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Come on in and sit back and relax. You’re listening to Episode 201 of the WealthTech Today podcast. I’m your host, Craig Iskowitz, founder of Ezra Group Consulting. This podcast features interviews, news and analysis on the trends and best practices, all about wealth management technology.
My guest for this episode is one of the most well known leaders in the industry, Steve Lockshin. Steve is a serial entrepreneur in the wealth advisory industry. He’s a principal of RIA AdvicePeriod and co founder of Vanilla, a software platform for estate advisory and that’s what we’ll be talking about today, the estate planning software provider called Vanilla that Steve co founded.
Just give you a little more insight and background on Steve in case you live under a rock and don’t know know him prior to co founding RIA AdvicePeriod in 2013, Steve was chairman of Convergent Wealth Advisors, a company founded in 1994. He later founded CMS Reporting, which was rebranded as Fortigent, a company you might be aware of a leading provider of outsourced wealth management solutions, with more than $35 billion in assets on its platform, which was later acquired by LPL Financial, so you see the pattern here. Steve helped pioneer the independent advisory industry building one of the largest independent RIAs in the nation, Lydian Wealth Management, which was acquired by City National Bank.
Steve is widely known for his contemporary approach to wealth advisory, as well as his estate planning knowledge and is a frequent speaker on both topics. In 2011, Steve was named the number one independent financial adviser in the United States by Barron’s. Steve grew AdvicePeriod to over 5 billion in anyone before it was sold to Mariner Wealth Advisors in 2021.
Now, besides being a number one financial advisor, starting multiple companies, he is also an investor, a savvy investor being an early getting in early on funding of various successful FinTech firms, including Betterment, Quovo, Wealthbox and financial planning vendor Advizr, which was acquired by Orion.
As I mentioned, Steve and I talked about the estate planning software Vanilla, we get off topic a little bit. It’s just hard to resist asking Steve about lots of other things considering his as his breadth and depth experience. But before we get started, if you are an executive at a broker-dealer, enterprise RIA, family office or a TAMPs, your tech debt is holding you back. Your old software platforms are rusty and falling apart and they need either a complete overhaul or to be replaced entirely. Your disparate systems don’t communicate with each other and it’s driving your operations staff and advisors crazy with manual processes and other errors. If this describes your company, you should run, not walk to our website, EzraGroup.com and fill out the Contact Us form on the home page. Our experienced team can evaluate your technology ecosystem, deliver targeted recommendations, optimize your existing systems and operations, or run an RFP or RFI to help you implement new software to help take your firm to the next level. Please subscribe to this show wherever you listen so you don’t miss an episode. Now let’s kick this thing off!
Topics Mentioned
- From Solving a Problem to Starting a Business
- Data and Integration in WealthTech
- Estate Planning Made Simple
- The Vision for Vanilla’s Future
Episode Transcript
Craig: All right. Steve Lockshin, everyone knows who you are. No intros are required. Where are you calling in from, my friend?
Steve: I am in Seattle. My summer place. Stay on the heat.
Craig: That is awesome. Well, I was just talking about how I haven’t got out of New Jersey and it’s always hot. It’s just it’s the worst.
Steve: Well, Florida was a wise choice to escape the heat in the summer.
Craig: Well, we have clients down here, so I’m not coming here for the weather. I’m coming here for the clients. It’s certainly not the place to be. It’s like out of the frying pan in New Jersey into the Florida fire.
Steve: Exactly.
From Solving a Problem to Starting a Business
Craig: But thanks for joining. I would love to talk about Vanilla, among the many companies you’ve started and you’ve talked about why you started Vanilla. My question is, how do you get this kind of company off the ground having an idea that you want to build a firm like this? What goes through your head and how do you actually get that started to launch a company like this?
Steve: This was one of those necessity was another convention. And as you mentioned I’ve talked about before I started to solve a problem we had, I never intended to start a business and I showed it to some of my peers. I’ve got a study group that had Marty Bicknell and Ron Carson and a bunch of other folks, and they were like, well, that’s cool. I’d like that too. At that point I said, all right, why don’t we all fund it and then we can share it, if you will. That went well enough that we’re like, there’s actually a, there, there and I brought in professional, investor in Venrock, and they helped me hire a great CEO. When you say run it, I don’t run anything, I’m like, get hooked up with good people.
Craig: That’s probably the key, just bringing good people, having a good network. I mean, if I had a study group with Ron Carson and Marty Bicknell, that’s a pretty high power study group.
Steve: We have a lot of fun. That’s good group of people. That’s one of the nice things about this industry. I mean, particularly with the larger firms, very collegial. A lot of people should, we don’t compete with one another, so it’s always been a great place to share ideas and try and make each other better.
Craig: That’s one thing I like about the industry, that there isn’t a lot of backstabbing or undercutting. There seems to be a fair amount of everyone realizes, and sometimes we compete. I mean, a lot of my clients on the Fintech side almost compete with their clients and compete with their partners. Everyone’s moving into everyone else’s space. But in the end, it is a small industry and we all have to work together for our mutual clients.
Steve: Agreed. But it’s fun. It’s a fun industry, a little cottage industry.
Craig: It’s a little backwater of financial services that we have found ourselves in. But with Vanilla as it’s grown, it’s already four years old. Where do you see it going and how much direction do you give when obviously you have a CEO there. It’s already being run, but how much interaction do you have and what are some of your thoughts of where you want to bring the company?
Steve: That’s a loaded question. This podcast could get me in trouble because when they hear all the stuff that I say, they’re going to be like, I can’t believe you said that. I definitely have designs. I’m where it goes. Just in a touch on why I’m in Seattle. I live about a half a mile up the lake from the CEO. When I came out to interview him, I fell in love with where he lived. I’m like, all right, well, I’m going to move there. And so that may be a little stalkerish. It got worse when he moved to Arizona in the winter, and now I moved to Arizona. I’m following him around. But, I’m involved.
My title is executive chairman. I don’t have a paid job. I don’t have any people responsibility, but I’m pretty involved in product design, and pushing the things that I think are important. This emanated from something that I thought of and continue to think about. And so we can talk about where it’s going to go, but I have very strong beliefs on what the system can do, not today, but in the future.
Craig: What are some of those beliefs? What do you think the system can do? I mean, you started out more document evaluation, OCR, so that’s for the first step. There’s definitely a need for that. What’s the next steps here? Are we going to a full-fledged estate planning application?
Steve: It started out as a balance sheet, that nobody provided a balance sheet that broke things out. What’s in your estate, what’s out of your estate, what’s Generation-Skipping Trust (GST) exempt versus non-GST-exempt grantor trust, etc. You would get the basic financial planning tools, you could see some stuff that’s in trust, but, and you could see total assets. But you couldn’t see the benefits of moving things from one place to another. That’s what started with, we got into documents because we needed to drive people to use it. We knew there were a lot of people that needed documents, and the other thing that we set out to do, and I think it does very, very well today, is illustrate what someone’s estate looks. It’s very dynamic.
Steve: Instead of a static PowerPoint or Visio illustration, that you might get from an attorney, or from an advisor, it’s a dynamic illustration of your estate. And it goes much deeper. Ultimately, if we get all the way to the end, what I wanted to do is be a place where people in the financial services industry exchange information. Sometime next year in the roadmap, we’ll be able to invite an insurance agent in where they can upload a client’s insurance information, and you can invite the lawyer in where they can upload information if we have otherwise collected it. And all the other folks that play around with the client’s financial circumstances, and because we’ll be giving each of them something back in terms of information, they’ll want to keep things updated. If this goes well, first, it’s an exchange of all this information.
Steve: Everything will be in one place and will be kept contemporary because people want to. Second, all the data that comes out of it will help us automate ideas. It will be able to identify this person’s a public company executive. They’re Section 16, they’ve got a concentrated equity and should be doing a grad, or there’s a disconnect from their gift tax return on their lifetime exemption versus their GST exemption. And we’ve got some non-exempt assets, so to a late allocation and things like that. All the rules that are in, let’s say a great planner’s head will be in the software, and like any robo, it’s always on, it’s unemotional, and it’s looking for opportunities. The whole objective is to make advisors look great.
Craig: I think data is behind a lot of company’s business models. It wasn’t in the past, now we’re seeing the ability of it is more than just the software, more than selling the software, gathering the data and being able to generate insights off that data is much more valuable. Because anybody can build software. But in order to build an application that has the breadth and depth and bring in all that data, and then taking those rules and turning that into software that more advisors or estate planners can then access is the true value.
Steve: I agree but data is the key to everything. I mean, that was always underlying the mentality of starting a company. I think it’s probably one of the things that got Insight Partners interested was the fact that if this went well, we would have so much data and all the things that we could do with it. Then once all that data is in the system would become very, very sticky because nobody wants to go through this again, getting all the information in one place.
But we didn’t want to build pipes like the aggregators did. We’d rather just use other aggregation tools. We basically connected to all the PFMs. Whether it’s Black Diamond. All that information flows into the system, and then, as I mentioned, you could ultimately collect the stuff that doesn’t flow through there directly from the sources.
Data and Integration in WealthTech
Craig: Something we love here at Ezra Group is data and integrations. We saw a big need for more transparency around integrations, and we launched a Wealthtech Integration Score research to be able to highlight how different applications integrate. Maybe we can talk a little bit more about that when you were building out those connections to PFMs, is that just the first step or will there be other integrations down the road?
Steve: There’s going to be a lot more integrations. If you think the Plaid, Yodlee, things like Salesforce. Mentally, I share your philosophy around data. You should share everything. I want APIs on both ends of this so that ultimately anybody who wants to push data or pull data from the system can, and so that it becomes integral to any partner solutions, particularly when you get to the enterprises. They have their own data solutions that have lots of very different complex endpoints, and we need to give them the flexibility to build into our system, otherwise we’re going to go crazy trying to build to their system. I’m all for the free flow of data and I think the days of withholding data are going to be short for most folks.
Craig: We can only hope that those days are gone. We do spend a lot of time trying to encourage companies to share more. Part of our integration scoring requires gathering this data about their APIs, about who they integrate with. And a lot of it’s very opaque. Trying to bring more transparency, so we applaud more transparency in the industry.
Steve: I think it benefits everybody, but remember, this is an industry that benefits from slow advancement. I think you see that across the board with certain software providers, custodians, etc. I don’t know if it helps them, if everyone’s got access to all this data and the ability to set up accounts quickly. That’s part of what we’re fighting with that information. Some of it’s just the complexity of all the system. I remember the first integration we built, they’re gone now with Legg Mason, years ago when we built our first performance system, this has to be 1995. I think they had 11 ways of saying cash. They had 11 different inputs for cash, and that was just cash, so just imagine how hard it was for everything else. I don’t know if it’s gotten any better.
Craig: In some ways yes, in some ways, no. Right there, there’s still those types of issues especially in bringing multiple platforms, multiple data providers, multiple custodians, everyone runs into those issues that you’ve got to normalize the data in effect to roll this up,
Steve: I’m starting to see a lot of folks creating, I can’t say if I’ve seen it successfully yet, but a lot of folks creating data lakes and trying to normalize the data and putting their full end on it. That may be the next iteration of what this looks like, I hope so. But it would be great if there was great middleware to normalize data so folks could do more with it. Because ultimately, I believe it trickles down to the economy. If we do well for consumers, they save more, there’s more money in the system. I think it helps us not to get on a soapbox, but as Americans basically and so I do hope that’s where we go.
Craig: There is a movement in some firms to do that. We are seeing some larger companies do that. I believe Carson Group, your friend Ron Carson, I believe they’ve got a data lake. You need to be at that level to build it out and manage it. That’s, I think the future at some point. Because if you think about it, one of my pet peeves is that all of the data is locked in the applications. And you happen to mention because your application becomes sticky because you have the data. But my point of view is that the data belongs to the client, but they don’t have any way to store it, so the financial planning data is in financial planning tools.
Craig: The CRM data is in the CRM tools. The portfolio management data is in the portfolio management system, and it’s very difficult to bring those all together in a third party system to a Tableau or something. It’s on top of all that, rather than if they own the data, they had a data lake. Now a data lake itself isn’t normalized. That’s not what a data lake is. But to bring in all these different types of data, and then you would feed it back into the CRM and you would feed it back into the performance reporting tool. So that the wealth manager firm itself would own that data. If they want to replace their estate planning tool or something else, they just plug it in, because they control that. But right now we’re way far away from that type of utopia.
Steve: Well, you’re describing exactly what I believe it is and that’s why I said the folks that are protectionists, I think are going to run out of runway on that. But I actually think goes one step further. I think the consumer should be able to tokenize their data and literally be able to turn off and on who gets to see it. Here’s everything about me. Here’s all the data that’s tied to me, and now I’m going to give it to Craig’s firm. I don’t want to give it to Craig’s firm anymore, I’m going to turn it off and I’m going to give it to Jimmy’s firm and whatever it’s going to be. That’s what I think the real future of data is. Whether it’s blockchain or some future derivative, that’s how we protect it. But I should be able to carry my medical records, my financial data, everything around with me in the cloud in a token.
Craig: There’s pros and cons in that. Once all your data is being carried around, anybody can just grab it if you’re not careful with it. Most consumers aren’t as sophisticated enough to know who they’re turning their data on and off for now because they’re so used to just giving it to everyone.
Steve: Well, how they penetrate the data versus what they have. I’m a big believer, if my stuff’s on the dark web like everybody else’s. If somebody wants to know my social security number and all that, it’s out there. You got to hop off the grid if you want to protect all that stuff. Hopefully the institutions are doing a good job of protecting money flow, but it still requires a phone call to verify the instructions for wires, etc. We got a long way to go.
Craig: Are you working with any companies that are looking to do this on for financial data?
Steve: No, there’s no one that I’ve seen. I mean, my original investment in Quovo, which became Plaid, was hoping that they would head down that path, but ultimately they integrated into Plaid. It was a great investment but Plaid’s still in the business of identification and sharing a data. But they certainly could go in that direction, which would be great.
Craig: Because it seems like it would be beneficial to consumers if they had that. If it was easy to use your smartphone is easy like it’s an app. Here’s my data, now I’m going to give it a chase, now I’m going to give it to JP Morgan, and now I’m turning it off, because I’m not working with them anymore. It was just that easy. It was iPhone easy. Then that would be something that would empower them, and that would mean, do you think it would be related to the way the EU is doing their privacy where consumers data has to move and data has to be owned by the consumers?
Steve: That’s what I believe. It is my data. I think my account at pick your institution should be my data. It’s not their data. I should be able to decide where and how I share it. I think in the aggregation wars that’s effectively already happened, whether you’re scraping or there’s direct pipe to it. But I do think there needs to be a data evolution, and I always say there needs to be an intersection of digestibility and accessibility in order for it to be a successful product as you said. It needs to be the iPhone. You don’t need an instruction manual. It needs to be very intuitive and very, very easy to access, but safe.
Craig: That’s a great statement. The intersection of digestibility and accessibility.
Steve: And that’s what we’re trying to do with Vanilla is, if you can make complex things simple, I think Steve Jobs made a comment about this years ago, then you can take over the world. I think in our space, there’s a whole lot — and I don’t mean just Vanilla space in the wealth advisory space, there’s a whole segment of advisors that I think very purposefully make things unnecessarily complex because it keeps them in their role. And I believe it should be the opposite, that if we are good and confident in what we do and add value in the right places, then we’ll make it exceptionally simple. That’s what we try to do with the product. Estate planning is one of those things you go see an attorney, you sit there for a few hours, have a conversation, they throw out some acronyms, you have no idea what they mean.
Steve: You may have some cursory understanding, you leave, you don’t hear from them for months, and then you’re supposed to read 800 pages of documents and figure this out. The diagrams don’t make any sense if you don’t know what you’re looking at. Even if you do know what you’re looking at, they don’t always make sense. There’s a way to make this simple, and that’s what we’ve tried to do, where you can click on something and see all the key things you need to see, but you don’t have to have it all vomited on you at one time in one place. Ironically, when we go show, let’s say some of the current practitioners, what we do, they are still stuck in the past. I want to see everything in one. I need to see everything.
Show me who the trustee is, show me who the co-trustee is, show me what stage, show me this, that and you end up having something this big that could be one line and you should click through to just like a performance report. Tell me what my total return is, then give me the ability to drill down if I want to see more. But not everybody wants to see the micro, so don’t force the micro upon the consumer. You need to know your audience and give them the ability to go up and down. Once they trust what you’ve given them is high quality, they’ll find their center point of complexity.
Craig: I get a lot of demos of new products, as you can imagine. It’s a couple a week and I can’t tell you how many products come in, and they’re so complex. The interface are so overly and I have a degree in computer science, I love gadgets and technology, and even for me, it’s overly complex. I’m like, where do I start? You want what you expected, this is a B2B C play. You want in and investors to operate this? Well, we were looking for data junkies. It’s only a small percentage of the consumers who are data junkies. If you want to grow this to a big business, it’s got to be simple. It’s got to be; can I retire? Where’s my money? I’m done. You want to say, well, I’ve got 600 categories, no one’s going to wave through all that.
Steve: I agree. As my dad always said, he said, I’ll pay extra for people not to show up. I hate these meetings. But I’m an English major, so it has to be simple for me. But it needs to be digestible. Like I said, it was one of the things attracted me to Betterment originally was they made it simple. It is the iPhone. You should not need an instruction manual for anything today.
Craig: That is a good it’s a good recommendation if you need it. If you need instruction manual, it’s too complicated.
Steve: Your product’s doomed if it needs an instruction manual.
Estate Planning Made Simple
Craig: I want to go back to something you said earlier about the data and data being the key. Do you see the Vanilla being more like an automated tool that’s going to be providing advice? Any of the 80-20 rule that 80% of the advice around an estate plan is pretty much boilerplate or very common across consumers or investors. It’s the 20% that we require an estate planning expert. Would the software provide that advice or is that something you’re leaving for the estate planners?
Steve: No, in my version of the future, and I don’t have sole decision rights on this, the product both serves the consumer and the advisor. For the advisor, it suggests something for the client. Let’s say Craig, it sees in your plan that you should do something. It notifies the advisor first. If the advisor doesn’t do it, which unfortunately is what happens with a lot of advisors today. It’s not in their tool set emotionally or in intellectually, so they ignore it. It should notify you as the consumer so that that opportunity isn’t missed. I think that’s what happens today. If you’re an advisor that likes to focus on investments or you like to focus on insurance, you may have data that allows you to do a great job in other parts of that financial plan.
Steve: But because it’s not where you’re interested in focusing, you just ignore it. Well, the computer shouldn’t ignore it. The computer should identify the opportunity and give the advisor the chance to be the hero. If the advisor’s too lazy to be the hero, then it should give the client the opportunities to succeed. Not everything is black and white. You can certainly tell someone from a economic perspective if it makes sense, but sometimes there’s emotional decisions to go along with things. That’s where, at least today I think the advisor is going to play an important role. But long term, I think the computers are going to take that away as well.
Craig: It’s a never ending story where technology’s going to keep pushing everyone up the food chain. No matter what industry you’re in, technology is constantly creeping up and taking over more mundane tasks and more things that were manual and automating things that at some point you thought was your value added, but now it’s no longer your value added because it’s automated. Whether it’s building, we still pay 150 basis points to an advisor to build a basket of ETFs. That seemed perfectly normal, but then we don’t have to do that because Betterment came along and Wealthfront came along and they could do it for 30 basis points. Some either advisors went out of business, they retired, or they moved up the food chain, they started doing more valuable stuff.
Do you see Vanilla pushing advisors to do more stuff? Because now you don’t have to do the balance sheet anymore. You don’t have to do these estate plan diagram. We don’t have to identify planning opportunities. We’re going to automatically generate this stuff. What else can advisors do on top of this to be more value added?
Steve: I have to ask you a question to answer your question is over what timeframe? Because what I think is going to happen in five years versus 10 years versus 20 years is very, very different. We’re still in an industry where, there isn’t a great correlation between cost and quality. It’s still sold to a person and if they see the value, they pay it. But there are lots of great advisors that, in fact, the story I’ll tell you is one of my first clients way back when I started in 1994, we started doing performance analysis for folks. We’d go in, we’d collect three years’ worth of statements and we’d do a performance analysis and tell them where their asset allocation was off or their managers weren’t doing well.
Steve: One of the clients says, this is great because I got an advisor that I can’t stand and I want to fire him and I need a reason. I got an advisor I like and I want to move everything to that advisor. We did the analysis and I said, well, Eddie, I got good news and bad news. He says, what is it? Said, good news is we got all the data, we did the analysis. The bad news is the guy you like is screwing you. The guy you don’t like is doing a great job. I think what’s going to happen is this is going to go from an industry where anybody can get into it, and you don’t have to have a lot of expertise other than being a salesperson. And it’s going to make us better, which I think is long, long overdue.
Steve: I mean, any idiot can get into our industry and take a Series 65. Whereas if you want to practice law or drive a truck, or be a doctor, you have to get a different license and have continuing education, etc. I think it’s going to push requirements up. I think software is going to alleviate, as you said, basic things, but more importantly, is going to push advisors to be smarter in different areas because they’re not going to get the chance to ignore things that they otherwise might ignore. But longer term, I think the marketplace is going to narrow because tech is going to do a lot more, and the folks who are coasting by and getting paid very well to do very little, other than make people feel good those folks are probably going to fall away.
Steve: Because software’s going to do that. I mean, just look at, I think in seven years ago I did a talk for Vanguard and I was going over Google Duo, which was already talking like people. I mean, so how long is it until between the LLMs and the technology that’s corresponding with us, which today is doing a better job than a client and it’s completely unemotional. But can detect how you’re feeling because your smartwatch is registering your heartbeat and how much you’re sweating and how you feel as the market goes up and down. That kind of data is going to dramatically change what we do for our client.
The Vision for Vanilla’s Future
Craig: The follow up question to the data is, will you be using artificial intelligence at Vanilla to do these things? Do you have any designs on that? Are you looking at using, I’m not sure what generative AI can do when it comes to an estate plan yet, but do you have any things that are in the works for that?
Steve: We already are testing, so the ingestion of documents and abstraction of those documents we’ve already built a called V1’s we’re not using until we get to pretty close to a hundred percent accuracy, and we’re in the 90% range right now. Every lawyer has their own form. There is very little uniformity, and then you don’t always get a readable documents and I have to have high quality OCR that goes along with this. That’s the stuff that we’re working on. Taking the abstraction that might take an hour down to 10 minutes, let’s say is our first order, but if we can take it down to 10 seconds or a fraction of a second, that’s even better. And these are all things that will reduce the costs increase the pace at which advisors can serve clients. If you look at the institutions and the millions of customers they serve, it will help them first and foremost. Whereas an advisor can get through their client less than a year if they want to.
Craig: You see estate planning in being more, I hate this term, democratized with software like Vanilla. There was a recent survey, Michael Kitces, his recent biannual tech survey estate planning amongst independent advisors has hit 35% adoption rate. So there’s still a lot of greenfield there. I’m sure it’s probably something similar in other areas for advisors as well. Do you see the same thing, do you see the same growth rate in estate planning and is that where Vanilla is targeting?
Steve: Yes. You started out mentioning docs. We actually took docs off the shelf from all to rebuild it based on all the things that we learned in the first round of docs and we’re about to roll out. It’s being tested right now by a bunch of clients. A computer driven document only. If you think trust and will, but I’ll just say, because I think they do a very nice job. We started with a very high end document and descaled it for under 5 million clients. That is the hardest thing to do once we’ve successfully done that. Adding in irrevocable documents and things like that is going to be much, much easier for clients and lawyers alike. I do think it’s going to get democratized. What I hope happens is it becomes simplified where there’s common phrases and common language. If our business is a cottage industry, I think the legal business is two generations removed from that prehistoric if you’ll. There needs to be some uniformity so that everything doesn’t have to be redone, if you switch attorneys, which is pretty much the case today.
Craig: Attorneys have their own stickiness, don’t they?
Steve: They do. Again, there’s no penalty for being slow as an attorney. Today, if I go across the top firms that we work with and I just say, I need a set of core documents for a wealthy client, just basic core documents, it ranges from 4,000 to 25,000 for the exact same thing. It doesn’t make any sense. But they can charge whatever they can charge because their clients are willing to pay it, and that’s the reputation that they built or the process that they’ve gone through. And I think that needs to be significantly compressed, and that’s what tech can do.
Craig: Amen. We want to see that happen here. Well, Steve, we’ve run out of time. Where can people find out more about Vanilla?
Steve: Justvanilla.com is the website and hopefully they’ll hear about it from their peers if they haven’t already.
Craig: Absolutely. Steve, thanks much for being here, man. Really appreciate it.
Steve: Thanks. It was fun.
