Ep. 221: The Breakaway Blueprint with John Milne, Black Diamond

Come on in and sit back and relax. You’re listening to Episode 221 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.  

This episode is part of our series for breakaway advisors, where we highlight technology that we have found in our experience is quite valuable to firms in that state that either are considering breaking away or have recently broken away or looking to build out a premium tech stack, but not at premium prices that can help scale their business as they grow.

Today we are interviewing John Milne from SS&C Black Diamond, one of the top providers of technology in the RIA space. According to Kitces 2023 tech survey in the performance reporting category, Black Diamond is currently third with a 9% market share behind Envestnet Tamarac at 11% and Orion 20%. In the portfolio management category. Black Diamond is at 6%, with Orion at 10%, iRebal at 11% and Tamarac at 12%.

Black Diamond has been around for quite some time. The company was launched in 2005 by CEO and founder Reed Colley as mainly performance reporting. That was their primary purpose. That’s really all they did. In 2009. They launched a client portal in 2010, the mobile app. We were working with a number of clients that were very happy with with Black Diamond at the time and their biggest competitor in the space for the under a billion dollar RIA space was Advent Axys. Black Diamond was really eating their lunch, as we say, for a while. A lot of it was because Axys was an older platform. It wasn’t cloud based it was a local installation, didn’t really even have a database, believe it or not, it was file based meaning that there are hundreds and hundreds of files in a directory. And that’s how it managed the data. There was no actual relational database behind access.

So Black Diamond was a breath of fresh air a lot of small RIAs and medium sized always moving on to it. And according to analysts, and according to a lot of people in the industry around the time around 2011 when Advent acquired Black Diamond in a deal, which was $73 million in now seems like a steal, that Advent had been focusing more on much larger clients, hedge fund and asset management firms and their average client was around 3 billion while the average lifetime to clients were around 200 million. So lifetime was like cleaning up with the smaller or fifth one midsize smaller would be 10,000,200 to 500 million is a midsize RIAs. So Advent decided to buy them. They just took them out fortunately kept the product rather than just shutting down the platform which we’ve seen Advent do before. Fortunately, they kept it which was smart. Things have changed a lot since then.

Advent was themselves acquired by SS&C in 2015. Peter Hess was the president of Advent at the time. He’s now president of mid-market division at InvestCloud. Reed Colley, who I mentioned was the founder and CEO of Black Diamond is now the founder and CEO, the co founder and CEO of Summit Wealth Systems. In 2011, when the Advent deal occurred Dave Welling was Black Diamonds Chief Solutions Officer and Dave is now CEO at mega RIA Mercer Advisors. My how things change.

Black Diamond has come out with some new features or functionality has been expanding their capabilities over the years from just performance reporting into basically a full featured wealth platform in 2016. They launched what they’re calling their third generation Black Diamond wealth platform. In 2018, they launched their own portfolio, rebalance her and a new client experience that was a big, big change a bigger enhancement for their platform was having their own rebalance rather than having to integrate with others.

And in 2019 they hit a trillion in AUA assets under advisement so includes reporting and billing, and others. Of course, they’re not an AUM firm, they’re a tech firm and 2022, just three years later, they hit 2 trillion and AUA on the platform. So congrats to Black Diamond. This is why we are covering them today. And if you want to learn more information about the firm and their technology, go to BlackDiamond.advent.com.

But before we get started, let’s talk about tech stacks. At Ezra Group, we’ve seen tech stacks of hundreds of RIAs and let me tell you, most of them are loaded down with tech debt. So you shouldn’t feel too bad about yours. But let’s face it tech debt is like a giant anchor, holding back your business growth. If you want to free your firm for exponential growth, you should run, not walk to our website EzraGroup.com and fill out the Contact Us form. Our experienced team can evaluate your current tech ecosystem, deliver targeted recommendations, optimize your existing systems and operations or run an RFP and help you implement new software to take your firm to the next level. You can take advantage of our free consultation offer by going to EzraGroup.com.

Topics Mentioned

  • Evolution into a Wealth Platform
  • Scalability and Customization of the Rebalancer
  • Tax Management
  • Client Portal Features and User Experience
  • Developer Portal and APIs

Episode Transcript

Craig: Next up on the program, I’m proud to introduce John Milne, VP of Product at Black Diamond. John, welcome!

John: Thank you for having me.

Craig: I’m glad you could make it. You are our first guest in our new series on breakaway advisors. We’re talking to some of the leading vendors in our space about how their tools and technology help breakaway advisors launch their businesses, grow their businesses, and move off the breakaway status to the full, “Hey, we’re no longer breakaway; we’re a full RIA now.” We’re talking to firms like yours and Black Diamond is first up. I’m happy that you’re here on the program. Where are you calling in from, John?

John: Jacksonville, Florida. It’s technically winter here, but I’m sure there are a lot of people who may have a different opinion of what winter usually means.

Craig: It certainly is. I’m in New Jersey and it’s 30 degrees. I don’t want to hear anything from you about how it’s in the 60s and you’re freezing.

John: I’ll keep my lips sealed.

Evolution into a Wealth Platform

Craig: Yes, please. Can you give us a 30-second elevator pitch for Black Diamond?

John: Yes. Black Diamond started as a reporting system. It’s evolved into a broader wealth platform focused on enriching the relationship between advisor and investor and hopefully helping advisory firms scale as they continue to grow. It has capabilities ranging from rebalancing and trading to outsourced data reconciliation, client billing, and client portal. The list of functions has continued to grow over the years, but we’re there to enable advisory firms to grow their practice, bring on new clients, and provide as great a service as they possibly can to those end investors.

Craig: It’s all about great service, John, that everyone’s trying to do. I’ve been using Black Diamond for many years. My clients have been using Black Diamond. I was there when it was just a portfolio reporting tool a long, long time ago. It’s been impressive to see how it’s been built out and expanded, especially since the acquisition by Advent and then Advent’s acquisition by SS&C. Some firms might get lost in the shuffle, but I’m happy to say that SS&C helped put some money into Black Diamond and built it into one of the leading providers in our space, which is why you’re here.

John: Yes. It’s been fun. I’ve been through both acquisitions. It started back in 2010. I started when it was just that reporting system, so it’s come a long way. And it’s different growing pains and different problems to solve over the years. But I think the Advent acquisition and the SS&C acquisition have both been catalysts for the Black Diamond team, and it’s been fun to see what it’s evolved into over the years.

Craig: We’re going to cover three areas of the Black Diamond platform that I think would be most interesting to breakaway RIAs: 1) The rebalancer 2) the client portal, and 3) integrations. And then maybe you’ll touch on data recon if we have some time to do that. Let’s start with the rebalancer. How does the portfolio rebalancer help breakaway RIAs scale and grow their businesses?

John: The rebalancer is very near and dear to my heart. I was on the project to help spearhead what was [done] probably five or six years ago. For a while, we had a rebalancer. It was probably more aimed at being a substitute for Excel. I feel like there are a lot of firms that are probably still using that as their primary rebalancing tool.

John: I think the problem arises when you try to leverage that toolset at scale. When we thought about our next iteration of the rebalancer, it came down to two core tenets. I think one was that scale—the customization per client—the ability to use this as a tool that allows you to manage your clients’ investments across dozens of clients, hundreds of clients, and thousands of clients. It needed to be built in a way that could support that scale but also still provide the same user experience that we firmly believe in throughout the rest of the application.

John: The experience the end investor has within the portal should not be wildly different than the advisor logging into the rebalancer to review their client accounts or their client portfolios. I think [it’s about] building that rebalancer in a way that can offer that scale, but also still have the customization that advisors need to service those clients, whether it be cash management or tax management—all those nuances that come with the different flavors that people want to implement within their client portfolios—and then still having it be a tool that you enjoy coming into day in and day out and doesn’t require months worth of training that you can pick it up and go.

Craig: That would be unusual—a rebalancer that doesn’t require months of training.

John: That’s our goal. Sometimes it still takes that long, but for firms that are ready, we can get them up to speed in a matter of days or weeks. That was always one of our core philosophies: We want it to be easy to use but powerful when it needs to be powerful.

Scalability and Customization of the Rebalancer

Craig: How does the orchestration process or orchestration layer work in the rebalancer?

John: We touched a little bit earlier about scale and how we achieve that scale. The orchestration allowed us to maybe segment the different stages of the rebalancing process. I think one of the decisions we made early on was that with Black Diamond being this portfolio management and portfolio reporting system, we already had a lot of the core data needed for the rebalancer to function, whether it’s accounts, households, or tax lots. All of that was readily available. But that’s still where we’ve seen the biggest bottleneck: How do we consume this data in a way that allows us to scale horizontally?

John: The first part of that orchestration is to retrieve all the data that we need to effectively rebalance. It’s gathering all those client accounts, all the tax lots, and all the rules and settings. It packages that up into the next stage [where] you have all your data available; we’re now going to ship you off to that core rebalancing engine. I will borrow from [how] our engineers describe it: You want that rebalancer to not be stupid, but it should take inputs and generate outputs. As much of that as we can frontload with that initial staging process, the rebalancer knows how to do certain things based on a certain subset of rules. That’s all it’s responsible for doing, and then these settings can be applied on top of it.

John: Last but not least, it’s that trading portion. Once it’s gone through the staging and the rebalancing, it can now be shipped off for the trading process. Being part of the broader SS&C family, they have their own fixed network, which has been nice to be able to tap into.

John: Those are the core tenets of the rebalancing lifecycle. Each of those is able to scale as needed. If there’s a large movement in the market and we have hundreds of clients trying to rebalance or get off of a security at the same time, our system isn’t going to come to a screeching halt. We can scale that up as needed because each of those bespoke areas is treated uniquely and is set up to scale as usage can spike.

Tax Management

Craig: One of the areas that a lot of rebalancers have trouble with is tax management. We classify a couple of different levels of that. One is being tax-aware through simple stuff like avoiding short-term capital gains or wash sale violations. But when it gets to tax-loss harvesting, things get more complicated. And more advanced tax management is something some rebalancers just don’t do very well. How did Black Diamond attack this problem to deliver strong tax management capabilities?

John: I think tax management is probably one of the premier functions advisors can provide. I think it probably starts with just needing clean data around the tax lots themselves. If you don’t have that, then everything downstream is just going to fall apart. The focus that we put on getting this data into our system as quickly and cleanly as possible is paramount. I think the ability to synchronize that data from the custodians has been a big lift to make that possible.

John: The second part is that it’s one database for Black Diamond. As that data becomes available, we can immediately begin running any test across that data. As our reconciliation process finishes, we’re scanning for drift, we’re scanning for cash, and most importantly, we’re looking for those harvesting opportunities [with] whatever threshold the client decides on, if it’s 10% or 20%, or some variability with that. And what we’re currently working on is expanding that customization as well. If you have different tolerances for certain asset classes—equities versus income—you can dictate that to the system. You can dictate which securities you want to swap into and make that as automated as you can, still meeting the review before it gets set out to execute. But we want to do as much of the work upfront as possible so that it then just becomes a review process for the advisor that they can tweak and easily adjust.

John: I think the other piece we’ve learned is that it’s part science and part art when it comes to rebalancing. The engine can do what it wants to, but the advisor is always going to want to tweak and adjust to make sure that we’re giving them the information they need to make the most informed decision possible. It’s been an ongoing investment for us, but something that we want to be at the forefront of [in terms of] tax management capabilities for advisors.

Client Portal Features and User Experience

Craig: That leads me into our next topic, which is the client portal. You mentioned clean data, tax management, and orchestration. Nothing speaks about orchestration as much as a client portal where you’re orchestrating a lot of data from a lot of different sources and presenting it in a way that’s understandable to a wide range of clients. All of our clients who are using Black Diamond love the portal. Can you talk about some of the areas that you feel are its strengths and how you built them to be as they are?

John: Yes. The client portal, I would say, is always something that we’ve hung our hat on. At Black Diamond, I think it’s always been at the forefront of where we see our value proposition and where technology can come into play. Gosh, it’s probably 11 or 12 years ago; I think we were the first ones with an iPad app before it was the standard in the marketplace. I think when we think about the experience we want to give to the end investor, it’s being frank and knowing that they probably have a bunch of different portals that they’re logging into—whether it’s the custodial platform, whether maybe the firm has their own set, maybe they’re using Mint.com. There’s this proliferation of portals. And I think the one thing we knew we needed to do was become that financial hub for the investor so that they could come in and there’s one consolidated view of everything that impacts their financial lives.

John: The core reporting and accounting data—your performance, your allocation—have been Black Diamond’s bread and butter for the longest time. Where we’ve expanded those capabilities is pulling in statements from custodial partners so you don’t have to go to Schwab, Fidelity, or Pershing to retrieve those statements—those are within the same portal—document vault, which we’ve had for probably five or six years so that the firm can share documents easily back and forth with the end client. We have a relationship timeline, which is more of a communication tool from advisor to client. It’s about trying to build out those capabilities to where it is that one-stop shop for the client.

John: The experience around that is that you want that to feel like a modern solution and you want it to feel like something that the advisor is proud to put in front of a client. That’s why it’s always something that will probably be our biggest investment area to keep up the look and feel. Mobile has been a key component of that and we’re making sure that the mobile experience is on par with what we’re offering on the web. It became a focus of ours and will probably be for as long as I’m around here.

Craig: It is terrific. It’s one of the features that I know our RIA clients love to talk about—how much they like it. What’s the relationship timeline and how does that help advisors understand what their clients are doing and how they’re interacting with them?

John: Yes. I think the idea came about with the advent of the robo-advisor. Maybe [there was] the fear—that may have put into the system when those were starting to gain traction—of: How do we remind the client of all the great things that the advisor does for them? And maybe there are things that they never see or that you just forget; it’s just human nature. The relationship timeline is meant to be an artifact so that they can go back and see this recap of the meeting we had. Or, coming out of that meeting, these are the things I’m responsible for, and you’re responsible for—to mimic that social type of interaction where an advisor and investor can comment back and forth—or if there need to be additional people added to this comment, you can do that. [It’s about] trying to personalize it a little bit.

John: I think when you’re looking at performance numbers all day, allocation numbers, and tax lots, it can get very cold and quantitative. We wanted to bring a little bit more of that humanization aspect to it and remind the investors that the human aspect cannot be understated, that they know you as a client, and they know it’s important to you. Yes, investment management is a big part of that relationship, but it’s not the only thing. We’re always trying to reiterate that, drive that point home, and allow advisors to provide the level of service that their clients are ultimately expecting.

Craig: Besides the relationship timeline and the document vault, what other tools are available in the Black Diamond client portal?

John: I think the reporting aspect has probably been one that’s always been key. I think the other one that has been at the forefront of our minds for a while is investor aggregation. How can advisors get that complete balance sheet view and get those held-away accounts that they may not always see? I think that’s something that’s been built natively into the portal. We’re also looking at, I think, the experience that the client has; how do we mimic that for the advisor to make it easier to get the oversight and some of the maintenance-type workflows that they need? Whether it’s a client getting locked out of the portal or a client asking a question, can the advisor easily answer that via web? Can the advisor easily answer that via the mobile app? We’re trying to also step up the capabilities of not just the experience the investor has, but also: How can the advisor more easily interact with that client on the go? We’re trying to round out that story as well.

Craig: Everyone’s on the go, man. No one’s stopping. You’ve got to have everything at your fingertips in all shapes and sizes, in all ways and forms—form factors. Do you have any data on how many clients are using the mobile app versus the web?

John: The mobile app, I think from a pure login standpoint—and I can get this just to confirm; I’m not making up numbers—it’s about 50-50. One of the decisions we made probably three or four years ago was to invest in a solution called Pendo, which is our analytics platform. We’re able to see not only what devices clients are logging in from, [but also] what browsers they’re using. We can see their actual lifecycle once they’re logged in. We can see their natural navigation patterns, which has informed how we’ve built a lot of the portal as well. [For example]: “We know that 90% of the time they’re logging in and immediately going to the home page or their accounts page. Maybe that should be our default.” We’ve used that toolset to just gather more data on how those users are using the platform.

John: But I think from what we’ve seen, it’s still probably about 50-50. But I think the adoption we’ve seen from firms effectively wanting a white-label version of the application, which we do offer, is the Black Diamond app underneath, but you can have it with your branding. They can look for your firm in the App Store. We do offer that and allow for that firm to have their specific look and feel on it as well.

Craig: It’s important to know where they go through your environment, what they’re clicking on, and how they go from the dashboard to reports to details to see their path through the system. Are there any big changes you made to the portal based on the analytics you received from users?

John: We had this home page experience, but we did see people log in and be directed to the home page, and then 80–90% would navigate to their account list. They just wanted to see their balances. They just wanted to see how they were doing. We probably made a few decisions. One allowed optionality for the investor to choose where their landing page was. If they always wanted to go there, let’s let them do that, and we can navigate them directly. We also brought some of that information forward to that home experience as well. If they’re always going to try to see this data, that’s something important that we should surface more readily. It’s helped us figure out: Why are people going an undesired way? We’ve had to change some of our workflows or maybe call out how we ultimately designed them. But ultimately, [inaudible] usually don’t work out that way. It’s usually been that.

John: I think that for new features, it’s been immensely valuable where: “Are we getting the adoption we want? Are people not able to find it?”—which probably happens more often than we’d like to admit. And that was the other part that we got with Pendo: They have this guide functionality. As we push out new functionality, we can effectively alert them via the platform that “This new piece of functionality is available” or “Here’s how you get to this.” And we can help with that adoption with a third-party tool. It’s very easy for our team to spin those up. I think just by seeing where behavior may deviate from what we expect, we’ve been able to have a variety of tools that allow us to course correct pretty quickly.

Developer Portal and APIs

Craig: That’s the important part: How fast do you change? How fast do you adjust? That’s the name of the game. The last area I want to touch on before we go is integrations. Talk about the integrations, because they’re very important to our clients. It’s one of the reasons why, at Ezra Group, we launched our Ezra Group WealthTech Integration Score, which Black Diamond scores very high on. Can you talk about your approach to integrations and some of the underlying technology that you’ve done and that they’ve used to make them work as well as they do?

John: Yes. And when we think about integration, there are maybe two different ways: There’s data coming in and data coming out. If you think of integration that way, I think from a data-in standpoint, that’s your standard data network and feed from custodians. How do we consume CRM data? Pulling that from Salesforce and pulling that from other CRM providers out there is where these truths should be. We want to make sure we have an input mechanism for all of these. Whether flat file or API-based, we want to be as flexible as we can be.

John: And then, when it comes to data out, I think that’s just as important to us. As we’re becoming that central hub of data for a lot of our clients, how easy is it for us to either get that data to other third-party vendors, [such as] planning systems? Or if you’re not using our rebalancer, how do you get that data into the rebalancer as quickly as possible?

John: We do have a developer portal that’s hosted on Azure. But that dictates that these are all the various APIs we make available. A lot of the core data accounts, households, tax lots, and transactions are readily available to feed those other systems. And then, from all those same APIs, it’s what we consider maintenance APIs. If you do have that technical acumen and you want to automate a lot of your processes, streamlining or automating the creation of a new client household—maybe as they go from prospect to client—how do you configure them within Black Diamond? All of that can be automated effectively through APIs.

John: Effectively, what we’re consuming internally, we can expose externally to clients as well. Our team here wants to help walk you through how best to use them and the right way to use them. I think the biggest trend we’ve seen over the past year or two is just the growth of advisory firms, having more of those development or engineering capabilities to get the value and scale that they need out of the platforms and getting these disparate systems to talk together and work together in ways that may not happen natively. I think that’s an area that has been a big growth area for us and will continue to be a big area for us as we move into next year and beyond.

Craig: When you talk about the developer portal, how do you see that operating and how much support do you guys provide to that? How often is it used? How many APIs are being accessed? Do you have tracking on that data?

John: We do. I’ll probably need to get some of the metrics to share back with you. But I think that the big piece the portal gives is the metrics and insight into what’s being used. I think the heaviest adoption is accounts, positions, households, and transactions—a lot of that core reporting data that we can aggregate for firms. They’re using us to then get that back out of the system. But the hope with the developer portal is that any engineer could log in there and it’s a self-guided experience where if I need to get transactions, this is how I get them. These are the data mappings, which I think is probably the biggest part and where we have to spend the most time from a support or walking through [standpoint] is the language translation of “This is what we consider account for us,” what client considers account or “You’re looking for this entity and this is what we call it in Black Diamond.” A lot of it is just a translation game. We tried to put as much of that documentation at the forefront, but inevitably questions still arise.

John: We’ve always believed in the power of service and we view our clients as partners. If you have questions or need clarification on something, our team is always available to answer them. We have specialized service teams who can help walk you through getting set up on the API, setting up SSO, or any of those tier-one types of support. But we also have easy access to our product and development teams if there’s more advanced troubleshooting where these deep dive into exactly how I should be requesting this data and giving the best practices. It’s an area we need to expand on and have more of those workflows to help guide people on how to use them in the most efficient way or the most desired way for both of our sides. I think as more questions come up, the first thing we do is add them to our developer portal so that hopefully they’ll head off any more similar questions like that.

Craig: One thing you mentioned was that you were taking the APIs you consumed internally and exposing them through your portals. That’s what we call eating your own dog food. You’re not just building APIs for external use; you’re using them for your own products and then sharing them. They’re well tested, they’re well utilized, and they’re well documented. To me, that’s a huge benefit and shows that you’re committed to the API way of thinking.

John: Yes. Over the past three or four years, we went through a re-platforming exercise—six or seven, eight years ago now. I lose track of time. I think that was one of the big things: Data could be updated from 10 different avenues and it was hard to know what the data was before, who changed it, and what was changed. And without having that centralized front door via the API, that was going to become impossible. It’s been a big effort to ensure that there is just one path to updating this data, creating this data, and deleting this data. And to your point, if we’re using it, it’s tested, it’s reliable, and it’s not going to be any different whether it comes from external or internal consumers—I’ve seen a lot of benefit from doing that.

Craig: John, we’ve run out of time. You’ve been a fantastic guest. Can you tell us where the listeners can find out more information about Black Diamond?

John: If you go to Blackdiamond.Advent.com, you should find plenty of materials on the Black Diamond Wealth Platform and reach out to someone on our team to learn some more information.

Craig: Awesome, John. Thanks again for being on the program!

John: Thank you, Craig! Thanks, everyone!

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The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at craig@ezragroupllc.com

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