Service firms race to help advisers create digital platforms

Custodians, rollups offering automated ways to make serving younger or less-wealthy clients profitable

Dec 5, 2014 @ 2:21 pm

By Liz Skinner

Custodians and other firms that serve financial advisers are scrambling to help them integrate digital platforms that will enable them to profit from younger clients and those with fewer assets.

Fidelity Institutional, TD Ameritrade Institutional and some smaller custodians are teaming with established online-advice providers so that advisory companies can offer a mostly automated solution for investment management or financial planning.

Schwab, the nation's largest custodian, is crafting a digital platform from scratch that it will make available to its advisers next year.

Fidelity may eventually go that route, too.

“We have a front-row seat on what the market is looking for, and we're monitoring it very quickly to see what we could do on a proprietary basis,” said Michael Durbin, president of Fidelity Institutional Wealth Services. “The market should not be surprised if we serve up these capabilities more natively through time.”

Fidelity Institutional, the second-largest custodian to registered investment advisers, said Tuesday it will begin offering advisers access to LearnVest, an online advice platform that employs human advisers. The move comes less than two months after Fidelity struck a similar deal with Betterment Institutional, another so-called robo-adviser.

Not everyone is convinced that the robo-adviser route is the way to go, however.

Ruediger “Rudy” Adolf, chief executive of roll-up firm Focus Financial, said the “personalized experience” clients receive from financial advisers is the ultimate value, and he doesn't believe computer advice and technology is going to replace that anytime soon.

“It's really the priest and the RIA that are the only long-term deep relationships today,” Mr. Adolf said. “When it comes to important financial decisions an adviser is helping a client to make, it's based on trust.”

Mr. Adolf said advisers who think people they send to an online platform are going to migrate to their services once they grow are fooling themselves. These clients aren't going to feel any loyalty because they haven't really created any true relationships, he said.

Additionally, there may be regulatory concerns if advisers with fiduciary responsibilities are providing some clients with automated services and others with a human being, because they have very different recommendations, Mr. Adolf said.

“Ultimately it creates an inferior service model for some clients,” he said.

One of Mr. Adolf's chief competitors — Joe Duran, chief executive of United Capital — said advisers must find a way to incorporate technology and the human touch in their dealings with clients.

Firms “that can delicately balance the use of people and technology, merging the two in what we call the 'bionic adviser,' will be the bigger winner,” he said.

United Capital is creating a self-directed option for advisers' clients — due out next June — that will incorporate technology from FlexScore, a company run by two United Capital managing directors and Mindspace, a firm that specializes in using gamification with consumers, Mr. Duran said.

No matter what, automated investment planning is gaining a foothold in the advice business.

Advisers who are planning to create an online offering by white-labeling the technology from an existing “robo-adviser” said they are looking to affordably serve clients who they now turn away because they don't meet minimum investment thresholds and therefore it wouldn't be efficient to take them on as clients.

“We get 300 to 400 calls a month from people looking for information on our services,” said Moe Ansari, founder of advisory firm Compak Asset Management. “About 70% of those callers don't need all the services we offer — they are Generation X or Y, and they're looking for a finance solution that is mobile and something they can do basically from their phone.”

Compak is branding a digital platform through a deal Fidelity worked out with automated investing service Betterment Institutional that will look like Compak to users but be powered by Betterment, Mr. Ansari said.

An icon on the site will lead users back to Compak if they want to talk with someone or want additional wealth management services, not just inexpensive asset allocation. The advice firm will provide these clients with live advice for an additional 25 basis points — an amount that isn't going to make Compak lots of money, but Mr. Ansari said the firm hopes down the road as clients grow they'll move to the full-service offering.

“This way we don't discard people,” said Mr. Ansari, who broadcasts a daily radio program, “Market Wrap with Moe,” that generates hundreds of calls to his advice firm.

Mr. Ansari said he hasn't decided whether it will make sense for his firm to work with LearnVest, another platform collaborating with Fidelity, which has financial wellness resources and actually has its own financial advisers talk with clients about their plans.

TD Ameritrade Institutional also has partnerships with several digital providers, including Upside Financial, NestEgg Wealth, Jemstep and Trizic. Each of those firms' online software integrates with TD Ameritrade's Veo open access platform.

Another custodian, Shareholders Service Group, formed a relationship with Upside Financial over the summer for its advisers, said Dan Skiles, president of SSG.

SSG chose to work with Upside because the firm is aimed at helping financial professionals offer a digital platform, in contrast to most robo-advisers that focus directly on retail investors and think of the adviser as another client base, Mr. Skiles said.

IQuantifi is another digital financial advice firm that is squarely aimed at financial professionals, helping smaller banks and credit unions provide customers with financial advice platforms.

Folio Institutional, another custodian in the adviser space, started its own Advisor Connexion automated online platform for planners in August.

Pershing, part of BNY Mellon Co. and a sizable custodian for financial advisers, wasn't immediately available to discuss whether or not they plan to provide robo-advice platforms in the future, said spokesman Paul Patella.

Whatever firms think about robo-advisers, growth in their capabilities will force financial advisers of all stripes to take notice. As Mr. Duran said, it could cause them to change the way they approach their business, especially when it comes to pricing and being competitive.

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