Tag Archives: Robo Adviser

Betterment introduces Plus and Premium hybrid advice plans featuring in-house CFP® professionals

Posted on January 31, 2017 by in Technology

The lede!

  • Betterment adjusts its default fee structure to 25 basis points for accounts of all sizes for what is now called Betterment Digital (the 35bps, 25bps, and 15bps tiers are gone)
  • Betterment customers who formerly qualified for the 15 basis point tier will see their fees increase 67% to 25 basis points. Some customers are not pleased
  • New Plus and Premium plans are offered that introduce hybrid advice engagements from human advisers for an additional fee
  • Betterment Plus includes an annual planning call with the in-house adviser team and support via email. Betterment Plus pricing is 40 basis points and requires a $100,000 account minimum
  • Betterment Premium include unlimited contact with the in-house adviser team via phone and email. Betterment Premium pricing is 50 basis points and requires a $250,000 account minimum
  • All Betterment plan fees are capped, charged only on the first $2 million of a customer’s balance.
  • Betterment is introducing the Betterment Advisor Network™, launching with roughly ten advisers who have complete the Betterment vetting process, all of whom must hold the CFP® certification
  • There is no fee to be included in the adviser referral network
  • Betterment receives no referral fees for directing customers to any specific adviser in the referral network
  • Customers who work with an adviser in the Betterment referral network pay a fee of 25 basis points on their assets in their Betterment account. The adviser can set an additional fee on top of Betterment’s fee for services provided

Betterment introduces hybrid advice plans with access to in-house CFP® professionals

Betterment announced today that the company will introduce hybrid advice offering with access to an in-house team of financial advisers.

For the full details from Betterment, see the post below from the Betterment website:

 

https://www.betterment.com/resources/inside-betterment/product-news/smart-technology-licensed-financial-experts-cfp-professionals/

Fee Fallout

One unfortunate consequence of the new 25 basis point pricing structure is the elimination of the 15 basis point tier that formerly applied to accounts over $100,000.

Reaction on Twitter was swift, as these customers will see their fees increase by roughly 67%.

Fee Parity Between Retail and Advisor Platforms

Despite the frustration of customers who formerly qualified for the 15 basis point tier, Betterment Digital’s pricing establishes parity with the pricing offered in the Betterment for Advisors (formerly Betterment Institutional) service.

Since the Betterment for Advisors introduction, I had been critical of the conflict the different pricing tiers presented for advisors who chose to implement Betterment for Advisors for their clients.

I often questioned how an adviser could meet his or her fiduciary obligation to clients with over $100,000 in assets, as that client would pay fees of 15 basis points using a “retail” Betterment account, where a minimum fee of 25 basis points would be charged on a Betterment for Advisors account, for asset management services that I felt were essentially equivalent.

Today, that fee disparity, and the fiduciary quandary, is eliminated, but at the expense of raising fees for customers who qualified for the former 15 basis point tier.

Betterment undercuts Personal Capital

One other observation is Betterment Premium now enters the competitive hybrid advice market, a space dominated by Vanguard Personal Advisor Services, that is also occupied by Personal Capital and the Schwab Intelligent Advisory offering scheduled to debut sometime in the first half of 2017.

Betterment Premium is more expensive than the 30 basis point fee Vanguard Personal Advisor Services and the 28 basis point fee from the upcoming Schwab Intelligent Advisory, but at 50 basis points, the service undercuts Personal Capital’s current 89 basis point pricing.

 

FPPad Bits and Bytes for November 18, 2016

Posted on November 18, 2016 by in Bits & Bytes

On today’s broadcast, Wells Fargo announces a partnership with SigFig, Cetera’s computers systems suffer a two-day outage, lessons from a hack at Lincoln Financial, and more.

So get ready, FPPad Bits and Bytes begins now!

(WatchFPPad Bits and Bytes on YouTube)

Today’s episode is brought to you by eMoney Advisor, the leading provider of digital wealth management solutions. eMoney just introduced two new Advanced Analytics products: Advisor Analytics Pro, offering advisors and support staff deeper business insights, and Office Analytics, offering never-before-seen firm-wide insights.

eMoney Advisor

Featuring a customizable Analytics dashboard, an expansive library of new and interactive data charts, and more, eMoney’s Advanced Analytics solutions will help you put your data to work and uncover more opportunities. For more information the eMoney Analytics solutions, visit fppad.com/emoneyanalytics.

Here are the links to this week’s top stories:

Wells Fargo Goes Robo With SigFig Wealth Management from WSJ.com, and

Wells Fargo notice of an application for an exemption from certain requirements of rule 3a-7(a)(4)(i) under the Investment Company Act of 1940 from SEC.gov

[First up is news from Wells Fargo, as the bank, which finds itself in the middle of a very public firestorm over opening unauthorized accounts, announced this week that it is partnering with SigFig to release an automated investment service to customers of Wells Fargo Advisors sometime in the first half of 2017.

Other than the potential release date, there really wasn’t any concrete information on pricing or the types of investments to be used in the service. Will they be Wells Fargo mutual funds, or third-party ETFs? As of today, Wells Fargo doesn’t offer its own ETFs, but earlier this year, the company filed an exemptive relief request with the SEC, signaling some intent to enter the ETF space.

But that opens the door for potential problems with the Department of Labor fiduciary rule, highlighted by industry Nerd-In-Chief Michael Kitces, where automated investment services that recommend investments in proprietary products, Kitces calls out Schwab Intelligent Portfolios and BlackRock’s FutureAdvisor, do not qualify under the Level Fee Fiduciary exemption because of the variable compensation inherent in an allocation of proprietary ETFs!

So, this is all “industry” stuff, and not all that applicable to your business, but here’s my point. All the big banks, all the incumbent financial institutions are boarding the automated investment bandwagon. Sooner rather than later, your clients and prospects are going to get solicited by the very institutions they use today.

And clients are expecting an experience like Uber, but you’re still driving around a dirty taxi that has to be flagged down with a hand in the air that doesn’t have a functional credit card machine!] Wells Fargo & Co.’s brokerage arm is partnering with SigFig Wealth Management LLC to bring automated investment advice to clients, the latest example of how traditional wealth-management firms are working with startup robo advisers to offer new digital tools to investors.

Cetera Brokers Endure Two-Day Systemwide Crash from AdvisorHub

[Next up is news about Cetera Financial Group, as the independent broker dealer encountered a company-wide systems outage that affected 9,000 brokers as well as the company’s back-office and operations teams.

According to an AdvisorHub article, the outage started on Monday, and one broker with First Allied reported that he could not sign in to view emails, access performance reports, or even call Cetera using their standard phone number. Cell phone numbers were eventually sent out on Monday evening.

In a firm-wide conference call on Tuesday afternoon, Cetera Chief Executive Robert Moore apologized for the disruption and said systems had been fully restored, and added that no data had been compromised through hacking or any other unauthorized access.

So, let this be a reminder that if it’s been a while since you tested your business continuity plan, next week’s Thanksgiving break might be a good time to do so. It doesn’t matter if you manage your own systems or leverage the resources of a broker-dealer, you need to verify how you can perform the essential parts of your business in the event of a disruption.

Attackers are launching denial of service attacks every day against financial institutions, so it’s important that you know exactly what you need to do when the systems you depend aren’t available.] Just six months after emerging from bankruptcy, independent brokerage company Cetera Financial Group experienced a companywide systems outage Monday and Tuesday that walled off brokers at its seven operating broker-dealers from customer data, emails and other vital account management functions.

Lincoln Financial Unit Gets $650K Fine After Server Hack from Law360, and

LETTER OF ACCEPTANCE, WAIVER AND CONSENT NO. 2013035036601 at FINRA.org

[And speaking of attackers, my last story is about Lincoln Financial Securities, an affiliate of Lincoln Financial Group, as the company paid a $650,000 fine imposed by FINRA for failing to safeguard customer data stored on a cloud server used by one of its OSJs.

Sometime in 2012, hackers were able to access the could server configured by a third-party vendor and obtain records on approximately 5,400 customers. The FINRA Letter of Acceptance doesn’t say HOW the server was compromised, and didn’t identify what kind of server was in use. Was it an FTP server, a service like Dropbox, a proprietary server with remote access, or something else?

But more troubling to me is that FINRA goes on to say that the firm “failed to take adequate steps to monitor or audit the vendors’ performance.” Now hold on. One benefit of leveraging third-party vendors is that they bring expertise to the table that the firm doesn’t have, like, oh, I don’t know, cybersecurity expertise.

But for FINRA to say that the firm failed to test and verify the security of the cloud servers, that just doesn’t seem right. The firm doesn’t HAVE the expertise in cloud server security, which is why the firm hired the third-party vendor in the first place, but now FINRA says that the firm is the one that has to verify the security of the third-party vendor that it hired to bring security expertise to the firm? How is that even possible?

What I do know is FINRA just levied a heavy fine on a firm because their third-party vendor had a hole in their security that was exploited by hackers, and in my opinion, that’s a troubling precedent that has been set.] A Lincoln Financial Group subsidiary on Monday agreed to accept a $650,000 fine leveled by the Financial Industry Regulatory Authority and implement tighter security protocols after hackers in mid-2012 accessed its cloud server and lifted the confidential records of roughly 5,400 customers.

Here are the stories that didn’t make this week’s broadcast:

WisdomTree Makes Strategic Investment in AdvisorEngine from WisdomTree

WisdomTree Investments, Inc. announced that it has invested $20 million for a 36% equity interest in AdvisorEngine, formerly known as Vanare, an end-to-end digital wealth management platform which enables individual customization of investment philosophies.

PIEtech℠, Inc. Unveils Integration with MX for Aggregation and Personal Financial Management Functionality from PRWeb

PIEtech℠, Inc., the creator of the industry’s leading financial planning software, MoneyGuidePro®, today unveiled a new integration with MX to deepen the availability of aggregation for MoneyGuidePro® subscribers and add personal financial management (PFM) functionality via the client portal.

Combined Envestnet and Yodlee Data Offering Supports Morgan Stanley Wealth Management from PRNewswire.com

Envestnet | Yodlee and its parent company Envestnet, today announced a partnership for the combined organization, providing data aggregation, digital applications and data reconciliation solutions to Morgan Stanley, one of the largest, most established wealth management businesses in the industry.

 

Watch FPPad Bits and Bytes for November 18, 2016

Watch FPPad Bits and Bytes for November 18, 2016

FPPad Bits and Bytes for April 15, 2016

Posted on April 15, 2016 by in Bits & Bytes

On today’s broadcast, LPL Financial hooks up with BlackRock’s FutureAdvisor, Riskalyze and Advizr integrate their platforms, and bots might be the future of financial technology.

So get ready, FPPad Bits and Bytes begins now!

(Watch FPPad Bits and Bytes on YouTube)

Today’s episode is brought to you by Twenty Over Ten, providers of beautiful, tailored, mobile responsive websites specifically for Financial Advisors.

Twenty over ten logo 620

Easily manage your brand while automatically archiving your website changes for compliance. Sign up for a 45 day free trial today by visiting twentyoverten.com/fppad. Oh, and be sure to watch the YouTube channel for videos from next week’s NAB Show, which are also brought to you by Twenty Over Ten.

Here are the links to this week’s top stories:

LPL Financial to Leverage BlackRock Solutions’ FutureAdvisor to Offer Robo Solution to Advisors and Their Clients from LPL Financial

[Now on to this week’s top story which comes from LPL Financial, as the nation’s largest independent broker-dealer announced it will use BlackRock’s recently-acquired FutureAdvisor platform to power an online automated investment offering. LPL first hinted at its plans for a “robo advisor” back in the summer of 2015 at its annual Focus conference, which was roughly one month before BlackRock made its FutureAdvisor acquisition.

While the announcement sure generated some buzz, no details on specific pricing or availability were provided. What the press release did say is that the model portfolios will be provided by LPL’s research department, so at least initially, advisors and reps will not be able to create their own custom allocations.

The press release also said the automated solution will be integrated with LPL’s custodial platform, but it didn’t say if that was the existing BranchNet platform or the much-anticipated ClientWorks, which as far as I know, has still not been officially released.

So at least we now know what LPL’s robo strategy will be, but with so many forward-looking statements, we don’t know when that strategy will be ready for use by LPL’s financial advisors.] Leading retail investment advisory firm and independent broker/dealer LPL Financial LLC, a wholly owned subsidiary of LPL Financial Holdings Inc. (NASDAQ:LPLA), today announced it will use BlackRock Solutions’ (BRS) FutureAdvisor platform to support a digital advice platform for use by LPL’s financial advisors and institutions and their clients.

A Match Made in Heaven: Advizr and Riskalyze Integrate from Businesswire

[Next up is news from Riskalyze and Advizr, as the two companies announced a new integration to streamline financial advisor workflows. The new integration will import Riskalyze model portfolio sets into the Advizr financial planning software, allowing advisors to recommend the most appropriate asset allocation according to their client’s personal Risk Number.

Not only that, both companies offer effective lead generation tools for advisors, with Riskalyze offering prospects the opportunity to determine their own Risk Number, and Advizr offering a quick financial plan illustration with Advizr Express.

The combination of the two will help advisors gain more information about prospects’ risk tolerance and the building blocks of a complete financial plan.

The companies called the integration “a match made in heaven” because both of them are winners of the Best Client Facing Technology award announced right here on FPPad.

So as a result, and I am now officially accepting endorsements for matchmaking on my LinkedIn profile.] Advizr, the financial planning software recognized as the Best Client Facing Technology of 2015 by Bill Winterberg’s FPPad, and Riskalyze, the world’s first Risk Alignment Platform recognized for the same award in 2014, are integrating their award-winning products to provide an elegant, intuitive and seamless solution to financial advisers.

Messenger Platform at F8 from Facebook.com

[And finally, this week’s top story comes from the future, oh wait, “THE FUTURE!” as Facebook CEO Mark Zuckerberg took the stage at this week at F8 conference and detailed the company’s roadmap for the next 10 years.

My best takeaway for you is the launch of the Messenger Platform that includes automated messaging powered by bots, no, not that bot, these are automated messenger bots.

With bots in messenger, you can make online clothing purchases, receive weather forecasts, view top headlines and more.

I can totally see bots making their way into your technology. Imagine if you could ask your Redtail bot when you next client meeting is scheduled, or your Orion bot how your AUM has grown over the past year, or even allow clients to ask the MoneyGuide Pro bot for their updated retirement confidence meter. How cool is that?!?

And if vendors eventually integrate bot into existing services, I bet that they’ll also include message archiving and retention so you can confidently use bots without violating your compliance requirements.

Oh, did I just give those vendors a little more work to do? I’m sorry!

Unfortunately there’s no word yet from FINRA or the SEC whether your bot has to be fingerprinted and subject to a background check. Thank you, I do two shows a night!] We’re excited to introduce bots for the Messenger Platform. Bots can provide anything from automated subscription content like weather and traffic updates, to customized communications like receipts, shipping notifications, and live automated messages all by interacting directly with the people who want to get them.

Here are stories that didn’t make this week’s broadcast:

Former Top Schwab Executive Joins Betterment Board from New York Times

Less than one month after an investment round that doubled its private valuation to around $700 million, the robo-adviser Betterment is adding a former top executive from Charles Schwab, John S. Clendening, to its board.

Find time for your goals with Google Calendar from Google

That’s why starting today, we’re introducing Goals in Google Calendar. Just add a personal goal—like “run 3 times a week”—and Calendar will help you find the time and stick to it.

Orion’s Integration of FactSet’s Robust Research and Analytics Allows Advisors to Better Serve Their HNW and Institutional Clients from Marketwired

Orion Advisor Services, LLC (“Orion”), a premier portfolio accounting service provider for financial advisors, has announced it is now integrated with FactSet, a leading provider of financial data, analytics, and service, to offer its advisor clients easy access to portfolio research and analytics.

Watch FPPad Bits and Bytes for April 15, 2016

Watch FPPad Bits and Bytes for April 15, 2016

FPPad Bits and Bytes for January 15

Posted on January 15, 2016 by in Bits & Bytes

On today’s broadcast, Jemstep gets acquired by Invesco, rumors fly about a Snapchat robo advisor, FutureAdvisor links up with its first bank, and more.

So get ready, FPPad Bits and Bytes begins now!

(WatchFPPad Bits and Bytes on YouTube)

Invesco acquires Jemstep, a market-leading provider of advisor-focused digital solutions from PRNewswire

[This week’s top story comes from Jemstep, as the B2B online investment platform was acquired by Invesco, the $800 billion dollar asset manager based a stone’s throw away from my studio right here in Atlanta.

Terms of the deal were not disclosed, Jemstep’s leadership will stay onboard to run the Invesco subsidiary, and for now, the company says there won’t be any changes to existing partnerships, custodians, or asset availability in model portfolios.

Ignoring B2C acquisitions of FutureAdvisor and LearnVest, the last twelve months have seen John Hancock acquire Guide Financial and Envestnet acquire Upside.

So who are the independent B2B providers left? I see Autopilot, Trizic, Oranj, Vanare, Betterment Institutional, Motif Investing, and to some extent, the roll-your-own open source platform from Wealthbot.] Invesco Ltd. has acquired Jemstep, a market-leading provider of advisor-focused digital solutions.

Social media firms make ETF push from Reuters

[But hold on! Sending shockwaves in the retail robo space is Snapchat, as rumors were flying this week that the ephemeral chat app might introduce it’s own investment service to its 100 million active daily users.

Uh, let me explain my thoughts in a brief demonstration… Get it, jump the shark?] Snapchat is understood to be at the front of a queue of tech firms developing Robo-Advisory technology – which uses algorithms to help users develop and implement customized investment strategies for retirement planning.

BBVA Compass Teams Up With Robo FutureAdvisor from Forbes

[But wait, there’s more! In its first move after being acquired by BlackRock, FutureAdvisor announced it is partnering with BBVA Compass to roll out the automated investment tools to the bank’s nearly 700 branches in the US.

Bank customers will get access to FutureAdvisors’ digital investment management for the standard fee of 50 basis points, and you can probably bet that new accounts opened up with be held with BBVA’s broker-dealer affiliate, which is how the bank capitalizes on the partnership.] BBVA Compass, the Sunbelt subsidiary of the Spanish banking giant, has announced it will partner with FutureAdvisor to offer its customers digital investment management, popularly known as Robo Advisors. It is the first major bank to sign on with FutureAdvisor since the advisory firm combined forces with BlackRock, the giant asset management company, last year.

Robo Adviser Wealthfront Begins to Offer Free Portfolio Reviews from WSJ.com

[And if you’re not sick of robos by now, let me add news from Wealthfront who this week released a free Portfolio Review service to show investors how bad their current portfolios are and urge them to save a boat load of money by switching to Wealthfront. Whoops, did I say that out loud?

This concept is nothing new, as Personal Capital has offered a similar portfolio analyzer since 2011, and FeeX has been doing it since 2012, but here’s the deal. These VC-backed companies are spending tons of money to target your clients and prospects to get them to try out this tool, and of course, they’re going to tell clients they have suboptimal allocations and are paying high fees to their advisor.

So, expect clients to bring up fees, allocations, and performance in your next meeting, and you need to have a strong answer in the form of your value proposition, which is all the added advice, guidance, and behavior management you deliver that the automated services are incapable of providing.] In a bid to attract more assets, Wealthfront Inc. is joining other robo advisers in providing free advice to investors about their accounts at other financial institutions.

Here are stories that didn’t make this week’s broadcast:

New Laserfiche Release Aims to Improve ECM from CMSWire

Laserfiche just released version 10 of its enterprise content management system (ECM). Speaking at the Laserfiche Empower 2016 Conference in Long Beach, Calif., Laserfiche President Karl Chan said the new version is designed to supercharge content-driven business processes, enabling enterprises to redesign the flow of information throughout the enterprise.

LastPass Revamps Its Interface, Adds Emergency Access and Better Sharing from Lifehacker

LastPass is one of the best password managers around. Today it gets a bit better with an improved interface and a handful of new features.

Dashlane 4 Makes Changing Passwords on Hacked Sites Easier, Adds a New Interface, and More from Lifehacker

Dashlane is one of our favorite password managers, and today the service updated with a new, consistent interface across all devices, an updated “password changer” that lets you change passwords on a site without even visiting it, new languages, and more.

 

Watch FPPad Bits and Bytes for January 15, 2016

Watch FPPad Bits and Bytes for January 15, 2016

Will 2016 bring a “run on the robos?”

Posted on January 6, 2016 by in General

How well are the online investment services prepared for a run on the bank type scenario?

How well are the online investment services prepared for a run on the bank type scenario?

Edit January 6, 2016: Added details that Personal Capital Advisors uses the custody services of Pershing Advisor Solutions LLC. Removed this tweet from a user of Personal Capital’s free dashboard, replaced with the Wealthfront tweet seen below.

I’m posting this today, as I’m genuinely concerned about what will happen when online investment services get flooded with redemption/account close requests.

“You STINK”

For example, take this tweet (note to readers in the future: if the embedded tweets below get deleted, I captured screenshots that I can post for posterity):

I stumbled across this tweet, as this person is upset about their portfolio performance.

So this got me thinking:

What happens when online investment services get flooded with redemption requests and account closures?

Run on the Robos

If an online investment service isn’t responsive to requests and complaints in a public forum (Twitter), how well will they respond once they are deluged with irate customers who are fed up and want out quickly?

“Sorry, we have a big backlog right now, but no worries, your money is still safe?”

¯_(ツ)_/¯

I don’t ever want to see businesses fail. I don’t ever want to see investors get into difficult situations regarding their investments.

But I fear that if a trickle of dissatisfaction with online investment services quickly becomes a flood, online services will get crushed.

Not picking on Personal Capital

Before you go, don’t assume that I’m picking on Personal Capital.

Yes, tweets above that are related to their company trigged my question of what happens when account closure rates skyrocket, but Personal Capital uses the custody services of Pershing Advisor Solutions LLC (it’s on page 5 of their Form ADV Part 2A Appendix 1).

Look, Pershing is a very large financial institution with nearly $1.5 trillion in global assets under administration and 75 years of experience.

200 account closures a day probably doesn’t make them sweat. 1,000 a week? That might be an average week. ACH, DTC, ACAT, they don’t bat an eye.

But for the startups that manage their own proprietary systems on top of Apex Clearing? Have they been tested?

I suppose I can contact them and ask, but what answer do you think I’m going to receive?

“Oh, Bill, thank you for bringing this to our attention, and as a result we found bottlenecks in our processes and have improved our ability to efficiently and accurately process account redemptions and closures.”

I don’t think so.

I’ve heard this before: “Once you go robo, you don’t go back.”

That, and I wanted the first Internet timestamp for “run on the robos.”

Betterment is poised to overtake Wealthfront in AUM

Posted on August 16, 2015 by in General

AUM 600In the race for robo adviser supremacy, neither Wealthfront nor Betterment wants to be runner-up.

Love it or hate it, AUM, or assets under management, is the default metric by which investment management businesses are benchmarked.

Robo-Advisor AUM

Certainly, many automated investment services (or rather, robo-advisors) have been flaunting their AUM figures in recent years, to, well, I don’t know why, exactly, other than to beat their chest on how good they are at gathering assets.

The most vocal automated investment service for publishing AUM figures is Wealthfront, with periodic blog posts issued when the company passed the round numbers of $500 million, $1 billion, and $2 billion in AUM.

Taking the more subtle approach to AUM milestones is Betterment, long viewed as the runner-up to Wealthfront in the AUM-gathering contest since 2013.

Instead, Betterment mentions the number of customers it serves first (in part because they have more than Wealthfront, so they can be number one in that comparison), followed by the level of AUM represented by their customers.

Still, there are a few posts from Betterment that place dates on when the company crossed $1 billion (with 50,000 customers) and $2.5 billion (with 100,000 customers). One has to dig through trade publications like TechCrunch and Forbes to put a date on earlier AUM figures like the company’s first $100 million and $500 million, respectively.

Ok, fine. So how is that asset gathering coming along today?

Graph of Wealthfront vs. Betterment AUM Growth

This morning I wanted to take a quick look at the AUM growth of the two leading automated investment services, Wealthfront and Betterment. But after 10 minutes of Googling, I had no charts or graphs of how each company is growing their AUM.

So I built a quick Google Sheet using the dates and AUM figures from most of the blog posts and articles cited above. Here it is!

Wealthfront vs. Betterment AUM Growth

Wealthfront vs. Betterment AUM Growth

 

So what is my biggest takeaway from this chart?

Betterment poised to overtake Wealthfront in AUM

Betterment has consistently lagged Wealthfront’s AUM since 2013, and Wealthfront’s growth rate was higher than that of Betterment, but then something changed around December 2014.

The rate of Betterment’s AUM increase accelerated, while Wealthfront’s growth rate generally remained the same from January 2014.

And the most recent figures for August 2015 show that Betterment has significantly closed the AUM gap with Wealthfront.

This being mid-August, and assuming Betterment’s faster growth rate continues as it has since the beginning of 2015: Betterment is poised to overtake Wealthfront in AUM.

What Happened to Betterment’s AUM Growth?

What happened to boost Betterment’s AUM growth starting around December 2014. I suspect the cause is:

Betterment Institutional

So not only does Betterment have its own client acquisition strategies (web banner ads, TV commercials, ads on taxis and phone booths in NYC…), now the company has a new salesforce, if you will, of investment advisers who are using the Betterment Institutional service for their emerging clients.

This new cadre of advisers likely stands at a hundred or so today, but as the popularity and appeal of automated investment services expands, potentially thousands of financial advisers may be directing their emerging clients to use the low-cost service.

This is a totally new salesforce and asset gathering funnel that Wealthfront lacks today.

So in the race to be the dominant VC-backed automated investment service measured by AUM, the guard is about to change.

And nobody wants to be number two.

Robo Advisors: What you pay versus what you receive

Posted on June 11, 2015 by in General

Robo Advisor: What you pay versus what you receive

Robo Advisor: What you pay versus what you receive

Low fees are good, just remember not to shortchange yourself on the services you receive.

Robo advisor is a perfect moniker and here’s why

Posted on June 9, 2015 by in General

tl;dr: Algorithms are incapable of giving financial advice, so the oxymoron “robo advisor” is a perfect moniker. Know what you’re getting (and not getting) from automated investment services.

“I am tired of the whole robo thing,” says Motif Investing CEO Hardeep Walia.

Personal Capital CEO Bill Harris bemoans, “We are not a robo advisor.”

Wealthfront CEO Adam Nash retorts, “New tech doesn’t always fit neatly into a bucket.”

Cry Me a Robo River

To the automated investment services, I say,

“Boo hoo.”

NOW these services are beginning to experience how it feels when others, right or wrong, control the conversation about their business.

Most journalists, reporters, TV anchors, correspondents, bloggers and more don’t really know what makes any of the automated investment services different from one another, so most simply package them up into one catch-all term “robo advisor.”

Let’s face it: “robo-advisor” makes for great click bait. If it didn’t work (and generate clicks and eyeballs), editors and producers would stop using it. (You clicked to land here, didn’t you?)

But please, asking everyone to stop using “robo advisor” because it misrepresents what you do or somehow marginalizes your service in some way?

I submit to you Exhibits A and B.

“You don’t need that guy,” gloats Wealthfront’s ad.

Sure, because most financial professionals out there are just glorified psychics, spiritualists, or stock market prognosticators whose only tool for financial advice is a crystal ball!

Please.

The financial services industry has seen this marginalization long before automated investment services arrived.

Living In Glass Houses

The fiduciary financial professionals should be just as upset about this gross characterization of fortune tellers as the automated investment service providers are about the term “robo advisor.” (people who live in glass houses…)

“Stop comparing us to fortune tellers!”

“We are not personal psychic advisors!”

Perhaps Wealthfront paints with too broad a brush. Ok, so here’s Exhibit C:

Wealthfront: Don't Pay For Expensive Financial Advisors

Wealthfront: Don’t Pay For Expensive Financial Advisors

See? “Don’t pay for expensive financial advisors.”

Why not?

Because Wealthfront is the end-all-be-all service that investors need? Because Wealthfront does the exact same thing all fiduciary financial advisors do? Because all your financial needs are met by Wealthfront’s software?

Ask a Question 100 Times…

Go ahead, go to any automated investment service website right now. Wealthfront. Betterment. Future Advisor. Even the anti-“robo-advisor” Personal Capital. (*read my note below)

Fill out their questionnaire. Complete a free “Investment Checkup.”

What is the answer you get?

The answer from ANY of these services is ALWAYS to invest.

ALWAYS.

There is no Plan B, no backup option, no alternate strategy.

There’s no, “You really should first pay off your high interest credit card balances.”

No, “You should save up an emergency fund where you can access the money quickly.”

No, “You should create a will and advance medical directives first in case something were to happen to you.”

But ask automated investment services a question 100 times, “What should I do with my money?” and the answer is always going to be the same:

Invest in a diversified portfolio of low cost ETFs.

It’s the only answer these services have. There’s nothing else.

It’s not financial advice. It’s not wealth advice.

It’s barely investment advice.

It’s an investment recommendation. The output of a calculator.

Sophisticated or not, automated investment services are ALWAYS going to recommend investing your money.

There simply is no other result to offer. The algorithms today are incapable of suggesting anything but investing.

So Why Robo Advisor?

So why robo advisor as a moniker?

Because it is a oxymoron, a name that contradicts itself.

Algorithms, software programs, aka “robots” are incapable of making judgment calls and evaluating emotions or feelings in the calculation process.

Robots can’t give advice.

Robots can only decide based on ones and zeroes. True or false.

Sure, an algorithm’s answer can be associated with a level confidence (recall IBM’s Watson playing Jeopardy), but each discrete answer is associated with a level of confidence based off of a set of discrete factors evaluated in the calculation process.

An algorithm’s output is a result. Functions return arguments.

But don’t call that advice.

Know What You’re Getting

As with most decision-making processes, there’s often a big difference in what you can do and what you should do.

What is important to you? How does a decision make you feel? How do you prioritize your goals?

Can your entire life, your goals, your dreams, your aspirations be captured in a four question survey? A ten question survey? Even a hundred question survey?

For automated investment services to survey the market and say “Hey, we can improve investing outcomes by building a software program that does everything on the cheap!”

The questionnaire is only part of the advice process, it is not the start and finish.

And then there’s the talk of disruption, mainly coming from the media (I don’t recall any of the automated investment services specifically saying they intend “to disrupt” the financial services industry).

What industry are automated investment services attempting to disrupt, anyway?

Vanguard, the mutual fund giant, has been offering diversified, low-cost investment products and services quite successfully since the 1970s.

Just remember that the next time you consider the services of an automated investment service, know what you are getting.

Do your homework.

You are getting the results of a calculator.

The calculator is programmed to give an answer.

Not advice.

Not from a robot.

Don’t assume that the answer you get is the best answer for your situation.

Who you are as a person cannot be summed up in an online questionnaire.

 

*Note: Personal Capital toes the line on the robo advisor definition. Users complete the Investment Checkup and receive a target asset allocation illustration based on answers to the short questionnaire. However, specific mutual funds and ETFs are not recommended, so it’s not explicit. Users do get a basic automated investment allocation recommendation with no human intervention, but it’s up to the user to connect each recommended asset to a specific mutual fund or ETF to purchase. Users who want specific fund and ETF recommendations must engage Personal Capital for traditional investment advice rendered by human advisers and pay Personal Capital’s standard fees. This formal engagement is not robo advice.

FPPad Bits and Bytes for May 15

Posted on May 15, 2015 by in Bits & Bytes

On today’s broadcast, the SEC issues an alert about automated investment tools, see how Envestnet is ready to leverage its recent acquisition of Upside, and, find out which fintech buzzword has huge implications for your business.

So get ready, FPPad Bits and Bytes begins now.

(Watch FPPad Bits and Bytes on YouTube)

Today’s episode is brought to you by Riskalyze, the company that invented the Risk Number™ and named as one of the world’s 10 most innovative companies in finance by Fast Company Magazine.

Riskalyze

Advisors use Riskalyze to show prospects they’re invested wrong and prove to clients they’re invested right. See how the Risk Number can grow your business today by visiting riskalyze.com/fppad to book a guided tour.

Here are the links to this week’s top stories:

Investor Alert: Automated Investment Tools from the Securities and Exchange Commission

[This week’s top story comes from the Securities and Exchange Commission, as the industry regulator recently released an investor alert concerning automated investment tools, more commonly known as, well, you know where I’m going.

In its five-point alert, the SEC urges all investors to understand terms and conditions of any online service, know what the limits of automated tools are and assumptions that don’t apply to their situation (say, perhaps, tax illustrations for a married couple living in California who are in the highest tax bracket), be aware that when filling out questionnaires, garbage in equals garbage out, be careful not to assume goals are the same as a generic investment time horizons based on age, and to practice good security hygiene to protect financial accounts.

So how can you use this alert to make your business more appealing to prospective clients? At the very least, be as transparent as possible about your fees and your process. Next, focus on the ongoing relationships you have with clients, because the advice you provide doesn’t end the moment a client fills out a risk tolerance questionnaire.

And finally, emphasize the breadth of your services. Yes, prudent investing is important, but it’s critical to also factor in insurance needs, tax strategies, estate planning and so much more, all of which are areas largely untouched by automated investment tools. Let’s be absolutely clear, this is your value to your clients, and if you’re not broadcasting it at every opportunity you have, you’re in danger of failing to differentiate your business from the competition.] The SEC’s Office of Investor Education and Advocacy (OIEA) and the Financial Industry Regulatory Authority, Inc. (FINRA) are issuing this alert to provide investors with a general overview of automated investment tools.

Envestnet Driving Digital Advice Transformation from Envestnet.com

[Next up is more news from Envestnet in a follow up to the company’s summit held earlier this month in Chicago. Last week I covered Envestnet’s acquisition of Finance Logix, but this week the story is all about Envestnet’s new digital advice portal called Advisor Now™. So what is Advisor Now?

You start with the original Envestnet Advisor Suite™ for portfolio management, add in a serving of the Envestnet | Tamarac Advisor Xi platform for its CRM, portfolio rebalancing, and client portal features, mix in the online automated investment solution from Upside, blend them all together and out comes Advisor Now.

So clearly Envestnet is further positioning itself as a dominant custodian-agnostic all-in-one technology provider, and if you’re an existing Envestnet and/or Tamarac user, you’ll soon experience the benefits of Advisor Now as it gets updated according to the company’s 60-day release cycle.

But if your technology consists of integrations between separate best-of-breed solutions, I think you have some work ahead of you if your objective is to match the Advisor Now portal feature-for-feature.] Envestnet, Inc. announced that it will be launching Advisor Now™, a digital advice portal harnessing Envestnet’s core capabilities to help independent advisors demonstrate more value to clients and improve financial outcomes for investors.

Purge the Word ‘Frictionless’ from Banking from Bank Innovation, and

Hedgeable’s Robo Advisor 2.0 Platform Automates Risk Managed Investing,

Vanguard Debuts Diversification Visualizer,

and Trizic’s Accelerator Enables Financial Firms to Scale Investment Advice from Finovate.com

[And finally, I’ve was following the chatter on Twitter this week from the Finovate Spring 2015 conference in San Jose, and one of the buzzwords that lit up the #Finovate hashtag was “frictionless.” The majority of presenters, whether they were mobile payment solutions, peer-to-peer lending networks, or even crowdfunding services to pay off medical bills, focused on eliminating the friction in financial transactions.

In fact, “frictionless” was mentioned so much that one attendee said the word should be purged from the world of banking. But think about your business for a minute. How much friction do you create for your clients? How much paper are you pushing? Are you accessible by text and video chat in addition to phone calls and face-to-face meetings? Can clients access the information they want from a smartphone?

I think it’s time you look at your business from the client’s perspective and identify all the processes that generate friction. For each process, figure out how technology can streamline what you do and reduce the time and effort required to get something done. That sounds like a pretty useful activity for a Friday afternoon if you ask me.

Oh, and if you want to know which three companies from Finovate are worthy of attention on my radar, they are Hedgeable, for their online investment service featuring active management and alternatives, Vanguard, for their clever 3D graphs of diversification illustrations, and Trizic, yet another online investment service that can be white labeled by financial advisors.] It’s time to relegate the phrase ‘frictionless’ to the FinTech trashbin.

Here are stories that didn’t make this week’s broadcast:

Beyond E-Signatures from Financial Advisor Magazine

As someone who has been a proponent of the paperless office for many, many years, I often feel a sense of frustration at the number of paper-driven activities still prevalent in our industry.

How Well Does Your Firm Virtually Serve Your Clients? from ThinkAdvisor

Advisors need to make sure their technology offerings are in line with their clients’ expectations

Watch Bits and Bytes for May 15, 2015

Watch Bits and Bytes for May 15, 2015

FPPad Bits and Bytes for October 10

Posted on October 10, 2014 by in Bits & Bytes

On today’s broadcast, Schwab and Google drop hints about their online investment services. See how this crowded market is about to become a little bit more cozy. Digital estate planning for your clients is becoming more important than ever. Find out which new solution will help your clients plan for their digital assets. And, Bob Veres gets me fired up about the use of social media in your business. You’ve been warned, prepare for a storm off!

So get ready, FPPad Bits and Bytes begins now.

(Watch FPPad Bits and Bytes on YouTube)

Today’s episode is brought to you by Envestnet | Tamarac, the provider of Tamarac Advisor Xi, a web-based portfolio and client management platform that uniquely integrates portfolio management, reporting, monitoring, rebalancing, and trading with a client portal and enterprise level CRM.

Tamarac620

Find out more about Advisor Xi and download their latest white paper on best practices for technology evaluation and implementation by visiting fppad.com/tamarac

Here are the links to this week’s top stories:

Exclusive: Schwab ready to unveil free ‘robo-broker’ service from Reuters, and

Google study heightens fund industry peers from Financial Times (subscription required) or Google Looks to Enter Financial Industry from NBC Bay Area, or Google will likely re-invent the industry rather than play in the existing sandbox from Valuewalk

[This week’s top story covers *two more* announcements in the online investment algorithm space. You did watch last week’s episode, didn’t you? So first up is Charles Schwab who, according to a Reuters article, is developing its own automated investing service for use by you, the financial advisor, to attract emerging clients with a low-cost solution. How low cost you ask? Rumors indicate the service will be free, not including the four to 19 basis points charged by Schwab’s ETFs used in the platform.

And on the heels of Schwab’s news, Google hinted that the company is exploring its own entry into the investment management business. Financial Times first reported that Google commissioned a research report back in September on entering the asset management industry, which trigged a wave of industry speculation that gained a lot of momentum this week.

So let’s take a step back for a moment. Schwab has over 7 million investor accounts with over $1trillion in assets under management and Google has over one billion users across their various online services and mobile devices.

Collectively, the online investment providers have somewhere around $3 billion in assets under management (that’s 3 tenths of a percent of Schwab!) and less than 100,000 users (that’s one one-hundredth of a percent of Google!). Are the disruptors about to be disrupted? I don’t know, you tell me, and it all depends on whom you ask.] Charles Schwab Corp. is weeks away from introducing an automated investing service aimed at winning business from novice investors it does not currently serve, company officials told Reuters.

Estate Assist Wants To Provide Estate Planning For The Social Media Age from TechCrunch

[Next up is an announcement of a new service called Estate Assist, an online safe deposit box, if you will, that stores information about digital assets and shares that information with trusted recipients after a user passes away.

Identifying and managing your clients’ digital assets is probably not a part of your current service model, partly because there really haven’t been any decent solutions out there you can use that are better than using plain old spreadsheets. But with the introduction of Estate Assist, I think it’s time you consider including digital asset management services. Look at my YouTube channel or my email newsletter as an example: if I got hit by a bus <pause>, how will my spouse and beneficiaries access these assets?

In addition to Estate Assist, I think you should look into similar services from PrincipledHeart.com, created by CFP® practitioner William Bisset, as well the data inheritance feature from SecureSafe.] Estate Assist, launches out of beta today. Its aim is to help you store all your online passwords, social media accounts, digital health records, bank info and other paperwork.

The Five Biggest Ways Your Practice Needs to Change from Advisor Perspectives

[And finally, this week’s episode wraps up with industry commentary from Bob Veres, as he identifies the biggest ways your business needs to change in a recent Advisor Perspectives column. Now Veres says “pundits and journalists” say you need to make radical transformations, but they don’t give you any specifics. I hope he’s not talking about me, because I try to load these broadcasts you’re watching with tons of resources you should have on your radar. But I digress.

Veres mentions a number of what he calls “genuine evolutionary trends” which are all enlightening in their own way, but buried down at the bottom of his column, he says he suspects that “social media is going to be the least productive in terms of generating business for your firm.”

Really? Now to his credit, Veres says you should play to your strengths, and if social media isn’t one of them, it’s ok.

Well, I think that attitude was valid 20 years ago before it was possible to find out just about anything about anyone online using a quick Google search.

Just look at this broadcast. Complete strangers are watching it, they’re getting consistent value from it, and if they meet me in person at a conference, they say they feel like they already know me. So to say it’s the “least productive” way to generate business.. that’s it, I’m done.] Pundits and journalists make their living telling you that our profession is in a period of rapid evolutionary transition, and exhort you to be open to radical transformation. What you don’t hear in these messages are the specifics.

Here are the stories that didn’t make this week’s broadcast:

Watch all of the videos from Finovate Fall 2014 presentations

Mobile Dossier Startup Refresh Finds A Revenue Model With Its Salesforce App from TechCrunch

Refresh, the mobile tool for making you smarter at meetings, is now positioning itself to help sales teams be smarter about their clients and potential clients. To do that, the company has created a new product for Salesforce’s AppExchange that will allow users to access detailed information about the people in their professional network.

 

Watch FPPad Bits and Bytes for October 10, 2014

Watch FPPad Bits and Bytes for October 10, 2014