Silicon Valley, AI hit the finance world

What advisers have to look forward to in technological innovation and usage, and what they have to fear.

Jun 23, 2018 @ 6:00 am

By Evan Cooper and Ryan W. Neal

As the world of adviser technology continues to expand with no end in sight, how does a firm go about building the ideal technology suite for advisers? Should firms invest in adding a digital-advice component to reach millennials? And how can advisers take advantage of the accelerating developments in artificial intelligence?

These are just a few of the challenges keeping executives across the industry up at night.

InvestmentNews assembled a who's who of leaders from custodians, broker-dealers, RIAs and technology vendors to discuss these questions and brainstorm actionable solutions at its second annual Fintech Think Tank over two days in May.

On May 22, participants split into groups for two roundtable discussions. The first debated the challenges that prevent adviser adoption of the latest technology, how firms have incorporated lessons learned from robo-advisers, and whether or not the ecosystem of technology vendors should fragment or consolidate. The second group dove into artificial intelligence, the impact that a consumer technology giant like Amazon could have on wealth management, and how firms can effectively go about building an ideal technology stack.

When it comes to Amazon, Apple and Google, the big question is: Will they or won't they? Tantalizing today's financial advice providers is the question of whether the nation's giant tech companies will decide to enter the business. Think Tank participants believe the giants likely are coming, but may not be the threat some fear.

"I'm not worried about it, I'm excited about it," said Dani Fava, director of product strategy and development at TD Ameritrade Institutional. "Amazon will eventually get into financial services, and if they create a robo, people will use it and become more financially literate earlier.

Three Choices

"But when you hit a certain level of wealth, you need to talk to a person, and that is not going to change," she said. "That's why I think in 15 years an adviser will have three choices: Be independent, work for a wirehouse or work for Amazon."

Agreeing with that view was Loren Pierson, chief operating officer of Mercer Advisors, who believes that any adviser who thinks their value is doing math and building portfolios is an adviser who will get eaten for lunch by Amazon.

"Advisers focusing on behavioral economics and using technology to leverage their time so they can have a human conversation are those who will win," Mr. Pierson said.

In the end, perhaps the relatively small size of the advice business may protect it, noted David Edwards, president of Heron Wealth.

"We're tiny compared to the grocery market, and we have compliance risk and other problems," he said. "If you're in a hurry to take over the world, groceries are easier."

On Artificial Intelligence

Artificial intelligence can be defined as computer systems that can perform tasks normally requiring human intelligence. In the advisory business, AI can take many forms, and at the Think Tank, advisers discussed the promise and frustration that AI represents.

"When I think of artificial intelligence, it's all about data, processing data and the kinds of insights you get from it," said TD Ameritrade's Dani Fava. "Investment management stands to change the most from AI, and it's radically changing at the moment."

When I think of artificial intelligence, it's all about data."
Dani Fava, director of product strategy and development TD Ameritrade Institutional

For AI solutions in other areas of the advisory business, structured data sets of the kind that exist in investment management will have to be developed, said Mr. Pierson.

"You can't do anything with AI unless you have a decent data set," he said. "And while data governance may not be the sexy side of machine learning, it is really critical."

Proof of the importance of data sets can be found in the anti-fraud space, said Ed Obuchowski, chief technology officer at Advisor Group.

(More: Artificial intelligence coming to life in financial advice)

"If you have decent enough structured data, you have a baseline from which you can combine information that lets you detect anomalies, which is the basis of fraud detection and prevention," Mr. Obuchowski said, adding that his firm is involved in a years-long project to organize its data to get ready for AI.

On Robos

Don't be binary when you think about robos and automated advice, said the fintech roundtable attendees, who observed that it's not an issue of young versus old or human versus machine.

"This isn't a millennial thing," said Kol Birke, senior vice president of technology strategy at Commonwealth Financial Services. "You have just as many retirees as millennials using robos and Facebook, and just as many millennials as retirees craving human advice."

At different stages of life, people want different things, noted Michael Ragunas, chief information officer at Cetera Financial. "There's a continuum based on a person's intentions, interests, age, assets and other factors, which allows for a lot of different blends."

Andrew Altfest, managing director at Altfest Personal Wealth Management, suggested that many advisers may be thinking about robos and digital advice backwards.

(More: Robo advisers are stepping up their financial planning)

"The real value of a wealth manager is in personalization and customization, so we shouldn't look to automate that, but use technology to support the adviser in providing it. Advisers should be able to open accounts seamlessly using e-signatures, for example, as well as use advanced document management software and advanced workflow tools to gain scale so they can offer a lot more value," Mr. Altfest said.

What robos have done has awakened everyone, said Tom McCarthy, head of platform technology for Fidelity Institutional.

"They provide elegant solutions — but only in investment management," he said. "For advisers, competing on investment management is no longer a winning proposition."

On the Perfect Tech Stack

If you were an advisory firm building a digital infrastructure — a tech stack — from scratch, how would you create the best one possible? Here are some responses from Think Tank participants:

Ryan Payne, president of Payne Capital Management: "I'd like to have one central person who could deliver an all-star team of everything."

Nick Graham, chief technology officer at Cambridge Investment Management: "Better than a best-of-breed integrations approach is a systems engineering approach where you build a framework based on a holistic view of where you will be in five to 10 years, and build in a way that allows you to plug and play. Whether you can find the people to do this and recognize them when you find them — that's a little more challenging."

David Edwards of Heron: "The answer is that there's no perfect tech-stack solution. For us, Redtail is a very fast, very stripped-down system that nonetheless captures all the data we need. For others it's Salesforce, which is much more sophisticated."

Loren Pierson of Mercer: "Start with one of the components that is most important strategically for your firm. Make that the technology you build around. We all want a completely integrated tech stack and we all want the best and greatest components in that tech stack — but it just doesn't exist."

Evan Cooper is a freelance writer.

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