can keep going on, but I got to cut us off, end this episode. We’ll have to pick up next time. Really appreciate you coming out and getting this call going, and spending some time getting us up to speed on what’s new at Oranj. Thanks so much.
David: Yeah, you got it. Anytime Craig.