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8 March 2017 Multimedia

FinTech in Practice

Wealth Management Technologies, and What They Mean for Practitioners and Clients

  1. Joel Bruckenstein

This session from Wealth Management 2017 took place live in Nashville on 8 March at 11:20 a.m. CST. Topics include: Technologies having the biggest impact on the business of wealth management and financial planning, changing client preferences shaping the development of FinTech, and automated features likely to be considered a “minimum-level” service offering by today’s emerging clients.


SPEAKER 1: fintech in practice, wealth management technologies, and what they mean for practitioners and clients. Very excited to have Joel Bruckenstein. He's the publisher of Technology Tools for Today. And the company was previously known as Virtual Office [? Dues. ?] He's also the producer of the annual T3 Advisor Conference, a technology conference for independent financial advisers, as well as the T3 Enterprise Conference, which is an annual gathering of top executives from the independent broker-dealer community and large RAs.

He is the co-author of a number of books, and he also writes regularly for the Financial Advisor Magazine and Financial Planning Magazine. He also compiles The Annual Technology Survey for Financial Planning Magazine. So let's welcome Joel Bruckenstein.


JOEL BRUCKENSTEIN: Good morning. It's a pleasure to be here. We're going to talk a little bit about fintech. We're going to talk a little bit about technologies that are impacting the business right now, and how they might change over time. Going to talk a little bit about client preferences and what you need to know about that, and how it relates to fintech. And we'll try and talk a little bit about incumbent wealth management firms, and how they're responding to the threat from robo-advisers and other new digital technologies. And if we have a little time, we'll talk about some of the newer things that are happening that you may not be aware of yet but I think will have a big impact on your business going forward. So let's get started. We've got a lot to cover.

So what's impacting the business right now? It sounds strange to say this, but one of the things that's really impacting technology right now is regulation and compliance. And, of course, technology is also impacting wealth management businesses.

Sort of the big news last year and going into this year for a lot of firms is the DOL fiduciary rule, and the rule's impact on technology has been very significant. So a lot of folks are saying, well, now it looks like the rule may be dead. Is that going to change anything, and will that impact technology?

And the answer is it's already impact that technology, particular at the IBD firms. They've spent already millions of dollars trying to comply what they thought was going to be the final rule. And the consumer press, I think you know, has already been all over this. So I think no matter what happens with the Trump administration and whether the actual rule goes through or not, the genie is out of the bottle. Consumers are becoming aware of what fiduciary means, which is very good news for people in this room.

And, you know, firms that have spent are going to continue to spend on meeting their fiduciary obligation. And so particularly for IBD firms that were more-commission based, they're still spending a lot of money in order to get up to speed on this, and they'll continue to spend money.

So why is this important to the people I deal with? It's because it really disrupted their investment cycle and technology. A lot of folks who had two, three-year technology plans a year ago, all of a sudden the rule-- it looks like it's going through. They have to stop what they're doing, they have to pivot, and invest heavily in the DOL and compliance. And as a result, they couldn't invest in some of the other things that they would have liked to deal with, which again, I think for true independent fiduciaries puts you at a competitive advantage because you don't have to do any of these things. Most of you are already compliant, or you should be.

The other big topic at pretty much every industry conference that I've been at over the past six months to a year has been cybersecurity. And again, there's a regulatory piece to this and there's a technology piece. I'm not going to spend a lot of time talking about the regulatory piece because that's not what I do. I'm going to talk about the technology piece.

TD Ameritrade recently funded a study that was done by the Financial Planning Association on cybersecurity, and I'll share a few of those findings with you. One thing they found is when they asked advisers, you know, where are your clients on this? What we found is advisers think their clients don't care about it very much. They said only 11% of their clients are very aware of the risks associated with data security, and clients have very little understanding about what a firm's responsibilities are with regard to cybersecurity.

So it's pretty clear from the chart that advisers believe that client awareness is very low, and they're not doing enough to educate their clients. So there is a potential opportunity here.

So we asked the advisers, you know, what do you believe your clients are worried about? Only 11% said they're very worried about cybersecurity breaches. But it turns out that that's not exactly true, because Kaspersky Labs did a survey of 11,000 consumers last year, and they found that 65% of end clients really are very worried about cybersecurity. So there's a tremendous disconnect in the industry between what advisers think and what their clients think.

And only 41% of advisory firms are proactively providing cybersecurity education to their clients. And of the 41% that are doing some communication, the vast majority of them said that they're doing it as part of an ongoing client meeting.

How many of you think that's an effective way to do it? Almost nobody, right? Because it's one-on-one. It's not scalable.

There are better ways to do it, and we're not taking advantage of them. I would argue that having webinars and conference calls where you could leverage the expertise of somebody who really is up on the subject, and send out, you know, a consistent message to everybody would be much more effective, but only about 9% of the 41% are doing that today.

Financial Planning Magazine also does a survey every year, which I run, and we ask people, have you been attacked? You know, has there been a successful attack at your firm, targeting your firm? Or has there been an unsuccessful attack targeting your firm?

How many people in this room believe that their firm has been subject to an unsuccessful cyber attack in the last year? Right. So we've got about maybe 20% of the audience.

Everybody's hand should go up. Every single firm in here I would venture a guess-- an educated guess-- has been the subject of an unsuccessful attack. You just may not know it. I work closely with a firm that provides cybersecurity expertise to the industry, and the CEO tells me he's never ever been in an advisory firm that hasn't been the subject of at least an unsuccessful attack.

The other thing you can notice from this chart is you look at the overall numbers, and you look at the bank-affiliated adviser numbers-- there's a stark difference there. Now, what does that tell you? It tells me that the bank-affiliated advisers are a little more up on this than the other advisers.

And then we look at it by age. And what you see is older advisers in my age group, 55 to 64-- 90% of them say they're not aware of any attack. Does anybody in this room believe that cyber criminals fail to target older advisers? Right. That's what I thought.

All it proves is the older advisers tend to be more clueless than the average. They're less aware. And that's a big threat because, in many cases, it's the folks in my age group who are running the firms, so they're not setting a good example.

So we can't do a whole session on cybersecurity here, but I'm just here to try and raise your awareness. And I think there's three components to a more secure environment that you should be aware of, and they're people, process, and technology.

People comes first. The weakest link is actually your clients. So if you're not doing anything to educate your clients about the risk of cybersecurity, you're doing them a disservice. Every advisory firm should have some sort of program in place to educate their clients. And the more wealthy your clients are, the more important it is, because the higher the likelihood that they are going to be targets of an attack. And, of course, you also need to educate your staff.

Second thing is process. You need enforceable policies and procedures. But you can have all the policies and procedures in the world, but if people are uneducated and you're not following up to see if the policies and procedures are being enforced, you're also going to have a problem.

And that's where technology can come in. Once you have policies and procedures in place, you can automate a lot of the compliance by using technology. Very simple example-- you know, one very popular cyber attack for a long time, which still goes on today, is the salting of parking lots with USB drives.

So you put a USB drive in the parking lot, sure enough, some employee is curious, picks it up, and sticks it into a USB port on one of your computers. If the USB ports aren't locked down, the computer is going to get infected. It can go into your whole system and infect all the computers in your network. It's a little less popular today, but it still goes on. It's just one example. Something very easily that can be solved with technology if you have the proper technology to lock down those USB ports so only people who are authorized can use them.

So let's turn to some other findings of the Financial Planning Magazine survey. For the first time, we asked who's making the decisions at firms with regard to tech, and again, it skews pretty old. But the good news is I thought it was actually going to skew even older.

And what you see is the percentages at independent firms are a little bit better. They tend to skew a little younger, which means independent firms are hiring graduates from some of these programs-- masters and PhD programs in financial planning and wealth management, and they're giving those younger folks more of a role in the technology decision, which again, to my mind, is a good thing.

What technologies are having the greatest impact on firms? The answers have been surprisingly consistent over time from our survey, at least. Not just saying they are completely the right ones, and we'll get to that in a sec. But what you see here is that financial planning software in CRM over time have provided the greatest ROI. And these numbers are consistent at least over the past five years in the survey.

And what's also interesting is independent RIAs-- the numbers are even more compelling. And the reason that's important is we survey a number of different demographics. We're surveying, you know, insurance advisers who say they do wealth management, CPAs who say they do it, folks at independent broker-dealers, at banks, et cetera. And the only group that we know is always spending their own dollars on technology is the independent RIAs. 100% of them are spending their own dollars. So if they say this is where they're getting their best return, you can take that to the bank.

The other really frightening information here is that among CPAs, 40% said smartphones were giving them the best ROI. And the conclusion we reached was until recently, a lot of them must still have had flip phones.

You know, portfolio management software was also somewhat of a surprise. It was talked about a little bit yesterday. I know Scott talked about it, and I'm going to come back to that subject, I think, a little later. But one thing that I've learned from my consulting with both RIA firms and what I would call boutique investment management firms is that they tend to value their portfolio management reports much more than their clients do.

Advisors, especially older advisers, overestimate the value of those reports. But our surveys show that advisers' clients think less about it, and when advisers survey their own clients, they tell them it's a lot less valuable than they think.

There's also a lot of controversy around client portals. I think in your survey, the survey that came out here-- the investor one, which I think you all have in your packets. If you look at younger advisers in here, under 35, wealthy individuals, 70% of them say the strength and the breadth of digital offering made available to the client is extremely important to them. And between 35 and 54-year-olds, it's 61%.

So clients really value this, but I think there's a misconception among a lot of the folks in this room and in the industry in general about how much clients really do value it. And I think there's a couple of reasons for it. One is the early adopters are people 10 or 15 years ago who tried to provide portals to their clients. They found their clients weren't using them.

And one of the reasons their clients weren't using them is because they weren't very good, but the conclusion that the advisory firms reached is clients don't care about it. So that's one aspect of it.

And I think the second thing is there's a generational change. So younger wealthy clients interact with technology much differently than my generation does because they're technology natives, and they grew up with it, and that's what they expect. But a lot of the advisers who are making those decisions are my age, and they don't realize that, and so there's a disconnect there. But I think what you're going to see and you're starting to see already is that the next generation of wealthy individuals are insisting on this type of technology.

And when we asked the question a different way, you know, what technology had the greatest impact as opposed to the greatest ROI, again, the results were very consistent. So financial planning software and CRM software were the ones that seemed to be the most important.

And what's your next technology purchase likely to be? Again, it doesn't surprise us. A lot of hardware in there because a lot of advisory firm still have Windows 7 machines or early-generation Windows 8 machines. But number two, financial planning software.

And it's particularly strong among the IBDs. Why is that? Because for years, the IBDs have sort of paid lip service to financial planning and wealth management, but they really haven't done much of it. And now, with fee compression and transparency, on the investment side, they're realizing that they have to get more into wealth management, and they're making a real effort to do so.

Some other observations-- 16.1% said they do plan to purchase a client portal solution in 2017, and I think you're going to see that trend continue. And a lot of IBD reps say they're going to plan to spend more heavily on technology in '17, again, because they haven't invested in it as heavily as they should in the past. And they don't have the right mix of technology.

Now, why is CRM so popular, and why are advisory firms getting an ROI there? I think there's a number of reasons. The more recent one is the DOL fiduciary rule again. If you're going to hold yourself out to be a fiduciary, you need to know a lot more about the client, and some of these folks don't know as much about the client as they need to. So here's a way to document everything.

And I think the other answer is in order to have a deeper and a better relationship with the client, you need to know as much about the client as you can. And where do you document all that? It's in the CRM.

Also, a lot of businesses are trying to scale more, so if the average adviser is going to handle more clients, there's more information to juggle in your head. Can't juggle it in your head anymore-- you need to document everything and you need to share it with others in the firm.

What I find when I go into firms, whether they're investment-related firms or more pure RIA wealth management firms, is a lot of times there are individuals within the firm who know a lot of things about a client or a family that others in the office don't know but need to know. And that's because it's not memorialized in the CRM software.

So one interesting stat when we first started looking at it is we said, how many firms aren't using CRM in the survey? And in 2012, it was 12%. And in 2016, it was 12.5%, and that just felt wrong to me.

And then we dug a little deeper, and we looked at Outlook usage. Well, in 2012, 32% of firms said their CRM of choice was Outlook. And today, it's only 15.6%. So what's the problem with this picture? Outlook is not CRM.

So that's where the gap has really closed. We have another 16 plus percent of survey respondents who weren't using CRM a few years ago who now are using true CRM.

The other thing we find is there's a lot of legacy software out there, and just over the last few years, it's been declining. So as recently as 2013, 9% of respondents were still using ACT!, which is something I stopped recommending over a decade ago. Today we're down to 3.3%.

And GoldMine is another one. A few years ago, there was still 2% of folks using it. Now it's 0.2%. So the other movement we're seeing is folks who are finally getting off these legacy systems and moving to modern systems.

So among our survey respondents, what's the most popular? Redtail CRM-- very popular overall results-- 21.6%. Among duly registered advisers, almost 30%. And then you have Salesforce, Juncture, and Microsoft Dynamics.

Again, to me this is intuitive. It makes a lot of sense. And the reason I have the duly registered folks up there is because for the most part, they're not making their own decisions. These are enterprise decisions, so this is what their broker-dealer is most likely telling them to use.

T3 in conjunction with Inside Information just did our own survey, which came out last month. And it's a little hard to read, but I think what you can see is the numbers are a little bit different. Redtail is still the leader, and the reason is because it's a great value for the money. It's not the most comprehensive CRM out there, but it's more than enough for most firms, and it's very, very attractively priced.

But where the real difference is the second place one, Juncture. If we go back and we look at it among duly registered advisers, it almost doesn't register. And among the T3 survey, which was almost exclusively independent RIAs, it's almost 21%.

The other thing we did a little bit differently is we asked folks to rank what they thought of the software. And again, what you can see is that Redtail did very well, and Salesforce didn't do quite as well. And I think the reason is for smaller firms-- and when I say smaller firms, with less than 50 users, or even more, who have the in-house expertise to customize it for themselves-- it can be frustrating.

But if you look at Concenter XLR8, which has a very small market share, what they do is they essentially create a Salesforce overlay. So they customize Salesforce for advisers. They create all the fields and the workflows for them, so it works out-of-the-box. And there, satisfaction is very high.

So the lesson is if you're going to buy Salesforce, you need to customize it to work for our industry. There's a number of different ways to do that. But it's not going to work for you out-of-the-box.

I don't mind naming names. Financial planning software-- the ROI continues to be good. We said that. So what's popular there?

It's increasingly turning into a two-horse race between MoneyGuidePro and eMoney, and they're very different applications. MoneyGuidePro is goal-based financial planning. eMoney is primarily cash flow-based planning.

And again, if you look at the RIA-only segment, the numbers are even more stark. So when advisory firms are spending their own money for financial planning software, that's what they're choosing overwhelmingly.

The other two I put it on the bottom are very new applications. They're only a couple of years old-- Advisor and Right Capital. And again, you can see fee-only RIAs are a little more willing to spend money on a newer, less well-known, less proven application.

Now, when you look at the T3 and Inside Information survey, you see the same thing. MoneyGuidePro and eMoney lead by far, and their satisfaction ratings are quite high. But look at the other two that we just talked about at the bottom, Advisor and Right Capital, and look at their satisfaction numbers. There's a big spread there between Advisor and Right Capital, and that would indicate to me that Right Capital has a good chance of being a winning solution, even though we're very early in the game.

Advisory firms have a real problem when it comes to demographics. A lot of the newer CRM is including what I would call some analytics in there. I mean, advisory firms have the data, but they don't have it in a digestible format. They have to load it into spreadsheets.

So what a lot of the CRM and, to a lesser extent, the custodians and others are trying to deliver up to advisory firms is demographic dashboards. So it's just right there. You don't have to do anything.

And one of the ones that I think is really helpful is average age of clients over time. So if you can chart the average age of your client over time, and the charts going this way, you have a dying practice, because you clients are getting older every year, and you're not replacing them with younger clients. And as you can see from the chart here, there's very few firms-- almost none-- that have a majority of their clients that are under 40.

So that's a problem. We're not getting enough younger clients. And again, a lot of this goes to the technology that all of you are using.

And this chart just points out that the numbers are a little bit skewed by the smallest advisory firms. So when you look at the very smallest firms, they're just startups, so a lot of them are younger. They're trying to attract a younger demographic, and some of them are. If you take them out, the numbers are even more stark.

Some other observations from the surveys. Dissatisfaction with core programs and the integration among those programs is still very high. 30%, roughly, of advisory firms tell us that there's not enough integration among their core applications.

The other thing we see is social media usage varies greatly over the different verticals. So independent operators are using Twitter much, much more than some of the other demographics are, and some of that goes to their compliance departments. I mean, independent advisory firms, within reason, have a lot more freedom to make those decisions, where, you know, registered reps don't.

One that surprised me a little bit is almost 20% of independent firms are using YouTube for business-related tasks. How many folks in here are using YouTube? OK, almost nobody. So there might be an opportunity there.

So what's changing? And what do we see changing on the tech side? Investment advice is being commoditized, particularly in the retail space. So the typical independent RIA firm-- how many of them are really adding alpha after taxes, expenses, and their fees? And the answer is almost zero, OK?

In addition, you have margin compression. So the distribution model for products will change, and actually is already changing, and we're going to show you how in a second. We're starting to see a lot of the more successful independent wealth management firms already de-emphasize the investment side, and they're shifting to a more planning-oriented model.

To a certain extent, I believe that technology and scale can compensate for lower margins. And I've thought for a while that the TAMPs are going to get squeezed in the broker-dealers. We're seeing this happen already, and I think the trend is going to continue.

So let's just talk about one really new technology called the model marketplace, because it may have relevance for some of the folks in this room. The model marketplace is a centralized platform, and it offers third party investment models. Sounds like a TAMP, right?

But what's different? What's different is in this model, the adviser really retains control. They actually do the trading, so they have control over the time of the trading. They can do more tax planning.

And the typical TAMP--


JOEL BRUCKENSTEIN: A third party investment management platform. So Envestnet in that is an example of a TAMP, one you may be familiar with. So, you know, a lot of investment management firms will go and put separately managed account on the shelf of these TAMPs, and advisers will use them to build portfolios for their clients as opposed to mutual funds or ETFs.

But what they lose is the ability to really do timing for tax purposes, right? Decide when to take a tax loss or not, for example.

So what these new platforms actually allow you to do is to just buy the intellectual property. You can purchase the model without purchasing all the other services that go through it. And it's a new distribution model that's just starting to take shape. TD Ameritrade announced the launch of theirs at their conference the end of January. Riskalyze, which was formerly known as a risk assessment tool for advisers, just launched one. And Orion Advisor Services just launched theirs. And I think you're going to see a lot more of these.

Let's talk a little bit about consumer preferences and how they're changing. I think everybody would agree that expectations are growing, right? Your clients or your potential clients are out there in the real world every day. They see what the latest and greatest technology is on their phones, in their cars, in stores, in their friends' homes, in their offices. And let's face it-- change is taking place very rapidly, so clients expect anywhere access any time on any device from their advisers.

The other thing the clients expect is a frictionless environment. What does that mean? It means if I have to struggle with your technology in any way, shape, or form, that creates a very bad impression. And to give you just one example, you know, I'm on the phone or on the internet all the time, having calls over WebEx Meetings, GoToMeeting, things of that nature.

A lot of those virtual meeting technologies require you, almost every time you log on, to download an applet onto your computer in order to have the meeting. It's not a very comfortable situation, because every time, there's no immediacy. You have to wait sometimes a minute, two, three for the software to download. And from a client perspective in particular, they don't like downloading software that they're not familiar with on their computers. It may make them feel uncomfortable.

So that's friction, OK? If something doesn't load properly, if you have, for example, a web page that looks good on a computer but doesn't look good on a handheld device, that's friction. It creates a really, really bad impression with the client, and it's going to discourage them from interacting with you. And if they're a prospect, and their first interaction with you, which is before they ever meet you personally, because it's going to be over the web, has any friction, you've probably been disqualified before you even meet with that potential client.

So consumers want a relationship on their own terms. What does that mean? If you're an independent RIA firm, or any firm for that matter, how's a potential client going to find you? There's two ways.

If they're looking for you by name and they're looking for the person, the first interaction is most likely going to be on LinkedIn. That's your online resume. If your LinkedIn profile is not up to date or it doesn't look professional, you're going to be disqualified before they even meet you.

If they're looking for you by firm name, yeah, it's going to be a Google search. They're most likely going to look at your web page first, and then they're going to want to see who are the principals of the firm, and they're going to look them up on LinkedIn. So again, if you don't make a good impression online, you're never going to get a sit down meeting with a client.

Now, it came up in one of the sessions yesterday-- marketing-- and how when I came into this business, 90% of the RIA leads came through referrals. Those referrals are starting to dry up. They're starting to dry up for a number of reasons.

Some of them is because there's more competition. So the firm yesterday, you know, was getting referrals from their CPA, and then the CPA decided to open a wealth management arm and compete with them. So that's a risk. You're not going to get as many referrals going forward from CPA and from attorneys as you used to.

Also, the next generation-- my kids-- are going to be looking on the internet and their peers on social media before they ask me for a referral, OK? So it's a generational thing, it's a technology thing, it's a behavioral thing, and it's a competition thing. But you add them all together, and you're going to need to get referrals from new sources because the traditional channels are drying up.

And one of the new sources where I believe you will get referrals is from robo-advisors. So we'll talk about that in a sec.

But here's the old way. The old way is you wait until a prospect accumulates a million dollars, and then you agree to take them on as a client. Well, here's the problem. If I walk into your office with half a million dollars and you say, hey, you don't meet my minimum, when I have a million dollars, you think I'm coming back to you? Not a chance in hell.

So to me, in this day and age, that model is broken, OK? You need to engage with that younger generation much earlier than you did in the past. And you need to leverage digital and engage with them early, even if it lowers your overall margins on those clients initially. But having said that, I think scale can help.

So how are incumbent wealth management firms responding to the rise of the robo-adviser? Here's how it was almost 100% two years ago. They buried their head in the sand, and they said, this is a fad. It's got nothing to do with me.

That's not the way it's happening today. I do a lot of consulting, and I can't remember the last time I had a firm said they weren't interested in implementing some sort of digital advice platform. Where they're really struggling is trying to understand how to differentiate between the various platforms, and also how to incorporate it into their existing business model without disrupting their business too much. But we're also moving to a more financial planning-centric model, and we're looking to scale.

The other thing that I would just bring to your attention is robo 1.0 was not all that sophisticated. They're not standing still either. They're getting much more sophisticated.

One of the big knocks against them initially was they didn't integrate into the adviser ecosystem. So an advisor had CRM, they had portfolio management software, they had financial planning software, and these robos didn't talk to any of their existing systems. They sat outside the ecosystem. Wasn't very convenient to use them.

Now, all of the B2B ones are integrating with your custodian and with your other applications. And some are now actually starting to get into goal-based planning. Fidelity has a B2B digital platform that actually does some financial planning, and then you can graduate from there into eMoney, which, of course, they purchased a few years ago.

So some of the newer ones that just intrigue me right now that I thought I'd throw out a few names for you-- Advisor Engine, Robust Wealth, which I had no idea, but they were actually exhibiting here, and Investment POD. And these are three examples of what I would say, you know, digital platform 2.0, if you will.

So Advisor Engine is run by an industry veteran. He's worked for Merrill Lynch. He worked for a number of years for Bear Stearns, and he's worked for other companies. Very well-funded. Wisdomtree bought a minority interest in them, so they have money, and they have distribution.

They have a very nice client portal. They have straight-through processing and onboarding. They offer trading and rebalancing, and they're continuing to build out new features like client acquisition tools and what I would call financial planning light. Wrong way.

Robust Wealth, founded by a veteran from Franklin Templeton. It does goal-based asset allocation. It does what I would call traditional asset allocation models. And they also have what they call investment frameworks, which are a different way of allocating the assets. It's essentially building what I would call a private target date fund for each household. And it's relatively new, but I think it has a lot of potential.

And another new one that I just came across recently is called Investment POD. Another experienced investment team came out of the investment banking world. They use more sophisticated models. The POD, P-O-D, stands for passive, opportunistic, and defensive strategies.

They build core satellite portfolios. They claim to have defensive risk management strategies. And it's very, very new-- they're just getting off the ground-- but I find it very intriguing.

Another thing that we find all the time is that advisory firms don't align their technology spending with their technology goals. You know, I'll ask an advisory firm, what are your core beliefs? You know, why do folks do business with you? And almost nobody says because I beat the benchmark, right?

And if you listen to the advisers who were up here yesterday, nobody was talking about beating the benchmark. Yet most of the firms spend the vast majority of their tech dollars on investment-related tasks. In fact, I've worked with firms on a consulting basis that spend 90% of their technology dollars on investment-related tasks.

So to me, there's a big disconnect here that has to change in the industry. If the real value that advisory firms provide has little to do with investment performance, why are they allocating their resources so poorly?

So what's next? What are the next big technologies that should be on your radar screen? Three that just came out of the T3 conference this year. Again, voice, virtual reality, and augmented reality.

There's one new application out there that was at the T3 conference that actually incorporates avatars into their software. A number of firms have already demonstrated Alexa-like skills. Imagine, rather than typing into a spreadsheet or whatever software you use, requests. You could just say to Alexa, you know, show me my 10 clients that need rebalancing, or show me all my clients on the screen who are the most heavily weighted in a given stock, for example, or who have excess cash.

This is also what your clients are going to demand, because all your clients have above-average wealth, and I guarantee you every single one of them has an Alexa-enabled device in their homes already. So why aren't you delivering that kind of experience for your clients? The answer is you should be.

EMoney actually demonstrated a virtual reality proof of concept at our conference. You can basically put on the goggles and have a conversation with a virtual planner.

So when I ran my own RIA firm, I said, wouldn't it be great if I could clone myself? Well, in a way, now I'll be able to. So just think about it, and think about what the implications are for the industry if we have avatars who can interact with clients in real time.

I'm going to stop here because I want to leave some time for questions, but I will say that if you're interested in what's going on in the world of technology, we have the T3 Technology Hub. If you give us your email address, we will send you a monthly digest of all the new articles that are up there. We won't spam you.

And, you know, I alluded a couple of times to our survey, which just came out in February. It's, I think, a 14, 15-page survey that you may find of interest. If you go to the home page on the T3 Technology Hub, you can download the survey for free. You can find me on LinkedIn if you like. That's my website if you have questions or comments. And I'm happy to take some questions from the audience.

SPEAKER 1: Sure. Thank you. Great presentation.


What about improving the physical security of data? Things like stolen laptops. Do you recommend having sort of a vault-like storage to protect those types of things?

JOEL BRUCKENSTEIN: Right. Well, everybody should have encrypted devices, right? If it's outside the office, it should be encrypted. A lot of states have regulations that say if your device is encrypted, the burden of proof is on somebody else to prove that you are negligent. But if your device is not encrypted, the burden of proof is on you to prove that you aren't negligent.

So essentially, every device that's outside the office should be encrypted, if it has any client personal information on it. Does that answer the question?

SPEAKER 1: It does. Some questions-- is there a difference between what you might refer to as front-office fintech versus back-office fintech? Could you explain that?

JOEL BRUCKENSTEIN: Sure. I mean, front-office fintech is primarily what's client-facing or will produce things that are client-facing. So advisers who are the front line, if you're dealing with, maybe, portfolio management software or financial planning software, CRM, those are more front office-type functions. The back-office things are the databases that hold all the data.

And you may have heard the term "big data." I mean, there's really big data and little data. Big data is unorganized data that's out there somewhere on the web. It could be anywhere, quite frankly. And little data is the unorganized data that's in all your offices.

So the typical firm, maybe only 15% or 20% max of the data that's on your servers is easily accessible to you and can be organized and searched in an efficient way. And so that's the job more of the back-office folks, the data scientists, to take care and maintain those systems. But, you know, the people in this room probably have no or little interest or access to it other than making sure somebody is doing it correctly.

SPEAKER 1: In your experience people, that are actually on the front lines designing, you know, the front-office fintech-- do they tend to have a stronger IQ or EQ? Does that matter in the, you know--

JOEL BRUCKENSTEIN: That's a really good question. I would say these days, EQ is much more important because it really is all about the client experience, OK? And I go into offices all the time, and I get folks my age, the owner of the firm, and they'll show me their great performance reports. And they'll tell me how distinctive it is, and how it's the core of what they offer, and how important it is, and again, the clients could care less.

And I'll say to them, how many clients read it? You're sending them quarterly reports. Have you ever done a survey and asked how many people actually read them? Nobody knows.

I know. It's a lot less than they think, right? Because in the old way of doing things, it took the advisory firm about, maybe, 20 to 25 days to get those reports into the hands of the client after the end of the quarter.

I mean, I still get it with mutual funds, right? I get a mutual fund report that's mailed to me from a brokerage firm or direct from a mutual fund company. It's three months old by time I read it. It's the last quarter stuff, right? I want immediacy. I want it yesterday.

So you need to have an experience that engages prospects and clients, and that's frictionless. And anybody who has an experience that's not that way needs to change it. When I started in this business, I used to give-- we used to call it financial planning by the pound. I'd create these 80-page reports, I give it to somebody, and then they go home and read it and maybe say, well, what if inflation runs 1% higher, or if returns are 1% less? And then I'd print out another 80-page report and send it to them, right? Not very efficient.

With software today, you can do that in real time while you're talking to a client, either while they're in your office or virtually. So if you're not offering that kind of experience, one of your competitors is, and you're at risk.

I was having a conversation with a couple of leading minds in fintech a few weeks ago, and we were talking about where we thought it was going. And I think we all agreed around the table that probably at least 20% of the broker-dealers that are in business today will be gone in five years, strictly because their technology is so far gone, it's almost not fixable, or they won't invest enough to fix it. And it's probably the same number of independent RIA firms.

SPEAKER 1: One of the trends we discussed last couple days was movement for independence. People starting, you know, RAs. They're leaving the full-service firms. Are there some metrics that you can relate to us about what would the average percentage of sales, or what's the metric that would be indicative of spending for a typical RA for technology?

Right. I mean, RAs are like snowflakes. No two are the same. So depending on the business model, your spend on tech can vary greatly. What I would say is this-- once you reach a certain critical mass in the IBD world, it's much more cost-effective to be independent than it is to be under an IBD umbrella. Having said that, not everybody's an entrepreneur, so the IBDs continue to flourish with a certain demographic.

You know, if you are moving, let's say, a reasonable amount of money, it depends on the number of employees, obviously, as well, because you can manage a quarter billion dollars with two employees or with 10 employees, right? So it's going to vary.

But just to give you a rough idea, something like Redtail, for up to 15 employees, is about $100 a month. Financial planning software for a seat is going to run you roughly somewhere between $1,500 and $2,000 a year for one seat. And as you scale up, a little bit less per seat.

Portfolio management software-- again, it depends if you're doing the downloading and reconciliation yourself or you're outsourcing. If you're outsourcing to an Orion, in a Black Diamond, a Tamarac, probably entry level price is somewhere between $15,000 and $20,000 a year. You're going to need a compliance attorney, so that's going to cost some money. And there's some other software, but it's not ridiculously expensive. It's not as expensive as most people think.

SPEAKER 1: Thank you for that. You had mentioned some of these new platforms. Robust is one you mentioned, and you said it has goal-based planning capabilities to it. Does that extend to the actual performance reports, monthly statements?

JOEL BRUCKENSTEIN: Very good question. I think, again, everybody's trying to build this out right now, OK? So what you're seeing-- the bigger trend, if you will-- with some of the big custodians and some of the bigger firms is they're building integrated adviser dashboards.

And so what does that mean> It means right now, if you're looking at portfolio management software, you're in your portfolio management software, that's all you see. But eMoney, TD Ameritrade, to a lesser extent-- well, Black Diamond is starting to do it, and there are other firms that are doing it. They're building out what they call an adviser dashboard.

And what is it? It's widgets. So you have, let's say, four or six mini screens on one screen. And in that screen, you can have performance, CRM, and financial planning.

So what would you have if you're looking at a client? MoneyGuide's a typical example. I don't know if anybody in the room is familiar with the MoneyGuide.

But basically, MoneyGuide runs a Monte Carlo simulation and says, you know, what's the odds of success of the plan at a given time? And if it's whatever you set the parameters-- let's say 80% or higher-- they're in the safe zone. So you can have that dial on somebody's screen, and you can see if it's projected to be in the safe zone.

And you can actually also have that in the client dashboard, which is the next generation of these. It's not just going to be in the adviser dashboard, it'll be on the client dashboard. Or you could have a dashboard that says of all my clients, who's out of the comfort zone today? I need to look at those financial plans and see what's going on, and work with the client to correct that.

SPEAKER 1: I don't know this space here, but apparently, a popular site, Myspace, if you're familiar with it--


SPEAKER 1: You know, could that potentially, in your view, distinguish your firm is tech-savvy, or would it just be, sort of, trend-following, very generic?

JOEL BRUCKENSTEIN: Well, I don't know about Myspace. It's not exactly a trend I would follow. Look, there's always going to be cutting-edge technologies, and you don't have to be on the bleeding edge, but here's what I found. This is probably the best way I could answer the question.

Years ago, when I first started talking about the technology to advisers, I would go out there and I would say, you know, you need to get on email. And nobody got on email. And I couldn't figure out how these firms stayed in business.

And then I would say, you need a website. And it would take them five years to get a website and listen to me. And I couldn't figure out, how are these firms staying in business?

And then I finally figured it out. Their competition was the other people in the room I was talking about. They were all late adopters. So there were no outside influences. They were only competing against other people who were late adopters, so there was very little risk to the business.

Well, guess what? That's not the case anymore. You have outside disruptors coming in, you have the wealth fronts and the betterments and a lot of other firms, and so you're not just competing against each other anymore, you're competing against really tech-savvy firms out there, and they are raising the expectations of prospects. So now if you're a late adopter, you're going to be out of a job and you're going to be out of a business.

SPEAKER 1: Almost out of time, but one last question. As a former planner, do you think all of the emerging technology and giving investors, consumers access to all this information that they can look at in real time, is that really going to be helpful for these folks? Putting a short-term view where they should be taking them longer-term view?

No, I agree. I mean, look, that's, again, all about the client experience. If you're good at what you do and you understand investor psychology, you can craft your portal to give them a meaningful message and give them the message you want to, which is more of a goal-based message as opposed to a short-term-based message. If all you do is take your quarterly performance reports and put those online, you're really not solving the problem because you're telling them we're working for long-term goals, and you're saying, judge me on the quarter, on the last quarter.

But if you put different kind of information like the MoneyGuide dial, and say, don't judge me by whether I beat the benchmark the last quarter, judge me by helping you make progress to your long-term goals, you craft the right message. And the technology exists to do that today. So if you embrace that technology and you do it right, you're going to have very happy clients and you're going to have a very successful practice.

If all you do is port your former, old model onto the web, you're going to have the same problems you have today, and you're going to be challenged in the future.

SPEAKER 1: Well, thank you for giving us an update on an area where a lot of us, especially old folks like myself, don't have the background. So thank you. It was a great overview and summary.


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