Just two years ago, “robo” models on the market included over a dozen direct-to-client models (e.g., Wealthfront, Betterment, Personal Capital). Despite the enthusiasm surrounding robos by wealth managers and even a small pocket of clients, they were lacking the institutional buy-in needed to achieve scale. That changed in October 2014. Fidelity broke new ground when it formed a partnership with Betterment Institutional that would give the more than 3,000 advisors on its platform the ability to service the mass-affluent through digital advice. Fidelity ultimately dissolved the partnership in favor of internalizing its digital effort. Still, the endorsement was a needed catalyst for digital. The number of firms that have made calculated bets on new technology and are figuring out how to best complement their platform, culture, and service model continues to grow.
Last week, TIAA bolstered its digital wealth capabilities by acquiring MyVest’s cloud-based portfolio management platform with the goal of adding digital advice delivery to its in-person and phone-based service. TIAA has used MyVest technology for its fee-based platform since 2009, so the decision to buy MyVest is smart in that it likely offers near-term synergies and involves less operational risk than acquiring a brand new technology provider. Plus, MyVest has undergone some vetting by Personal Capital, which uses MyVest’s underlying technology for its digital offering. By acquiring a fintech firm rather than licensing the product, financial institutions like TIAA can access the talent pool that built the product and position themselves to tightly integrate it within their business strategy and technology stack.
Firms are taking three different approaches to enable advisor practices with digital service models.
Bespoke digital solutions: Under this strategy, advisor firms and financial institutions will acquire, partner with, or build digital solutions that allow customization of digital advisor platforms. Firms using this strategy will look for opportunities to develop and launch digital solutions that reflect their investment methodology and company brand. The effort is significant and requires large technology budgets and deep in-house technology resources for development and engineering. It may be worthwhile, though, as these firms will own the offering end to end.
Enterprises like TIAA that acquire or partner with outside providers can benefit from leading-edge technologies and outside ideas. Another example of a firm with this strategy is UBS’ recent partnership and investment in SigFig. Under the agreement, UBS took an equity stake in SigFig that will allow UBS to customize and incorporate SigFig technology into its core platform. As a stakeholder, UBS will benefit from SigFig’s personalized analytics and ongoing innovations while maintaining control over how capabilities are integrated into the advisor toolset and client experience. For digital investment technology vendors to get the attention of like-minded global institutions, a customizable algorithm that can be integrated into the firm’s brand and intellectual capital will be required.
All-in-one solution: Under this strategy, advisor firms are offered a proprietary solution as part of a larger clearing, custody or asset management proposition. In the custody/clearing landscape, Charles Schwab's Institutional Intelligent Portfolios fits this description—digital technologies and advice models are available to advisors so long as custody resides at Charles Schwab.
For advisors whose traditional business already resides on the platform, the decision to use a proprietary digital solution may be one of convenience. These advisors are spared the effort of establishing the multicustodial relationships that using an alternative digital provider would require. In addition, there is little to no learning curve associated with providing digital service to new and existing clients—the offering is integrated to the existing platform and allows advisor practices to access account data through the same customer relationship management, portfolio accounting, and third-party technologies that are already integrated with the platform. Convenience may be the priority for current advisors on the platform; however, advisors that are new to the business and want access to a digital solution will need assurance that a proprietary platform will support their growth and meet clients’ needs.
White-labeled vendor solution: In recent months, white-labeled solutions have both grown in number (e.g., ASI Digital Advisor, Envestnet’s Advisor Now, Invessence, among others) and increased their appeal by integrating with leading custodians, turnkey asset management programs, and CRM solutions. While bundled offerings provide a quick and direct path to launching digital solutions, digital vendors should be carefully evaluated, or advisors risk having to course-correct down the road to find another solution that is a better fit with their business.
Like so many digital innovations (internet, e-commerce, online entertainment) the adoption of digital advice models is likely to quickly turn from concept to critical mass. Digital advisor technologies will inevitably evolve and become a standard part of the advisor service model. As a caution, the right solution will not always be the one that is fastest to market.
The approach wealth management firms ultimately take to developing a digital solution is among the largest decisions financial advisory firms are facing—it has a material impact on advisors’ service delivery, technology spend, business model, and, last but not least, brand. As digital advice moves from a nice-to-have service to an essential component, choosing an appropriate digital strategy will go a long way toward meeting the ever-changing needs of advisors and their clients. The recent investments by TIAA and UBS provide more evidence of digital wealth’s high stakes. Aite Group expects further mergers and acquisitions activity from leading wealth management firms over the next couple of months.