wealth management technology

#ItzOnWealthTech Ep. 89: When the Whole is Greater Than the Sum of its Parts – March News Roundup

The whole is greater than the sum of the parts.” A phrase attributed to Aristotle and misquoted by those seeking to understand one of the most mysterious properties of a system: Emergence. [read my exploration into that topic] The phrase is also used to explain the importance of Synergy and the foundations of Gestalt theory.

Even though the great philosopher never said this, the phrase is an apt description of the two top stories in this episodes wealthtech news roundup.  We may never see the end of companies rolling up a bunch of acquisitions into a new firm with grand plans to make 1+1=3 or 5 or more.  And in this post I cover two of the biggest rollups of the year (so far) and review a range of opinions on the topic and add mine to the mix.

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Welcome to the wonderful world of wealthtech. This is the WealthTech Today podcast, and I am your host, Craig Iskowitz. I run a consulting firm called Ezra Group, we are experts in everything that is wealthtech. We work with banks, broker dealers, asset managers, and RIA aggregators and their FinTech vendors. Don’t forget the FinTech vendors to help them make better technology decisions. On this podcast I interview some the the people who have cutting edge thoughts and cutting edge systems and cutting edge services in our industry. Although this is not that podcast. This episode is news, we’re doing a news roundup. I did one last year and everyone liked it and I was just lazy and didn’t do it anymore. So we’re doing another one. I’m gonna try to do one of these a month, usually the first week of the month and round up, not every news story, there’s too much news, man. Do you feel that way, like we’re overwhelmed with news? There’s just too much out there.

I was going to pick five stories, but then I really liked a couple other ones so I made it seven. So the seven stories we’re covering are, InvestCloud merges with Tegra118. Invesco is consolidating all their little wealthtech pieces in bobbles and baubles under the Intelliflo brand. Story three is Betterment launches custom model portfolios. Story four is Vestwell and Franklin Templeton partner to deliver managed accounts to retirement plan advisors. Story five, Broadridge software can predict when clients are going to leave. Are you kidding me? Can’t wait to see that one. And story six, Envestnet MoneyGuide launches financial planning APIs, and the seventh story is Goldman launches Marcus Invest. There’s a lot here, a lot to talk about. I went long on this episode, I apologize. Hope you stick with it all the way through, give me some feedback. Remember to go to our website EzraGroupllc.com and sign up for our newsletter. Just once a month, some stories, some articles, some ideas from me that we’re sharing with you. Check out what we have on the website and let me know what you think. And we’re going to kick off the episode right now.

InvestCloud Merges with Tegra118

Alright, let’s get started with our first story, which is InvestCloud merges with Tegra118. This was actually big news last month, but I didn’t do a recap last month. I wanted to cover it because this is really my area of expertise. I work with a lot of these firms, disclaimer, I’ve worked for Tegra118 in the past, done consulting work for them. So let’s talk about this merger and what it means, I’m going to read through some articles that were posted about this merger and some people’s comments, and then throw in some of my comments. So I’m sure you’ve heard that there was a merger of three firms. InvestCloud merging with Tegra118 and Finantix, Finantix being a company based in Italy. And this is was big news, especially considering Tegra118 was just spun off from Fiserv last year, just a year ago, in fact February.wealth management technology news

And it barely got time to mature as its own, or even just start as its own firm with its new name before it was taken over and now has another new name. There was a recapitalization of InvestCloud, and there was some confusion over the valuation. When the press release went out, it said there was a billion dollar evaluation of the combined firms, which didn’t make much sense because Tegra when they were purchased from Fiserv, I believe the valuation was $850 million. So going from 850, just to 1 billion by adding InvestCloud and Finantix didn’t make much sense. So I did a little digging and spoke to some people who spoke to Motive, and they said that the actual combined deal with InvestCloud, the valuation was $2.2 billion. So the InvestCloud business itself was a billion, and Tegra plus fanatics was another $1.2 billion, which makes a lot more sense.

So the recapitalization was led by Motive Partners who purchased 60% of Tegra118, or the former Fiserv Investment Services from Fiserv, as well as Clearlake Capital Group and some other interesting partners, Accenture and Citi Ventures, as well as Fiserv. So I guess Fiserv hung on to some of their holdings in Tegra, or maybe even added some more.

Going back in time a bit, one of the reasons why I felt that Tegra118 was undervalued as a business unit of Fiserv, was it just never really fit with what Fiserv’s core business was, which was core banking services and payment processing, especially after their huge merger, which was I think three years ago they merged with First Data. So that turned into a huge $22 billion merger, which has made it a tremendously large firm which made the Tegra part much, much smaller. And really didn’t fit at all with their banking and payments processing business model. I think they really should have sold it years ago, but they didn’t, so they finally get out of it. And now if they did invest more, that’s surprising, but good news cause they really could use some more cash to keep building out the technology and InvestCloud’s going to need some money to do this integration. It’s not going to be cheap, as most integrations are not cheap. There was a quote from Oleg Tishkevich, CEO of Invent.us, “I don’t know the details of the deal, but it’s certainly going to be a challenging project to integrate all of these systems together.” I couldn’t agree more.

You know, I know a fair amount about InvestCloud, know a lot more about Tegra’s systems and yeah, it’s going to be difficult as it is. It’s not specifically about InvestCloud or Tegra, it’s just any two companies that grew up separately that have very different technology bases. Tegra was started 30 years ago, so their technology has evolved, it’s really built more towards large scale enterprise firms and InvestCloud is looking to go in that direction. Although their tech came from a different point of view just to back up a second. So Tegra was called Security APL many years ago, it was founded over 30 years ago in Chicago. Then was purchased by a company called CheckFree I believe in the nineties, 96, 97, and CheckFree was was one of the first eCheck processors, electronic check processing companies. Why they bought APL, I don’t know, maybe to diversify.

Then in 2007 Fiserv bought CheckFree mainly for their eCheck processing services and the APL part just sort of came along with it. And it was sort of the redheaded stepchild for 10 or more years until Motive carved it out. It didn’t do them any favors, keeping them sort of stuck in a corner. So this new this new InvestCloud firm now with with Tegra, on paper, it looks great. Tegra has great back end technology, very scalable, they’ve got experience working with wirehouses, which InvestCloud does not. Although InvestCloud does have some work with JP Morgan, but only for their digital tools, not for the back end portfolio accounting, really the heavy lifting of portfolio management. So this is a great purchase for InvestCloud, a great merger for InvestCloud as they’re going to be the over the overlay of this business.

So reading some other quotes, “International scale is a key factor to InvestCloud’s future,” according to Alois Pirker, research director for Aite Group’s Wealth Management practice. And Alois is a really smart guy, really knows the industry. “There’s very few wealthtech firms that are really playing globally,” he said, “typically when it comes to front office advisor tools, those products become a regional affair.” Now Tegra118 does have some overseas business, they’ve got some work in the UK and some EU business, but it’s a very small part of their revenue, the vast majority is US-based. I know that InvestCloud’s got a strong presence in the UK, in London you know, they bought a UK company whose name is escaping me. It was a firm with a portfolio management software platform that was actually owned by John Wise’s brother, surprisingly, and that gave them their portfolio accounting, portfolio management core technology. So they’ve got some decent global presence that will be helpful for the combined firm if they can push that out. Although I don’t believe that Tegra’s back end technology is multicurrency yet. So that’s something that they will be working on.

“Ultimately, the deal adds another end to end competitor in the advisor platform business,” according to Chip Roame, managing partner at Tiburon Strategic Advisors. His quote, “InvestCloud lacked a portfolio accounting engine,” which I just mentioned, “Tegra lacked enough front end technology. Together they are far more comprehensive and will compete more head to head with Envestnet and Orion.” So that’s definitely true, Tegra118 was never known for their front end. They were definitely more of a back end company whereas InvestCloud is way more known for front end. They’re very strong with their client portal and with their digital tools, also very good with marketing. They do a very good job of presenting their technology with their periodic table of elements.

Just a little history on InvestCloud, they merged with a company called Lightport I believe in 2010, which is how they really exploded onto the scene. Mainly with client portals, they had about 700 clients. I know I had a conversation with the former founder of Lightport few years back, and he saw InvestCloud’s technology as being better than his, and they did an equity swap and that’s where InvestCloud really got the leg up in the wealth business. And they’d been focusing, they were mainly a client portal company for many years, until they started building out their other tools and other components and buying up some other firms. So they came at it from that angle. And from people I’ve spoken to a very strong client portal, a lot of RIA clients, a lot of asset management clients, but I liked the strength of the portal and the digital advice solution. So those are two specific tools that Tegra118 does not have. So a good fit there.

They paid $510 million for Tegra a year ago, Motive Partners, that was for 60% of that division. They then put in some more money, I don’t have the number here I apologize, for this new venture again with a $2.2 billion valuation right. The consolidation means the FinTech now has in excess of $4 trillion in assets and most of that is the Tegra parts and revenues over $285 million. I’d like to see that go up a bit based on the valuation. With a team of over 900 people, according to the announcement.

A great quote from my good friend, Doug Fritz, the founder and CEO of F2 Strategy, “maybe one plus one plus one equals five or six,” Doug said and that’s really, what’s got to happen here. When you’re playing with PE money, they’re not looking just for a 10 or 20% return on their investment. They want three, four, five X or more over, you know, five to seven years. So they really need to goose this and turn this into something that is more than the sum of its parts.

The combined company has over 500 direct clients. Now that number I believe is heavily skewed onto the InvestCloud side with their client portal and digital wealth clients. Tegra is more about quality over quantity. They’ve got very large clients, Wells Fargo, Merrill Lynch, Charles Schwab, Raymond James, they’re really on the big iron, the really big, big firms. So not a lot of clients, but very high end, very large scale enterprise clients, 7 of the top 10 broker dealers, that’s the Tegra side, plus 120 asset managers. That’s a mix, but again, I believe on the InvestCloud side is mainly the asset managers using their client portals. Whereas the Tegra side, the asset managers are using portfolio accounting, portfolio management, and linking to sponsors to send models.

Here’s another quote from Doug, “InvestCloud was the icing before the cake. Tegra118 brings old school liability. It’s old software, but it works for a UMA, SMA, portfolio rebalancing, and other nuts and bolts.” Old school guys like me love it.” Go, Doug. I’m an old school guy too. Definitely gotta love that software that does everything that the UMA chassis, where they can put basically anything on that platform. in an account you can put a mutual fund wrap into a UMA sleeve, works really well. Tegra118 CEO, Cheryl Nash comes on as the CEO of the Financial Supermarket division, great name and Finantix CEO, Christine Ciriani will become the CEO of the Private Banking division. That’s another diamond in the rough. I think that’s an area that also I believe InvestCloud was trying to get into I don’t know if they had a lot of success there. Definitely something Tegra118 did not get into so another great fit for that company, it really gives them a great breadth across multiple segments of the market. Both with join InvestCloud’s global management team reporting to CEO, John Wise. Oh, here’s something from RIABiz, “InvestCloud, long tagged as Envestnet killer, sold at $1 billion valuation,” that’s really $2 billion. I’ve never heard of InvestCloud called an “Envestnet killer”. So I don’t know where that came from. I don’t think they were in the past, maybe they are now. We’ll see. I’m hoping that they are cause we always need more competition. Competition is good for the industry in general, and you need firms to push each other to get better.

So I’m looking forward to seeing big things from the new InvestCloud financial supermarkets and InvestCloud itself in the industry and providing some new technology, seeing how these technologies integrate, and listening for some announcements coming soon of new platforms and new services, new products out of this great merger. There are some smart people that are I expect some great things from.

Invesco Combines Businesses Under Intelliflo Brand

Next up we’re gonna talk about Invesco bringing together all their wealthtech capabilities under the Intelliflo brand. So Invesco, as we all know, is a large asset manager and they own a number of properties, including Intelliflo, Jemstep, RedBlack, Portfolio Pathway, and a company called i4C which they’ve acquired and they’re bringing them all under one brand into an integrated financial advice solution. So why are they doing this? Well, why do they buy these things in the first place when they’re an asset manager? We’re seeing asset managers increasingly using FinTech acquisitions to expand their footprints with their core market, which is RIAs. My friend Tim Welsh, who was president of Nexus Strategy had a quote, “Asset managers see FinTech as a way to diversify revenue in the age of passive low cost index funds. It’s all about distribution, ” he says, “as wholesale becomes less and less important and as more investment products become commoditized, distribution is king.” And he’s correct.wealth management technology news

Asset managers see other ways to distribute their product is through technology and getting onto the advisor’s desktop has become very important, especially in light of the 800 pound gorilla in the room, which is BlackRock and their brilliant use of technology starting with Aladdin, their core risk platform, and then branching out into building a lot of their own RIA focused, advisor focused technology like iRetire, their portfolio performance evaluator, 360 degree evaluator, the stress testing, tax evaluation. All different tools, all for free and giving advisors really strong tools that they can use to service their clients. Plus their acquisition of FutureAdvisor, which I don’t think went so well, but it’s still working. It’s still out there. It gave them a digital advice platform, which has got some decent traction in banks and plus their 5% stake in Envestnet gives them a seat at the table and visibility into what Envestnet’s doing plus another way to get the distribution out through Envestnet’s huge model marketplace, and huge asset management universe.

So Invesco is under a lot of pressure as are a lot of asset managers looking for ways to stay in business, not get swallowed up. So looking at the top 50 asset managers, Invesco isn’t even in the top 10. Looking at the data from 2020, they’re number 16, just over a trillion in assets. Boston Consulting Group put out a report saying, “There will be two viable business models for asset managers in the decade to come: delivering “consistent, superior performance” as a boutique alpha shop, or succeeding through scale as a “distribution powerhouse” with more than $1 trillion in assets.”

As I mentioned, Invesco does have just more than a trillion, but there’s only gonna be so many of these scale plays that can stay viable and Invesco wants to be one of those so they’re snapping up properties, technology firms that they think have unique capabilities and hopefully that they think can be merged together into more than the sum of the parts as we’ve seen in other stories. It took them a while to do this and they bought Jemstep back in January 2016, five years before they wound up merging it. I think they tried to push that out and get some traction with just that it wasn’t working too well, not that Jemstep was bad, it’s some very good technology, very strong in the digital advice space. And they pivoted into banks and credit unions from RIAs, which was a smart move. They got a lot more than just the onboarding, they got SOC2 compliance and office of the controller of the currency compliance, all the things that banks need which is a huge lift, much bigger than what RIAs need.

I think there’s a lot of enterprise institutional knowledge on the Jemstep team that Invesco can leverage. And then they needed more, cause Jemstep is just the onboarding, the digital advice part, and they needed some other tools. So bringing in Portfolio Pathway, which is another another property that Invesco owns, a full featured RIA platform, they have everything from portfolio management, rebalancing, trade order management, performance reporting, billing, a mobile app, a client portal, pretty much end to end, although it’s still small in terms of market share. Portfolio Pathway isn’t one of the leaders in the market yet, and it’s going to be tough for them to break in, but I think merging with these other tools could give them a leg up in some respects, especially with the RedBlack acquisition that they made I believe two years ago, a year and a half ago. We really loved the RedBlack portfolio management, portfolio rebalancing solution. At Ezra Group Research we do a lot of research on advisor tools both RIAs and broker dealer tools, and RedBlack was one of the few standalone portfolio rebalancing tools on the market for a while, while they were getting snapped up and acquired. And they finally got acquired, it was smart for Invesco to do that. We really liked what RedBlack had to offer, a very robust solution, also very good in the bank space, surprisingly. They were very quiet about it, they weren’t well-known that they had that kind of market share in the bank space, but they were very good with integrating with bank systems, trade order management systems, other execution platforms, and also having a very strong workflow capabilities for their rebalancer. So I’d like to see what they do with that.

It’ll be interesting to see how they merge it under the Intelliflo platform. And Intelliflo is very big in the UK, something like 40% market share for their intelligent office system software. And the way they’re going to do this is break it up into digital and portfolio management. So they’re gonna have two different solutions breaking up the original Intelliflo plus Jemstep into one piece, and then the RedBlack and Portfolio Pathway in the other piece, and sell it that way. I think they’ll, of course, offer them both if firms want them. And then they have something called i4C, a cashflow modeling software, which is being renamed Intelliflo Planning. So interesting to see how they integrate that. I really would like to see more integrated planning solutions into the end-to-end RIA platforms rather than having them stand alone. This is a trend of asset management firms buying up tech players. We saw Franklin Templeton buying AdvisorEngine that was just last year and AdvisorEngine previously bought Junxure, one of the leading CRM providers, and then Principal Financial Group bought RobustWealth, which was a smaller TAMP RIA type platform.

I think Invesco is being smart here. They really didn’t want to go the way of WisdomTree who wound up taking a $30 million bath on their AdvisorEngine investment before they sold out to Franklin Templeton. They really want to make a play with this and it’s wise to do that. If you’re going to invest, you want to go all the way. You want to make something that’s differentiated. I wrote an article a couple months ago called 50 portfolio management systems can’t all survive, you can find that on kitces.com and it’s saying exactly what the title says. How will all these portfolio management solutions stay in business? How many do we need in the industry? And it’s tough to go up against the big four, Tamarac, Orion, Morningstar, and BlackDiamond, where they have a very large market share. And it’s tough to replace a portfolio management solution. You don’t just turn it on, turn off a new one. It’s not that simple. So it’s a tough road. You really need something unique and you need to have options and solutions that speak to advisors and give them a reason to purchase, a reason to put all the effort in, to do the work of implementation, changing everything over, you know, retraining your staff. So I’m looking forward to seeing what Invesco is doing and what Intelliflo does with their new tools, new toys. And I’d love to see some new solutions come out of these guys.

Invest In Others

Betterment Launches Custom Model Portfolios

Our next story is Betterment launching custom model portfolios, now serving as outsource trading desk with software. What is Betterment for Advisors doing? This product was launched as a white label version of Betterment’s automated investing software, I believe back in 2014, and they’ve been the fastest growing business at Betterment, according to Betterment, that they grew 21% year over year and have over 600 RIAs and 2000 advisors, which sounds pretty good. I’m guessing the AUM is rather low considering it’s a digital solution, but they won’t break that out, just my guess. But still that’s pretty successful for what they were looking for in terms of the traction overall in the market. And they’ve gradually added more functionality, in the beginning you could only invest in their proprietary model portfolios. They slowly added more adding BlackRock and Vanguard and other dimensional funds and other products.

But now they’re offering custom models and what they’re calling a white glove concierge service. So why are they doing this? Well, the only reason I can think is that they’re not getting enough business from their standard, here’s a bunch of ETFs in a couple of models just use that, or even the standard model portfolios that you can get from those big third parties. It’s just not enough. There’s too much competition out there. You can buy BlackRock funds, Vanguard funds, DFA funds, anywhere. It’s really not unique. There’s no differentiation in that anymore, the ability to offer a digital, what I call self self-directed onboarding solution, even though it’s white labeled is not unique either, there’s plenty of firms that are doing that. Betterment needs to figure out a way to differentiate, and this is how they’re doing it by adding more people back into the mix. You’re taking a digital solution, which you claim has got a lot of scale and can support small accounts and the advisors don’t need to be involved because it’s self directed, and you realize that you’re not getting enough uptake, at least for a company with as much PE investment as Betterment has. You really need to grow much larger and have a much larger asset base than apparently they have on their digital platform.

Being able to offer this outsourced TAMP-like service, I can only call it TAMP-like, even though they’re denying it’s a TAMP. It really is. I mean, we do a lot of research on the model portfolio space and the TAMP space, and there’s really no one TAMP anymore. Everyone’s looking at it from different directions and there are TAMPs that are building out technology and becoming tech players and tech players buying TAMPs and becoming more TAMP-like, so there’s really no one right or wrong way to do it anymore. Betterment is looking to get into that space and be able to charge more. So they’re building these white glove concierge services on top of what’s supposed to be a digital completely no touch offering.

So it’s interesting that they’re doing that similar to how Wealthfront – was it Wealthfront or was it Betterment, that they offered hybrid advice where you can get an advisor on their digital platform? They realized it just wasn’t working the other way. So they’re going to have to keep doing this, and they’re really never going to catch up I don’t think, it’s just not possible. There’s too many options is too much out there. They’ve taken too much PE money. I’d like to see where they go with this. They’re gonna have to keep differentiating, keep adding more functionality and keep expanding until they’re basically a traditional firm. Either a traditional FinTech firm or traditional asset management firm and their whole robo platform kind of goes by the wayside. It’s been successful. I think they’re over $30 billion now in assets, but that’s really not that great. It’s not that differentiated. There’s lots of $30 billion firms out there. And you know, that kind of scale is the numbers are growing much bigger in order to become that kind of a scale player.

So interesting that they’re doing this, that they’re offering these customized portfolios. I would expect them to keep it going adding more functionality, it’s only ETFs, that’s a bit of a limiting factor, although it’s true most RIAs only use ETFs. But still to get the higher fees they’re going to need to offer equities and alternatives, maybe in fixed income, in order to move up market, which they appear to want to do. So that’s where we see them going. I would be surprised if they even get that much traction with this or that they have gotten some high profile clients like Ritholtz Wealth Management and AdvicePeriod, but still the competition is fierce. It’s gonna be tough for them to compete, and I think they’re going to have to expand even further down the TAMP path if they want to get any market share.

Vestwell, Franklin Templeton Partner To Bring New Tech to 401(k)s

What is next? Franklin Templeton partners with Vestwell to deliver advisor managed account opening offering in a modern recordkeeping construct. Who comes up with these titles? This is the title of the story. This is the title of their press release. No wonder no one understands what we do in this industry. Well, anyway so what is Vestwell, I’ll give you the quick 30-second overview. Robo-TAMP, robo retirement platform for advisors managing company retirement plans. They are a digital record keeping platform bringing, as they say, 401k, 403B retirement plan industry into the modern FinTech era.wealth management technology news

So what is a record keeper exactly and why would anyone use Vestwell? So recordkeepers are essentially the bookkeepers for the retirement plans, hence the name. So the job of the record keeper is to track who is in the plan, what investments they own, and what money is going in or out and stuff like that. Recordkeepers hold I think $5 trillion in retirement savings and their platforms, and before Vestwell, their CEO Aaron Schumm, super smart guy, industry leader, serial entrepreneur saw that basically recordkeepers are a bunch of old stodgy companies not really keeping up with the time. Bad tech, bad user interface, bad client experience. He set out to change that, really killing it with Vestwell. Got Bank of New York Mellon on board, got Goldman Sachs on board cause investors, doing a fantastic job. So what’s this announcement about, they’re launching a new product with Franklin Templeton to offer managed accounts in retirement plans. So why is that special? That’s not necessarily a special in itself. Well, it’s nice to have. What’s special is what Franklin Templeton is bringing to the table is their goals optimization engine.

I happen to know a little bit about this. I saw a demo of another product that they’re partnering with with Apex Clearing and Bambu, which is a Singapore based B2B robo platform to offer a new product called Tango, which is a combination of robo advisor and clearing custody and there’s goals optimization engine. So what’s cool about this engine as it was a demo’d to me, is that it’s smart enough to customize the models for different types of people that have different requirements and different life needs and different savings journeys, the term we’re using now, savings journey. And what’s interesting about it is it works within ranges. So if you, let’s say most advisors create five buckets of a model for five different risk profiles, one being very conservative, five being very aggressive, usually you’re in that model that’s, it doesn’t really change. What they’re saying is those models are a range, maybe 1-20 for the first bucket, 21-40 for the second bucket and so on. So you can make a range of portfolios or a group of portfolios that are in that range and move people along the range as their life might change. So it’s sort of like a target date fund, but more granular and more dynamic which they say is going to be more efficient, it’s gonna provide better returns, it’s going to be cheaper because it’s optimized, it’s using an algorithm. So that’s what could be delivered here or what they’re planning to deliver inside of a retirement plan. So a 401k plan could have this much more granular, much more dynamic, and as they propose, more individualized advice, but it’s automated at scale.

Whereas every advisor, if you’ve got a client and they’ve got enough money, you could customize a portfolio for them and change it as they go. Difficult to do with, let’s say, if you’re working with a large corporation and they’ve got 5,000 employees, you can’t do that for every single employee. So they’re hoping this goals optimization engine plugged into Vestwell’s platform then offer through advisors to companies all over the country who are running different 401k or 403B plans can have this this unique individualized experience that adjusts itself ongoing as the investor’s lives progress.

Now what I saw was pretty basic. I saw the demo of their digital advice platform called Tango that’s for Apex, by the way, I’m sorry. I’m mixing my companies up here. So Apex and Franklin Templeton were partnering and now Vestwell, and Franklin Templeton partnering both using the goals optimization engine. So it sounds like some smart people. You know, Bill Capuzzi and Trish Rothschild and all the people over at Apex. If they like this goals engine and then Aaron Schumm likes the goals engine, it sounds like something pretty good. It’s got a future here. So I look out for more announcements as Franklin Templeton keeps partnering with more people and pushes their goals optimization engine out into more platforms could become the de facto standard for scalable financial advice.

With 95% Accuracy, Broadridge Software Can Predict When Clients Will Leave

Why do investors leave their advisors? There are a number of reasons. One could be poor communication, not returning phone calls or emails timely, not being proactive, or their advisor changes firms and then they don’t want to go with them to the new firm or poor performance. That’s always a popular one. Also, maybe they don’t give good advice. They’re not empathetic. Maybe their technology is bad. There’s lots of reasons why. Now, according to some survey results I found here’s one from PriceMetrix that says the average financial advisor loses 10% of his or her clients every year. That’s a pretty big chunk.

I saw another survey from 2016, that by whether the 10% price metrics number, was an article from 2020, here’s a 2016 article from Cerulli saying this is talking about high fees. So there’s another reason why clients leave high fees. It says 5% of wirehouse clients leave their advisors due to high fees and 16% leave IBDs and 20% left dual registered advisors. So it’s kind of a wide range, 10 to 20%. It’s a lot to lose every year, that’s a huge churn. And that requires a lot of prospecting and a lot of onboarding of new clients. So if there was just a way to maybe know which clients are going to leave before they are ready to leave, and you can save them before you’re trying to get them on the way out, which is much harder, that would be great. It would really be fantastic.

So who has done this? It looks like Broadridge might have done this, at least they claim they have. Broadridge has announced with proprietary software with an AI firm called Fligoo, are launching a proprietary software product to anticipate investor behavior and improve advisor performance. And they claim with 95% accuracy they can predict when clients are going to leave. I want to see that. Can they predict? Because there are all these different reasons why clients leave. Clients have different plans, different ages, different personalities, advisors are different. So the fact that they can pull data, obviously big data machine learning looking at patterns, using data from marketing, communications, compliance, trading, and other wealth management services, they claim their predictive models can give advisors a heads up when clients are going to leave.

Oh, here’s another piece of data advisors who reported losing any business said they lost 1/5 of their book, actually that’s the last year during COVID. So during one survey. So that’s still a lot. It’s still in that range. Still a lot of people heading out the door. So if they can do this, and I would imagine they’ll build into their existing systems, and we all know that Broadridge has got some pretty wide range of products and services, and they’re really big in the enterprise space. If they can build it into some of their other tools, it could be a pretty viable offering and could really attract a lot of, at least on the enterprise side, a lot of advisors at scale. If they could even just reduce that churn by a couple of percentage points, you’re probably talking millions of dollars in revenue saved by some of the bigger broker dealers. So I love to see when this product comes out and can they really do it? We will see.

Envestnet MoneyGuide Launches Financial Planning APIs

I’m getting high sign from my producer that I’m running long. I’m talking too much commenting on these news stories. So I’m going to try to wrap up these last two quickly if I can. So the last two stories, are MoneyGuidePro launches financial planning APIs, that’s the penultimate story, MoneyGuidePro launching financial planning APIs. The world is becoming an API world. I did a podcast on this with Brian Ross, from FIX Flyer the API economy, and everything’s becoming API based. Everything is becoming as a service, just put “as a service” after whatever the product or services, and that’s where everything’s going to be in the future. And hopefully these APIs will be easier to connect to. There’ll be more standardized, easier to connect different services, even if they have different back ends or they’re on different cloud platforms, use different front end software. You’ll be able to plug and play these different technologies. Good to see MoneyGuide doing this, they’re calling it MoneyGuideEngine, which is allowing other partners to take advantage of the different calculations and data procesing that goes on inside MoneyGuide. That includes goals-based investing, long-term financial planning and self-directed planning.

This could be great for a lot of firms, especially broker dealers looking to build their own experiences for other vendors. And we work with a lot of firms at Ezra Group, my company, that are trying to build unique experiences, either on top of financial planning tools or alongside of financial planning tools, or somehow integrating financial planning-like functions into other parts of the advisor process. So having these APIs that are better documented, better supported will be key to building out this software because everyone’s under pressure to deliver quickly. And just because of firms says that they integrate with something or they have availability of something doesn’t mean it’s going to work. It doesn’t mean it’s gonna be easy to use. It doesn’t mean it’s going to be easy to learn how to use it or easy to integrate or not have bugs in it. And MoneyGuide has been one of the best when it comes to integrations.

I think I did my first project related to evaluating integration capabilities at firms over 10 years ago, 2009, and MoneyGuide and eMoney were some of the first ones we looked at and they were leading the pack then, they’re still leading the pack. And especially in how they present the information it’s on their website. This is great for consultants. You know, I’m working with a broker dealer, asset manager or other firm, and I want to know who does MoneyGuide interface with and what data do they provide? It’s all on their website. I just click on a link here. Like they’ve got 200 different vendors here that they work with. If I click on Addepar, I can see that they integrate web services. They auto update the client portal and data passed from the partner, includes investments in liabilities and nothing going to the partner. So if we can find something going to the partner on their website here, let’s pick the next one. AdvicePay, seamless sign-on. So that’s all they have with AdvicePay and so on. If I pick Albridge, there’s got to be more investments, seamless sign on web services, let’s try Morningstar. There we go. Morningstar will pass the investment assets into MoneyGuide. So I can see that right from their website.

This kind of transparency makes it so much easier to do planning, to do software development. I wish more firms would follow MoneyGuide’s lead and build out their APIs in similar ways and make sure that they’re supportable. And again, well-documented with examples. Give me examples when I’m building my code, I want to see how I can plug in your APIs and exactly how to do it. So kudos to MoneyGuide for this, and I’m expecting a lot of firms we work with a lot of startups, and a lot of other fintechs that are looking for a financial planning partner to choose MoneyGuide because of this.

Goldman Sachs Launches Marcus Invest

The last story, the final story in our roundup for this month, Goldman Sachs launches Marcus Invest. So this is cool. Goldman we all know Goldman, of course, and they’ve been moving towards the consumer market for a number of years. Lloyd Blankfein before he left, started this whole process with Marcus, the lending platform, and it took off. It’s done really well. I think it was 2016, they launched Marcus. Looking at their overall their overall assets, their overall revenue, it’s a small bit it’s, it’s not a lot, maybe it’s 2%, 3%, but it’s growing. And the more retail revenue they bring in, the more diversified they become and the happier their shareholders are. So this Marcus Invest is a great idea. Everything’s consolidating, everyone’s moving in towards the same, all in one. We’re all going to be like the super apps or as close as we can come to super apps where everything’s in one place. We’re seeing the robo-advisors do it where they’re adding banking services into their investing, Betterment, Wealthfront and other firms. We’re seeing firms start out with lending, then add investing banking and savings accounts, checking accounts, and investment accounts.

That’s what Marcus is doing. And if you’ve heard a firm called MoneyLion, they started out as a lending platform and then added wealth management. We’re seeing banking platforms like Chime and other online banks, N26 in the UK then expand into wealth. So everyone’s sort of consolidating and moving towards the same, all in one, everything in one place, which makes sense. Consumers don’t want to have to do what we used to do, where everything’s in a separate account. My investments are here and my banking is here and my credit cards are there. Give me everything in one place. In fact, give me all one account. Why can’t it be one account? Why do I need a checking account, a savings account and investment account. Part of it is this legal part of it is Congress screwing things up as they always do creating a million different registrations, a million different laws. We can’t get around that, unfortunately, but we could consolidate these different accounts or at least to make it easier. There are firms, I’ve seen online complaining that Goldman is late to the game. You know, the first one doesn’t always win. The first movers, don’t always win in every industry. There’s a funny saying I like to use which is the early bird gets the worm, but the second mouse gets the cheese.

So it could be that Goldman had watched what everyone else has done, watched Vanguard and watched Betterment and Wealthfront, watched Schwab, JP Morgan, Morgan Stanley and said, Hey, now we’ve seen what they’re doing. We’ve seen the mistakes they made and we’re going to build a better mousetrap, and maybe they can do that. It remains to be seen. People complaining about their fee is too high, 35 basis points where Wealthfront and betterment 25, nobody cares. I believe if you go to a website, Parameter Insights, run by my good friend Josh Book, they’ve done some surveys on co investors and how price sensitive they are and when it comes to robo-advisors, they don’t really care 25, 35. It’s not that big a deal to clients.

So it’s more of the experience, can you bring something differentiated to clients? Can you market it better to the different client segments you’re looking for? So I’m really interested to see how they put all this together. You know, they’ve got high yield, high yield, half a percent, that’s called high yield these days high yield cash deposits. So they’re looking to put the whole package together. And I think they have some pixie dust from Apple, from their Apple card that’s kind of giving them a little bit understanding of how marketing works, maybe they can link it into that somehow. And maybe they can pull some of the different pieces that maybe other firms are doing that they’re successful at. I like how betterment or Wealthfront are doing some of these automated services where they do cash sweeps from your checking account into your investment account.

Maybe they can do things like Acorns does where they link into other partners, where as you spend money, money goes into your investment account. That’s always possible. I wouldn’t be surprised if Goldman does any of these things, they seem to have a good team over there on the retail side, Stephanie Cohen leading the way, she seems to be a visionary in the market. And as I said in this RIAbiz article they haven’t ruled out day trading capabilities like Robinhood. And why not? People want different experiences. Not everyone loves Robinhood, in fact, a lot of people hate Robinhood now. So they’re looking for an alternative.

I think Goldman Sachs is a great name. They can certainly grab some of that business as well. So there you go. That is our summary of the news or my summary of the news. I hope you enjoyed it. We covered seven stories, wow. I don’t know how long this is. I got to go back and look and see how long, hopefully it’s not too long. And please, if you like it, let me know, share this online anywhere you are on social media. Please go to our website, EzraGroupllc.com and sign up for our newsletter. You’ll get just one email a month with news and updates and some of our articles and some of my thoughts and your, I like that. And please give me some feedback, any thoughts you have please share with them. Please share them with me on Twitter @CraigIskowitz or on LinkedIn, just LinkedIn me. Great, talk to you guys later.



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