Ep. 147: June News Roundup

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Companies Mentioned

• Adhesion Wealth [02:30]
• Asset-Map [29:30]
• AssetMark [02:30]
• Brinker [11:00]
• CogniCore [21:10]
• Envestnet [04:05]
• First Ascent [10:45]
• FPalpha [29:30]
• fpPathfinder [29:30]
• Lumiant [27:37]
• Morningstar [11:00]
• Orion [07:38]
• Pershing [13:12]
• Right Capital [31:15]
• Sawtooth [08:50]
• Schwab [10:15]
• SEI [11:00]
• SigFig [07:55]
• Simplicity Group [09:30]
• TD Ameritrade [10:15]
• TIFIN [26:17]
• Vestmark [02:40]
• Wealth Simple [26:50]

Topics Covered

1. AssetMark acquires Adhesion Wealth
2. Pershing INSITE conference
3. CogniCor Launches New AI-Powered Digital Assistants
4. FinTech startups cutting back in the bear market
5. Kitces-Ezra AdvisorTech map updates

Complete Transcript

Come on in, sit back, relax, and listen to episode 147 of the WealthTech Today podcast. I’m your host Craig Iskowitz, founder of Ezra Group consulting. And this podcast features interviews news and analysis on the trends and best practices all around wealth management technology. This is our June News Roundup. We’re gonna be covering a number of really interesting stories that you are going to love. First story is gonna be AssetMark acquires Adhesion Wealth. The next story is a little bit of a quick recap from the Pershing INSITE conference, which I’m act actually at right now. So I’m recording from the conference in lovely Dallas, Texas. The next story is going to be about FinTech startups in the bear market and how they’re cutting back. Then we have a story about CogniCore launching some AI digital assistants, and finally, we have a review of changes in the Kitces-Ezra advisor tech map. So that’s going to be what we’re talking about this month, now let’s kick this thing off.

AssetMark Acquires Adhesion Wealth

First story is AssetMark acquires Adhesion Wealth. AssetMark financial holdings announced today. It reached an agreement with Vestmark to acquire Adhesion Wealth, a leading provider of wealth management technology solutions to RIAs enterprises and asset managers. Adhesion’s platform enables over 2,800 fee-based advisors across 180 RIAs to deliver better investor outcomes while successfully growing their practices by providing outsourced overlay trading services, client engagement technologies, and managed account programs.

So what does all that mean? Basically aAssetMark is buying up another TAMP and Vestmark is selling their TAMP to AssetMark. Once combined, AssetMark will have about $100 billion in assets on their TAMP platform. So I see this not so much as AssetMark acquiring adhesion, but as Vestmark divesting themselves of a bad decision. So this is CEO Michael Blundin’s first big move at Vestmark to really focus their business back on their core competencies in enterprise managed account technology for sponsors and asset managers.

Vestmark just bought Adhesion just four years ago, back in 2018 for an undisclosed amount. And there of course was a lot of big talk about what they were going to do and how they were growing. Vestmark now has a full range of TAMP services. One tweet said combining their own RIA with Adhesion Wealth offers better enables them to better compete with Envestnet. That was a comment they made at T3 conference in 2018, when they announced the acquisition. The UMA platform will provide Vestmark with cross business opportunities and a gateway into the RIA space Vestmark said, it’s going to enable them to provide rich RIA experiences, blah, blah, blah. So clearly they had some grand visions of being able to build a platform that could compete better with in Envestnet offering TAMP services, tax transition, outsourced rebalancing, portfolio management, but that is now all down the drain.

So we know that TAMPs, if you look at the history of TAMPs going back 30 years, there’s been a lot of trends in the TAMP industry. The assets have risen and client portfolios we’re seeing a lot of advisors realize that they need to outsource more of their investment management. Their portfolios just never do as well as portfolios managed by professional asset managers, that data is clear. Home office portfolios at larger firms outperform Rep-as-PM portfolios by over 300 basis points. There’s client portfolios have only half the standard deviation when using third party asset managers versus Rep-as-PM. There’s no reason why more advisors shouldn’t be using TAMPs.

The TAMP asset base has been growing steadily. Of course the bull market, which is now could be turning into a bear market, helped a lot about with assets growth in TAMPs, but we’ve seen some crazy numbers just to give you a warning. If you see any numbers in a story or from a research firm or anybody telling you there’s $3 trillion in TAMP assets, just laugh in their face. I’ve seen that number thrown around. It’s crazy. The total number of TAMP assets is maybe a trillion, probably maybe a little bit over. If you look at the top 8-10 it’s it’s the more the 80/20 rule, more than 90/10 rule in our industry of the top 8-0 tens, they have 80% to 90% of the assets. And by my calculations, that’s about $800 billion looking at the top nine or so TAMPs. So it’s nowhere near $3 trillion, closer to $1 trillion, if you know what a TAMP is and what a TAMP asset is, it’s not $3 trillion, it’s more like $1 trillion still it’s a growing market and there’s a lot of need for TAMPs.

And there’s a couple different kinds of TAMPs, we’ve done a lot of research in this area around the TAMPs base, what it means to be a TAMP, different types of TAMPs and the market’s really changed significantly over the past, at least 10 years, where TAMPs have really spread out in the way they’re they’re offering services. We categorize them in a number of ways, pure product TAMPs that offer proprietary products, so Assetmark would fall under that category, they do have their own proprietary models and the proprietary investment management that they offer is also more of supermarket TAMPs. So those at TAMPs like Adhesion is more of a supermarket. They have hundreds of managers with hundreds of strategies. They don’t offer any of their own. They just provide you a supermarket shelf of other managers.

Then we always categorized a broker dealer TAMPs, like Envestnet back in the day FolioDynamics was in that category then Envestnet bought them now, Orion is in that category since they build their own broker dealer tech that their platform runs on. And now they’re also a TAMP and Vestmark was in that category, and now they’re not. And then we have more digital TAMPs, which is kind of a broad category of these of online vendors firms, like SigFig that started out as robos and digital only platforms that added capabilities that are TAMP like that allow the the trading and other aspects of portfolio management to be done by them. So they offer that sort of a pseudo digital TAMP.

Another way we categorize TAMPs is based on active, passive or fiduciary. So Assetmark would be more of an active TAMP where they have researched a list of models and a select list of curated managers. You pay them X basis points for white glove service with embedded research. Then there would be your passive oriented TAMPs. That might be charged less where they maybe don’t have their own models, but they might have their own asset allocations that they could help you work on those putting in other asset managers into there. And then there’s fiduciary TAMPs. Those are the ones kind of like a Sawtooth where they don’t provide any models, they don’t provide any access to any managers either. They just handle all the aspects of executing trades, routing trades, handle portfolio management. You would provide them with your models, you would do all that work. And then they would just do the fiduciary part of the of the asset management process. So there’s lots of ways to skin a cat here, lots of ways to break out in the market.

There’s been a lot of M&A, of course, in the TAMP space, we had Orion buying FTJ Fund choice and then Brinker Capital. So they got to about $50 billion or so in TAMP assets. Simplicity Group acquired Sawtooth solutions last year, more of a fiduciary TAMP. Assetmark bought OBS in 2019, they bought Global Financial Private Capital, and now they’ve bought Adhesion Wealth. They also bought Voyant a financial planning software provider. That’s not TAMP related necessarily, but they did buy that.

So what is really Adhesion? They always pitch themselves as an overlay provider, a UMA platform. I think they’re a little under $10 billion in AUM. They like to take an advisor’s entire book of non-managed business. They can manage and monitor it holistically. They are multi custodial with their UMA offerings. I think they’re split across well, now the big three, I think it’s mainly around Schwab and TD about 65% or so, Fidelity 15%, Pershing, 15%, the rest are smaller ones.

This business is all about scale and TAMPs just need to get bigger. They need to get more assets in order to provide better services to their clients and be able to win better deals and offer better deals by pushing their costs down. That’s really what it’s all about. Great quote in RA biz from Scott MacKillop, the CEO of First Ascent. Basically there’s a handful of black hole TAMPs that are drawing other TAMPs in and FinTech firms toward them and swallowing them up in order to gain scale and grow assets, he said, that’s a great quote. Of course, it’s all the big, all the top ones, Envestnet, AssetMark, SEI, Orion, Brinker, Morningstar to name a few.

Scott went on saying these firms are under tremendous pressure to grow quickly, win the hearts, minds, and desktops of the advisor community. So find that battlefield with only limited number of decent properties available in a Titanic struggle for supremacy. Good job, Scott. I feel the same way. We’re gonna keep growing, keep trying to fight it out. Broker dealers are also cutting back the number of TAMPs they work with just because it’s too complicated for them. They don’t wanna deal with it. So you want to make the cut. So you have to offer more options more ways that advisors can work with you and more ways that you can help advisors win business.

That’s one of the white glove services that AssetMark offers has been one of their ways that they win business. Where if an advisor has a big proposal, it’s a $5 million account. They can go to AssetMark and AssetMark will help them write, put the proposal together, build a portfolio for that particular client customize for them and help them win the deal. That’s very compelling for a lot of advisors. So in the end, this is just another brick in the wall for AssetMark on their scale roadmap I expect them to integrate Adhesion Wealth into their platform switch over their models or investment management processes and customer service do it all seamlessly. You won’t even know it, no hiccups there, they’re pretty good at that. The question on the other side is, does Vestmark still see Envestnet as their biggest competitor? Do they now believe they can sell to broker dealers, banks, and large RIAs and such as a pure technology provider with no TAMP services? Now Vestmark does have other services such as recon, reporting but now they have no fiduciary services like a TAMP, as I believe Vestmark bought a business unit from Sunguard a number of years ago that gave them a lot of services, but still it’s not the fiduciary services. And what will be the next moves from CEO, Michael Blundin remains to be seen.

Pershing INSITE conference

Story number two Pershing INSITE 2022 conference, the annual client conference for BNY Mellon Pershing was held in Dallas, Texas at the Gaylord Texan resort. The theme was client experience reimagined about 1500 or so attendees, well attended, great conference. I’ve been tweeting about it. You can catch up by searching for #realinsite, a lot of stuff going on, a lot of great sessions a lot of great vendors in the exhibition room. One of the trends I noticed at this conference and at others is that talent acquisition and hiring has become a major theme. We’re seeing a lot of panels on that. There were three panels just on hiring and recruiting at this conference, as well as the CEO Jim Crowley mentioned it in his keynote that they’re having trouble finding people. Whereas three to five years ago, all the panels, there was a trend in panels about robo-advisors and fee compression.

So it went from fee compression to talent acquisition in three to five years, how things change. And before we get into some of the details what was announced at the conference, wanna talk about Pershing’s commitment to promoting women throughout their firm. They’re committed to promoting women into senior leadership roles and working to increase the number of women in wealth management. There were four breakout sessions at this conference just focusing on women. There was a masterclass women in tech. There was a breakout session called how the future of finance will be more female, another one women leading the way in alts and finally the pathway to inclusive investment. So it’s great to see all those different breakout sessions focusing on women in wealth management. They also brought in, Indra Nooyi, a former CEO and chair of PepsiCo and a New York Times bestselling author, you should read her book. She gave a keynote speech that was very inspiring, and there was also one of the keynote panels had on it, this is just one panel, Catherine Keating, CEO, BNY Mellon wealth management, Ainslie Simmonds, president BNY Mellon, Pershing X and Hanneke Smits, CEO, BNY Mellon investment management.

Now that’s a powerhouse lineup. One of the big announcements that they made Pershing made at this conference was their new NetX 360+ platform. That’s the old NetX360 just revamped. That’s been optimized to deliver more intuitive, seamless user experience. They’ve really updated the interface, redesigned the whole UI/UX. It’s more streamlined. I got a couple demos of it looks really good. And I’ve been looking at NetX for a long time. When I first saw NetX 2004 before it was even called NetX, it was called you know, NetX was, was a new platform in 2009 that combined two separate platforms almost called Net Exchange Pro, which was for commission based clients and Net Exchange Advisor which was the fee based advisory product. They combined them in 2009 into NetX360.

The interface never was really very good, and there’s a lot of complaints for many years, clients complain. I know I was complaining about it. And just a full disclosure, my company Ezra Group has done consulting services for Pershing in the past. And we constantly complained about the user interface, the workflows, how advisors navigated through the system. Wasn’t very good. They’ve really fixed a lot of that with NetX 360+ version that I saw, at least with the demos that I look great. The UIs clean lots of white space. I think the fonts are modernized, lot of graphics look terrific. Some people I spoke to clients that they really like it, but we’ll see how it goes when it gets deployed into production and they’re using it full time, but I think they’re gonna really like it. It’s a big change and it should help them with how well the client likes the platform, and it’s gonna live up to the promises that they’ve been making to clients that they’re gonna fix a lot of this stuff for a number of years, so good that they got that out the door.

This is not a product that they’ve launched at this conference, but a lot of talk at this conference about the new Pershing X platform. This was Pershing X was a new business unit that Pershing announced last October. Their goal is to build an end to end advisory platform that’s multi custodial and Pershing hired industry veteran, Ainslie Simmonds to run the Pershing X business unit. And according to the press release, the new unit will incubate engineer and deliver a comprehensive all in ones that are advisory capabilities to Pershing’s wealth solutions clients.

So lofty goals, and they seem to be doing, making some good progress. They haven’t shown anything of the product, but they’re talking a lot about it, a couple of panel sessions discussing the the agile development methodologies behind the product, which is a change for them. I know they used waterfall for many years, and Ainslie came in and I think in six months managed to switch them to agile development, which is a good thing for the type of work that they’re doing. They’re also hiring a lot of people. I looked online and saw that they’ve got a lot of job postings things for domain architecture and other types of jobs. So they’re definitely bringing in people to do the work that needs to be done. I believe they’re trying to get out a product or something out the door by the end of this year, which is aggressive, but I love to see that.

A couple comments from executives at the conference. One from Jim Crowley CEO, the new Pershing X will be multi custodial, open architecture, and will have the agility of a startup backed by the power of BNY Mellon. Could be powerful. BNY Mellon CEO-elect Robin Vince shares that Pershing X, the latest generation of our technology is powering the ability for better human interactions by using machine learning, to gather client insights through data.

Other sessions at the conference included on digital assets, on digital marketing, how to improve your operations. And another good one, they had a bunch of meet the experts, what they called, meet the experts sessions, which I thought was a really great idea. They limited it to just 40 or 50 people. So they had small, more intimate rooms, and you’re talking directly to some of the key people that make a lot of the Pershing products and services, and you can and talk right to them. I attended a couple of them, and there’s a lot of good feedback from clients talking to the Pershing owners and getting really involved in what’s happening on the roadmap and some of the issues they’re having.

One I wanted to bring out, which I thought was, was a great example of why it’s beneficial to go to these conferences, there was a breakout session called meet the experts around the technology and Ram Nagappan, their CIO was on stage talking about some new things they’re working on, and there was a broker dealer in the audience who said, Hey, I’ve got a problem with particular product. I won’t go into specifics, but he had an issue with it and bringing it up to the CIO RO right there on the conference. And Ram said, you see the guy sitting next to you, he’s the product owner for your product. So you can talk right to him directly and tell him what your problem is. We’ll get it fixed for you.

So that’s a great example of being out and being at a conference live in person, and just having the ability to talk right to the people that are controlling the software that your firm is using. I was on a panel at the conference as well called harnessing the power of artificial intelligence to gain real business insights went really well, very well attended. We’ll be doing a blog post about the panel next week. I did a lot of tweeting and you can check that out online under the #realinsites. And thanks again, Pershing for inviting me out to INSITE 2022.

CogniCor Launches New AI-Powered Digital Assistants

Our next story up is CogniCor has launched three new digital assistant modules that use AI to help advisors and wealth management firms accelerate their productivity. CogniCor, a California based company provides Fortune 500 financial firms with AI powered front and back office automation services. Reason why this peaked my interest to the story was that it links back to the previous story about the Pershing INSITE conference. I remember seeing CogniCor partnering with Pershing at the last INSITE conference that was at, which was 2019. They were partnering on a chat bot, which thought was really cool in that it was more than a basic chat bot, but an advisor would use it to say, well, Hey, I’ve got a client lost their debit card. I input “lost debit card” into the chatbot, it would then take them to the right screen in the Pershing application.

So we’d just give them information. It would say, here’s what you need to do. Click here to the link and would take them to the right page and also pre-fill the form out for them. So it would know which client it was, it would pre-fill the form and they advisor would only have to, you put a couple more pieces of information in and click go. And that would be sent.

That would save a tremendous amount of time because it was contextually relevant. It knew what the advisor was talking about, took them to the right place in the system to do the work. So CogniCor’s got some pretty good technology on AI. They’ve got a couple digital assistants on their CIR8 platform which leverage machine learning algorithms to understand the intent behind user queries and return accurate, appropriate responses or courses of action that directly address user’s needs.

Their three new digital assistants are a called forms assistant, which similar to what I was talking about before interprets users’ intent and finds the forms they need. So it’s beyond the proof of concept we saw at Pershing, but can be used for any firm. There’s a navigation assistant, which users tell what they need. And it responds with a step by step navigation instruction that can even support complex use cases and a smart call routing assistant, which understands the context and intent of a query and matches the user with the appropriate expert. And that could be, I think a lot of firms can use that. I mean, I’ve had some nightmares on calls with virtual assistants or interactive voice response systems could all use this.

Now another link to Pershing is that this same month, which is where in June, CogniCor also received some new funding from none other than Ram Nagappan, who is Pershing’s CIO. And he invested, this is in the article invested as part of a safe agreement, the simple agreement for future equity, a safe note. And he said Ram said, he’s impressed with CogniCor’s unique value proposition of tapping into AI to create efficiencies in advisory and custodian relationships. The firm’s ability to leverage reusable knowledge, graphs, and develop specific use cases for this technology can address broken experiences across the financial services industry. So we’re seeing this all over. As I mentioned earlier, just did a panel on artificial intelligence at the Pershing conference. And one of the things I brought up was we need to look for ways that AI can push advisors up the food chain and also push clients up the food chain as well. So there’s less things they have to do to get going, to get their relationships on track and to keep managing.

And one area that I felt was ripe for disruption with AI would be risk tolerance. We all do risk tolerance, questionnaires, every vendor’s got them. We have a lot of vendors that are doing them standalone and finding out new ways to ask the questions, new ways to interpret the questions, new ways to deliver that data, that risk tolerance into other applications. But if you think about it, humans don’t really know, and people don’t really know what the risk tolerance is. Even if you ask them the right questions, many investors don’t even know their mortgage servicer or necessarily all their accounts, but then we’re gonna ask them to decide how they’re going to respond in certain market conditions, may not be the best way to do that. If you had AI evaluating, for example, every trade that person has ever made in good times and bad times, went through every expense that person ever made during good times and bad times, and looked at the changes and looks for patterns even looking across social media, to how they respond to different market conditions, adding all that data up, comparing against peers, comparing against actual activity would be a much better way to evaluate an investor’s actual risk tolerance and risk capacity than asking them some questions. Even those questions are well designed and based on behavioral psychology. So just an idea around AI should take a look at.

FinTech startups cutting back in the bear market

Next story is from InvestmentNews, FinTech startups tighten belts, bracing for extended bear market, by good friend Ryan Neal in order to right size the advisor FinTech startup for the current market environment TIFIN a firm that’s been in the news lately has laid off 10% of the company’s workforce, more than 20 people. And also the leadership team has taken a 20% pay cut. This is less than one month after the firm closed $109 million round of funding, which valued the startup at $842 million in bringing its total funding over 18 months to $204 million. The company is done making cuts according to CEO, which helped TIFIN reduce their cost by $10 million.

Now TIFIN isn’t the only FinTech startup feeling the bite with the bear market Wealth Simple, the Canadian robo-advisor that sold its US book of business to betterment in March, 2021, and recently raised $600 million laid off 13% of its workforce, which was about 159 people according to tech crunch.

So we’re seeing a lot of firms realizing that some bad news is coming and they are cutting back to try to weather the storm. Another company, an Australian FinTech recently raised 3 million to expand into the US wealth management market. And they’re actively looking to grow their workforce. So maybe they can hire some of TIFIN and Wealth Simple’s staff. Their CEO is Blake Wood, formally of Envestnet. Hey Blake. All right. So because Lumiant charges a flat subscription fee, rather than a percentage of AUM, the market’s movements don’t directly, it says here won’t affect its top line revenue. That’s not true. Well, sorry. Won’t affect its top line revenue Wood said, well, Blake, it’s not exactly true. You know this because while there isn’t a direct impact from the market going down, the number of accounts can change. And number of accounts often do go down during market downturns. It just isn’t as drastic as if you were AUM based, but on the other hand, when the market goes up and as it usually does after a downturn, you do not gain the benefit of that AUM rise.

So you 6 and one half dozen in the other, and that’s what happens a lot of wealth managing firms that offer tech platforms like Envestnet, InvestCloud, Vestmark and others charge per account rather than by AUM, which gives them more consistency during downturns, but less upside during upturns.

About Lumiant, Michael Kitces wrote some interesting stuff in his latest blog post his June advisortech news, which you can check out on kitces.com about Lumiant he wrote or Lumiant might arguably be, I can’t say the word arguably, arguably might be called an advice engagement tool rather than a more traditional financial planning tool, given its particular focus on the non-financial aspects of the advisory relationship and advice.

Engagement is a new category we created in the keeps us advice, tech map, something I work with Michael on at an advice engagement to put in a number of companies that sort of we’re not really sure. We weren’t really sure where to put them. They sort of have interesting functionality that doesn’t necessarily fall into any particular category like FPalpha, Asset-Map, fpPathfinder. So they sort of, we needed a category to put them in. So we created advice, the advice engagement category. And so as a result, while Lumiant does engage clients in a process to better understand their goals, its intake process also engages in a broader discovery with clients around their values. So Lumiant could also be in the client survey feedback or client data gathering categories as well. We see that a lot with some firms as some vendors and products that are a little bit broader than our current categories or have other functionality, we have to pick somewhere to put them.

So you know, we want to put them in the, in the area where either they want to be known as, or clients tend to know them most as that’s where we usually put them, because we don’t like to put multiple logos of the same vendor on the map. It’s very rare. We do it with a couple of vendors, but only the really, really big ones that have been selling particular products for many, many years. Like a Morningstar has multiple logos under investment data analytics under all in one from Morningstar office and under planning light for Morningstar Goalbridge. But because they sell those products separately, they’re completely separate distinct products that they sell standalones. We also have the Morningstar under risk tolerance for their risk tolerance tools. So that’s one of the rare examples of firm with multiple logos.

But no one else really has that. Except for a couple others from the individual advisor perspective, it’s striking that Lumiant prices, their software at $3,000-$4,000 per advisor per year, which is really close to the cost for an entire financial planning software package from MoneyGuide or eMoney or Right Capital. And especially this is what Michael Kitces is writing, especially since traditional planning software is still built to go deeper than Lumiant on the core furniture planning analysis, which will likely make it hard for planning centric advisors to give up their core planning software. And instead raises the question of whether advisors will really want to pay that much more for a second financial planning portal on top of the ones they already received from their core financial planning software. So these are excellent questions. And I guess the, the answers might be that Lumiant is looking for advisors who aren’t using eMoney, MoneyGuidePro, Naviplan, Right Capital or other deep venture planning tools who want something that’s lighter, but gives them more functionality around client data gathering and other other aspects of the relationship.

So it’s remains be seen whether they are going to be able to get traction with their product in the gaps between advisors who don’t do any planning or do some light planning and want something that’s sort of a little bit heavier, but not the full extent of eMoney, MoneyGuidePro. And they’re willing to pay a premium 3-4 grand for it. I’m not sure how that’s going work, but we will see how they do.

This isn’t just the normal wealth tech firms that are seeing a squeeze. We’re seeing it across the industry. YCombinator, the technology startup accelerator that has helped launch some of the biggest names in tech like Stripe, Airbnb, Coinbase, and Dropbox. They sent the letter in May advising startup founders to plan for the worst as many encounter bear market for the first time as reported by tech crunch, YCombinator suggested that firms cut costs and look to extend their runway soon.

So that’s why you’re seeing firms cutting costs, reducing reducing head count, cutting back on maybe areas where they thought there might be growth, but they didn’t see a lot of revenue and shutting that down and trying to weather the storm FinTech companies, serving advisors. So the wealth tech space may be in a better position than the broader FinTech ecosystem while funding and wealth tech dropped just eight 8% quarter over quarter in the beginning of 2022 funding in the broader FinTech market fell 18%. According to data from CB insights. Let’s hope that’s true in the wealth tech. We don’t see as much of a downturn as the broader FinTech space.

Kitces-Ezra AdvisorTech map updates