The dealmakers financing top adviser technology

Meet the money that backed Betterment, eMoney, Riskalyze, LifeYield and more.


Until recently, most private equity and venture capital firms ignored the adviser technology space, preferring instead to seek sexier — and often more lucrative — markets in consumer fintech.

But some recognized the adviser industry’s desperate need for modernization — and its willingness to pay for it.

Today, new tools are digitizing everything from client onboarding and portfolio construction to back-office operations and compliance. Fintech has expanded who has access to financial advice and how advisers serve their clients.

In less than a decade, some startups have attracted billions of dollars in assets, while others have partnered with large financial institutions or have been acquired in blockbuster deals.

(More: How advisers can survive disruptive technology)

For these early investors, the digital revolution in wealth management has been a lucrative business. Their success has proven the viability of adviser fintech as an industry, encouraging new investments and accelerating innovation.

InvestmentNews spoke to a few of those early believers to find out what attracted them to adviser fintech, which investments were successful and where they are looking for the next big opportunity.

Steve Lockshin

The Robo Investor

PrincipaL and co-founder of AdvicePeriod

It’s impossible to look at the landscape of modern adviser technology without seeing Steve Lockshin’s footprints.

As an early investor in Betterment, Mr. Lockshin, 41, was instrumental in encouraging the robo-adviser to pivot from competing against advisers to partnering with them.

“Steve challenges the status quo and forces you to raise your game,” said Cara Reisman, the head of Betterment for Advisers. “When he sees something exciting and new and makes sense for his clients, he’s not shy about bringing it to your attention.”

Next big thing:
“Anything that is data-focused … whoever owns the data owns everything.”

Mr. Lockshin’s personal background in wealth management narrowed his focus as an investor to the sector of financial services he knows best. Now principal and co-founder of AdvicePeriod, a wealth management firm that typically advises on a client’s total balance sheet, his former advisory firm Lydian Wealth Management reached $7.3 billion in assets under management before City National Bank acquired it in 2007.

Mr. Lockshin also co-founded Fortigent, a performance-reporting software that LPL acquired in 2012.

When he was introduced to Betterment in 2009, he saw technology that could disrupt an industry that was way behind the times. If advisers and Wall Street firms properly deployed digital advice, Mr. Lockshin believed it could “annihilate the old model.”

The disruption has taken longer than he initially expected, but he sees robo-advisers from institutions like Merrill Lynch and BlackRock as proof that the revolution is happening.

“I don’t know how long it will take for consumers to get that computers can do a better job with investment management than humans,” Mr. Lockshin said. “I still think there’s tremendous opportunity. I still think we’re in the second inning.”

Betterment now manages $13 billion in assets from 330,000 accounts. The company won’t reveal how the assets are split among its retail service, advisory channel and 401(k) business, but did say more than 400 firms now use Betterment for Advisors.

Mr. Lockshin also has invested in Quovo, a popular data aggregation and analytics site for financial advisers; Advizr, an interactive financial planning software; and FeeX, a software that helps reduce fees in retirement and brokerage accounts.

Brad Bernstein

The Growth Guru

Managing partner at FTV Capital

Brad Bernstein could see the role of advisers was changing.

What was once an industry of investment managers and salespeople was shifting to financial planning. Driving the change was technology — automating and commoditizing many of the ways advisers traditionally added value for clients. Mr. Bernstein, 51, managing partner at growth equity firm FTV Capital, believed there was a demand for products that helped advisers better articulate their value to clients.

He wanted a company with a proven track record of success among advisers, and something that was decidedly not trying to disintermediate advisers in the retail market. He decided on Riskalyze, a technology company built around helping advisers objectively calculate a client’s risk tolerance and align investment strategies accordingly. Mr. Bernstein led FTV Capital to invest $20 million into Riskalyze in October 2016.

Next big thing:
“Financial planning tools — how do we help people to better visualize what their future looks like?”

Mr. Bernstein was interested in the way advisers used Riskalyze to “find the right way to help clients understand their goals, planning and investment strategies.”

“If you can do that in a cost-effective and efficient way, that’s incredibly valuable,” he said. “The other thing I would say is [Riskalyze CEO] Aaron Klein has a vision, not just for what the product was then, but a roadmap for where this could go.”

Mr. Klein said Riskalyze used FTV’s investment to supercharge its growth — expanding from 90 employees to 210 and adding a new digital marketplace of model investments to Autopilot, its automated investing service.

It was Riskalyze’s first infusion of institutional capital, and somewhat of a rarity among the B2B technology vendors.

“Most of the major players I know in the adviser space today that were privately funded were all solutions that were homegrown by advisers and self-funded or raised capital from friends and family,” said Michael Kitces, partner and director of wealth management at Pinnacle Advisory Group. By involving outside capital, Riskalyze avoided the “sluggish growth” that challenges homegrown technology, he said.

Brooks Gibbins

The Outsider

Managing partner at FinTech Collective

With trillions of dollars in client assets still being managed by legacy systems designed before the era, it was only a matter of time before outside investors saw the potential for financial technology to disintermediate the industry.

That’s what attracted Brooks Gibbins, 45, to the industry when he founded FinTech Collective with his partner, Gareth Jones, in 2012. The venture capital firm has been one of the most active early-stage fintech investors over the past five years, seeding some of the biggest names on the adviser fintech scene.

When the two first looked at wealth management, they wondered how the industry could sustain charging 150 to 200 basis points for active management when digital advisers were approximating outcomes at a fraction of the cost.

Next big thing:
“Holistic data and contextual, multichannel interaction will be table stakes to compete.”

“In the next five to 10 years, you’re going to have robot-assisted advisers, and human-assisted robots,” Mr. Gibbins said. “We really looked at that and the role of the adviser and thought that it was going to be a space where you’re going to see a lot of retooling.”

FinTech Collective dove into the industry with investments in Quovo, a company that provides data aggregation and analytics for advisers and fintech companies, and NextCapital, an institutional robo-advice platform that now counts John Hancock Retirement Plan Services, Transamerica, State Street Global Advisors and Russell Investments among its roster of clients.

Mr. Gibbins took an active role in the early days of NextCapital, introducing co-founder Rob Foregger to other capital investors and aiding in board construction.

Mr. Gibbins said that while many VC firms got caught up in the hype surrounding the sleek user interfaces of direct-to-consumer robo-advisers, he wanted FinTech Collective’s investments to focus on deeper questions, such as how technology could improve yield on assets. FinTech Collective’s portfolio also includes Artivest, Openfolio and Vestwell.

Mr. Gibbons believes technology is in the “super early” days on the retirement side of financial planning and will soon have its moment in the sun.

“Robo was super interesting in 2015 and 2016, and financial planning was hot last year,” he said. “Retirement we’ll hear a lot more about in 2018.”

Ian Sheridan

The Explorer

Principal, co-founder and managing director of Vestigo Ventures

Seeing the opportunity for adviser fintech startups to get acquired by, or partner with, financial institutions, Ian Sheridan decided to draw on his more than 25 years of experience in the financial services industry — working in wealth, retirement and investing in startups — to identify which technology would be part of the next wave of innovation.

Partnering with Mark Casady, the former CEO and chairman of LPL Financial, and Dave Blundin, the founder and chairman of Cogo Labs, Mr. Sheridan, 52, in 2015 co-founded Vestigo Ventures, a new VC firm named after the Latin word for investigate or explore.

Next big thing:
“We see radical changes across financial services from the bottom of the technology stack to the customer-facing elements.”

The company’s first investment was an early-stage round in LifeYield, a software that coordinates and optimizes tax efficiencies across an entire household rather than single accounts. Mr. Sheridan said a follow-up round yielded a 25% write-up, and in November 2017, Morgan Stanley announced a partnership to provide LifeYield to its 16,000 advisers.

Before making the investment, Mr. Sheridan and his partners spent a year analyzing the marketplace and how VC companies were investing. Robo-advice was still the opportunity du jour, while existing adviser technologies focused more on digitizing existing adviser workflows.

What Mr. Sheridan wanted was to find a technology that would help advisers generate alpha for clients by, for example, optimizing asset location or by making intelligent withdrawals across accounts.

(Special Report: Digital Disruption: advisers brace for impact)

“We see LifeYield as the only tax-efficient software that’s actionable across multiple accounts and empowers the adviser,” he said.

LifeYield CEO and co-founder Mark Hoffman attributed his company’s early success to Mr. Sheridan’s and the other Vestigo partners’ experience in the industry, adding that their connections helped expand the sales efforts to a broader market.

Vestigo has since invested in Vestmark, an institutional digital advice platform that services $750 billion in assets.

“We’re not waiting for the next Edison or Tesla, we’re waiting for smart entrepreneurs that truly understand adviser friction points and use today’s technology to address them,” Mr. Sheridan said.

Mike Durbin

The Institutional Dealmaker

President of Fidelity Institutional at Fidelity Investments

Fidelity rocked the adviser fintech world in 2015 when it acquired eMoney, one of the most popular financial planning and client portal tools among independent advisers. The reported $250 million price tag proved there was money to be made in adviser fintech.

“Prior to that, there was good technology out there, but there wasn’t this stream of new business models, this new equity flowing in,” said Mike Durbin, 50, the president of Fidelity Institutional who spearheaded the deal. “The pace has clearly quickened.”

In 2014, Mr. Durbin was developing the road map for Fidelity’s next-generation adviser and home-office technology platform as the head of Fidelity’s Institutional Wealth Services. When eMoney went up for sale, it ticked many of the boxes.

The purchase terrified many eMoney users who worried they’d be forced to custody assets with Fidelity, a fear amplified by the sudden resignation of eMoney founder and CEO Edmond Walters just seven months later. But Mr. Durbin, who’s been described by eMoney employees as having the spirit of a technology entrepreneur, said it was always a part of the plan to let independent and multi-custodial advisers continue using the software.

Next big thing:
“I’m excited about the content, lead gen, marketing and communications offerings out there. Adviser firms consistently struggle with organic growth.”

“It’s important that we keep [eMoney’s] open-architecture approach,” he said.

The decision, unusual for financial institutions at the time, paid off for Fidelity. The company used eMoney to help develop its proprietary digital advice product while doubling eMoney’s core business over the last three years.

The idea is to make integration between eMoney and Fidelity’s custody and clearing service so good that non-captive advisers will have enough incentive to move assets to Fidelity or at least use it for new accounts. It’s a strategy that other institutions have since deployed as they acquire or partner with technology vendors.

Mr. Durbin said that since the deal there has been an increase by venture and private equity in investments in adviser fintech, as well as more participation from institutions, RIAs, broker-dealers and the wealthy clients they serve. Everyone seems to want a slice of the pie, and Mr. Durbin called it “the great fuel that the fintech revolution will continue to rely on.”

“It’s a vibrant market,” he said. “There is still capital out there for good ideas. The barriers of entry to start a fintech company have virtually been eliminated.”

Len Reinhart

The Active Investor

Chairman of Wealthcare Capital Management

After a career that took him from E.F. Hutton to founding the Lockwood family of companies, Len Reinhart turned toward private investing in retirement.

He worked with friends on some real estate opportunities and even a movie, but grew frustrated investing in companies that couldn’t utilize his decades of experience in finance.

Looking at the market in 2010, he said advisers still relied on picking the best fund or best SMA manager as the only way they could add value.

“That was due for a change,” said Mr. Reinhart, 62. “I started looking for companies that were on the leading edge of that change.”

Next big thing:
“Technology centered around client future liability — managing forward holistically rather than looking through the rearview mirror.”

Mr. Reinhart made an angel investment in LifeYield, which he believed did something the robos couldn’t accomplish — improve the returns advisers generate for clients.

“Robos are disrupting a bit, but they are just doing what we’ve done for years” he said. What interested him most about LifeYield was that it made it easy for advisers to serve clients at a household level instead of managing each account individually, which he says reduces fees, commissions and taxes for the end investor. “The industry has known this and investors assume that it’s being done for them, but it hasn’t been done because there was no technology to help the adviser do it. It’s a very complex process, and it really needs technology to solve it.”

Mark Hoffman, the CEO and co-founder of LifeYield, said Mr. Reinhart was an early sounding board for the team and helped develop the company’s go-to-market strategy.

“If you are in the wealth management space, Len is an executive that you absolutely want on your team,” Mr. Hoffman said.

Mr. Reinhart has also invested in Wheelhouse Analytics, a big data company that was acquired by Envestnet in 2016, and Wealthcare, a software company and turnkey asset management program that just crossed $2 billion in assets.

Mr. Reinhart said the popularity of fintech as an investment opportunity is driving up valuations, making it harder for private investors like him who want to take an active role in the company. But he’s on the lookout for new opportunities.

“I still get calls all the time from fintech companies,” he said. He attributes the success to his experience in the industry, which opens doors for startups and provides an advantage over outside private equity firms. “The biggest thing I’ve learned was to only invest in things I can impact.”

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