The Latest In Financial Advisor #FinTech (February 2018) (2024)

WisdomTree’s AdvisorEngine Acquires Junxure CRM For $24M. The emergence of robo-advisors in 2012 was a call-to-action for the advisory industry about just how far behind our technology tools had fallen when it came to the client experience, especially with respect to client onboarding. Yet ultimately, investment management – even when delivered through a sleek technology wrapper – is not an “if you build it, they will come” business, and the difficulties of robo-advisors in actually acquiring a critical mass of consumers has led most of them to pivot into a B2B solution for advisors instead. AdvisorEngine is one such convert, having started out as a B2C company Nest Egg, later merged with Vanare, and then rebranded when WisdomTree invested $20M into them in late 2016 to focus on financial advisors. The challenge, though, is that even in the context of serving advisors, technology is still a crowded landscape, and many onboarding “robo” tools have struggled to find adoption (and literally a place to fit into the advisor technology stack) between what portfolio management tools and/or broker-dealer or RIA custodial platforms already provide. Accordingly, many of the robo-advisor-for-advisors tools (now often dubbed “digital advice” solutions as the options have proliferated) have themselves tried to become more of a “holistic” advisor platform, shifting from just onboarding tools to include portfolio management, financial planning, and/or CRM functionality as well. In this context, it is perhaps no surprise that AdvisorEngine, which last year bought WealthMinder for its financial planning tools, decided to acquire Junxure CRM to further expand the scope of its technology stack (funded with an additional cash infusion from WisdomTree). Yet the reality is that since its prior substantial investment from WisdomTree in 2016, AdvisorEngine reports “only” about $3B of assets on platform from 60 advisory firms, which even at its top pricing tier of 10bps would be less than $3M of revenue (concerning given a prior $20M funding round!). The good news, then, is that the Junxure acquisition provides AdvisorEngine a more comprehensive advisor platform it can use to try to win more users and accelerate its asset growth; on the other hand, though, offering a proprietary version of portfolio management and CRM could make it even harder for AdvisorEngine to acquire new firms that may not want to swap out both of their existing solutions for a full AdvisorEngine platform. In that context, it actually seems likely that AdvisorEngine wasn’t merely seeking Junxure CRM technology to add to its technology solution, but was literally seeking Junxure users to convert and upsell into their AdvisorEngine platform (as hinted by the fact that in its press release of the acquisition, AdvisorEngine took pains to point out the $600B of AUM managed by Junxure users, despite the fact that AUM normally has no relevance as a KPI for a CRM solution). Unfortunately, though, because Junxure reports that the majority of its users are still on its own “Junxure Desktop” solution (and haven’t even migrated to their more recent Junxure Cloud offering), it’s not clear how many Junxure users will even be able to use AdvisorEngine in the foreseeable future. Which means for the rest of 2018, it’s likely all-hands-on-deck to not only build AdvisorEngine integrations, but finish rounding out the Junxure Cloud feature set to persuade the remainder of the Desktop users to switch over so they can even become AdvisorEngine prospects. And given that Junxure is known as the most financial-planning-centric of advisor CRMs, it’s not clear how interested its users will be in moving to AdvisorEngine’s more investment-centric tools. Especially since advisors are historically not accustomed to paying AdvisorEngine’s bps pricing model for “overhead” software like CRM and portfolio accounting solution… which may ultimately force AdvisorEngine to pivot its business model, akin to OranjMAX, in offering its technology for free in exchange for advisors agreeing to use model portfolios that AdvisorEngine creates with its parent company’s ETFs (monetizing AdvisorEngine technology not through software fees but as a WisdomTree distribution channel).

Overstock.com Launches “tZERO” Robo-Advisor For $9.95/Month. For several years, the advisory industry has buzzed that at some point, an online retailer like Amazon would eventually venture into the world of robo-advice. As it turns out, the first major foray isn’t coming from Amazon directly, but another large online retailing competitor: Overstock.com, which last week announced the launch of a new robo-advisor service to its whopping 40 million monthly visitors. Dubbed tZero Advisors, the solution creates portfolios of individual stocks based on various factors (e.g., fundamentals, technical, sentiment, and momentum) that it calls “Adaptive Dynamic Portfolios” and then monitors and rebalances the portfolios based on how the underlying stock scoring changes over time, and is powered by robo-platform-custodian-of-choice Apex Clearing (along with TD Ameritrade). The scoring system itself is powered by FusionIQ, although the tZero Advisors Form ADV indicates that tZero Advisors (which is actually a DBA for an RIA called ES Capital) appears to be under common ownership with Fusion (through an entity called Fusion Morton LLC, registered to the same Wellesley address as FusionIQ). And tZero Advisors itself is a subsidiary of tZero, which in turn is a subsidiary of Overstock that operates an “alternative trading system” that aims to facilitate transactions off the traditional stock exchanges using blockchain technology. Which means on the one hand, Overstock has really just launched its own proprietary robo-advisor through a series of related subsidiaries (rather than partnering with an independent firm). But the relationship to tZero raises the question of whether the ultimate goal of Overstock’s robo-advisor is not merely to launch a robo-service, per se, but to eventually facilitate the trading of its new robo-advisor subsidiary on its own blockchain-powered tZero alternative trading system, which would have far more disruptive potential if the platform can actually gain assets. Of course, the real question is simply whether consumers who go to Overstock.com to buy household goods will be willing to entrust the platform with their hard-earned dollars as well – as while Overstock has phenomenal web traffic with 40 million monthly visitors, and appears to have gained some traction with its FinanceHub platform for mortgage/lending and credit card products, it doesn’t mean users will want to transfer their life savings to the brand as well (as Snapchat learned when it was rumored to be launching a robo-advisor in early 2016 and then apparently scrapped the idea). Either way, though, the platform doesn’t appear to be a competitor for “traditional” financial advisors in the foreseeable future, as even Overstock CEO Patrick Byrne acknowledges that their target market is a segment of investors that sit well below the traditional advisor’s account minimums, and the platform is primarily targeting women who are its primary retail site shoppers.

NextCapital “401(k) Robo-Advisor” Raises $30M Series C To Disrupt 401(k) Target Date Funds. Most of the initial wave of robo-advisors were launched as direct-to-consumer businesses, in a world where it’s still incredibly difficult to attract assets directly (even with great technology)… leading most of the early players to ultimately pivot to become B2B solutions, from SigFig partnering with wirehouses to Blackrock purchasing FutureAdvisor, WisdomTree investing into Vanare | Nest Egg (now AdvisorEngine), and Invesco buying JemStep. The challenge of these pivots, however, is that software designed originally for B2C often isn’t easily retro-fitted to integrate with large enterprise institutions that themselves are struggling with their own legacy technology. In this context, NextCapital was unique in that its roots were powering the Russell Investments “Adaptive Investing” methodology (a form of individually-customized target date allocation) in defined contribution plans, and accordinglyin 2014 it decided to raise substantial capital specifically to build an even more “robo-style” personalized target date allocation tool for help 401(k) plan participants. In the years since, NextCapital has landed deals with a number of other major players, including John Hanco*ck, TransAmerica, and State Street, as the technology that is powering the ability of those companies to implement their own proprietary personalized-target-date-fund allocations for plan participants. In other words, unlike many other “robo-advisors”, the core of NextCapital’s business isn’t literally taking control of discretionary managed accounts (for which its Form ADV Part 2 reports less than $1M of AUM), but instead allowing other asset managers in the 401(k) business to deploy their own managed account strategies, using the technology to customize individual plan participant portfolios based on specified inputs, as a competitor to traditional target date funds themselves. Which means NextCapital isn’t so much a robo-advisor competitor to advisors, as it is a disruptive threat and potential disintermediator of traditional target date funds (akin to how Direct Indexing 2.0 solutions threaten traditional mutual funds and ETFs). In other words, why would anyone ever buy a “generic” target date fund, when the 401(k) provider can use NextCapital software to allow every plan participant to have their own personally designed target date allocation (with their own individualized glidepath), for which the asset manager will simply charge a fee for providing the technology and designing the allocation algorithm (rather than offering the target date fund itself).

Orion Launches ASTRO Direct Indexing 2.0 “ETF-Disruptor” Solution For Advisors. Historically, one of the primary benefits of mutual funds (and later ETFs) was simply that they provided the means to purchase a small slice of a very large number of individual stocks (or bonds or other securities) in a cost-efficient manner. After all, at $99/trade decades ago, or $19.95/trade by the late 1990s, or even $9.95/trade as a few years ago, it simply wasn’t cost-effective for any but the most affluent of investors to purchase each of the 500 individual stocks in the S&P 500, instead of just buying an S&P index fund (or some other actively managed fund) instead. In essence, pooled investment vehicles helped to pool trading costs, dramatically decreasing the average transaction cost per investor. Along with just making it easier to manage so many individual securities in a centralized manner. But as technology continues to decrease the cost to execute a stock trade, now down to $4.95/trade at many custodians, or even less as an asset-based wrap fee for larger accounts, it is suddenly becoming feasible to eschew the traditional mutual fund or ETF and just purchase the underlying investments directly. Accordingly, while high-end asset managers like Parametric have offered a form of “Direct Indexing” for decades, just a few years ago Wealthfront launched its own version of Direct Indexing for retail investors, aiming to use its “robo” tools and trading-included platform fee to make the solution feasible for a wider audience. Of course, as index ETF costs have continued to decline, the raw cost of an ETF is also down to just a few basis points (especially for the largest and most popular indices), while even robo tools tend to price slightly higher. However, these “Indexing 2.0” solutions have an important tax advantage: by owning the securities directly, it’s possible to conduct tax loss harvesting on each individual stock that is down at any particular time, which makes it possible for the tax-deferral benefits to outweigh even slightly higher technology costs. In this context, Orion has just announced the launch of their own Direct Indexing solution through their Eclipse rebalancing software: dubbed ASTRO (Advisor Strategy and Tax Return Optimization), the solution effectively makes it possible for advisors to not only manage a large number of individual stocks that roll up to replicate an index, but also makes it possible to apply additional customization and tilts (e.g., overweighting certain investment factors, or adding an ESG overlay). Which may ultimately be used by advisors as a way to offer “enhanced” after-tax returns (thanks to the tax-loss harvesting benefits of direct indexing), or simply to provide more customized portfolios than what various combinations of mutual funds and ETFs alone can provide… although either may prove to be very disruptive to the current ETF trend!

TD Ameritrade Model Market Center Officially Rolls Out Potential TAMP Disruptor. The basic concept of a TAMP (Turnkey Asset Management Platform) is a third-party manager who helps advisors to design and implement model portfolios. Such solutions first emerged in the 1980s and 1990s, but have become especially popular over the past decades as financial advisors have increasingly shifted from selling mutual funds and designing asset-allocated ETF portfolios into selling financial planning and wealth management advice and simply outsourcing their actual investment implementation. Yet the reality is that with the rise of rebalancing software, it’s easier than ever for a financial advisor to self-manage a fairly large number of clients invested into model portfolios… at least, as long as someone provides the models in the first place. In this context, last year witnessed the rise of “Model Marketplaces”, where rebalancing software providers like TD Ameritrade’s iRebal or Oranj’s TradeWarrior (or newcomer Autopilot from Riskalyze) contract with third-party asset managers to provide the models, which advisors then implement themselves using the rebalancing software. In essence, Model Marketplaces unbundle the creation of models from the automated implementation of those models, effectively providing advisors a choice of whether to outsource the implementation, or to retain control of implementation and simply “outsource” the model creation process by picking an available one in the marketplace. And thus far, it appears that there is a lot of “interest” from advisors, with TD Ameritrade reporting that after 3 months of a soft launch within iRebal, a whopping 1/3^rd of their 3,000 users have “already started using” its new Model Market Center (though it remains unclear whether or to what extent “using” really means, and how much in assets are truly being managed there). In addition, Model Marketplaces appear to be getting a boost by asset managers themselves, as major ETF manufacturers like Blackrock are creating and distributing model portfolios through technology platforms as a way to attract assets to their ETFs (given that “their” models tend to be constructed using “their” ETFs). Ultimately, it remains to be seen whether or how much traction Model Marketplaces will really gain, how many advisors will still want to be responsible for even implementing their third-party models (versus just outsourcing to a third-party TAMP altogether), and whether Model Marketplaces themselves will create a “choice overload” problem if too many models are made available at once. Nonetheless, the next year or few should reveal a lot about whether or to what extent the advisor of the future really wants to be responsible for their investment management implementation at all (using a Model Marketplace) or not (by continuing to use TAMPs instead).

AdvicePay Launches First Compliant Payment Processing Platform For (Recurring) Financial Planning Fees. In recent years, more and more financial advisors have been shifting away from insurance and investment product sales into actually getting paid for fee-for-service financial planning advice. The caveat, however, is that while the existing compensation channels of product commissions and AUM fees are well established, there is still little technology infrastructure available to handle the processing of financial planning fees, especially for those clients who do not have an investment account to manage and must pay their advice fees directly from their cash flow. Most advisory firms handle this by simply collecting checks, which may be feasible for a small number of financial plans done from year to year, but quickly breaks down for firms with a high volume of clients paying planning fees (which is just a lot of checks to invoice, track, deposit, and reconcile), and is virtually impossible to manage for clients who pay ongoing recurring (i.e., annual or quarterly or monthly retainer) fees. The most straightforward alternative is to bill a client’s bank account (via ACH) or credit card directly, except having such direct access to client bank accounts or credit cards can trigger the Custody Rule for advisors, and many online payment providers won’t even permit financial advisors to use their systems. Accordingly, AdvicePay was launched last year as a solution for XY Planning Network (which champions working with Gen X and Gen Y clients for a monthly subscription fee), and after raising $500k of seed capital last fall, is now being made available to all financial advisory firms. The software is designed to facilitate both one-time and recurring retainer fees, billed either directly to the client’s bank account (via ACH) or through their credit card, but prevents advisors from actually having direct access to any client account information (to prevent custody), while also providing the requisite client invoice notifications to satisfy regulatory requirements. Which may be appealing both to advisory firms that charge standalone planning fees (or a minimum fee for clients who don’t meet their investment account minimums), those that already adopt (or wish to adopt) a retainer model to serve new segments of potential clients, firms that also manage AUM and will no longer have to reduce their billable assets under management by their planning fees (which is also appealing to RIA custodians that rely on money market spreads for their own profits), or even broker-dealers that with corporate RIA divisions that need a more scalable solution to handle financial planning fee collection and processing across a large number of reps (and reduce the size and average aging of their financial planning fee accounts receivable!).

CellTrust Launches Series Of Enterprise Deals For Compliant Text Messaging Solution. Historically, the regulatory requirement to archive all written communication with clients was a means to ensure that advisors saved all their correspondence to and from clients. With the rise of the digital age, though, communications technology has repeatedly leapfrogged the ability of archiving tools to fulfill the regulatory requirements. Consequently, in the 1990s, it was almost impossible to send emails to clients (as every individual email had to be pre-approved by compliance before being sent!), and in the 2010s it’s still largely impossible to send a compliant text message to clients (as broker-dealer and RIA compliance departments have lacked the tools to capture text messages directly from telecom providers or proprietary messaging systems like Apple’s iMessage). Last year, Redtail CRM launched Redtail Speak as a means to facilitate text messaging with clients via the advisor’s CRM… with the caveat that, particularly when on the road or at client meetings, most advisors don’t have their CRM open on their smartphones in the first place. But now, a company called CellTrust is making waves in the advisory community with a solution called SL2 Archiving, capable of archiving all of an advisor’s text messages to/from clients in a compliant manner. The solution works by installing a separate app on the advisor’s smartphone, which in turn is assigned a unique standalone phone number to be used just for sending and receiving text messages; CellTrust handles the routing to/from the phone number, and the app ensures all communication is archived. (And by routing via a separate app with a separate phone number, advisors can have compliant text messaging without allowing their compliance department to see all their personal text messages on their personal cell phone number.) XY Planning Network was first to announce a partnership with CellTrust last July for $25/month, and in the past month both Merrill Lynch and also Securities America have announced that they’ll be using CellTrust for all the brokers on their respective platforms. Expect to see more deals rolling out in the coming months, as the industry may finally have reached the technology tipping point where compliant text messaging for financial advisors is ready to go mainstream.

BondNavigator Offers Advisor Platform For Better Bond Pricing. With the looming potential for additional interest rate increases from the Federal Reserve in the coming years, more and more advisors are shifting their fixed income allocations to deal with the potential impact of rising rates on bonds. And while there is some opportunity to earn roll yield with bond funds even during rising rate environments, a growing number of advisors are looking at simply starting to buy individual bonds for clients with a plan to hold them to maturity to avoid recognizing any losses if rates rise. Except unfortunately, most financial advisors have very limited tools for trading or even getting good pricing on bonds, which don’t trade with the same kind of transparent price liquidity as most stocks. Accordingly, bond trading firm 280CapMarkets has launched a new technology solution for advisors trying to get better pricing information on bonds. Dubbed “BondNavigator”, the software provides tools to search and filter through currently available bonds in the marketplace, either as a means to find available bonds to trade for clients, or as a way to “price check” the quote that might be provided by an RIA custodian or broker-dealer’s bond trading desk. Ultimately, the BondNavigator software is free, though, as 280CapMarkets is itself an institutional bond trading company that hopes advisors finding bonds on its platform will help it to attract bond trading opportunities. While in recent decades, the reality is that there hasn’t been very much focus on individual bond trading amongst financial advisors, nor great scrutiny on finding best execution, the rising interest in individual bonds amongst advisors given the potential for rising interest rates suggests that BondNavigator may be very well-timed to come to the advisor marketplace.

HealthyCapital Aims To Show The Financial Planning Impact Of Better Health Decisions. It’s long been recognized that health care costs are one of the biggest expenses in retirement, especially given that the inflation rate for medical expenses has long trended higher than the general level of inflation, with the latest Fidelity study pegging the average retiree’s health care costs at about $275,000 per couple (not including long-term care expenses!). Of course, some healthy individuals will incur far less in costs, while others in poor health may incur far more; yet unfortunately, financial advisors have few tools available to actually make such estimates. HealthView Services has tried to fill this void for advisors with a Healthcare Cost Calculator that takes input on a client’s health conditions, and estimates a more customized projection of future costs. And now, it’s launching a new platform called HealthyCapital, which aims to not only quantify potential future healthcare costs for consumers, but also show them directly how changing certain health behaviors can improve both their health situation (i.e., life expectancy) and their future finances (i.e., projected future healthcare costs and the increased disposable income that would come from not incurring those costs). Unfortunately, the advisory community has already been slow to adopt HealthView’s cost calculator for clients (in part because their software doesn’t integrate directly with today’s financial planning tools, although in practice most financial planning software isn’t built to separately project more customized age-banded health care costs anyway), and so it remains unclear whether HealthyCapital’s even-more-detailed cost (and impact) projections would be adopted either. On the other hand, the opportunity to translate personal health decisions into more tangible financial outcomes could make HealthyCapital an especially appealing software solution to at least a niche subset of advisors who specific focus on life planning, and the intersection of physical and financial health and well-being.

SS&C Ramping Up Wealth Management Acquisitions With ModestSpark and DST Vision. SS&C is a global technology company that in recent decades has grown primarily by strategically acquiring various tech companies, often in an effort to vertically integrate them. Although they’re a large publicly traded company with a nearly $10B market cap, for most financial advisors, SS&C first hit the radar screen back in 2015 when it acquired portfolio accounting software solution Advent/Black Diamond for a whopping $2.7B. The acquisition marked a first entry into the world of wealth management, but after a two-year pause SS&C has begun to acquire again. First, last November, they acquired Modestspark, a front-end client portal, to overlay their existing Advent Axys and APX systems (for those who still didn’t want to migrate to Black Diamond). And this past month, in their largest deal yet, SS&C acquired DST Systems for a whopping $5.4B, which many advisors will be familiar with as an early player in the world of account aggregation through their DST FanMail and DST Vision systems. Ultimately, DST is a much larger player than just these systems, but advisor tech guru Bill Winterberg notes that there may be good synergies for Advent and Black Diamond users who may see better automated data flows and integrations now, especially for advisors looking to pull in annuity-related information (as more RIAs begin to adopt fee-based annuity contracts and more annuity carriers attempt to distribute to the RIA channel). At a minimum, the acquisition means that DST may have newfound resources to bolster some of their wealth management offerings… at least, as long as SS&C doesn’t decide to focus DST’s energies into their other related industries.

Wealthfront Raises Another $75M As Its “Path” Planning Software Adds Homeownership Tools And Growth Accelerates. In 2015, robo-advisor Wealthfront was facing slowing growth rates and a rapidly declining average account size, and experiencing significant turnover in its senior leadership, as the company sought to reignite its growth engine. But after a foray into partnerships with payment processor Venmo and even launching its own 529 college savings plan with the state of Nevada, founder Andy Rachleff stepped back into the CEO role in late 2016 and re-asserted his vision that Wealthfront would be an advice-provider without human advisors. Accordingly, just a few months later, Wealthfront introduced Path, a financial planning software solution built directly for consumers, with the kind of “what-if” and scenario-planning tools that most financial advisors are familiar with, but built in Wealthfront’s Silicon Valley data-driven style… which Wealthfront repeatedly iterated on throughout 2017, from a college planning tool that automatically pulls in data on college costs, to increasingly sophisticated retirement spending projection tools, and repeated efforts to make it easier and easier to complete the “data gathering” process by simply linking accounts and letting account aggregation do the work. The end result? A year later, Wealthfront added nearly $5B of AUM, doubling in 12 months and adding more assets than it did in the preceding 5 years cumulatively. And as its growth rate accelerated to be on pace with competitor Betterment (and its average account size started to rise again), Wealthfront announced a fresh round of $75M of venture capital, and even more new features for Path (including a new tool to help Millennials more effectively project their ability to afford a home, and their path to achieving homeownership, replete with Wealthfront’s use of big data to automate everything from RedFin data on the costs of homeownership in general and specific houses by zip code). Notably, the idea of leading with “financial planning tools” as a client acquisition strategy isn’t unique; Personal Capital has driven its growth for years primarily by “giving away” its popular Personal Financial Management (PFM) dashboard tools, and then contacting prospects who they know have sufficient assets to do business with them. Has Wealthfront found that it, too, can leverage making sophisticated financial planning software available to consumers as a means to (finally) cost-effectively acquire clients? Which raises newfound pressure on both advisor financial planning software solutions to stay competitive, and on financial advisors themselves to be certain they’re still adding value beyond what Wealthfront’s increasingly sophisticated financial planning software can provide!

RiXtrema Acquires Larkspur Data Intelligence As DoL Fiduciary RegTech Tools Heat Up. While the full implementation of the Department of Labor’s fiduciary rule (including the Best Interests Contract requirement) has now been delayed until June of 2019, the reality is that the Impartial Conduct Standards that underlie the rule has taken effect, and as a result all financial advisors do have to comply with the core requirements of the rule, including its obligation to engage in appropriate due diligence before recommending a 401(k) rollover. As a result, a number of industry providers have been rolling out and amplifying their rollover due diligence tools in recent months, from Morningstar’s Best Interests Scorecard to an updated version of Fi360’s Fiduciary Toolkit. And now, portfolio stress testing analytics provider RiXtrema has announced that it is acquiring retirement plan data provider Larkspur, to bolster its “401k Fiduciary Optimizer” tool that helps advisors do their rollover due diligence. In fact, RiXtrema’s entire portfolio crash testing services are now being downplayed on an updated version of its website, that primarily features its 401k Fiduciary Optimizer (and related IRA Fiduciary Optimizer and Annuity Optimizer tools), as fiduciary #RegTech takes the center stage, and RiXtrema’s capabilities to automate pulling in key 401(k) data appears to be winning converts (leveraging the company’s data-driven roots). The bottom line: although DoL fiduciary has taken a brief step backstage, don’t underestimate how much demand there is for fiduciary compliance regulatory tools as the July 2019 deadline looms larger (along with the prospect of an SEC fiduciary proposal later this year as well!).

So what do you think? Will the AdvisorEngine acquisition of Junxure be good for Junxure users? Will tools like AdvicePay increase advisor adoption of retainer fees for clients? Would you use a “direct indexing” solution like Orion ASTRO to circumvent the need for mutual funds and ETFs altogether? Could Wealthfront become a competitive threat to financial advisors with its increasingly sophisticated financial planning software tools for consumers? Please share your thoughts in the comments below!

(Disclosure: Michael Kitces is a co-founder and partner in XY Planning Network and also AdvicePay, both of which were mentioned in this article.)