Ep. 195: July WealthTech News

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Come on in, sit back and relax. You’re listening to episode 195 of The WealthTech Today podcast. I’m your host, Craig Iskowitz, founder of Ezra Group Consulting. This podcast features, interviews, news and analysis all around the trends and backed practices of wealth management technology.

But before we get started with the news, I have a message for you. If you are the executive at a broker dealer enterprise RIA, Family office or TAMP, your tech debt is holding you back. Your old software platforms are rusty and falling apart, and they need a complete overhaul or to be replaced entirely. Your disparate systems don’t communicate with each other, and as driving your ops staff and advisors greasy with manual processes and other errors.

If this describes your company and your tech infrastructure, you should run not walk to our website, ezragroupllc.com and fill out the contact us form on the homepage. Our experienced team can evaluate your technology ecosystem, deliver targeted recommendations, optimize your existing systems and operations and help you implement new software to help take your firm to the next level. You can take advantage of our free consultation by going to ezragroupllc.com. That’s EzraGroup.com.

A few key quick housekeeping notes before we continue, we support a number of nonprofit organizations that do fantastic work for a variety of causes, and one you should check out is the Invest in Others Foundation, which you can learn more about investinothers.org. Please subscribe to this show where every listen to podcasts so you don’t miss an episode. Now, let’s kick this thing off.

Topics Covered

1. SmartX Advisory to launch a free managed account TAMP platform
2. Nitrogen Wealth and InvestorCOM integration delivers best interest rollover recommendations process
3. Wealth.com Unveils Ester™: A Disruptive AI-Powered Legal Assistant Redefining Estate Planning
4. Fidelity ‘Crypto for Wealth Managers’ Coming Within Months, Company Confirms
5. AI News
6. Advisortech Map & Integration Scores

1. SmartX Advisory to launch a free managed account TAMP platform

Our first story SMArtX Advisory is launching a free managed account TAMP platform. SMArtX Advisory is a growing TAMP and technology provider recently reaching over $27 billion assets and they’ve launched a free TAMP offering. Before we get into that, let me just go over what is a TAMP? There’s been some confusion about that from what I’m reading, we do a lot of research at Ezra Group, all across the wealth management industry. But specifically, TAMPs is one area we cover a lot in our research.

A TAMP, turnkey asset management platform offers a complete investment management program through the advisor’s sponsoring firm whether it’s a broker dealer on RIA or trust company or something else, the definition of what constitutes a TAMP, it has to meet these requirements. First of all, it has to have their own RIA. If you don’t have an RIA, you’re not a TAMP, you’re something else. You’re some sort of tech provider model marketplace or something along those lines. You must have an RIA so that you can offer fiduciary services. The services could include investment research, asset allocation, due diligence, manager contracting, portfolio construction, rebalancing and trading. Rebalancing anyone could do but it’s the trading part. You have to be able to push the button on the trade to be a TAMP.

Now there’s other non-TAMP services like performance reporting, recon, billing, and other services that don’t require an RIA or any fiduciary responsibility. Lots of firms offer those services, they’re not TAMPs. They’re just BPO back office processes outsourcers. A provider of portfolio management software, whose system can be used to run a TAMP is not a TAMP itself. I’ve heard the term platform TAMP but unless you can be a platform provider and a TAMP, like Envestnet or Orion or SMArtX.

They all have a technology platform that you can use to run a TAMP and they’re also TAMPs. But for a company that’s offering just technology, they’re just a SaaS software provider like InvestCloud or Charles River, Black Diamond, or others that don’t have their own RIA. Nothing wrong with that. We love technology providers, but they’re not TAMPs, even if their software is used by TAMPs, that doesn’t make them a TAMP.

Now the combination of external market dynamics and total capabilities suggests to us in our research, that there’s still opportunities for new TAMPs to gain market share in the RIA segment. We welcome SMArtX coming out with a new offering. We’re seeing continued organic growth in the RIA market, which is still the fastest growing channel. Of course, there’s tons of inorganic growth out there. We’re firms snapping up RIAs left and right. So there’s more outsourcing possibilities, and there’s certainly gaps to fill. But we’re seeing more competition, bringing parity to the market, which is good for advisory firms.

Why do firms outsource? Why do they engage a TAMP? Why do they outsource their investment management? There’s usually some combination of six different factors and reasons.

1. Scale – they feel they can scale better if they outsource it rather than having to keep hiring more portfolio managers and such.
2. Growth – helps to grow faster with additional investment options. For example, TAMPs could give them more options around different services they can offer to their clients expertise, TAMP should be offering more have better expertise in investment management, since they’re bringing in assets from all over and they’re doing more asset management at scale. So they’ve got more expertise than the average advisor would.
3. Price – should also be a factor should be a good a bit of price for a TAMP to do it than to do it in house.
4. Product offerings – What we call supermarket TAMPs that offer a wide range of managers similar to SMArtX, where they have a lot of managers available on their platform. 
5. User experience – how the offering provides a great experience for the advisor to be able to go on open accounts, see their performance, add restrictions and interact with the platform that UX is a good reason why firms engage a TAMP.
6. Service – There’s another area or they’ve been under growth. So some TAMPs, like Assetmark, as an example, offer a white glove service to advisors to help them deals. So an advisor maybe has a $5 million client and that might be their first very large client, they could call the TAMP and say help us with this proposal. And there are number of TAMPs that will do that help them put together a proposal for that client that matches their needs, and then help them close the deal, because they’re gonna get the business. 

We’re talking about SMArtX offering a new platform called SMArtY, which is a slimmed down version of their namesake platform. They believe it will appeal to advisors who want to use models, but don’t have access to sophisticated UMA technology it’s a slimmed down version, and only whereas the full SMArtX platform has a couple 100 strategies available SMArtY will have fewer. They haven’t announced exactly which ones we don’t know which ones, I could guess.

Morningstar is an investor in SMArtX after making a $30 million investment in their series D round in May 2022. And they agreed for SMArtX to become the under the hood technology, replacing what used to be Fiserv APL which is now InvestCloud Financial Supermarket. That’s all been replaced by SmartX. Morningstar announced some new managers on their TAMP including Blackrock, Clark Capital, Fidelity, T.Rowe Price, adding to the US platform so maybe it’s going to be those managers on SMArtY plus Morningstar. I don’t know. I’m just guessing here.

As we mentioned before, SMArtX has grown significantly over the past couple of years, now over $27 billion, their assets increased 44% In the first half of 2022. They have over 93,000 accounts on their platform, which was over 100% increase.

This is an interesting offering. Free platforms haven’t traditionally done well in terms of growth and market share. The end goal seems to be to drive more business onto the SMArtX platform.

But I remember there was a firm called Oranj that was offering a free portfolio management system with a freemium version, helping with people with upgrade didn’t do so well, the company went out of business. I don’t think smart export that will happen to them. They’ve already got a growing TAMP business but interesting to see how smart SMArtY is going to work I imagined. SMArtX is being paid by the asset managers on the smart, SmartY platform.

They’re trying to generate a buzz, which is great for marketing. There’s a waiting list you can’t get it now, you have to wait till September. So that could be generating some buzz amongst advisors and building some demand for them remains to be seen if the available managers that are going to be on the platform have enough star power to attract advisors but I’ve no doubt Evan Rapoport, the CEO of SMArtX is a smart guy, he’s done really well in the industry and building out his platform. So we’re looking to see how the SMArtY offering is accepted by the market.

2. Nitrogen Wealth and InvestorCOM integration delivers best interest rollover recommendations process

Nitrogen Wealth and InvestorCOM integration delivers best interest rollover recommendations process. It’s projected that in the next five years around $800 billion of assets are going to roll out of employer sponsored retirement plans and into RIAs. These rollovers will be a huge growth opportunity for financial advisors. Most white collar workers accumulate the majority of their savings through employer sponsored plans. So having access to these assets in a compliant way, is gonna be a huge benefit for advisors.

There was a recent SEC bulletin released on April 20, which zeroes in on how advisors and brokers should comply with their care obligations when providing investment advice, and recommendations to retail investors. You can read more about it in on thinkadvisor.com. There’s a recent article called 4 Must-Knows for Advisors in SEC’s New Reg BI Guidance.

One of the four things is advisors can’t rely on a firm-approved list of investments. Advisors must do their own analysis of the improved investment options on a client by client basis. This is a good reminder to firms and advisors as the use of approved lists of investments has increased since Reg BI.

So what does this all mean? It means that having robust software tools is table stakes now for advisory firms to stay compliant with Reg BI. Back in May, SEC Chairman Gary Gensler said, “Reg BI is a work in progress.” And he expanded on that things more changes coming and wealth management firms have to stay on top of that to remain in compliance.

Now we talk a lot about integrations here at Ezra Group so hearing about Nitrogen and InvestorCOM piqued my interest. We had executives from both firms on the podcast just recently, Ep. 193: A Growth Platform is the Glue in Your Tech Stack with Aaron Klein, CEO of Nitrogen Wealth and Ep. 188: Scaling Success: How Compliance Tech Drives Business Growth with Parham Nasseri, VP of product and regulatory strategy from InvestorCOM.

This is an interesting partnership considering Nitrogen Wealth’s recent big push to build their own compliance software over the past few years including their own Reg BI tool, as well as building some compliance around their risk profiling capabilities.

At their client conference last October, they launched a dashboard that allows enterprise firms to look across the entire company. Whereas in the past each advisor’s risk profiles and assessments were discrete, and you can only look at it one at a time they launched this dashboard, which we liked very much that you can look across the firm at all advisors and broken up by different segments and see which ones are out of compliance which portfolios have drifted away from their risk profile. 

As a result of this integration, advisors who using Nitrogen’s platform can now access InvestorCOM’s compliant rollover recommendations to retrieve information on 401k plan costs and then digitally deliver and document their analysis to investors, which as you mentioned earlier, according to Reg BI is a requirement.

InvestorCOM has a suite of compliance tools but what we’re talking about here is the integrations with their tool called RolloverAnalyzer, an application that enables them to do things like analyze rollover recommendations across different levels of service, client fit and costs, provides access to plan cost data across form 5500 and benchmark cost data. They also have a database of retirement plans from around the country and what those costs are. So you put that into the system and it pulls it up for the advisor which is very helpful, especially for showing your clients that you’re on top of what they have going on.

The third functionality of rollover analyzer is it electronically documents and discloses the best interest recommendations to the client. Now, having Parham on the podcast, we also got a demo of some of their products. What we liked about it was it’s a single workflow to analyze document and disclose best interest rollover recommendations to clients. Of course it replaces manual forms. And other manual steps and tools, which are cumbersome for the compliance teams when they have to go back and review and analyze hundreds or even thousands of clients. It auto generates compliance text that provides the reasons why that support the advisors decision making, that’s a cool feature. They also can input the client’s 404-A5 look up employer sponsored plans. It has end to end digital disclosure and documentation and generates a plain language disclosure report which, I prefer plain language from my advisors as well. If you want more information about the suite of compliance tools at InvestorCOM, go to InvestorCOM.com. And for more information about their new growth platform, go to NitrogenWealth.com.

3. Wealth.com Unveils Ester™: A Disruptive AI-Powered Legal Assistant Redefining Estate Planning

Next up, Wealth.com unveils Ester, a disruptive AI powered legal assistant redefining estate planning. I read an interesting survey in an article from ThinkAdvisor by Michael Fisher, Advisors Need New Estate and Trust Planning Tools as Demand Surges: Survey Forrester Consulting conducted a survey of US financial advisors to gain some insights into trust and estate planning for high net worth clients. According to the survey, 30% of advisors reported that estate and trust planning was one of the top two financial matters their clients were considering. 9 in 10 of those advisors said their clients those high net worth clients were proactive in managing their estate and trust planning goals. Also, as many as 93% of clients anticipate receiving estate planning guidance from their advisors, but only 22% have ever received such assistance.

That leads us to Ester, this AI powered legal assistant from Wealth.com. Wealth.com interesting enough, this is the first software product that we’ve seen. So of course I work on the Advisortech map with Michael Kitces. And every month, new vendors come to us saying hey, take a look at our product, can we get on the map?

The main requirement is that you have a software product you’re selling to advisors. I know it sounds silly, why would someone call us if they don’t have a software product to sell. But we get a few vendors every month that aren’t selling a software product, they are service companies that happen to have software that supports their service.

There’s nothing wrong with that. We are supporters of the advisor ecosystem, whether that’s software services or other capabilities being offered to advisors, but the advisortech map is only for software. I know Michael is thinking about doing a services map sometime in the future.  Also, TAMPs aren’t on the map unless they also sell some standalone software, for example, Envestnet, Orion are both on the map, they are TAMPs, but they also have standalone software products.

That’s a long way of saying that Wealth.com had asked us to be on the map previously, but they’re mainly an estate planning service, not advisortech software. That is, until now.

Now they’ve just launched this new software product called Ester, which they’re calling an AI powered assistant for estate planning. They say it can understand specific goals from clients and the intricacies of existing estate plans, and can help clients navigate and update their plans over time.

They say it’s conditioned with both short and long term memory enabling it to incorporate a client’s previous actions into its responses. I haven’t seen a demo of this yet, so I’m not sure exactly what it does, or if it can really effectively guide clients and answer questions for them and give them proactive advice.

I also haven’t done a deep dive on whether it’s actually AI or not. That’s one of my pet peeves about technology. I’m sure you’ve seen the rush of firms claiming they’ve got AI this AI powered that. Honestly, just between you and me, most of it is not AI. It’s just some sort of rules engine or just normal software. A bunch of if then else statements, which they say is AI powered.

I did notice in the press release for Wealth.com they mentioned that it’s is using some sort of LLM or large language model that’s been trained with their own estate planning data. At least they mentioned that, I’d like to see if that’s true or not. Their founder  even mentioned my pet peeve in the press release. He said AI is a trend, however, it’s important to distinguish between AI that’s only a buzzword in a deck versus real AI that’s actively trained and harnessed by experts to deliver scalable value.

I agree with you, and that’s Danny Lohrfink the Co-Founder and Chief Product Officer of Wealth. I’m concerned about AI that’s a buzzword on a deck versus AI it’s actively trained. I’d love to talk to you and find out more about how you’ve done this with Ester and what it can do. If it’s really software and you’re selling the software, or is Ester only for existing clients.

There’s other products available in the space. If you look at the advisortech map does others in the the estate planning category. Wealth.com is going up against firms like Yourefolio of course MoneyGuideElite℠, eMoney Advisor, EncorEstate Plan, NaviPlan, FP Alpha.

If you want more information please go to Wealth.com.

4. Fidelity ‘Crypto for Wealth Managers’ Coming Within Months, Company Confirms

The CFA Institute released a survey for financial advisors on crypto assets which was published back in  February. It has some interesting statistics about cryptocurrencies. Only 7% of advisory firms surveyed allow solicited sales of crypto assets or digital assets to their clients. Only 14% of advisors say they would recommend crypto assets to their clients even if the firm allowed it. This number jumps to 38% from 14% for newer advisors, those with less than five years of experience. 56% of advisory firms have observed an increase in investor interest in possibly investing in digital assets over the past 12 months. But only 43% of advisors are comfortable even discussing digital assets with clients or prospects.

Those newer advisors, those with less than five years experience are much more comfortable and confident in discussing digital assets with clients or prospects. Fidelity Investments is continuing to dive deeper into the crypto space they’ve been doing this for years. Fidelity’s digital assets division, which is their crypto dedicated subsidiary launched back in October of 2018, almost five years ago with the goal of creating crypto services for the investment companies institutional and sophisticated investors. They’ve added the ability to trade in custody digital assets like Bitcoin and Ethereum from within Wealthscape.

Built on their digital asset custody trading service, Fidelity Crypto For Wealth Managers will sit within Wealthscape, their advisor workstation and provide advisors a streamlined experience with accessing and reporting on crypto assets. This will make Fidelity the first of the large RIA custodians to bring crypto assets to its native platform for advisors.

On Twitter, Tyrone Ross, CEO and founder of Turnqey Labs, noted the development and said “the funny thing about it it’s really not even an announcement”, he said, “it just came out. That’s the beauty of being Fidelity. You don’t even have to announce stuff. For advisors,” Tyrone continued in the tweet, “there’s a distinct level of trust that comes with the fidelity brand. I’ve always said if when they lean more into crypto solutions for FAs, it will be a game changer. I can assure you that what you’ll hear will be worth your time”.

Then in another tweet, Ross said, “I agree there’s a huge potential here. Fidelity is poised to dominate this opportunity to the largest 401k provider after having previously announced Bitcoin availability and 401k last year, and recently with their Wealthscape announcement”.

This announcement includes according to internal presentations offline cold vault storage. What that means is it’s stored in a system that is not connected to the internet, so it cannot be hacked or stolen. In the way you might have heard Bitcoin or other cryptocurrencies are being stolen. There’ll be small order routing for best execution, real time trade settlement, which almost all cryptocurrencies just by their nature, have real time or near real time trade settlement anyway, but it’s nice that Fidelity is offering that and immediate access to client funds. Because basically everything just settles instantly. There’s no need for a custodian to move money between the different parties in a crypto transaction. But Fidelity is providing an additional benefit.

Their presentation that they showed promises 20 hours a day, seven days a week trading windows, no account minimums and integrated cross asset class reporting with third party data vendors. This sounds great. I mean, I’ve been doing some crypto investing myself. I was also on the board of a crypto tech firm. So I know a bit about this space, happy to see Fidelity continuing to invest in the digital asset world. This is big news for advisors, but will the other RIA custodians Schwab and Pershing follow suit?

5. AI Stories

I’m going to combine a bunch of different AI stories here. First one. Last week I moderated a webinar with a number of vendors who are all showcasing new features and functionality that they had launched around artificial intelligence. One of them was Pulse360, they are a tool that helps advisors automate meeting preparation, execution and follow up. And they announced an AI writer tool, which is based on a large language model like GPT but it either expands brief meeting notes into well written emails or vice versa, takes large blocks of text, maybe complex topics, 529 plans or other types of investing and convert them into shorter summaries. You can choose the tone, professional business casual, enthusiastic, and it’s integrated right into the tool. It’s very easy for advisors to use. That’s Pulse360.com.

Redtail was also on the webinar, and 2018 they released a sentiment analysis tool with a lot of data, they have 70 million individuals 1.3 billion filter emails, 50 million notes, 450 million activities, all being fed into their model to be able to provide sentiment analysis. I had Brian McLaughlin on my podcast, Ep. 144: Artificial Intelligence Powered CRM with Brian McLaughlin, Redtail Technology, where you can hear him talk about things that red tail is investigating in researching around artificial intelligence.

Another company on the webinar was FP Alpha. You can find them at FpAlpha.com talking about their estate planning module that uses an AI engine and natural language processing to scan in clients estate documents such as wills, trusts, POAs and healthcare directives and extract the data from them that can then be visualized in the software as a state snapshot.

This is very helpful. I’ve seen some demos of this. That’s very cool technology. As I said they use natural language processing to enhance the OCR. OCR already exists and OCR is not AI but enhancing OCR with natural language processing does more than just convert it but it reads and understands the context so you’ll get better data conversion from it than just a pure OCR. Be able to extract the data from legal documents and matching them to actions. They’ve also trained their machine learning algorithms to detect pages in specific types of documents and then accurately extract the data.

Finally, Snappy Kraken was a surprise guest on the webinar. They had an announcement where they have launched an interface to ChatGPT, where they allow advisors with a number of different screen tools, interact with ChatGPT as you would without having to type in a lot of text based commands. If an advisor using Snappy Kraken, and you’re building a blog post or you’re building a social media post, you can use the tool to say I want a title. I’m talking about retirement for people who live in Maine, is an example and it’ll then generate a bunch of titles from GPT which feeds it right into the interface. You don’t have to move back and forth between different applications.

Then you can say write me a blog post of 500 words that talks about retirement in Maine and is mainly interesting to fly fisherman just making this up. You can put anything you want in and then it’ll then write that pass the data, the ChatGPT pass the data back to you inside the application, so you never need to leave the application. Very cool stuff from Snappy Kraken.

The SEC’s Gensler warns AI risks of financial stability just a quick quote, AI may heighten financial fragility, as it could promote herding with individual actors making similar decisions because they’re getting the same signal from a base model or data aggregator, said the chairman of the SEC in remarks prepared a Monday before the National Press Club, while current model risk management guidance, generally written prior to this new wave of data analytics will need to be updated, it will not be sufficient, said Gary Gensler.

I think they’re just throwing anything out there to make it seem like they understand what’s going on and they’re on top of things but that’s just a silly thing to say that AI could promote herding we already have herding. Anything with the news that’s out any social media driven trend generates herding AI I don’t think is going to change that or cause more or less herding behavior and investors.

6. Advisortech Map & Integration Scores

We’re up to my favorite part of the news. We cover changes to the Advisortech map and updates them in the Ezra Group Wealthtech Integration Score. As you know, these two subjects are linked, because when we add when Michael and I add new features new applications to the Advisortech map, we then score them with the Ezra Group Wealthtech Integration Score. And then those scores get passed back to the Kitces Advisortech Directory. So it’s one big circle, one big happy family here.

In the advisortech map updates that we just made. In July, there’s a new category, specialized planning, equity compensation, and that’s going to have StockOpter and myStockOptions as well as Trayecto specialized planning equity compensation. In case people are wondering how we decide to make new categories, the minimum number of applications we need to make a new category is three. Once three applications come out that don’t fit anywhere, then Michael and I are pretty much going to create a new category like we did for specialized planning equity comp. In case you’re a vendor out there wondering why you’re differentiated application isn’t in a new category. We’re waiting for two more vendors to come out doing the same thing.

We added a bunch of new products, 6 new products were added to the advicetech map this month. I’m just going to quickly review them:

1. Amplify Reviews, it was put into digital marketing, Amplify Reviews is very interesting product. It was founded by serial entrepreneurs who had founded a company that did health care reviews for physicians and that company was very successful, they sold that and they took the same idea now to advisors. It’s compliant online reviews for financial advisors, it’s a way that advisors can send invites to their clients and have them write reviews that then get reviewed by compliance and then can get posted on the website or not. You don’t have to post them if you don’t like them. The advisors are in complete control of those reviews. If you do post them, then Amplify Reviews can manage them on your website, display them and get more reviews. They believe that reviews will soon be a very important part of advisor marketing, Amplify Reviews, and it’s amplified reviews.com. I just mentioned Trayecto, which is for equity compensation. For learn more about their ability to help advisors help their clients with equity compensation issues.
2. The next up is Entole, which is going into the client portal category and centralized command center for advisors to offer their clients. Next up is Income Discovery, which is going into the specialized retirement category, which is a because it’s a retirement income product. Next up Ortec Finance is going into investment analytics. It is as it says analytic tool. They model and map data to goals and decisions. It’s founded by leading experts in econometrics and technology. They have over 600 clients in 20 countries. So they’re a European based company that’s now breaking into the US they have a lot of interesting solutions around asset allocation asset liability management, economic scenario generators, so please check them out.
3. SS&C Genesis. We all know SS&C purchased Advent, so they own Advent APX now, they own Black Diamond, and Genesis is a tool which they’ve had for a while they’ve revamped. It is for portfolio rebalancing. It’s very comprehensive. I recently got a demo of it. And it supports everything you need when it comes to portfolio management and rebalancing. It supports UMA so there’s a lot of capabilities around managing models rebalancing accounts, modern portfolio drift adjusting strategies, they often integrate Genesis with Moxy for trade order management so they often go together.
4. SYSTMwealth.com is a new wealth platform fully integrated platform for advisors. It’s got a client portal it’s got advisor trading rebalancing, a product marketplace, client performance reporting. It’s a very interesting platform. It was built in collaboration between William Blair broker dealer and InvestCloud financial services technology provider as a tool for what we originally thought it was a White Label tool that William Blair was offering to their advisors, but they since let us know that any advisor can sign up for SYSTM that they want to they don’t have to be affiliated with William Blair. SYSTM is going in the all in one category.
5. Blueleaf was added to account aggregation. So Blueleaf is a product that’s been around for a while mainly in performance reporting. But they’ve recently added some capabilities around data aggregation, account aggregation, and we thought they were significant enough to warrant a second logo in the account aggregation category. It’s very rare that we award second logos but we felt based on their capabilities it was warranted.

That’s pretty much a wrap. There haven’t been any changes all those applications will get scored on the Ezra Group Wealthtech Integration Score page which you can check out as a group.com and you can see the scores of those products. If you have a new product that you would like on the advicetech map, please go to Kitces.com and submit your your product there and we will review it hopefully the month after you submit it and see if we can get on to the map.