#ItzOnWealthTech Ep. 72: Finding the Right Fintech Deal with LPL Financial

“We want to be the leader wherever advice is delivered. And as you think about how our firm has evolved, this is really about being there for advisors and helping them where they are in their practices. And we’re agnostic of platform, affiliation level. We’re really trying to help support advice and be the leader in that category ”

— Rob Pettman, Head of Wealth Management Solutions, LPL Financial

When LPL Financial decides to acquire a fintech firm, they expect it to have an outsourced effect on the more than 17,000 advisors using their ClientWorks platform. So when they announced their recent purchase of portfolio rebalancing and trading software provider Blaze Portfolio, we wanted to know why they selected it and how it fits into their strategic plans. I spoke with Rob Pettman and Gary Carrai about the pure play trading tools that were available, secular investment trends driving the market, LPL’s process for making build versus buy decisions and a whole lot more on this episode of the Wealth Management Today podcast.

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Topics Covered in this Episode

  • Why Blaze Portfolio? [02:45]
  • The Need for a Pure Play Trading Tool [08:35]
  • Build vs Buy [16:12]
  • Institutional vs Advisor Trading Tools [22:45]
  • Evaluating Culture in M&A [25:30]


Complete Episode Transcript:

Craig: It’s another fantastic day in the wonderful world of wealthtech. Welcome to episode 72 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, RIA aggregators, as well as their wealth tech providers through our premium advice and targeted market research. On this podcast, I speak with some of the smartest people in the industry who are on the leading edge of technology and innovation, and here we go with this episode.

I’m happy to welcome to the program our guests for this episode. We have from LPL Financial Rob Pettman, Head of Wealth Management Solutions say hi, Rob.

Rob: Hello, Craig. Great to be here.

Craig: Great to see you, Rob. and we also have Gary Carrai, Head of Strategic Partners. Hey Gary.

Gary: Hey Craig.

Why Blaze Portfolio?

Craig: Guys. So glad you could make it on such short notice. I know you’re super busy, but what we want to talk about today is the announcement you just made about the acquisition of Blaze Portfolio, portfolio rebalancing, trading, FinTech firm, cool stuff, cool technology, always excited to hear what you guys are buying and what you’re doing. So let’s just jump right into it. Can you guys tell us why Blaze, why’d you pick them?portfolio rebalancing software

Rob: I’ll tee off Gary, and certainly feel free to layer in. I think just getting back to sort of what problems are we trying to solve, and what’s the strategy. Maybe I’ll start there and then I’ll work into how we arrived at Blaze. You know, as we’ve seen, there’s the macro trend, certainly advisors are moving from the brokerage business to advisory business. That is the model that is growing out into the future. And most recently I think if I would have pointed out a problem, we have a lot of reasons see bias, given the, the events of this year. Let’s just picture this, you’re a financial advisor, you’re sitting in an environment or a market with tremendous market volatility.

And you’ve got a large book of business, and you’re looking to serve your customers in the most effective way possible. And, there are two sets of practices out there. There’s a practice out there that was running bespoke models for each individual investor, and there are practices out there that have a focus on a concentrated set of models that they were employing, whether they are either from a third party or ones that they’ve created themselves. And as you look at those two different cases, one office had a very, very difficult time, because it’s tough to truly understand what’s in each and every every portfolio and make swift decisions and service your clients when they’re calling in with a lot of concern about what’s happening in the marketplace.

And in the other case, when you’re very close to what is actually how those portfolios are positioned, and you’re able to make moves at a macro level and have conversations with clients who are calling in very freely, because you’re very close to those. You’re able to be much nimbler in the way that you approach solving for some of those problems, some of those concerns, whether you’re telling them about what’s happening and how they’re positioned, or if you’re making large moves in the way that you’re overly invested, one office fared better than the other. And as we look to the future and how wealth management is evolving, we’re seeing that at the practice management of a model space practice pull through. Now in order to actually effectuate something like that and create that ability to have this faster implementation time and to be able to create better results for investors, the underlying technology that supports that is obviously a trading system that’s embedded in one of these platforms.

Now we’ve done a lot of work on our advisory platforms in the past. Historically we’ve talked about what we’ve done with a Model Wealth Portfolios and Advisor Sleeve, where they’re creating models themselves and they’re outsourcing trading to LPL. What we’re talking about here with this technology is a different scenario where by we’re actually empowering advisors to efficiently create their own models in our Rep-as-PM platform, or they could actually in the future elect to use third party models, but maintain the total trading control within that construct. So as you think about the evolution of wealth management, the problems that we’re trying to solve, certainly helping to make managing money easier for advisors, being able to be freely and openly and quickly adopt models-based practices and having the supporting technology that actually enables that, that’s what we’re really trying to do.

Then as you get to the second part of your question, why Blaze, that’s all in the selection process. So we have a process, we’ve utilized it before with AdvisoryWorld, you know, for us, it’s best to evaluate what it is that we’re actually searching for and go out into the market and go get it, versus waiting for the investment banking process or for someone to just put a portfolio company on your lap, we’d much rather go out there, see what’s available, or what we’re searching for actually approach those companies and bring them in. So Blaze is actually one of those scenarios. They’re just like AdvisoryWorld, where we were proactive in knowing exactly what we were looking for, and went out to go get it.

Gary: Yeah, I would just say that that was really complete Rob. I think we do believe there’s a secular trend towards models based portfolios and advisors running models based practices. And I even get asked the question of, “Hey is trading a commodity, or is it a differentiator?” And in years past you’d probably argue that it was more of a commodity, but I think as the need for more personalized advice has become more common, and increasingly how a trading system can help an advisor personalize that advice with the tactical changes, strategic changes, how tax efficiency plays into the advice and the value add that an advisor offers, how things like customization around ESG are a factor, all of that leads to technology really being that gateway application, how an advisor expresses their advice to their clients. So where it may have been a commodity in the past, we think it’s a strategic differentiator, and it’s the reason, quite honestly, that it was important for us to buy and not rent.

The Need for a Pure Play Trading Toolportfolio rebalancing software

Craig: And LPL has a history of doing that as you mentioned with the AdvisoryWorld acquisition, which I thought was a great move. I’ve known those guys for awhile and I’ve known Bryson and his team at and Blaze Portfolio for a while. In fact, I was surprised that they weren’t acquired a while ago, that they were able to stay independent for so long. And there aren’t many pure play trading tools out there, as you mentioned. So, what was it about the need for a pure play trading tool, as opposed to maybe some sort of a hybrid that made you go after this type of technology?

Gary: Yeah. Well, why don’t I start. It’s a good question and I think you’re right. There was a time that there were only pure play trading tools, and then as the industry evolved over the 10 years, those firms created other adjacent applications to build more of an end to end platform. Many of them built them built great businesses and they’re good firms. I think the issue for us is that we have a lot of those capabilities already, those adjacent capabilities. But what we needed was something more strategic around trading and rebalancing and order management system. And when you look at the marketplace, you want to buy what you need and maybe not buy things that are redundant or overlapping with existing technology. So you’re right, there are only a few that are what I consider a single application trading and rebalancing firms, as opposed to end to end systems.

And what’s attractive about what Bryson has done at Blaze is they’ve really built a very robust system that includes not just trading and rebalancing, but an order management system. And I think they may be the only one in that category that has that, with all of the capabilities around tax efficiency and optimization and in household based and multi custody that were important to us. So we were thrilled by how that all evolved and to have Bryson as part of the team and that technology is sort of accelerating our capability in this area. And they may not be as known as some of the others that had been acquired by larger firms and probably why they’re more recognized, but in terms of functionality and capability, we found them to be sort of at the top of the list.

Rob: And if I could just add too, I mean, Gary mentioned the practical consideration of seeking to acquire the function of what it is that you’re truly searching for versus having purchasing also overlapping capabilities that you might not have a need for, and obviously that might inflate the price of what you’re looking to acquire. I think we’ve also learned some lessons and just seen some examples too, of in cases where you do have these sort of fully compiled bundles, sometimes it can be really hard to separate out some of the pieces. They might not break off or break away as cleanly as you think that they might. So you may actually encounter some integration challenges that occur along the way. And as we think about some of our needs and what we’re trying to accomplish obviously this is a large firm. We want to make sure that we’re able to do something and also be able to invest in it such that we can do it at scale. That’s really another consideration that sort of lends itself a little bit more favorably within the context of something that’s a pure play versus something that’s packaged.

Craig: Good points.

Invest In Others

Craig: Something you mentioned earlier, Gary said the secular trend towards models, and then Rob you mentioned that you support multiple ways for advisors to access your systems and multiple ways for advisors to run their businesses. They could outsource their trading to LPL, or they can run as a Rep-as-PM and maintain the trading control. So between those differences, how does Blaze fit in to those? How are the Rep-as-PM guys doing it now, and how will Blaze help them or improve the way they’re working?

Rob: So our Rep-as-PM, we have a trading system available right now in our Rep-as-PM platform, that will continue to be available. This will come in as a compliment to that and will help advisors understand how the technology works and other things. And they may find that the technology that we install with Blaze is much easier to use. As we think about this from an integration perspective, we’re integrating it with this goal in mind and the focus on the ease of which somebody can adopt a models based practice. And again, not being either in the context of them creating their own models or outsourcing. This is not about a firm agenda that’s trying to have advisors outsource models. It’s actually more about the practice management consideration that helps advisors service their clients more effectively. So that’s really how that comes together in both of those platforms, and as you think about this, this is a key part in the overall link of the overall ecosystem. We mentioned before the AdvisoryWorld case and that the proposal generation component of this, we have that linked to new account opening, being able to transfer that logic all the way through to a trading system to carry out those models is another really great capability where we can actually stream this thing all the way through to completion.

Craig: Yeah. I remember I was there at your conference last year, when we used to have conferences, and I was sitting down with the AdvisoryWorld guys and I said, show me how it’s different now, because you already had it, it was already available on your platform. And he showed me how much better it was. How tightly integrated it was, how it was seamless. You can move models back and forth, and it was great. So I imagine you’ll be doing the same thing with Blaze and be able to plug it in so that it’s a seamless part of the advisor experience on your platform.

Rob: Yeah. Even thematically, as you think about that we just envision a place where, I mean, we call it right now model hub, but this is a place where advisors can create models or choose models, and then they have the option to either push those to any platform they want. If they want to go about conducting the trading themselves, we’ll have an option for that. If they want to outsource the trading to LPL, we’ll have an option for that. I mean, our model is built around choice in general and trying to meet advisors where they are and how they choose to run their practice, and this is really just another extension and compliment to that.

Build vs Buy

Craig: Excellent. Was a Blaze Portfolio in your affinity program of approved vendors?

portfolio rebalancing software
Vector compass about marketing and life

Gary: Yeah, but Blaze is somebody that we’ve been tracking through our reviews in the affinity program. It didn’t get to a level of integration, but we were familiar with them as we were familiar with all of the trading and rebalancing firms. So as we wanted to go out proactively and look for a buy opportunity the marketplace had fairly narrow field of firms to evaluate, and we were familiar with Blaze from that early review.

Craig: Excellent. So you guys have a large technology force, a large technology team there, hundreds of people, all building software and integrating software. Why not just build this yourself, why go out and buy it?

Gary: It’s a good question and it gets into the framework that Rob talked about, our strategic framework for how we evaluate those decisions. You know, you want to partner with those firms and applications where you know that they’re important, but it may not be strategic, right. You want to develop in areas where, just as an example, we, we did that with CRM, we’ve done that with, our client goals, we’ve partnered with a firm. You want to buy where you do think it’s strategic and certainly Blaze is an example of that in an advisory role, not too long ago, again, and that’s helping convert prospects to clients. Ee felt that was strategically important and why we made that move.

So then it becomes where do you develop? And you really develop where there isn’t anything out there that’s compelling, and there’s a need to do it yourself and ClientWorks is an example of that. So if ClientWorks, as Rob mentioned, is the advisor workstation, it’s really what plugs into other applications either that we’ve embedded in ClientWorks or that we’re partnering with from a third party basis. So that’s an area we’re going to continue to evolve that as we have over over many years, to be that dominant workstation, and that’s an area that we’ll continue to develop, but it all is part of that framework for how we make that decision.

Rob: Yep. And I’ll add too just with the macro considerations that we want to be the leader where advice is delivered, right. If you think about our strategy, and certainly one of the qualities that I would hope somebody wouls be looking at in looking at a leading RIA custodian would be enabling multiple space practices in an efficient and compelling way at its core. So we have a speed to market component there given the opportunity and what’s happening in the market.

Institutional vs Advisor Trading Tools

Craig: Very good. You know, some of the things I like about the Blaze Portfolio functionality stack, besides the fact that it’s optimized, it’s built on top of an order management system with real-time pricing, intraday trading, which is very different than how many advisors trade, maybe they trade on a batch, or they’re trading through a TAMP it’s batched up and traded twice a day. So were you getting calls for this type of functionality from your advisor base?

Gary: We were getting requests for access to this type of household type rebalancing system with greater tax efficiency as models, became more prominent. There’s no question that that was part of it. And I do think real time trading, we all saw that in the industry in March and April when the pandemic hit and the need for that. So there’s no question. I wouldn’t say that this was a reaction to that as much as it was a strategic capability that we’ve known that we’ve needed now for awhile and very fortunate that this all progressed with Bryson and Blaze.

Rob: I would just add too, just from the big picture perspective, we’ve been getting the calls, but it’s not necessarily specific to one thing. It’s more around the problem saying, “Hey I understand what you’re saying about models based practices, I want to go about implementing that and I’m having trouble. you know, and I need a better, more effective way to go about doing that.” So even as you look at at how we integrate and how we bring this to fruition, there’s components of innovation and perspective that we’re pulling through based upon the feedback of our customers to make that a reality, because we’re really trying to make sure that how this comes together is really directed at solving that problem.

Craig: That makes sense. Some of the other areas that I think are interesting with the rebalancer are security equivalence, household management seems to be pretty good, and tax management. How are you guys handling tax management across your platform? Is that something you’re focusing on? Is it something that advisors are also advisors asking for more of especially with how the market’s fluctuating now?

Gary: Yeah, there’s no question. I think Blaze’s capabilities around tax management was a big component, a big factor in how we evaluated them, to be honest, and they offer household level rebalancing, something they call a location optimization. And increasingly this is the coming of a much bigger value add for advisors. And historically I think the industry looked at it on an account basis and in a more of a product level solution than a technology solution. You can certainly stall for things like UMA, but that’s in a single account, a unified managed account, the idea of having household trading and rebalancing with tax efficiency across that household that’s location centric what registration dictates maybe the different type of investment strategy and that notion of a level of proactive loss harvesting.

The only free lunch left in this industry is proactive tax management. And if you do it right and many advisors don’t, I think because they don’t have the technology to do it, but if you do it right, now you’re able to add value regardless of what happens in the marketplace, regardless of what happens within the individual investments. We’re able to show a level of tax efficiency that net of everything else that advisor’s adding value through how they’re offering that advice to their clients. So tax efficiency is a significant deal, I think in the marketplace, but definitely how we evaluated this particular technology and how we think of it globally providing that level of functionality for our advisors.

Craig: Very good. And there’s a big difference in how trading tools are designed. I know we were talking about this earlier as well. Can you talk about the difference between institutional trading tools and advisor trading tools? Cause you guys, you got the scale, right? You’re the biggest IBD in the market, 17,000 advisors, anything you put out there has to scale. So how do you approach that when you’re looking at tools that are designed for advisors versus tools that are designed, for institutions?

Rob: Yeah. If you go back and you just look at how some of these things evolved, certainly the this whole API marketplace and infrastructure hasn’t been around forever, right? And that’s been an enabling factor for a number of these different companies on which they’ve been able to create these types of solutions and businesses. But before that you have large firms’ platforms, that are acquiring technology with the, certainly scale, requirements. And typically what happened through those considerations is you end up with technology that’s built with the large firm in mind and their needs for scale, and not necessarily focused specifically on the financial advisor. And as you look at the sort of wave of innovation in fintech that we’ve had, and how APIs and custodian integrations are really facilitated, you have tech companies that are creating solutions with the RIA in mind as their customer and creating great experiences and functionality and ways in which to manipulate the technology.

And they don’t get to feed their families unless RIAs pay them money for that technology, which means that it has to work for them and that use case in a very specific way. And that type of performance, pressure and tension isn’t on those large firms. So because of those two different models you end up seeing, especially in this bifurcation, that you have this whole element of RIA experience and use case that’s coming out through those firms. And that’s what we really found attractive as we started thinking through how we were going to help advisors with adoption and solve their problems. It’s really starting with technology that was specifically targeted in consideration of RIAs versus technology that was just built to solve large firm problems.

Gary: I would just add to that, on one end of the spectrum, the institutional trading firms, highly functional, but not highly personal, then on the other side kind of the more advisor friendly trading systems, highly personal, not as scalable. And I think our opportunity is to combine the two, take a highly personalized application like Blaze, and what LPL does really well is create scale inside of that technology for the benefit of any advisor up and down the elevator in terms of advisor size and client focus. And that’s our opportunity.

Evaluating Culture in M&A

Craig: So let me ask you a question about one of the most important aspects of any acquisition, which is culture. So how do you evaluate an acquisition or a small firm that you’re looking at buying and whether their cultural fit into LPL?

Gary: I think with most of the people, when you talk about acquisition, you end up talking about the capability and the technology and how it accelerates what you want to do strategically. But I think equally important, if not more important are the talent and the fit and the culture of the folks that lead the business, or really throughout the business, and how we could work with them collaboratively and how that quite honestly accelerates our development, maybe even beyond the acquisition at hand. I mean, that’s what we’ve found in other capabilities like this is that you acquire the capability, you’re fortunate to keep and retain and develop the talent that provides value to you even beyond the firm that they were running. That’s a significant benefit. Again, it probably more important than the technology itself.

Craig: That’s awesome. Guys, thank you so much. I really appreciate your time. It’s been a really super informative episode, and I think everyone’s really going to like it. Congratulations on the acquisition, looking forward to hearing big things from that technology as you deploy it and scale it up, and it gets to roll it out to all your advisors. Thanks so much for being here.


Click here and schedule a free Discovery Session to find out how Ezra Group can help your fintech firm grow revenue in the wealth management space.



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