Ep. 116: Digitizing Delivery of Annuities for Broker-Dealers with Rich Romano, FIDx

“Think about a large broker dealer, they have advisor personas that manage assets, that allocate assets,  that are career insurance producers, and they all want a consistent framework to do that.  So if you had two people sitting side by side and one of them was an asset manager, when they get to the next level of screens, they’ll be inside of the same pipe. So there’s no segregation in how the home office is going to handle it because it’s all coming through that same pipe, they can look across that holistically.”

— Rich Romano, CEO & Co-Founder, FIDx

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The WealthTech Today podcast features interviews, news, and analysis on the trends and best practices in wealth and technology for wealth management, asset management, and related areas. This episode is part of our October focus on annuities. We’re talking to influential industry leaders who can provide technology solutions that help advisors build stronger relationships, improve outcomes, and enrich their clients’ lives. A quick shoutout to our sponsor, the Invest in Others Foundation, please go to InvestInOthers.org, and be sure to subscribe to our show wherever you listen to podcasts so you don’t miss future episodes.

Companies Mentioned

Topics Mentioned

  • Envestnet Partnership
  • How Annuities Compliment Structured Products
  • Moving Suitability to the Front of the Lifecycle
  • How Annuities Can Reduce Portfolio Risk
  • FIDx as the “Intel Inside”
  • How Can an IMO Leverage FIDx?
  • How Does the Tamarac Integration Work?
  • FIDx Is Not A Distributor

Episode Transcript

Craig: I’m excited to introduce my guest for this episode is Rich Romano, CEO and co-founder of FIDx. Hey, Rich, welcome to the program.

Rich: Good morning and thanks for having me.

Craig: Rich it’s great to have you here. Where are you calling in from?

Rich: Currently calling in from our Berwyn office, the FIDx home office.

Craig: Home office in beautiful Berwyn, suburb of Philadelphia, one of my favorite cities in the world. And whenever I talk to guests we talk about list of things we can and can’t talk about, and one thing that we’re not going to talk about is football because both of our teams, the Eagles and the Giants stink so there’s not going tobe any football conversation on this podcast.

Rich: Amen to that.

Craig: But what we are going to talk about is insurance products and how FIDx is changing the landscape. So can you give us a 30-second elevator pitch for FIDx?

Rich: For sure. So, at FIDx, we’re a technology and a service provider to our clients and our our real ultimate goal is to be able to facilitate the use of annuities and the benefits of insurance inside the wealth management advisory landscape. So moving from that traditional transaction based annuity purchase to really focused on how do these fit into the overall portfolio construction that advisors are doing for their clients and making sure they’ve got the right products based on where that client is in their lifecycle or in their planning process to ensure that everyone can get a secure and happy retirement.

Envestnet Partnership

Craig: That is a fantastic goal and a lot of advisors are striving for that goal. So something you recently announced was a big deal partnership with one of the biggest firms tech firms in the space, Envestnet. Can you talk about how you’re working with them and how you’re powering their new insurance exchange?

Rich: Great question, Craig. You know, one of the things Envestnet in their core business, really never offered any insurance products inside of their platform. So, in partnering with FIDx, they got access to the industry experts and the ability for a firm to be able to move fast, be nimble and build out the opportunity to offer annuities as a first product line into their wealth manager advisory platform. And the goal there being that advisors have chosen Envestnet, whether it’s a large enterprise broker dealer all the way down to a small RIA as their platform of choice. We believe in not increasing advisor fatigue with technology and additional platforms, so the goal was build a platform that could be called in white labeled so that the advisor never really knows whether they’re in Envestnet or they’re in FIDx, right, they just know and love the experience they have on Envestnet. So our goal was to create this seamless integration across all the aspects of their platform, whether they’re researching products, they’re proposing, they’re opening they’re managing, and also at the end of the day being able to constrain a lot of these products to their compliance engine. So it really was us being that single platform and the enablement was Envestnet first and others after that.

Craig: So you made a good point there that you want to make it seamless. You want it so that the advisors don’t know that FIDx is even they’re there to see the Envestnet experience. And that’s really the way that firms, that’s a goal we find a lot of clients we work with, they don’t understand that. And so the fact you understand that and that’s one of your goals is important because advisors just want to get their job done. They don’t want to worry about what tool they’re using. They just want to get it done. So especially with things as complex as annuities and other insurance products, trying to keep it simple and keep them in one interface is really the best way to go.

Rich: Yeah, we agree wholeheartedly. And that’s also a bit if you look at some of our other partnerships, for example, with Halo, same thing, right, people have chosen that and what we’ve realized is that annuities are complementary to so many other products that are out in the industry. So when you think of a structured note and you have the same concepts of floors and caps and participation rates, you have a real conservative client. Geez, that really sounds maybe like a fixed indexed annuity. You have a very aggressive client, maybe it’s a soft protection on the NASDAQ right where they have more exposure to loss, but really key components in dissecting the fact that it’s all of those great things inside of the annuity that really meet what the advisor is trying to do from a portfolio perspective, it really goes across all of these various platforms that advisors are choosing.

How Annuities Compliment Structured Products

Craig: You mentioned Halo, and we had the CEO of Halo on the podcast a couple months back, talking about marketplaces, and some of their competitors like SIMON and Luma that are doing similar things around structure products, and they’re all expanding into annuities as well because as you as you mentioned, it’s complementary. It’s another complex product that needs to be simplified for advisors. As you mentioned, it can be used in many different ways and it can not only competent, but replace some things that are that advisors are using, like fixed income or other products.

Rich: Actually, Craig, we take that a step further. And what you hit on there is really important, right? The complexity of annuities is very, very different in terms of a product than an ETF, or a mutual fund or a managed account. And a lot of people think oh, it’s really easy to integrate an account order entry process, but what they don’t really focus on is the the intersection of what are they really trying to do with that product and how does it fit into it?

It’s not just about being able to open an account. We know that if we look at NIGO rates in the industry paper is really high but you add in an AOE just as a standalone process, it’s still a really high NIGO rate, right? It’s about the data optimization and really moving the suitability into the front end of that lifecycle. So while there are people that are looking to add annuities what we found over the three years at least that we’ve been doing this full integration into Envestnet now we’re live with a large number of clients, is there’s a significant amount of nuance in trying to really make it work within that structure. You introduced concepts around risk scoring and CMAs, and how do you really look at it from an asset allocation perspective that a lot of people never really think of that, they think about just included as a transaction on the on the platform and we don’t believe that really gets it to where the advisors and the end client get the best benefit out of the product.

Moving Suitability to the Front of the Lifecycle

Craig: So I’d like to pick up on something you just said, so looking at all of our clients are large broker dealers, and they’re all looking for ways to make their processes simplified and make it easy for their advisors and improve their advisor experience, but also, they want to stay compliant. So you said, “think about account order entry, moving suitability into the front end of the lifecycle”. Can explain what that means for a broker dealer looking to improve how they’re delivering annuities?

Rich: Sure. So if you think about now you’re starting everything in the best scenario with a financial plan. So they’re going through that process and they’re saying, based on what my clients’ needs, hopes and dreams are, you know, what are the assets how do they work and how does that now feature that when you start adding things like a VA with income or you add a registered indexed annuity onto that, what does that do to the chances of success for that client based on what they’re doing?

So now you can start looking and you can say, yes, there’s a clear benefit to the end client. So what am I doing, I’m starting to build my suitability and making sure I’m doing what’s best as a fiduciary for my client. I now go into that proposal process, and I’m in there now looking at things like my client has this amount of liquid net worth, they have this many assets and they’re looking to go here and they have a risk score and it’s moderate. Never before could you say, let me go now pick this SMA or this mutual fund in ETF strategy and maybe the risk was aggressive, and they should be somewhere in moderate.

Now you add in the fact that you can truly take into account the objective base risk or what that insurance product does, to lever down that risk to bring them back to moderate. So that now I get to the point where I’m opening an account, and now that product aligns with the investment strategy, it aligns with my investment policies and what the firm has set up. And when I open that account, all of that data and that richness goes through so that there’s no opportunity for the advisor inadvertently to change the sub account allocation or pick different indexes that are not going to tie back to that proposal to ensure as you’re going through that process I’m bringing that NIGO number down because it’s part of data optimization flow, as well as tying it back to the ultimate, what were we doing directionally and now what’s the actual product execution?

How Annuities Can Reduce Portfolio Risk

Craig: Something you mentioned about that bringing an insurance product can lever down the risk. That’s something that most tools don’t understand. Most systems don’t understand adding insurance does that. They don’t they only see levering down the risk as reducing your risk score or reducing your exposure to equities. There’s no there’s no option say, Well, I’ve got this insurance product, how does that change? So it seems like the integration with MoneyGuidePro would be a huge benefit.

Rich: Yeah it is a huge benefit, right? And so the one thing that that generally leads to is, we talked about how our inside of Envestnet, think now the large broker dealer that they have segments of personas where they have advisors that manage assets, their asset allocators, they have advisors that are career insurance producers, they want a consistent framework to do that through and they might have some that are planners so now that planner can go from money guide, do the holistic plan and launch directly into FIDx, our standalone platform for that execution piece.

So if you had two people sitting side by side and one of them was an asset manager, they’re going to invest in that and other ones gone through MoneyGuide. When they get to those next level of screens, they’re inside of the same pipe. So there’s no segregation and how now that home office is going to handle it because it’s all coming through that same pipes, they can look across that holistically. That single point of access is is really important, and ultimately as well, you know, one of the things that a lot of people think is it’s a fixed income replacement, not always the case.

Where where we see the ball going as you look at someone who might have three ETFs, or three mutual funds that are all in large cap growth, right? And if you think about that, maybe you have one of those three is underperforming, why not take that and potentially put it into a RILA product, where you’re going to get protection on the assets and also let them participate in the market. You’re reducing the tax drag and the inefficiency inside of that allocation. So the funding sources and the way they look at these, it’s very different and you know, we’re out there changing through a lot of education and training, the thought of “just take fixed income and put that inside of annuity”.

Craig: Obviously it’s not that simple. But can you explain to people who are listening maybe aren’t familiar, what is a RILA product?

Rich: It’s a registered index linked annuity. And much like a fixed indexed annuity, they have the concept of floor of participation rate and caps, but in the RILA you have the ability to say, I’m willing to take on a little risk. So if you have a 3-6 year horizon, you could say I’m willing for that to be 10% if the market drops 10% I’ll take that first 10% to be able to raise my ability to go upside and have better performance down the road. Whereas the fixed indexed annuities going tohave that zero loss and keep you within a different level of of caption participation.

FIDX as the “Intel Inside”

Craig: Gotcha, that makes a lot of sense. So I understand that your arrangement with Envestnet isn’t exclusive. So do you see FIDx as becoming the Intel Inside for lots of other vendors who want to access insurance products and how would this play out in the enterprise space for large for broker dealers and large RIAs?

Rich: Ultimately, the goal is that we become the platform that the carriers connect to once and then we can facilitate the connectivity out to the industry. We’ve already integrated into Envestnet, we’ve gone live now with Tamarac, which while is a subsidiary of invest that is a large RIA platform. We’re live with MoneyGuide and MoneyGuide Blocks, we’re also live with Halo. And we have other partners where we continue to expand access and we also now that our platform is mature, we have what we call guidance desks or outsource assurance desks and some IMOs that are looking to take our platform to be their enterprise platform, because once again, the ability to have a consistent experience across all of the carriers versus a different experience with Jackson and Allianz because of the way they do business provides significant efficiencies to their business, which helps them, what do we want to do? We want to enable advisors to spend more time with clients and then also allow people like support staff and sales assistants to be able to work on behalf of them inside of that platform.

How Can an IMO Leverage FIDX?

Craig: So that’s something I had on my list to talk to you about. So we’ve got broker dealer clients and they’ve got IMOs, that’s one of their business models that they’re working with. Can you explain how it works? How would a broker dealer with an IMO, leverage FIDx as their enterprise platform? What’s the process? Can you walk me through like you’re selling this to me on the on the CTO/CIO of a broker dealer with an IMO, how does this going to work for me?

Rich: Yep. So your classic challenge has always been that you immediately go to paper and you go to a disjointed process. When you work with that, IMO your advisors, calling them potentially emailing them, doing something, but what does your client want? Your client wants one portfolio to be managed with all of these products so they can look across it. We are huge believers that everyone has built these not just they’ve picked their platforms of choice, but they’ve picked their partners of choice. They see the value in working with these IMOs, and we fully appreciate that. So what we’ve done is we said we need to digitally include them in the process to where once again, your advisors are going to start in MoneyGuide or in a planning tool. Once they come down and they realize that of that million dollar portfolio $300,000 should go into insurance, imagine if on that platform, you could say I want to pick the product myself or I want to hand that off to my IMO partner. You click on a button it now transfers that over, sends your IMO partner a notification saying there’s a new request out there for Craig and he wants to put $300,000 into an annuity strategy.

They can now log into the FIDx platform, pick that up, and what they have all their products available it’s the same experience, the same products, the same research, the same illustrations, proposal capabilities. Once that IMO person is working with you and they say great, we’ll finalize on the Allianz 222 they mark it final, it now goes back to your platform, Envestnet, or back to FIDx where you now can continue that process and you still end up with a complete proposal with that million dollar portfolio for your client. Still constrained to risk, constrained to your investment policies. So it’s no longer something that you’ve got to slide in and update your proposal documents. And then once that policy is executed, and it’s issued, all of that data is coming over on a daily basis. So now you’re off to the races and every day you meet with your client, whether it’s a QPR, whether it’s a daily touch base, or some sort of ad hoc update. It’s in there as part of that portfolio.

Craig: Awesome. I think that’s a great pitch for firms with IMOs because they need that, they need to have that digitally inclusive process where they can just handed off easily enough to worry about how it works in the back end.

Rich: Just to extend that one thing, the other thing that we’re doing, which is also going to change the industry is we take that model, we’ve extended it to what we call outsource insurance desks. So now think of the RIAs or the advisors that aren’t associated with a broker dealer, aren’t doing annuities but they finally have picked up on these would be good for my practice and good for my clients. We can also extend that to where now that traditional advisor can do that same handoff to that outsourced insurance desk, and they become their insurance expert to now include annuities inside of their practice.

So it’s not just in the large broker dealer world where they’ve got the selling agreements and all the advisor licenses, we now have the ability to bring together these new partners right, the non licensed RIA or investment advisor who wants to work with someone who can be their insurance experts in their insurance shop to service their clients. We’ve now connected that digitally as well for that other opportunity and really thinking forward there is in that fee based market where these advisors are all acting as fiduciaries and they’re looking for products that align with the best interests of their clients.

How Does the Tamarac Integration Work?

Craig: How does the Tamarac integration work you mentioned? So if I’m a Tamarac RIA, is there just a button to click that says FIDx ?

Rich: So they have two ways to get to what we’ll call insurance exchange capabilities. Some Tamarac clients also have access to Envestnet that they can go through and use that proposal process. So that’s an easy one, but they can also get there through MoneyGuide so they can watch MoneyGuide which would allow them to now do that planning holistically and once they get to the point of insurance, they can launch FIDx, which once again, will say are you or are you not licensed? And if your licensed will let you go forward and do that. If you’re not, it’ll say how can I get you over to one of these OID partners? And then they can also launch it directly. They already know that they’re, you know, they don’t need to go build their shopping list, they know that they want to go and they want to do an allocation over to this type of strategy. They can immediately launch that and hand that off to the OID direct and, and then that data comes back into Tamarac and becomes part of their their reporting.

Craig: Can you please explain what an OID is.

Rich: It’s an outsourced insurance desk, and we currently have four partners on platform. We’ve announced that the Financial Independence Group, True Choice and RetireOne, and we’re in the midst of another finalizing there. Those firms that have all this expertise in house, they’ve got the selling agreements with the carriers, and that may be whether it’s fixed annuities or variable annuities insurance agency or broker dealer based they have the ability to create relationships with entities that want to use them as an outsourced insurance expert. So they become the broker dealer and the agent of record on these policies, working with the advisor to work with the client. Think of it as if you and I went to college together, and I was an advisor, and you’re an insurance expert, generally I’m going to have a client need something to say, let me introduce you to Craig. He’s going to help with the insurance side of the portfolio and your protection.

So it’s very much like that relationship, because a lot of people don’t want to be in that broker dealer space, but they also want to get access to these these products. So it’s more than an accommodation. But at its lowest level, it’s an accommodation service, but they’re providing that high end, these are the way we can add protection and that other insurance production for your clients. So it allows the advisor to get more access to the products for the clients.

FIDX Is Not A Distributor

Craig: So you mentioned OIDs I just didn’t connect the outsource insurance desks. I thought RetireOne and Financial Independence Group and True Choice would be competitors to FIDx because don’t you also have an outsourced insurance desk?

Rich: No, we are not in the distribution space. The services that we provide are really focused on obviously the platform and the technology, for efficiency and making sure that we’ve incorporated into that landscape. But we also work heavily in education and training and we support advisors in what they’re doing. So think of us as evangelists in the insurance space to all of these partners and then also providing services and integration services to the clients that use the parts, but we do not offer fiduciary services or recommendation services.

Craig: A long time ago, I used to be a product manager when I actually had a real job before I became a consultant and I got to put on my business card Product Evangelist. I was very excited about that. So when I hear you want your evangelists I’m all for that, get out there and preach the gospel, preach the word.

Rich: And I don’t think you can discount that. I mean, I believe that’s what the E in my title is right? I have to be out there and if you don’t believe in what you’re doing, I don’t believe you’ll be as successful as when you truly believe in what you’re doing. And we’re on a path and we see it and we’re it’s resonating with firms and with advisors.

One of the things that we’ve seen is if you look at the industry and you look at what the average ticket size was, let’s just call it $100,000-$130,000 on the average annuity. We’re starting to see now that people are looking at this in the fee based world and we’re seeing well over double that size come through platform. And we believe that’s the result of I don’t need to just carve off a small piece and buy an immediate annuity that’s like a Social Security benefit. I’m going to really draw down my clients assets and be able to manage that money through their their life cycle. We’re seeing the migration of those managed account assets or those fee based assets. Starting to get put into these products. It’s exciting to see as it comes through, and we’re seeing a pretty significant transition starting to happen to the fee based products.

Craig: You glossed over something there, I gotta bring it up. You said your ticket sizes are 2x industry average, that seems like a non trivial number. How did you do that and what do you attribute that to?

Rich: I think it really comes back to and I kind of piggyback on the evangelism side of that right, which is, the importance of these benefits to the clients, we can talk about it all day of how important it is. So, as you look at that, and people are starting to look and say, how much of this money should I protect? You can read industry averages from the IRI and others and you’ll hear 20%-30% of portfolios, and if clients have a primary goal of a happy retirement and they have certain necessary essential needs and benefits, why not secure those up?

Getting back in the first thing we talked about, if I’m able to bring the overall risk down by using these products, it lets me do other things with the remainder of that portfolio. I’m not looking for fixed income, I’m looking for growth in the market right and now you can say this is the protection that you have, a large portion of your retirement, don’t worry about it right put your head on the pillow at night because you’ve got guarantee and you don’t have to worry if the market goes down 18% like over the last couple of weeks, that volatility is less impactful to the end client.

Craig: In troubled times like these where there’s a lot more volatility I think that could be very comforting. So one of the things we work on a lot in my consulting firm, we’re doing a lot of data projects, data assessments, data analytics, and firms are asking, how do we get more more data driven recommendations, how do we get insights from our data and you’ve got that in your product. Can you explain how it works and provide a use case for how a broker dealer would benefit from your data driven recommendations?

Rich: We’ve strategically partnered with with the wheelhouse group, which is Envestnet’s analytics and data services team to not only power the insurance recommendations inside of Envestnet’s analytics engine, but also have are also our white labeled version of that that we offer out the clients and we we receive our data and just given our expertise in the space, we’re able to look across firms’ book of business, all of their enforced policies.

There’s a couple of ways you can slice this up, and the first one is to go through and really give the home office and advisors insights into the entire book of business. So they may have an annuity out there that is running 185 or 200 basis points, right. Is that still the right solution for that client? And if they were looking for tax deferral, can you get better tax deferral and better benefits in today’s market at a better rate? Maybe they have a VA with income, but they no longer need the income. So do they really need that 100 basis point ride or were they’re really looking for tax deferral.

We have these concepts of in the money out of the money, will the benefit really come to fruition for you versus where you are today. And so we’re able to look across that book of business and the other pieces is given that we have all this product data, we’re able to notify proactively around what’s going on in those policies. Maybe the rebalance window is opening. In the variable annuity world, we can constrain it to risk on the Envestnet side. So you know has the asset allocation gone into a drift area where now you need to rebalance that portfolio. So getting that into the hands of not just the advisor but the entire home office and the support staff allows them to provide greater benefits to the advisors from the platform.

And we’re taking the next step which is now we’re looking into all of the planning analytics and all the managed account analytics to start saying, a firm can come in and work with us and configure it to their liking. It’s flexible algorithms, they may want to say, show me all of the accounts where retirement was the primary goal and there’s less than 10% protection on the overall portfolio. So we now can look across and say here’s an opportunity where an annuity might benefit the client. You can look back and say what if the annuity strategy was used on these plans with the chances of success have increased? We’re looking to go back to come forward and make sure that they have the right once again, the education and the opportunities for advisors to be able to provide good opportunities and ultimately make the recommendation to their end client based on what’s been surfaced through this insights engine.

Craig: We’re hearing a lot of promises from firms about next best actions and providing those type of insights to advisors so this sounds like it’s right in that alley. Right? It’s right up the avenue where you’re looking across their their books of business and saying hey, here’s the areas you need to look at, here’s things you should be doing. And that sounds like a very common buzzword I hear, which is holistic, and most firms they use the word holistic aren’t really holistic, but this sounds pretty holistic.

Rich: Yeah, it is. And one of the benefits of working with Envestnet is working with Envestnet. They’ve got a very robust, well adopted analytics and insights platform that firms are using, they’re using it across the rest of their business to see the value and understand where they where there’s opportunities there. Plugging into that has been a huge lift to our business and also saying, here’s the way insurance would work inside of that engine. I know that in the earnings transcripts that you know, when Bill Crager talks about it, they talk about hundreds of millions of recommendations and insights a year to their client base. And we believe that the future is that advisors will become more and more digital, right, and clients will become more and more digital and you have to be in that digital process in order to kind of bring it all together. So that really is something that it’s happening. We see it happening so yeah, we’re on board, it’s an important part of, you know, proactive service to advisors.

Craig: Rich, you’ve set it all and as time flies when you’re having fun, we’ve run out of time. This was great. I have a bunch of more questions to ask but we’ll have to save them for next time. Can you tell if people are listening where they can find out more information about FIDx?

Rich: Sure. So you can reach out to us through our website, which is FID-x.com. Also, reach out if you’re an existing Envestnet client or other clients, clearly reach out to the enterprise consultants you’re working with and we will gladly engage in and evangelize more.

Craig: Go evangelists. Great. Thanks Rich, appreciate it.

Rich: Thanks, Craig. Have a great day.

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.



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