The latest in financial adviser #FinTech

This month's edition kicks off with the announcement of Fidelity's new "Consolidated Data" platform, that aims to become a central account aggregation hub of all the relevant information regarding an advisory firm's clients and its own business

Mar 8, 2018 @ 11:33 am

By Michael Kitces

Welcome to the March 2018 issue of the Latest News in Financial Advisor #FinTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisers and wealth management!

This month's edition kicks off with the announcement of Fidelity's new "Consolidated Data" platform, that aims to become a central account aggregation hub of all the relevant information regarding an advisory firm's clients and its own business… which creates not only a newfound potential for Fidelity to create new technology value-adds for advisers, but supports Fidelity pivoting to a more open-architecture system (with a newly announced Integration Xchange that would just provide it more data to feed), and appears to be part of an even broader strategic shift that Fidelity is aiming to make Data – and not just technology – its unique custody/clearing value proposition for wealth-management-centric advisers of the future.

From there, the latest highlights also include a number of interesting adviser technology announcements, including:

• After castigating Schwab 3 years ago for including its own proprietary funds in its robo-adviser solution, Wealthfront launches a new proprietary mutual fund (at twice its base advisory fee) and defaults its taxable clients into it

• LifeYield launches a new Portfolio Advantage solution that aims to make Asset Location a more central value proposition for advisers to help clients make their portfolios more Taxficient

• LPL announces the launch of a new Virtual Assistant service for its advisers, though it's not clear if the company simply wants to develop a new revenue line for its advisers, or more aggressively compete with its own OSJs

• A slew of new solutions to help advisers market to and attract clients, including a new Advisor Ratings website called StackUp, a lead generation service from SmartAsset called SmartAdvisor, and a digitally-driven webinar marketing system from Snappy Kraken called Seminar Freedom

• Wealthbox launches a new 3.0 version of its CRM, including a native email system with automatic two-way sync to popular email clients like Gmail, iCloud, and Outlook or Exchange Server

Read the analysis about these announcements, and a discussion of more trends in adviser technology in this month's column, including the launch of several new Risk Tolerance Questionnaire tools from PreciseFP, DataPoints, and Capital Preferences, a new version of the robos-vs-advisers battle for consumers playing out in the small business 401(k) space between Betterment and Human Interest (formerly Captain401) versus Vestwell, a new tech-based competitor called Grove that is aiming to scale the monthly retainer fees model with tech-enabled CFP professionals, and the rise of new business intelligence software tools like Advisor Metrix and Advisor Clarity.

I hope you're continuing to find this new column on financial adviser technology to be helpful! Please share your comments at the end and let me know what you think!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to TechNews@kitces.com!

Fidelity Launches Consolidated Data Platform To Power Multi-Custodial Wealth Management Hub. The big news from last month's annual T3 Advisor Technology conference was the announcement that Fidelity will later this year roll out a major enhancement to its wealth management platform WealthScape: Consolidated Data. At the start, Consolidated Data will use account aggregation and (multi-)custodial data feeds to provide financial advisers with a central dashboard to track performance reporting and investment results across multiple custodial platforms. But eventually, it will also power investment proposal generation tools, (multi-custodial) fee billing, and household-level rebalancing (for asset location purposes) coordinating across multiple accounts and providers. From there, Fidelity announced that they intend to expand Consolidated Data into a business intelligence tool for advisers called "Insights + Analytics", which will further analyze the data details of the adviser's underlying clientele to provide insights on everything from outside AUM that might be a new business opportunity, or to track client demographics (e.g., notable asset outliers based on age). And to further power Consolidated Data as a central hub, Fidelity also announced that it is working on a new open architecture hub called Integration Xchange, which – akin to TD Ameritrade's popular Veo One platform – will make a store of available wealth management "apps" (i.e., integrations to other adviser tech tools) that are already integrated to Fidelity's Consolidated Data. At the most basic level, the new Fidelity Consolidated Data appears to be the intended hub of a next-generation data-driven wealth management platform for advisers, taking account aggregation to new levels of capability beyond its roots of "just" tracking basic information about held-away accounts into more applied use cases. But the real significance is that Consolidated Data signals a broader strategic shift underway at Fidelity – likely beginning with its acquisition of eMoney Advisor and its account aggregation capabilities – to turn the company from "just" a custodial and clearing firm to a "Consolidated Data" hub that powers comprehensive wealth management and business management tools for financial advisers… because the reality is that if Fidelity controls indispensable Consolidated Data, it can leverage that unique dataset to make itself essential to any and every financial adviser, regardless of what other technology or custodian they may use, and especially the most comprehensive wealth management firms (that tend to need the most data because their clients have the most complexity, and also tend to command the most in assets and revenue). Schwab and TD Ameritrade, beware; it's Game On from Fidelity for the next generation wealth management platform of the 2020s.

Wealthfront Hypocritically Implements Stealth Fee Increase With New Proprietary Fund In Non-Retirement Accounts. This month, robo-adviser Wealthfront announced the launch of a new Risk Parity investment offering for clients, which it is implementing by adding a newly-created proprietary mutual fund – the Wealthfront Risk Parity Fund (WFRPX) – with a default allocation as high as 20% in the accounts of its client with more than $100,000 of AUM. While there is significant debate about the efficacy of Risk Parity strategies in the first place, and whether they can really generate sustainable alpha, the real buzz of the announcement is that while the WFRPX expense ratio of 0.50% is very low cost in comparison to other risk parity funds (though potentially a good bit higher once the underlying cost of the swap is included), that Wealthfront mutual fund fee is double its baseline advisory fee of 0.25%, and amounting to as much as a whopping 40% fee increase for clients who will now pay an extra 0.50% for Wealthfront's proprietary Risk Parity fund on top of its advisory fee (amounting to a 10bps net revenue increase for Wealthfront's clients who receive the maximum 20% allocation). In fact, the fundamental conflict that Wealthfront is charging an advisory fee, on top of a fee for a proprietary product, in an account where Wealthfront has discretion in the first place, helps to explain why its Risk Parity fund will only be rolled out in taxable accounts and not IRAs: as despite the fact that the risk parity fund will be less tax efficient and is unable to be tax loss harvested (in a world where Wealthfront preaches its "PassivePlus" tax-efficiency benefits) and has tax consequences just to switch to in the first place, charging an advisory fee on top of a proprietary fund fee in a discretionary account is actually a prohibited transaction under the Department of Labor's fiduciary rule for retirement accounts (as it is deemed to be an untenable conflict of interest, because the company can choose to pay itself more with discretion by increasing allocations to its own proprietary fund anytime it wants). In other words, the robo-adviser company that almost 3 years ago was touted by then-Labor Secretary Perez as a paragon of low-cost fiduciary advice, and very publicly called out Schwab's Intelligent Portfolios launch as selling out to Wall Street by including proprietary funds in its robo-adviser offering… has now hypocritically launched a proprietary fund that effectively raises its fees as much as 40% in an offering so conflicted that it's not even permissible in retirement accounts under the DoL fiduciary rule, as it continues to struggle with slowing growth rates that are making it harder and harder to justify its existing lofty valuation. But perhaps the most concerning – and potentially longest-lasting – legacy of Wealthfront's actions is that they accentuate the exact fears that critics, and especially regulators, have long expressed about whether and how robo-advisers would manage their asset allocation algorithms to implement their fiduciary duty to clients, and raises the question of whether Wealthfront may trigger a regulatory fiduciary backlash against robo-adviser tools.

As Riskalyze Pivots Beyond Risk Tolerance Questionnaires, Competitors Launch New Solutions To Capture Remaining Market Share. The big Advisor FinTech news last summer was the launch of Riskalyze's new Autopilot model marketplace platform, which created the potential for not only new revenue lines from asset managers that might pay Riskalyze to be listed in their marketplace, but the launch of Riskalyze's own proprietary sponsored ETFs (in partnership with First Trust) that would be distributed through its own software as a distribution channel. Yet even as Riskalyze aims to go beyond "just" the Risk Tolerance Questionnaire, prospective competitors are still aiming to enter what is effectively just a two-player market – Riskalyze and FinaMetrica – that combined are estimated to have only about 40% market penetration in the first place, with the remainder dominated by weak "in-house" firm-created risk tolerance questionnaires. In this context, the start of 2018 has witnessed a slew of new risk tolerance questionnaire launches, including data-gathering software PreciseFP launching a new Risk Tolerance Questionnaire in its expanded digital Template Library, an Investor Profile RTQ from financial assessment toolmaker DataPoints, and a behavioral-economics-based RTQ from Capital Preferences (albeit as a re-announcement from a prior "soft launch" from the fall of 2016). Yet the caveat is that with Riskalyze's meteoric rise over the past 7 years, a number of new competitors have already launched since 2014, including Tolerisk, Pocket Risk, RiskPro Advisor,Totum Risk, and FinMason… none of which have managed to pick up even a 1% market share in the latest 2018 adviser tech survey. Because the reality is that despite the sorry state of risk tolerance questionnaires, Riskalyze's tremendous success has been driven by its value as a business development tool (and not "just" to fulfill the RTQ compliance obligation), while FinaMetrica's relatively simple standalone tool actually makes it easier to fit into an advisory firm's existing workflows (unlike most competitors, that attempt to force advisers into a new software portal and an entirely separate and standalone user experience that is disjointed from the rest of the adviser's onboarding process). In other words, the real opportunity for success in the marketplace for Risk Tolerance Questionnaires appears not to be "just" building a better and more rigorous Risk Tolerance Questionnaire – as important as that is – but the ability to either use the software to drive new business opportunities to the adviser's existing business, or to better integrate into the advisory firm's existing workflows and map RTQ results to the adviser's existing investment models.

LifeYield Launches Rebalancing Software Focused On Asset Location "Taxficiency." From its start with iRebal nearly 14 years ago, "rebalancing software" has been sold not only as a way to manage the administrative process of rebalancing itself, but also to improve household tax efficiency through effective "asset location," or determining the optimal way to place assets in various taxable, tax-deferred, and tax-free account types. But after an initial launch of iRebal competitors, including Tamarac, Morningstar tRx, TradeWarrior, and Red/Black, few rebalancing software competitors have launched for years (with the exception of Orion Advisor Services' recent Eclipse). But now, a new player to the market – LifeYield – is aiming to enter the marketplace, specifically by focusing not just on the "table stakes" value proposition of rebalancing, but the value-add opportunity of asset location itself. Accordingly, the company has trademarked a "Taxficient" score based on the household's overall portfolio tax efficiency, and is marketing a new "Portfolio Advantage" solution that aims to help advisers manage and improve their clients' Taxficient scores. Accordingly, LifeYield also announced a launch integration with Riskalyze, which will likely provide LifeYield Taxficient analytics as an overlay to Riskalyze's own Risk Number analytics, allowing prospective clients to quickly see both whether their portfolio is aligned (or misaligned) to their risk tolerance, and whether their portfolio is as "Taxficient" as it could be. Which means LifeYield has the potential to really put Asset Location on the map in a way that existing software has not – just as Riskalyze rapidly gained market share for Risk Tolerance Questionnaires – by shifting Asset Location from "just" a behind-the-scenes service that advisers provide as a value-add, into a client-facing discussion that can help to demonstrate an adviser's prospective value in the first place.

Wealthbox Launches 3.0 Version With Native Email Capabilities. For most of the modern computer era, financial advisory industry software surveys have shown that the most common "CRM" software is Outlook… which isn't actually a formal CRM at all, but simply the place that advisers send and receive email as a primary communication channel with both clients and internal staff. Of course, as long as an adviser is operating as a solo, "managing" clients via email is often feasible; however, as soon as additional staff are in the picture – who may not be privy to the adviser's direct emails with clients – it suddenly becomes necessary to convert to a centralized CRM. Except as long as the adviser is "used to" interacting with clients via email, the transition to a CRM is challenging, complicated by the fact that most adviser CRMs have at best a cumbersome manual process of trying to "attach" emails to a client record. In this context, it's notable that the rapidly growing "newcomer" CRM, Wealthbox, has launched a new "Wealthbox Mail" feature as part of their Wealthbox 3.0 release, specifically designed to facilitate automatic two-way syncing between the CRM itself, and popular email clients including Gmail, iCloud, Microsoft Outlook, and Microsoft Exchange Server. Which means not only can advisers interact with clients directly from their email inbox, and still have emails properly associated to the client record, but it's also possible to send emails directly to clients from within Wealthbox, and have them synced to the adviser's outbound email archives. Which not only makes it feasible to send "quick emails" from the CRM without actually needing to leave it and "switch" to email software, but also helps to facilitate bulk emails sent via Wealthbox, and tracking open rates and click rates within the CRM. Notably, Wealthbox Mail will be an optional add-on to Wealthbox for an additional separate fee, with the "Basic" version available for $35/month, and Wealthbox Pro (with Email sync) for $49/month, as well as an enterprise version for $65/month, as the software builds on its recent strong showing in the 2018 Advisor Software Survey amongst smaller independent advisory firms, to move further upmarket into mid- and larger-sized RIAs and broker-dealers.

SmartAsset Aims To Monetize Its Consumer Finance Widgets With SmartAdvisor Lead Generation Platform. For many financial advisers, the biggest challenge to growing their business is simply finding qualified prospects to work with in the first place, given an increasingly crowded landscape of financial advisers competing for the same affluent clientele. In an ideal world, advisers would just be able to plug into a system that would hand off qualified leads (effectively outsourcing their business development), but in practice this is much easier said than done – as any solution that provides a steady stream of qualified leads quickly attracts so many advisers that it dilutes the number of leads, and/or the solution provider simply can't scale up the number of leads to meet the adviser demand. In addition, "what works" in the world of marketing itself has varied over time – thus why services like Paladin Registry and Fee-Only Network have had to iterate their business models and client acquisition strategies over the years to try and keep up. But now, a new player – SmartAsset – is entering the space. Although not known well amongst financial advisers, SmartAsset has created a wide range of personal finance "widgets", from Mortgage Calculators and Rent vs Buy evaluators to Social Security Benefits calculators and Credit Card comparison tools, which then get embedded into websites like MarketWatch, CNN, and Kiplinger. Now, SmartAsset is looking to further monetize its widgets and content partnerships by providing leads directly to financial advisers, with a fairly high touch service that actually communicates with and interacts with the leads to confirm they're qualified before sending them along to advisers. From the financial adviser's perspective, there's no upfront cost to participate in the SmartAdvisor platform, but advisers will be required to pay for each qualified lead they actually receive (priced from $20 to $190, depending on the amount of assets). Thus far, SmartAdvisor claims that it has been able to generate several thousand leads with an average of $750,000 in investable assets; leads are vetted first by a 20-question survey that asks about investable assets, goals, desired services, and how important it is to have a local adviser, with a follow-up call from SmartAsset itself to verify their interest (and that their contact information is valid). At this point, it's not clear what conversion rates actually are for advisers (especially since leads can be 'sold' to up to three advisers at the same time), and how the software will differentiate and allocate leads amongst similar-service advisers. Nonetheless, with a service where advisers only pay for actual "vetted" leads, there will be a healthy pressure on SmartAdvisor to effectively qualify them for advisers. But it's still unclear if SmartAsset can scale up the number of leads for the potential amount of adviser demand.

StackUp Launches Investment-Performance-Based Advisor Ratings Platform. One of the fundamental challenges for consumers in finding a financial adviser is that, with an intangible service, there's often no way to know if the adviser is really any "good" until after the fact. In part, this is why financial advisers so often rely on – and have higher close rates with – referrals from existing clients, because of the implicit (or explicit) statement that the adviser has already been doing a good job for the referrer. Unfortunately, though, the prohibition against adviser testimonials makes it extremely hard to assess adviser quality, as while the rule is intended to limit advisers from overly promoting just the favorable reviews they may receive, in practice it has eliminated the ability of any financial adviser ratings platform to get off the ground. Nonetheless, a new service called StackUp is aiming to make a fresh attempt at launching an adviser ratings platform, with the novel approach of having consumers use account aggregation to link their investment accounts, report what adviser is managing each account (or if it's self-directed), and then simply doing the direct analysis of the consumer's actual portfolio to evaluate the investment results. And notably, investment results will not simply be evaluated relative to an arbitrary benchmark, but instead will be compared to the results of other investors who have similar risk tolerance. The good news of this approach is that because the StackUp analytics, and the subsequent adviser ratings that are generated based on performance and fees, are handled independently on the StackUp platform, the adviser ratings and favorable client reviews wouldn't be a violation of the testimonial rule under the SEC's 2014 guidance. However, in practice it's not clear how StackUp will handle the numerous problems that arise in trying to evaluate adviser performance, including whether the portfolio's allocations were impacted by client-specific requests/exceptions that were not the fault of the adviser, whether the portfolio is non-discretionary and the client hasn't even taken all of the adviser's recommendations, whether StackUp can draw on enough historical transaction data to assess the adviser's results over time (and not just based on a snapshot of current holdings that may have recently changed), and whether StackUp itself determines the client's risk tolerance in the same manner that the adviser did (as otherwise the adviser's results risk being misclassified). And of course, there's the fact that a growing number of financial advisers focus their value proposition on financial planning and wealth management services outside the portfolio itself, which won't be reflected in StackUp's analytics (which may understate the value of the adviser, or mischaracterize whether the adviser is "cheap" or "expensive" based on fees that may go beyond just portfolio management services). In addition, there's still the fundamental challenge that any and every adviser review website faces – that when there are usually no more than about 100 clients per adviser, a typical 1% - 2% response rate on a review site will literally only include 1-2 reviews per adviser, which aren't enough to be credible in the first place (and advisers directing their clients to leave a review on the website could still be construed as a violation of the testimonial rule). Nonetheless, even if StackUp doesn't manage to gain traction or remain viable as a business – and thus far, their entire business model remains unclear, as the service itself is "free" but their Terms of Use reserve the right to offer advertising or third-party marketing in the future – companies like Riskalyze have already demonstrated that using account aggregation to quickly show investors an analysis of their portfolio can drive them to take action and change advisers, which means some version of the StackUp approach (if not StackUp itself) will likely become popular in the future.

Snappy Kraken Launches Webinar-Based Automated Marketing Platform For Financial Advisors. Seminar marketing has long been a staple marketing strategy for financial advisers, with services like Emerald and FMT Solutions offering pre-packaged presentations that advisers can then deliver to an audience attracted via any number of direct mail marketing providers. The formula is relatively straightforward – spend $X on direct mail marketing, $Y dollars on buying attendees dinner while delivering the seminar to them, and as long as your mailers targeted reasonably affluent zip codes, there's a good chance of getting at least a few qualified clients that more than cover the marketing cost. However, the challenge is that seminar marketing remains expensive, with a substantial upfront investment for an uncertain return at best, in a world where affluent zip codes have become saturated with such marketing, and isn't scalable as it's limited to the capacity of the adviser to deliver all those webinars. In this context, marketing technology firm Snappy Kraken (winner of the XYPN LIVE FinTech competition in 2016) has launched what they aptly call "Seminar Freedom," a packaged webinar marketing solution where they help the adviser record their presentation in the form of a professionally-edited webinar, and then create the online marketing funnel to attract prospects to the webinar, register them, encourage them to attend with a series of email nudges, and then attempt to convert the attendees to prospects who meet with the adviser afterwards. Of course, the reality is that any adviser can package together available digital marketing tools and live webinar software to create the same process themselves, yet given how unfamiliar digital and online marketing strategies are for most financial advisers, Snappy Kraken's packaged process and implementation services will likely appeal to many advisers. Although given Snappy Kraken's Seminar Freedom pricing – at $10,000 - $12,000 for production costs, plus an ongoing marketing cost of $650 to $1,650/month depending on volume – the solution will likely only be appealing to advisory firms that are serious about investing into building a more scalable ongoing marketing process (though impressively, it comes with a whopping 110% money-back guarantee for any advisers who fully follow the system and don't get results). Still, the setup costs for Seminar Freedom are still comparable or lower than some other seminar marketing systems, and for one day in the studio to record the webinar and develop the materials, financial advisers can have a marketing process that continues to persist without the time commitment to keep personally delivering the seminar over and over and over again.

Nascent Robo-For-401(k)s Movement Fails To Learn Robo-Advisor Lesson As Human Interest Raises $11M. The 401(k) industry suffers from a tremendous disparity in quality between the available offerings for small businesses versus large ones. While the latter often view the 401(k) plan as a "necessary" employee benefit, and have the size and scale to effectively negotiate (and receive) volume discounts based on the size of the plan, small businesses often lack both the dollars to fund a plan, the administrative capabilities to execute it, and the time of the busy founder/owner to go through the process of setting it up in the first place… all of which result in small business 401(k) solutions that are much more expensive, in large part due to the compensation that must be paid to financial advisers and salespeople to distribute the solutions (and help those busy small business owners) through the sign-up process in the first place. And the situation isn't helped by the fact that the back-end recordkeeper systems for 401(k) plans often rely on outdated and poorly integrated technology, that further reduces the efficiency of launching and sustaining 401(k) plans. Accordingly, a number of technology firms have launched in recent years with the hope of gaining traction in the small business 401(k) market by rolling out a more-tech-capable (and therefore lower cost) solution that makes it easier for small businesses to get started quickly, from Betterment for Business to Captain401. And now, after finding some initial traction, Captain401 is rebranding to "Human Interest" on the back of an $11M round of Venture Capital aiming to scale up its solution. Yet the caveat is that when robo-advisers followed a similar path, they eventually saw their growth rates fall as the realities of client acquisition costs set in, and it became clear that a material portion of the cost that financial advisers earn by serving small investors is not for the actual cost to service them but the cost to acquire those clients in the first place (and bringing operational tech efficiencies to a client acquisition problem is like bringing a knife to a gun fight). In fact, after 2.5 years, Betterment's ADV reveals that its 401(k) business is still barely 4% of its AUM, and the company has stated it's aiming to move upmarket to larger plans (where operational efficiencies are more relevant), and it's not clear that Human Interest has really figured out how to scale its client acquisition costs in the challenging small business 401(k) market either. Instead, just as robo-advisers started with a direct-to-consumer service but it was really the B2B robo-adviser movement that has begun to scale more successfully (bringing the technology efficiencies to advisers rather than in competition with them), it seems that the parallel dynamic is now being set up with direct-to-consumer tech solutions like Betterment for Business and now Human Interest getting early interest, but B2B players like Vestwell working with advisers that are better positioned to gain traction given the still-challenging realities of acquiring "small" clients (whether retail investors, or small business owners). Time will tell.

Grove Launches Tech-Based CFP Professionals For Monthly Financial Planning Fee. One of the fundamental problems of "traditional" financial planning is that historically, it's been compensated by either commissions for the products that are implemented at the end of the plan, or AUM fees for the portfolio being managed as a part of the plan. Which not only introduces conflicts of interest for those advisers – to either implement a product, or gather AUM to manage – but it also limits financial planning access to only those clients who actually have a need for a financial services product or a portfolio to manage (rather than those who "just" want actual financial planning advice). Accordingly, "fee-for-service" models like offering financial planning for a monthly retainer makes it possible for consumers to "just" purchase financial planning advice, paid directly from their personal cash flow. And now that awareness of the monthly retainer model is gaining traction, from the Northwestern Mutual acquisition of LearnVest (which offered financial planning advice for a monthly fee), to the 600+ advisers in XY Planning Network, other companies are beginning to experiment with the model as well. The latest is Grove, which is nominally a "tech firm" based in San Francisco, but aims to not only provide a personal financial planning "app" to consumers (powered by account aggregation), but also staffs up human CFP professionals to actually deliver financial planning advice, including former XY Planning Network member Leslie Mallman as its Director of Financial Planning. And Grove is priced at "just" $50/month (or $600/year for "membership") for its services (and also charges 0.25% for managed accounts, though the company states that it expects the financial planning fees will be the bulk of its revenue). Of course, as with so many other "tech-savvy" platforms aiming to bring various forms of financial planning and investment management to the masses, the real blocking point remains not the cost to service clients (which tech can help facilitate), but the cost to acquire them in the first place. Nonetheless, with a price point that is higher (and more economically viable) than LearnVest, technology that aims to directly support its value proposition (which should limit the need for human CFP professionals to only the more complex questions that arise), and human CFP professionals who actually have experience delivering financial planning to clients, Grove seems better positioned than most to figure out how to scale up the delivery of financial planning for a monthly subscription fee to the masses… which will both help to validate the business model, but may also force existing monthly retainer advisers to focus even further on niches and specialization to survive and thrive against technology-scaled providers for the masses like Grove.

LPL Launches Mass Virtual Assistant Service For Advisors: Wirehouse Uberization Or OSJ Competition? The majority of "independent" financial advisers are affiliated with an independent broker-dealer, that provides a limited subset of back-office (primarily, FINRA compliance) services, in exchange for keeping a percentage of the adviser's revenue. The good news of the independent broker-dealer arrangement is that the adviser keeps far more revenue than is paid off the grid of a traditional wirehouse; the bad news is that the adviser is actually responsible for making all the future business decisions, including and especially regarding hiring, because the broker-dealer doesn't provide the staff resources that a wirehouse does. And those are difficult staffing decisions, because it's very difficult for a solo advisers to quickly scale the cost of staff, it can be hard (though not impossible) to find a good part-time or virtual assistant on your own. In this context, it's notable that LPL has announced it's aiming to launch a massive virtual assistant staffing solution for its advisers, who will be able to use the assistants on an "a la carte" basis as needed. However, it's not entirely clear whether LPL is simply trying to drive an additional revenue service line with its advisers by "Uberizing" virtual assistant services across its nearly 18,000 advisers, or if the play is meant to more directly compete with its increasingly sizable and powerful OSJs that themselves often stake their value proposition on providing intermediary staff support services to their advisers (funded in part by extracting payout concessions from LPL as the OSJ grows in size with the advisers it attracts with staff services). In other words, the opportunity for LPL in rolling out a massive virtual staffing service is to compete directly with its own OSJs, attracting at least a subset of advisers back to working directly with the LPL "core" and deleveraging at least some of the negotiating power of their OSJs. In addition, the ability to get paid for staff support services for advisers gives LPL another way to get paid to service its hybrid RIAs (who don't operate under the LPL corporate RIA), especially with a recent FINRA proposal to eliminate the requirement (and therefore the revenue opportunity) for broker-dealers to supervise outside RIAs. Nonetheless, the real question is just whether LPL can actually successfully scale up such a large virtual assistant operation for its advisers… and whether the service will actually be utilized by many of its advisers, as while virtual assistants are highly appealing for tech-savvy lifestyle advisers, the most growth-oriented advisers – that tend to be the most profitable for a broker-dealer in the long run – are the ones most likely to eschew LPL's offering and invest into their own staff anyway!

New Software To Watch: Business Intelligence With Advisor Metrix and Advisor Clarity. In a world where virtually all financial advisers were solo advisory firms, with income determined by their broker-dealer's commission payout grids, there wasn't much need for advisers to track their own business metrics. And even with the movement to independent RIAs over the past 20 years, the overwhelming majority of advisory firms have been solo advisers or small partnerships that were really siloed solo practices sharing overhead costs… which means there still wasn't much need for advisers to have robust business tracking and reporting tools (beyond basic bookkeeping for financial advisers). But the transition from commissions to fee-based accounts over time accumulates a sizable number of clients with recurring revenue, which makes it possible (and eventually necessary) to hire more advisers, and increases both the complexity of the business, and its business reporting (i.e., "business intelligence") needs, beyond just the basic reports provided in portfolio reporting software tools. Accordingly, in recent months, several new "Business Intelligence/Business Management" software tools for advisers have launched, including Advisor Metrix and Advisor Clarity. At their core, both software tools aim to collect relevant information from other third-party sources, bring it into a central database, and then provide useful reporting metrics about the health of the firm and especially operational efficiencies. For instance, Advisor Metrix pulls in data from both Redtail CRM and Jive VOIP systems to help track the actual amount of time being spent talking to and interacting with each client, while Advisor Clarity brings in more investment-oriented data from Tamarac or Black Diamond to track asset and revenue metrics for the firm. Thus far, these particular tools will only be useful to advisers who use the exact third-party software that they integrate with (though expect the integration list to grow over time). But more generally, they're a sign of an emerging new category of adviser software that has been lacking thus far, as most larger advisory firms still struggle to create effective business intelligence dashboards (thus leading Salesforce, as the most flexible enterprise CRM, to become the most popular adviser CRM for larger independent firms, as it's currently the only/best place to even try to create effective business intelligence tools). Yet with RIA custodians like Fidelity launching Consolidated Data and their new Insights + Analytics tools, the landscape may quickly become crowded with competitors, though the sheer breadth of fragmentation in the world of both independent RIAs and independent broker-dealers arguably leaves room for several newcomers to be successful in gaining market share of the new Business Intelligence category.

So what do you think? Would a holistic Consolidated Data platform make Fidelity more appealing even for multi-custodial RIAs? Will direct-to-consumer solutions like Human Interest successfully compete with financial advisers serving the small business 401(k) marketplace? Is a performance-based adviser rating system really a viable solution to help consumers evaluate potential advisers? Please share your thoughts in the comments below!

Michael Kitces is a Partner and the Director of Wealth Management for Pinnacle Advisory Group, co-founder of the XY Planning Network, and publisher of a continuing education blog for financial planners, Nerd's Eye View. You can follow him on Twitter at @MichaelKitces.


What do you think?

View comments

Recommended for you

Upcoming Event

May 14


Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video


4 secrets to adviser growth: Client experience

The client experience is critical for firms to thrive today. This is especially true for your wealthiest clients. SEI's John Anderson and Allie Carey offer some strategies for success.

Latest news & opinion

Midwestern magic? RIA assets soared nearly 30% there last year

Theories for what's driving the growth spurt abound, but it surpassed all other regions of the country.

8 apps advisers love for getting stuff done

We reached out to advisers to find out which apps they are using to run their business more efficiently.

10 tax moves to squeeze in before the year ends

Here are some tax moves clients can still make before year-end.

Richard Neal: the new face driving retirement policy in Washington

As he becomes head of the House Ways and Means Committee, Rep. Richard Neal (D-Mass.) is poised to make some big changes.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print