Folio Financial launches platform to build next generation of robo advice

Will the technology be enough for the custodian to gain market share?

Dec 6, 2018 @ 5:01 pm

By Ryan W. Neal

Folio Financial has a new technology platform that it says will pave the way for the next generation of digital advice.

The parent of Folio Institutional describes its new Digital Wealth Platform as a suite of application programming interfaces that financial institutions, independent advisory firms and technology startups can use to develop client- and adviser-facing digital products, such as a standalone robo-adviser, an adviser workstation or a hybrid robo provider.

It includes hundreds of APIs covering goals-based planning, tax optimization, custom portfolio creation and many more. Firms can pick and choose any of the pieces they want, said Steven Wallman, Folio founder and CEO. Folio Institutional was formerly known as FolioFN.

(More: FolioFN's Wallman: How to make an impact with your investing)

He compares DWP to a set of blocks for building whatever tech platform a firm envisions. If a firm doesn't have the capability to put the blocks together themselves, Folio can do it for them.

"This allows an institution to completely control all of the parameters, all of the inputs that go into it, all of the macroeconomic assumptions and what securities to use," Mr. Wallman said.

For example, an RIA looking to bring direct indexing (where indexes are recreated by purchasing the underlying stocks and adding or removing companies based on a client's preferences) to small investors who can do so with DWP's custom portfolio creation and support for fractional sharing.

Or, a turnkey asset management program, or TAMP, could automate its services and make separately managed accounts available to less affluent investors. Advisers could then continue offering high-touch service to wealthy clients, while making multiple investment models from multiple managers available to smaller accounts through a self-service model. Mr. Wallman calls it a "robo-TAMP."

"The result is that instead of what you see today where institutions have one set of assumptions that they generally use for their higher-end clients and a robo offering with a different set of assumptions, and then have to explain [to investors] why," Mr. Wallman said. "Here they can be completely consistent across the entire firm."

Nexus Strategy president Tim Welsh praised the technology as "outstanding," especially given Folio's track record as a digital-first company, and said the platform could be a real differentiator for a smaller custodian like Folio.

"The custodian game is won and lost at the point of sale," Mr. Welsh said, meaning that when a new client decides where they want to open accounts, "ease of doing business" is a major deciding factor.

"At that point, your technology matters tremendously," he said.

(More:Robo startups turn to low-risk offerings in anticipation of downturn)

But after a few years of advisers having tools they can use as robo advice providers, Mr. Welsh said most advisers still haven't adopted it. Or, they tried it and gave up after problems with pricing, how to roll it out or getting it to work with the rest of their business.

"[Advisers] overcame their curiosity and the fear factor, but realized that their clients are millionaires. They don't need this technology," Mr. Welsh said.

He's also skeptical of any claims that someone has built a true "end-to-end" product that works without any problems. Plenty of tech companies claim to offer everything under one roof, but advisers and their back office staff always find hang-ups, Mr. Welsh said.

"Nothing really integrates like they say it does. There's always problems," he said.

Like Apex Clearing, Folio also wants fintech startups to utilize its API to accelerate development of next-generation technology. The difference is Folio's APIs are all built in-house and not leveraging third parties, making a more integrated set of technology, Mr. Wallman said.

(More:Invest Forward launches white-label robo for advisers)

"[Fintech startups] can compare us to Apex and look at what we offer and see how much they will need to build just to catch up to the APIs we already have," he added. "We don't have multiple parties you have to deal with if something goes wrong. If you don't like something, we can change it."

For its part, Apex said in a written statement: "As a custodian that's been at the vanguard of digital wealth since the beginning, we are excited to see the space growing and other companies recognizing the important transformation taking place."

Beyond RIAs and fintech providers, Folio will pitch DWP to large financial institutions, lending companies, insurance providers and banks, Mr. Wallman said. A large credit union will soon launch technology using DWP, and he said he's confident that enterprise financial services firms using other robo-advisers will soon make the switch.

As impressive as Folio's technology is, the challenge is convincing the largest RIAs to open new accounts with Folio instead of the custodians they already use. Can providing a template for the next generation of digital advice be the key to gaining market share?

"Absolutely, but the majority of the assets and the wealth are just not there," Mr. Welsh said. "Most firms, most advisers did not start on Folio."


What do you think?

View comments

Upcoming event

Sep 24


Diversity & Inclusion Awards

Attend an event celebrating diversity and inclusion as well as recognizing those who are leading the financial services profession in this important endeavor. Join InvestmentNews, as we strive to raise awareness, educate and inspire an... Learn more

Most watched


Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.


Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

Latest news & opinion

Target-date fund design may be wrong for retirees

Researchers suggest the funds don't adequately hedge against sequence-of-returns risk in retirement.

InvestmentNews' 2019 class of 40 Under 40

Our 40 Under 40 project, now in its sixth year, highlights young talent in the financial advice industry. These individuals illustrate the tremendous potential of those coming up in the profession. These stories will surprise, entertain, educate and inspire.

New Jersey fiduciary rule: Pressure leads to public hearing, comment deadline extension

Industry push results in chance to air grievances on July 17 and another month to present objections.

Galvin to propose fiduciary rule for Massachusetts brokers

The secretary of the commonwealth is proposing a fiduciary standard in response to an SEC investment-advice rule he views as too weak.

Summer reading recommendations from financial advisers

Here are some books that will keep you informed and entertained during summer's downtime


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 It'll help us continue to serve you.

Yes, show me how to whitelist

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


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print