Ep. 101: June WealthTech News Roundup

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Thanks for joining me on the WealthTech Today podcast, I’m your host, Craig Iskowitz, Founder and CEO of Ezra Group. We help wealth managers, asset managers, and wealthtech vendors make better business and technology decisions. This podcast features interviews, news, and analysis on the trends and best practices all around the wealth management technology industry. A few housekeeping tasks before we start, be sure to subscribe to this podcast wherever you listen to podcasts so you don’t miss future episodes.

This is our June News Roundup, and we are covering four stories. In the past we had covered more than that, but we’re going to go more in-depth on fewer stories. We are coordinating with our partners at Kitces.com, so please check out The Latest In Financial #AdvisorTech (June 2021) and their Advisor Tech Map (which we collaborate on with him).

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

Companies Mentioned

• Advisor Group [06:36]
• AdvisorPeak [32:37]
• Albridge [11:23]
• Allianz [23:35]
• Aon Hewitt [13:05]
• Appway [05:03]
• Aqumulate [11:55]
• Barclays [23:50]
• Bitwise [32:25]
• Blockchange.ai [36:52]
• BNY | Pershing [11:44]
• Broadridge Financial Solutions [11:50]
• CANNEX [11:40]
• CashEdge [11:40]
• Cerulli Associates [13:24]
• Charles River Development [17:37]
• ConsenSys [37:28]
• Credit Suisse [23:50]
• Docupace Technologies, Inc. [04:43]
• DPL Financial Partners [27:50]
• Edelman Financial Engines [37:17]
• Envestnet [11:30]
• Envestnet | Tamarac [17:30]
• Envestnet | Yodlee [11:25]
• eMoney Advisor [11:30]
• FeeX, Inc. [10:50]
• The Federal Reserve [38:51]
• Fidelity Investments [11:35]
• FIDx [28:03]
• FIX Flyer [17:40]
• Goldman Sachs [23:50]
• Halo Investing [21:55]
• Invesco [09:30]
• InvestCloud [17:35]
• Investigo [11:50]
• iPipeline [04:53]
• iRebal [34:26]
• JP Morgan [23:50]
• LaserApp [05:00]
• Laserfiche [05:04]
• LifeYield [36:27]
• LPL Financial [06:34]
• Luma Financial Technologies [21:05]
• Merrill Lynch [03:00]
• Morningstar, Inc. [11:40]
• Morningstar | ByAllAccounts [11:35]
• Orion Advisor Technology [10:45]
• Plaid [11:25]
• Prime Trust [41:12]
• RedBlack Software [33:27]
• RetireOne [18:21]
• Skience [05:00]
• SIMON Markets [21:55]
• Smartleaf Inc. [34:35]
• SmartX Advisory Solutions [35:00]
• SS&C Advent | BlackDiamond [17:30]
• TD Ameritrade [38:51]
• Vestmark [17:35]

Topics Mentioned

• Merrill Lynch Introduces Fully Digital Account Opening
• Orion Advisor Teams Up With FeeX for Management of Held Away Assets
• Luma Financial Technologies Partnering with Data Provider CANNEX for Annuity Product Modeling
• AdvisorPeak Brings Cryptocurrencies to its Trading Software

Merrill Lynch Introduces Fully Digital Account Opening

Craig: Our first story today is Merrill Lynch introduces fully digital account opening. Bank of America | Merrill Lynch announced part of an ongoing overhaul of its advisor technology that they’re fully digitizing their account opening process. This is big news from Merrill since up until now, it’s been all paper, all paper all the way down. So this is big news for the 15,000 advisors. It’s not supporting every account, it’s not supporting every type yet, but it’s a start. So traditional processes can take days or weeks, moving paper back and forth, FedExing paper back to the client signatures and such. Now their platform has a fully digitized account opening. It also has on the fly checking, looking for NIGOs, alerting the advisor. Hey, you missed this piece of data, that piece of data, KYC, AML, all the good stuff.

What I found interesting about this announcement is of course, great for Merrill to have this, but they’re a little bit behind the times. I was really expecting them to have announced this sooner considering having worked with Merrill, not directly, but worked with vendors who work with Merrill for over 15 years, they are usually a bit ahead of the curve when it comes to the broker dealer side. But in this case, they’re behind the curve. Just at my firm, Ezra Group, we did our first RFP for a broker dealer for fully digital account opening in 2016. So that was five years ago by my reckoning. And now Merrill was just having this now. So definitely this was available, a number of vendors have fully automated, fully digital account opening. Another big feature of the Merrill product is the ability to open multiple account types at the same time, you can open up an IRA, you can open up a number of different taxable accounts, qualified non-qualified accounts together, a couple of different account types at the same time. That’s also been available for a number of years.

All the major firms tech vendors that we have worked with, that we know about such as Docupace, iPipeline and their purchase of IFS, and they also own Laser App. Skience, Appway, Laserfiche, all these vendors have this already. So even RIAs could have had fully digital account opening before Merrill had it. But some of the other areas that we see this being a benefit is in connecting to other systems. So you’re able to open an account or launch and account opening process from your CRM, for example, or from your financial planning tool. Those are all benefits of having a fully digitized account opening process.

One thing that Merrill is missing is complex products and account types like trusts that have more details and more issues surrounding it, require more effort, also have to integrate with a different system because usually the brokerage accounts go on to the brokerage system, the agency platform and trusts go on to the trust accounting platform. So not the same backend, requires a different process, so that’s not available yet. Again, other vendors have that. One nice thing about it is that the same process appears to be for all people involved, whether they’re an advisor, a support staff or clients, you’re going to get the same experience.

Some of the top broker dealers that have fully digital account openings include LPL Financial, which uses Appway, Advisor Group, which uses IFS, which is owned by iPipeline. And Advisor Group back in 2018, announced their fully digitized onboarding platform, which they called Equipt, I’ll put a link to that in the show notes. I actually I did a review of that product back in 2018, and it is well done. They built a lot of the front end on their own and then integrated technologies in the backend including IFS, as I mentioned, Docupace for document management and storage and routing as well as custody and clearing at Pershing. So Advisor Group built a lot of that connectivity between those different vendors, because they want to make it all their own and provide a unique experience for their advisors.

This is something we’re seeing a lot more of as technology gets a bit more ubiquitous around these areas. As APIs are easier to use and are becoming more robust and more firms are launching APIs that expose more of their technology, more of their infrastructure workflows and data to external partners. It’s easier and easier to build out these sort of custom tools or custom overlays on top of other tools, providing integration. Some of the nice things about the Equipt platform from Advisor Group is how they customize the screens, how they move data back and forth and reduce the amount of times you have to input data. So it’s only once for a particular data point, it makes it a lot easier. You can pull in proposals, you can pull another custom information that’s internal to Advisor Group for their advisors. So it really provides a unique experience.

We talk to advisors and broker dealers all the time, and they’re trading back and forth a lot of the same hybrid advisors between them, they’re jumping ship, there’s a steady churn in advisors. So they’re all talking, they want to know which broker dealer has the best experience, which broker dealer has a scalable platform, which platform requires the least amount of time to get your job done because in the end, that’s what they want to do. They want to service their customers and their clients in the most efficient way possible, and be able to spend the maximum amount of time working with their clients and as little time doing operational admin tasks.

Having a fully digitized account opening process eliminates all that efforts, eliminates the manual processes, so provides a better client experience and a better advisor experience. Another aspect of digital account opening that we believe is table stakes is a collaboration between advisors and clients. Again, this is something that I saw from firms like Jemstep, which is owned by Invesco. Jemstep had the ability to hand off from the advisor to the client and back again, this onboarding process. So the client could start a self-directed onboarding through the advisor’s website through a link that went into Jemstep and then the advisor would take over if there’s things that the client was confused about and then hand it back to the client. That’s now become table stakes from all the vendors that we mentioned, and also it appears that the Merrill Lynch product has that as well. So as we’re seeing the onboarding process, and the client account opening process mature, all these features are becoming required. The expectations of clients are increasing, the vendors have to keep up and broker-dealers wirehouses and other firms also have to keep up. This is just the way the technology is moving, and we’re expecting that to continue in the future.

Orion Advisor Teams Up With FeeX for Management of Held Away Assets

Craig: As of December 31, 2020, 401k plans held an estimated $6.7 trillion in assets and represented nearly 1/5 of the $35 trillion in US retirement market assets. This is a lead into the next story for our June News Roundup, which is Orion Advisor teams up with FeeX for management of held away assets. I’ve seen the proliferation of held away asset management and held away assets interaction over the years. Slowly but surely, it was not so long ago where most advisors didn’t have any visibility into held away assets, except when they were handed a statement, paper statement from a client that said, Hey, I have this asset somewhere, can you take a look at it.

We’ve added more and more technology to connect held away assets with advisors, mostly through the data aggregation vendors, such as Quovo, which was acquired by Plaid in 2019. Yodlee, which was itself acquired by Envestnet in 2015. eMoney Advisor bought by Fidelity in 2015, ByAllAccounts snapped up by Morningstar in 2014. Cashedge, bought by Fiserv in 2011, Albridge bought by Pershing in 2010, Investigo grabbed by Broadridge in 2008. And then the few standalone vendors, MX, Finicity, Aqumulate.

So lots of vendors in the space, all providing visibility into held away assets for advisors, broker dealers, and other wealth management firms. And those systems normally connected the held away assets into the client portals. That was normally the way that clients got to see those held away assets and advisors also got to see them is through the client portals. And for a lot of people, that’s a large portion of their investments. I believe that according to a survey I saw from 2019 investors with a net worth below $3 million have 30% or more of their total investible assets set aside in retirement accounts. So that’s not just 401ks, but that’s any retirement account. The number goes up a bit to 34% for those investors with a net worth under $500,000.

The interesting part here is less than 7% of 401k participants made changes to their investments according to philosophy, right? So that’s certainly not a good thing. You need some changes, some rebalancing at least on an annual basis. So there’s certainly some drag there, some performance drag on those accounts. According to Aon Hewitt and a number of surveys that I’ve seen as well, professionally managed 401ks outperformed self-directed 401ks by over 300 basis points net of fees. I know I wrote a blog post probably six or seven years ago with the same information. It wasn’t from Aon Hewitt, I think about some from Cerulli or another one of the providers, but professionally managed portfolios, always outperform self-directed.

So why aren’t more advisors billing? Well, first of all, are advisors billing for held away assets at all, the answer is yes, but there isn’t a lot of studies on it, at least that I could find. The last study I found was done by my friends over Morningstar | ByAllAccounts back in 2010, it said at 46% of advisors. We’re charging clients for held away assets. That’s a pretty decent amount and that was 11 years ago, so you would expect it to go up a bit. The numbers we saw were around 50 to 75 basis points. Again, according to that same ByAllAccounts survey, 50 to 75 basis points advisors were charging on average. So there’s definitely some money to be made there for advisors who can charge on held away assets, but there was no automation, it was all manual. You could see the assets automated through the client portal, but there was no automated billing and certainly no trading of these held away assets at all. It seems that some advisors were even logging on using the client’s login information to actually enter the trades, as opposed to telling the clients how you go and make these trades.

So finally, coming back to what we were talking about, the FeeX software that Orion Advisor has partnered up with to do this, their software looks pretty good. This is something I haven’t seen before, enabling advisors through an automated interface and on the FeeX website, I’m really interested in some of their functionality. Being able to trade held away accounts through a pretty decent looking interface which I hadn’t seen anything like this before. This can really help advisors not only manage across dozens or even their entire book of business that have 401k assets and be able to manage them efficiently and effectively, and scale a little better. And since they can bill on them, it gives them more incentive to do that work.

The only issue I had noticed was that charging a bifurcated amount, that might change. If you’re giving advice to a client’s like, Hey, you know, you have some assets here, here’s some things you can do with that, as opposed to going in and directly trading, that charge should be different, you would think. One thing I read, which was interesting was if advisors are charging 50 to 75 basis points for held away assets, it could create a perverse disincentive for the client to move the assets over to the advisor since the fee would go up, right? So if they were to roll that over from a 401k to an IRA that was managed by the advisor, that fee would go up to the advisor standard fee, which could be 100 points. So they might be incentivized to keep the accounts in the 401k. But if you’re using the FeeX solution combined with Orion Advisor, you could charge your full rack rate of 100 basis points or more since you are actually trading the accounts.

Great technology, looking forward to seeing how this integrates with Orion Advisor’s platform, how they do their trading, is it going to be just through their portal? Is it going to be a separate built in frame? Are they going to frame in the FeeX tools into Orion, or is it going to be fully integrated even into their Eclipse platform? Could you do a rebalance across all of your accounts at a household level and also include held away assets and generate trades and have them be sent out and bought back in the same place? My guess is no, that at first it’ll be some sort of a split screen experience to start see how it goes. At least that’s the way I would do it. See if advisors are going to be taking this up and using it. They will look also for FeeX offer, I don’t think this is an exclusive relationship. They can certainly offer the same software to every other vendor, all the other competitors, Tamarac, Morningstar, BlackDiamond and others in the RIA space, and even in the enterprise broker dealer space. InvestCloud, Vestmark, Charles River. Can we access these through APIs? Could I build my own interface and plug in to the FeeX tools through some programmatic interfaces and just send the trades off to them and run it through my own order management system? You know, let’s say I had a FIX Flyer’s order management platform, could I plug into FeeX? Lots of things to think about here, lots of things to talk about. I’d love to see it in action and see what kind of traction that Orion gets with FeeX across their client base.

Luma Financial Technologies Partnering with Data Provider CANNEX for Annuity Product Modeling

Craig: Total US annuity sales were down in 2020, down to $219 billion versus $242 billion the year before, which is almost a 10% decline. This was largely due to a plunge of 24% in the second quarter, when the market tanked after COVID started, although demand did ramp up in the fourth quarter. So, what is the purpose of this and why? total US annuity sales were down in 2020

This increase in sales was led by registered index linked annuities and traditional fixed annuities. This leads me into our next story for our June News Roundup which is Luma Financial Technologies is partnering with a data provider CANNEX for annuity product modeling. So what does this mean and who are these players? Luma Financial Technologies is an online marketplace for structured notes, and they’ve added anuities just this year, and CANNEX is a data provider, analytics and research provider based in Toronto, which has a suite of applications and services that allow comparisons of different insurance products including annuities, enabling advisors to make apples to apples comparisons between annuity contracts or different types of annuities.

So why are these online marketplaces getting into annuities? Other online marketplaces we’ve seen and we’ve done research on besides Luma include firms like SIMON Markets and Halo Investing. These firms have been targeting financial advisors and RIAs, with structured notes, enabling them to investigate research, trade, structured notes products online without any other intermediary so they handle everything. They provide all the services and data for RIAs and advisors to make trades and structured notes, and they’ve been doing quite well in that niche area, but recently all three of these vendors have added support for annuities. I believe, SIMON Markets added it in 2019, and then Halo Investing added annuities to their platform in April this year, and now Luma has recently done it as well.

So all these platforms are branching out from structured notes into annuities. And so why are they doing that? Well it makes sense to do that and I pulled some of these reasons from a great paper, which I’ll provide a link to in the show notes, from SIMON Markets, about the logic as to why structured notes exchanges would also add annuities, one reason is annuities are also structured that they both use derivatives to make these guaranteed time limited bets on equity markets, they’re both complex. Securities investments are both opaque and have drawn regulatory scrutiny, so being able to make them less opaque a little bit more transparent providing some analytics and make it the the process more smooth makes sense to do it in an online fashion and these three marketplaces, which we’ve seen to have the most market share, or at least be doing the best as far as we can tell, are all branching out in the same way.

I know SIMON Markets has a lot of big backers, Barclays, Credit Suisse, Goldman Sachs, to name a few JP Morgan. Halo also has some big backers, Allianz and other. A lot of firms are getting involved with these markets, they’re offering interesting services as I mentioned before and enhance data and analytics also real time rates from carriers on their annuities platforms, which I think is something unique and valuable for advisors so they can do better comparisons and up to date product information and other things all in one place, which helps rather than having to bounce back and forth between carrier websites.

They offer digital client signing, online suitability reviews, so it’s an end to end digital process, and plus more of these platforms are offering more advanced portfolio management and post trade monitoring valuation tracking of these different annuities and structured products so they’re becoming one stop shops for structured products.

Now, as I mentioned earlier, annuity sales were down in 2020, and they’ve really been flat for the last 10 years. Looking at some data from the some of the industry sources, back in 2010, there were $222 billion in total annuity sales and 2019, $242B. So, with the added inflation of 22%, that’s basically flat, so not good in terms of annuity sales but there may be some opportunity for increase of sales, and we’re seeing a lot of talk about that and a lot of firms getting involved in the annuity business not just Luma, not just this partnership with CANNEX, offering annuity modeling and such but other platforms and other companies looking at the annuity marketplace as some place that they would want to get involved in.

In June, the marketplace is our subject for June on the podcast so this is a great story to lead into that we’re going to have interviews with marketplace CEOs, we already did the interview with Jason Broder, who’s the CEO of SIMON Markets so that’s going to go I think either next week or the week after. And then we have Halo Investing co-founder and CEO Biju Kulathakal will also be on the podcast.

What is the outlook for annuities, why are these firms getting involved? We are seeing a number of surveys that are showing increased interest from advisors in annuities, there was an InvestmentNews research survey of 400 advisors that showed that 58% will likely change product recommendations to 2021 and more are suggesting annuities than in the past, so that’s one data point. LIMRA, which is an insurance industry trade association, also projects that some sales of indexed annuities will rise by 40% by 2023, they’re looking for an increase in the sale of those indexed annuity, that would also help.

On the podcast we had last month, which was episode 87, an interview with David Lau, CEO of DPL Financial, which is heavily involved in the annuity marketplace and trying to offer a new way for advisors to purchase annuities through their outsourced insurance desk so advisors don’t even need to be licensed to purchase annuities, they can just do it through DPL Financial, similar to RetireOne. DPL has grown very rapidly in the last two and a half years, they have over 1000 RIAs, and they’ve done a survey as well that showed even though less than 30% of RIAs are currently using annuities, 68% said they are considering them, which is a very big increase.

We’ve also seen Envestnet get involved in the annuity space with the launch of their insurance exchange in 2019, part of their life cycle of advice. They’re partnering with network provider FIDx to connect insurance carriers and modernize the annuity distribution channels. So Envestnet sees this as a big opportunity for them, they’re looking for increase in sales of annuities. One of the benefits of their insurance exchange is cross product comparisons across carriers, which you really didn’t have before. And I think only Envestnet would be able to do that with their market leadership, and the ability to go across carriers and say look, you’re going to plug into our exchange which means you got to provide standard data points, you got to provide standard products that we can compare which you didn’t have before. The products are very different, very difficult to compare as we mentioned before, with the CANNEX application, difficult to make apples to apples comparisons of annuities.

Another benefit of these online exchanges is T+1 performance reporting for annuities which aligns them with more traditional asset classes, especially annuities that have securities embedded in them like mutual funds and other things that are embedded inside the annuity, you get quicker performance reporting. Other firms are also getting involved, InvestCloud which recently acquired Tegra118, the former Fiserv Investment Services, rebranded that business as financial supermarkets, and they also own RetireUp, which has a very strong annuity illustration and procurement tool. So that could be a way that they’re going to be getting involved in the annuity space as well.

My company, Ezra Group, we’ve been working in this space for a while. We’re doing research on these marketplaces and annuity specifically, and a number of firms are coming to us about research, tapping into our expertise on these online marketplaces Luma, Halo, and Simon, as important distribution channels. That’s insurance companies for example coming to us saying which one of these markets should we work with, and other new markets coming that we should be talking to? So they’re interested, wealth management firms also looking to partner with these annuity marketplaces and offer them not only structured notes but annuities to their advisors in different ways, and fintechs as well launching new tools to support the annuity market. So this story was a great way for me to summarize some of what we’ve been seeing in the space, please contact us go to our website, fill out the contact form or hit me up on Twitter or LinkedIn. If you’d like more information about how we can help with your annuity platform or other software products.

AdvisorPeak Brings Cryptocurrencies to its Trading Software

Craig: The percentage of financial advisors allocating cryptocurrency into their client’s portfolios jumped 49% in 2020 to 9.4%, according to San Francisco based asset management firm, Bitwise, this still leaves over 90% advisors who are not allocating crypto, so there’s still a lot of room to grow. This leads me into our next story for the June news recap, AdvisorPeak brings cryptocurrencies to its trading software. This story is courtesy of my good friend, Ryan Neil, from financialplanning.com. More coverage of this story came from RIAbiz and another good friend of mine Oishin Breen, you can check out those stories on those websites. So what is this about, first of all, what is AdvisorPeak? AdvisorPeak is portfolio rebalancing software launched in 2019. We like this solution, very strong rebalancing software for advisors, small RIAs, founded by a great team with a lot of knowledge in the space, Damon Deru, founder and CEO, former founder of TradeWarrior, another very strong product in the portfolio rebalancing space, in our last review got very high marks. Pete Giza, who was a co-founder and former CTO of RedBlack Software, another great portfolio rebalancing tool, which was purchased by Invesco, I believe last year. And AdvisorPeak as Deru claims, the first FinTech on the market to bring cryptocurrency capabilities, which I believe is a true statement in terms of merging portfolio rebalancing of standard assets, mutual funds, equities ETFs with crypto. So they are the first, great marketing for RedBlack Software getting out there ahead of the pack. They’re only slightly ahead I expect other vendors to be following, but still it’s good to be first, especially when you’re a very small company and you need some marketing juice.

There’s also very few standalone portfolio rebalancing tools left on the market. Most of them have been purchased, as I mentioned TradeWarrior was purchased by Oranj, which eventually went out of business. Redblack was purchased by Invesco, iRebal was purchased by TD Ameritrade back in 2007. But there’s a couple of left, Smartleaf is a standalone portfolio rebalancing tool, mostly used by enterprises, SoftPak, they have a number of different rebalancing tools, one for advisors, and they also have a rebalancer which is actually mean variance optimizer for portfolio managers to use. SmartX is a a TAMP/rebalancing tool for RIAs, and of course every portfolio management vendor on the planet has some form of portfolio rebalancing software built in so lots of options on the market, but you can never have too many.

That’s what I’ve found in being the industry as long as I’ve been, there’s always room for one more. Especially a standalone solution because companies, whether it’s asset managers or other vendors are looking to get into the space, looking to enhance their capabilities, or roll up a bunch of other vendors. TRX was purchased by Morningstar, there’s always someone looking for a solution looking for good tech, a good team to bring on. So kudos to Damon and Pete, for getting this started.

Some of the features, and there’s lots of features that I like about AdvisorPeak, one of the ones I’ll mention right now is their tax efficiency. That’s one of the things we find being a differentiator for many portfolio rebalancing tools is their ability to do tax efficiency, and we break out into a couple different levels. There’s tax aware, which is basically just avoiding short term capital gains and wash sales, that’s tax aware. You become more of a tax managed solution when you offer things like household level rebalancing, which AdvisorPeak has, location optimization, some more advanced tax loss, harvesting tools. They also integrate with LifeYield, which is a leader in de-accumulation tax management, where you sell when you need to generate income.

So what is it about this crypto expansion? Why am I so excited about it? Why did they do it? I’m a big proponent of cryptocurrencies. I’m on the board of a cryptocurrency technology vendor called Blockchange.ai, the advisory board, so you can check them out. And I really believe that cryptocurrency is going to be the future of financial technology, even the future of finance.

I’ll pull out a couple of quotes here about this particular new story. Here’s one from Ric Edelman “by giving advisors the ability to rebalance, AdvisorPeak removes a big obstacle toward advisor adoption of these investments,” that’s Ric Edelman, Edelman Financial Engines. “It also opens the door to exponential growth in crypto trading,” adds Lex Sokolin, Global FinTech Co-Head and Chief Economist for ConsenSys. Now, why are these industry leaders talking about this? Because having the cryptocurrency built into the rebalance, makes us so much easier for advisors to add crypto to the client’s portfolios. Up until now, it was always separate. You had to open up a Coinbase account or you eToro or Binance or any of the other tools or wallets, and buy crypto. Crypto.com, another option. There’s many, many different options, all these different apps to buy cryptocurrency, but it’s still a separate account, managed separately. You have to manually enter it into your statements or into your other tools. But now AdvisorPeak clients and advisors can leverage fractional shares and from what I’ve read Bitcoin, Ether, as well as USDT. Limited options, but still better than nothing, we want to have that.

Some other statistics to share, more than 80% of financial advisors received questions related to crypto in 2020, also according to the Bitwise survey, and 80% of advisors who recommended cryptocurrencies plan to increase their recommendations over the next 12 months. So why not have an option like AdvisorPeak, where you can build in the rebalancing? Sunayna Tuteja, formerly Head of Digital Assets for TD Ameritrade and now Head of Innovation for the Federal Reserve, that’s right, the Federal Reserve, she said, “RIAs and their clients want their crypto experience to be more like Google maps, walking and step by step along rather than being left on their own.” Building it into the rebalancer gives you that Google map,-like experience, makes it easy.

Now of course, AdvisorPeak is a small company. They they just launched in 2019, so they’re still getting going, but I believe they’re reporting 1000 advisors are using their product, which is great traction for just two years. I would imagine it’s mostly very small, but that’s normal for a startup in the space. It’s tough to get traction. It’s not easy to replace tools that are out there, so getting advisors who are just starting out is your best way to get some traction. But I expect them to keep growing. Now, one of the articles was kind of beating up AdvisorPeak a bit because they’re not as big as Orion or Tamarac, but you know, it takes time. These other firms have been around for a lot longer and have a lot longer track record, but AdvisorPeak has some advantages of having brand new tech so they can build from scratch, they don’t have legacy tech, they don’t have legacy tech debt, so it gives them an advantage which hopefully they’ll be taking advantage of. This offer is a big deal for them.

So those are the positive aspects of having cryptocurrency as part of your rebalancing tool. You can easily, as Ric Edelman has suggested, set up a 1-2% allocation to crypto and then easily run your models through AdvisorPeak and have it by your Ether or Bitcoin easily and manage that, but there are some downsides. So what are the downsides? One is that you can only do Bitcoin and Ether, there are other the other cryptos you can’t get into. But also it’s not quite as easy as they say, especially if you need to move quickly. Deru admitted in one of the articles, it wouldn’t be easy to move money into the crypto side of the account as it would additional brokerage account.

And that’s because they have outsourced basically all the crypto part of this transaction, or this partnership to a company called Prime Trust. Prime Trust is one of the leaders in this space. They’ve got some pretty big clients in terms of crypto custody and executing crypto trades. Because it’s not that easy to execute crypto trades, it’s not like on our current exchanges with mutual funds or ETFs where you have a lot of liquidity. With crypto you’ve got to know where to go, you’ve got to know what exchanges you’re talking to. You’ve got to be able to execute quickly and move your assets around and know are you trading dollars to Bitcoin? Are you trading Ether to Bitcoin? There’s different trading pairs you have to look into. So they’ve outsourced that from AdvisorPeak to a company called Prime Trust, Prime Trust has a big client called Binance, which is one of the largest crypto exchanges. So that’s the good news.

Also good news, their trading volume has been increasing. The downside is Prime Trust has had some bad news and their client Binance has had some bad news recently, so that’s not good. Binance is under IRS investigation looking into the way their employees may have been facilitating money laundering or tax evasion by clients. So that could be bad. And with AdvisorPeak pretty much tied to Prime Trust, if they lost their biggest client in Binance, no one’s saying they will, but if they do that could be a problem for them. Again, on the other hand, Prime Trust has got some really good API documentation and APIs to facilitate connection, opening up accounts, trading crypto, which I imagine that’s how AdvisorPeak connected to them, build into these APIs, which is great. I checked out the APIs myself and they look very well documented, it looks like they’ve got every option you would want when it comes to trading and buying and selling cryptos. But again, that’s not easy to build. It’s a big lift. And if AdvisorPeak would have to change if Prime Trust had some problems, that would cause issues for their clients.

Now compare this to a company like Blockchange.ai, which I mentioned earlier, I’m on the board of, they handle this a bit differently. Now they don’t compete directly with AdvisorPeak since Blockchange does not have full rebalancing for non crypto assets, they only do crypto assets. But what the difference is is Blockchain built all the technology to do the trading execution allocation of the crypto assets. They only outsource the custody part, which goes to a company called Gemini, which is similar to how AdvisorPeak, outsources the custody to Prime Trust, but they also outsource all the other aspects of the crypto trading and allocation and execution and such.

So hat’s a big deal because not that easy to trade crypto in this type of institutional manner. All those pipes being built is a very big lift and requires a lot of development work and testing and money basically, time and money. So that gives firms like Blockchange a bit of an advantage, at least in their area. Again, they don’t compete directly with AdvisorPeak, but as I mentioned AdvisorPeak is pretty much tied to Prime Trust for all aspects of the crypto experience.

Also with all of the assets handled by a non traditional custodian, you now have bifurcated your assets. So if you are an advisor working with AdvisorPeak, you may use Schwab for your ETFs mutual funds, equities and such and Prime Trust for crypto. How do you do performance reporting? It’s bifurcated, unless your performance reporting vendor can handle that, and most of them can’t, so that will be a bit of an issue. Also billing, you have to bill these assets. Now you could say, I’m just going to bill on top level AUM which is fine, but you still need to roll up your Prime Trust assets into the bill, which could be a little bit of a glitch – hopefully not. But again, that’s not part of AdvisorPeak’s service, they’re just the rebalancing.

So how am I going to get paid? Another question that Ric Edelman posed if you check out my blog, I wrote an article on crypto recently according Ric Edelman and Sunayna Tuteja when they did a presentation for advisors on how to get into the crypto space. I believe it was an Advisor’s Guide to Digital Assets was the original webinar that I wrote about, and I think I called it Why Bitcoin Has Reached a Tipping Point with Financial Advisors. So you can check out that Ric Edelman is a big proponent of crypto. He formed the Digital Advice Counsel for RIAs, you can check that out online. If you just Google Ric Edelman and the Digital Advice Counsel you find that. A lot of tools and educational information for advisors to learn about crypto. One final quote from the great Michael Kitces, industry guru Michael Kitces from kitces.com, “one challenge for advisors who want to trade crypto for clients is custodians typically can’t hold it. So it makes sense that rebalancing tools would be the cross platform unifier.” So I agree it does make sense that AdvisorPeak and other rebalancers would be the way that advisors get access to crypto makes it easy.

I mean, there are other ways to invest. You could, as I mentioned before, get a Coinbase account or others, or if you wanted to go right into the market you could go with GBTC, Grayscale Bitcoin Trust, which trades on pink sheets, and you can buy even in an IRA. And you can also rebalance that, but still being able own the underlying crypto rather than through Grayscale, which has some pretty high fees, would be better for some clients.

Just to wrap this up overall, great move by AdvisorPeak, looking forward to hearing about their success in rolling out this crypto solution to their clients. And I’m expecting a lot of their competitors to jump on the bandwagon. And now that they’re first, because I see more advisors interested in cryptocurrency, more of their clients asking about digital assets and looking for ways to either get onto the bandwagon of growth in this asset class or the other aspects of digital assets that are around inflation protection and non-correlation to other other markets. So going to be some big moves you’re going to hear about between now and the end of the year is what I expect.

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