No lumber, no slumber: Canadian robo steps up

As I point out in my recent report on robo advisors in Canada, price points for digital advisors are on the high side, even for the lumbering Canadian advice market. Especially as these robos are not known for standout service, as other bloggers have noted.

So should it be a surprise that Invesco Canada has developed plans to roll out Jemstep in Canada, the digital advice service the parent company acquired in January 2016?

Opportunity beckons

The truth is that the roll out has relatively little to do with the small Canadian market, and everything to do with the US, and eventually, the UK, markets. Invesco has been digesting Jemstep for more than a year now, quietly making Jemstep’s robust aggregation and client servicing functions available to those advisors who want them.

Fine tuning is fine, but at some point, it’s time to go big. With prices for robo tech on the wane, there is pressure on Invesco top brass to make something of this acquisition. Indeed, Peter Intragli, CEO of Invesco Canada and head of North American distribution, signaled this launch a while back. It is also worth noting that stand alone Canadian robo WealthSimple is taking a similar tack to Invesco, launching in the US and hiring London based consultants to guide its UK entrance. I’ll talk more about the thinking behind both firms' move in a later post.

Technology, Training & Compliance in Light of the Fiduciary Standard

Technology, Training & Compliance in Light of the Fiduciary Standard
Capturing retirement assets is paramount for brokerages. When thinking about the word saving, it is hard not to think about retirement.  Brokerages are constantly looking for rollover assets, and as baby boomers retire, this search has never been more significant — which is why, when the DoL Fiduciary Rule was proposed, brokerages quickly reacted.

  April 10, 2017, when Phase 1 of the DoL Fiduciary Rule goes into effect, is quickly approaching.

  My latest report, The Quest for Retirement Assets: When the Light Shines on the Fiduciary Standard, explores ways that brokerages are reacting to the DoL rule. Brokerages continue to rethink their operating model. Brokerages are questioning their existing technology: Can it support a new business model? How should training be embedded and amended to support compliance with the DoL Rule? In my report I lay out some of the challenges facing brokerages, as well as best practices for compliance and training.   Regardless of whether the DoL rule is delayed, changed, or repealed, advisors need to know how to clearly communicate their offering to clients as it relates to the fiduciary standard. Investors are more aware than ever of the fiduciary standard. Even if the DoL relaxes its stance, there is no doubt that investors will continue to pressure advisors to act as fiduciaries. It won’t be long before clients ask for proof that portfolio transactions and ideas are made in their best interest.  

In the world of robo 2017, C.A.S.H. is king

For those of you who seek yearly prognostication, here we go. I see four factors or trends driving the evolution of robo world in 2017, and attempt to capture them here with a simple, suitable acronym: C.A.S.H.
  • Cross border activity: We’re now seeing robo advisors extend their reach across national borders. This is not just the case in Europe (think German-UK robo Scalable and Italy’s Moneyfarm, which launched in the UK) but in North America as well. I comment on the planned entrance of Toronto based robo Wealthsimple into the US market in Financial Planning.
  • Asset managers will continue to seek distribution, launching robo advisory platforms that enable the advisor to market their products. They’ll also want a share of advisor profits.
  • Synergies with CRM, compliance and other tech providers will deepen, as robos become more tightly integrated into the wealth management ecosystem. It’s no coincidence that two of the portfolio optimization software providers featured in my last report offer robo advisory platforms.
  • Hedge fund-like robos will prosper in an more volatile economic environment. These robos will use passive instruments to take a position on the market, and in some cases, allow users to “steer” (or apply their own views to) investment decisions.
Taken together, these trends signal the “mainstreaming” of robo advisory capabilities. Robo advice platforms are now less a “nice to have” than a core part of the incumbent advice offer. As such, these platforms are becoming increasingly bound up in the larger industry infrastructure. Those robos that seek to keep themselves distant or apart from this ecosystem will find themselves exposed, and short of cash, once the current funding cycle dries up.

Roll over, don’t play dead

In my most recent report, Wings of a Butterfly: Regulation, Rollovers and a Wave of Optimization Software, I discuss the challenges the DoL conflict of interest rule poses to the $7 trillion IRA rollover business. These challenges center on the need for advisors to break down 401k plan costs and make apples-to-apples comparisons of proposed rollover solutions.   Why focus on the rollover? First, the rollover decision serves as a touchstone in the relationship between client and advisor. Trust sits at the center of recommendation to roll over, and seldom are the vulnerabilities of the client so exposed. The importance of the  rollover decision is further magnified by timing. It often takes place at the apex of client wealth, where the consequences of missteps for the investor can be severe. For the advisor, the rollover offers a unique opportunity to capture assets, or at least advise on their disposition, as well as present a coherent strategy for drawdown.   The implications of the decision to roll over extend beyond the client advisor relationship to firm strategy, of course. They are particularly relevant to product development and distribution. I’ll discuss these implications in a later post.

Motivations behind Outsourcing in Wealth Management

This year Celent surveyed technology providers that service wealth management firms. The goal of the survey was to learn the motivations and strategies of wealth management firms that outsource components of their business to third party vendors.  The last time we did this survey was five years ago.

From the survey, we learned that one of the main drivers of outsourcing today is so wealth managers can experiment with the latest technology before committing vast resources to a technology that may only be a fad.  Similarly, wealth management firms are eager to outsource because it allows them to scale up or down their operation, or enter new regions, quickly and efficiently.  Wealth managers prefer to work with a technology provider to test ideas, tools and regions, before building a permanent team and spending on fixed costs.

Several motivations to outsource have become more important today than they were five years ago. These motivations include: to improve efficiency, to enrich the customer experience, and to respond to regulation.  Over the last five years, across the world we have seen a push for more stringent regulation.  Therefore, it is not surprising that regulation is top of mind for most wealth managers.

As products and services are increasingly commoditized, it is important for wealth managers to distinguish themselves via the customer experience. It is likely that over the next 12 to 18 months, wealth managers will spend relatively more time on outsourcing front office operations. For example, firms may look to vendors for improvements in: the onboarding experience, components of the advice and planning process, and help desk services.

For more information on the global outsourcing landscape in wealth management, please see my report, Outsourcing in Wealth Management: The Drivers and Strategies.

Wells Fargo rides herd on DoL

It’s no coincidence that Merrill Lynch launched its new robo platform the same week it decided to exclude commission based product from IRAs. Likewise, the decision by Wells Fargo to announce a robo partnership with SigFig suggests that despite the pronouncements of pundits and industry lobbyists, DOL is hardly DOA.

It takes a brave man to guess how the Trump administration will balance populist tendencies with free market rhetoric. In this case, as I note in a previous post, the inauguration of the new president precedes DoL implementation by less than three months. The regulatory ship has left port, and in any event, it's not clear that President Trump will want to spend valuable political capital undoing DoL.

I’ll discuss Wells Fargo’s motivations in a later post. For now, I’ll note the degree to which a robo offer aligns well with the principles of transparency, low cost and accessibility at the heart of DoL. At the same time, I caution the reader to consider the challenges that any bank faces in rolling out a robo platform, a few of which I underscore in this column by Financial Planning’s Suleman Din.

DOL or DOA? The Election and the Conflict of Interest Rule

It’s one of those watershed moments. Clinton wins, and the Department of Labor (DoL) conflict of interest rule takes hold and likely gets extended beyond retirement products to all types of investments. Trump wins, and DoL gets slowed down and perhaps even rolled back.

Assuming Clinton wins (which appears likely) firms will need to gear up on three fronts:

  • Platform: DoL makes paramount the ability to deliver consistent advice across digital and face to face channels. Such consistency requires a clear view of client assets held in house, which in turn implies eliminating legacy product stacks and their underlying technology silos, as I note in a recent report.
  • Product: Offering only proprietary products only is a non-starter under DoL. But too much product choice can be as bad as too little. Firms must demonstrate why programs and portfolios offered are the best for each particular client.
  • Proposition: In a best interest world, the client proposition must extend beyond price. Client education, transparent performance reporting and fee structures, as well as an easy to use digital experience, will distinguish stand outs from the broadly compliant pack.

None of the pain points above lend themselves to easy solutions. As such, the banks and brokerages most affected by DoL are struggling to develop processes that go beyond exemption compliance. I’ll discuss more comprehensive approaches in the All Hands on Deck: Technology's Role in the Scramble to Comply with the DOL Fiduciary Rule  webinar I’m co-hosting this November 14.

I hope you will join me for the webinar, and in the meantime, you will share your thoughts and comments on this post.

The Under-Tow in the Data Lake

The word on the street is big data, data lakes leading to insight, uncovering the hidden opportunities within your massive trunks of data. All true but the majority of the buy side, asset managers, asset owners are still desperately struggling with getting their fundamental data in order.

Over 80% of AMs are $100billion AuM and below and 60% are $50 billion AuM and below, many of these AMs are progressing on solidifying their IBOR (Investment Book of Record) foundations. IBOR and the IBOR Services Matrix (see Inside the Matrix: The Future of IBOR) is still the architectural goal but not yet a necessity for all levels of the asset managers.

Many are not yet up to an IBOR level architecture and still dealing with more basic EDM (Enterprise Data Management) realities. A significant number of AMs are dealing with implementing solid data management and data governance across their portfolios and funds, don’t yet demand millisecond real-time but are operating in a near-time environment, that is operationally sound and cost sustainable.

Now the good news is that as AMs and increasingly institutional asset owners can take advantage of superior vendor solutions and bypass non-differentiating EDM issues. There is certainly little reason, in this day and age, for AMs to attempt to build their own EDM structures. Vendor products can provide core ETL (Extract Transform Load) processes and perform the core standardization, editing and cleansing of the data. Eventually this will all become utilities but for now it is still needs to be dealt with firm by firm.

Data lakes are phenomenal but before the majority of the buy side AMs and asset owners are primarily utilizing their data lakes they are feverishly executing the initial layers of data management and governance to stay market competitive.

New Report: Changing the Landscape of Customer Experience with Advanced Analytics

Today’s financial consumer enjoys unprecedented information and choice, both in terms of channels and access to third party or crowdsourced opinion. Higher expectations support (and in part reflect) the skepticism that to a large degree defines the Millennial generation. These expectations underscore a fundamental shift in the power balance between the client and wealth manager, one reinforced by regulation such as the US Department of Labor conflict of interest rule

The ascendance of the client should be a call to action for wealth managers. As I discuss in a new report authored with my Celent colleagues Dan Latimore and Karlyn Carnahan, wealth management firms need to operationalize insights from new data sources, and bring servicing models up to date with their more sophisticated understanding of the client.

Campaigns and next best sales approaches that have worked in the past (or at least well enough to encourage firms to invest man hours in their design and execution) must be brought into the digital age. Too often these campaigns are a blunt hammer: they are built to sell product and ignore the evolving needs of the individual client, as well as the multiplicity of digital touch points useful to reach him or her. It is hardly surprising that the client reacts negatively to the presumption inherent in these offers.

Introducing The Cognitive Advisor

Last week I published a report on a topic that has interested me for some time: the application of artificial intelligence (AI) technology to the wealth management business. To date, neither Celent nor its industry peers have written much about this topic, despite clear benefits related to advisor learning and discovery. This lack of commentary, and the industry skepticism that underlines it, reflects successive waves of disappointment around AI, and more recently, competition for research bandwidth from other areas of digital disruption, such as robo advice.

Another inhibition relates to taking on an industry shibboleth. How to reconcile AI or machine intelligence to the hands on, high touch nature of traditional wealth management? This challenge is real but overstated, even when one reaches the $1 million asset level that has defined the high net worth investor. Indeed, the extent to which wealth management is a technology laggard (in general, but also when compared to other financial services verticals) highlights the opportunity for disruption.

In particular, AI offers a means to circumvent the dead weight of restrictions presented by antiquated trust platforms and other legacy tech, a weight which reinforces advisor dependence on spreadsheets and other negative behaviors. As is set out in the report, it is precisely the combination of new behaviors and technologies that can help surmount the finite capabilities of the human advisor.