Bill Gates made a splash recently with a controversial statement about how to deal with the impact of technology on the job market. He proposed a new tax on companies that install robots to replace human workers. His logic is that a tax will reduce the pace of automation and the money raised would be used for retraining displaced workers.
Personally, I think Ol' Billy has gone a bit bonkers.
One thing that Gates should have learned from his experience building world's most popular computer operating system is that you can not stand in the way of technological progress. New technologies almost always improve our standard of living even as they disrupted established companies from buggy whip manufacturers to hard disk drives to bookstores.
The wealth management industry has experience a great deal of technology-driven disruption in the past few years. While no firms are installing robots to replace advisors yet, the effects of virtual advice delivery over the Internet are still being felt.
What If RoboAdvisors Gave Away Financial Planning?
At the recent T3 Advisor Conference, Kevin Knull, president of PIETech, makers of MoneyGuide Pro, posed the question, "What if Roboadvisors gave away financial planning?"
This question reminds me of one of my favorite business books, "What Would Google Do?", by Jeff Jarvis. The premise is that Google's business model is almost always to give away the product and make money somewhere on the back end.
Google has no plans, at least none that we know of, to launch a roboadvisor. But the current crop of digital advice vendors has been doing their best to drive prices down in a "race to zero". They have also been chipping away at advisors' value by offering a smorgasbord of free functionality such as auto-deposit and withdrawals, aggregation of held away assets and even tax loss harvesting.
I believe Knull's question has already been answered, since roboadvisors Betterment and Wealthfront have been offering (very) basic financial planning features for some time now. Both firms' have sections on their websites that identify gaps in retirement savings based on the current value of held away accounts and show projected income needs based on current spending patterns, both calculated based on data brought in via aggregation.
These simple tools are tinker toys compared to sophisticated programs such as Naviplan, eMoney Advisor (owned by Fidelity), MoneyGuide Pro, FinanceLogix (owned by Envestnet) or relative newcomer, Advizr. The question is, how long will it take the roboadvisors to build out their free functionality until it meets most of what the average client or advisor requires?
In other words, how much free functionality is enough to impact sales of the above products? Where is the point that each additional feature attracts fewer new advisors? Some would say that we have already reached that point and that the current crop of financial planning tools are at the feature overload level. (See FinPlan Shootout: eMoney Advisor versus MoneyGuidePro)
The Central Hub
Financial planning vendors have been battling it out for years with CRM, portfolio accounting, risk profiling and custodians for dominance of wealth management firms infrastructure. Everyone wants to be the central hub that RIAs or broker-dealers or banks use to integrate all other software. (See The Battle for the RIA Technology Integration Hub)
At T3, Knull reported that MoneyGuide Pro now supports 180 integration partners. According to eMoney's website, they support only 28 integration partners, but I believe this number to actually be much higher. At the conference eMoney announced new integrations with BlackDiamond and Schwab, neither of which are listed on their website.
And Fidelity, as their new owners, are hard at work integrating eMoney into the latest version of their Wealthscape advisor platform.
eMoney Advisor also has a client portal that they built into one of the best in the industry. So good, in fact, that some RIAs who use MoneyGuide Pro for financial planning also have an eMoney license just to get access to their client portal and document vault!
It seems that financial planning vendors are searching for new ways to differentiate themselves from their competition as well as free robo offerings. But is it possible to have too much new functionality?
Financial planning software has become a mature industry since the first tools were introduced 30 years ago. What we have seen is an endless stream of new features driven by customer demands as well as competitive pressures. Also known as 'checklist envy', it drives software vendors to add functionality so that prospective customers can check off all the boxes when evaluating their options.
Recently, this feature creep can be attributed to vendors expanding into non-planning products and services to both generate new revenue streams and make their products stickier and harder to replace.
A sign of possible feature overload can be seen in the series of announcements at the T3 Advisor Conference from two of the top vendors, eMoney Advisor and MoneyGuide Pro. MoneyGuide Pro expanded on their self-directed tool, myMoneyGuide, to be used for web-based lead generation. eMoney Advisor launched a number of products and services such as data analytics at both the advisor and office level, compliance reports, a branded media library and even outsourced marketing.
What does marketing have to do with financial planning? Nothing really. But it is an opportunity to create a new revenue stream from existing customers.
The vendors' own research seems to confirm this. eMoney reported that 72% of new clients come from client referrals. That means that this shiny new marketing service is useful for just 28% (or less) of new business.
Analyzing portfolio data has advantages for monitoring whether clients are on track for the goals setup using the financial planning software. But it starts to encroach on functionality already available from portfolio management tools with charts like AUM growth over time, by account type and by custodian.
There is the issue of duplication of data to consider since the data has to be imported from the portfolio management system or custodian into the financial planning software. CRM systems also can import the same data. Every time the data is imported there is a chance for errors. Advisors may be wary if they see different results across various systems.
Where does it end? Will financial planning vendors add account opening and portfolio rebalancing functionality someday? At what point will they cease to be financial planning tools and become wealth management platforms in their own right?
Another example of how financial planning software vendors are expanding their reach into advisors' workflow is Knull's announcement at T3 that MoneyGuide Pro has rolled out a lead generation feature that leverages their self-directed planning tool, myMoneyGuide. Advisors can integrate this software into their websites to allow prospective clients to register and create a customized retirement plan.
Lead generation tools have become part of the standard offering for most digital advice platform vendors. Advisors using software from Invesco Jemstep can send a link to prospects that directs them to a risk tolerance questionnaire, the ability to aggregate assets and then generate a current versus target analysis of their portfolio.
Knull reported some extraordinary results from a single RIA that sent out mass emails with links to myMoneyGuide on their website. I think his slides should have included a disclaimer such as, "Your mileage may vary."
According to Knull, this RIA sent out a single newsletter that generated 123 prospective clients and $120 million in new opportunities. Another success story cited by Knull was an RIA who charged $50 to each of 300+ prospects just for the privilege of using myMoneyGuide. The results? $265 million in new opportunities.
Now, I'm not doubting the veracity of Knull's success stories. But I wonder about the probability of similar success for RIA's who do not have access to a database of qualified investors to leverage for email marketing.
One interesting announcement from Knull was that myMoneyGuide was selected by Charles Schwab to be the new front end for their Intelligent Advisory product. With eMoney now owned by Fidelity, it seems beneficial for the other big three custodians to build tighter integration with MoneyGuide Pro. Schwab most likely paid a lot less than Fidelity did for their financial planning partner.
I thought this was pretty cool. Knull's team hooked up some prospective clients to biometric monitors to gather data on their vital signs while they ran through a number of different planning options. The results showed that they were least stressed when they answered risk profiling questions on their home computer than when they were in the advisor's office.
Stress levels were further reduced with a virtual advisor review session. Does this mean that advisors should avoid in person meetings with prospective clients? I don't think so. But if these results hold true for a majority of people, then it should give advisors something to consider when interacting with prospects.
I predict that in the near future, a FinTech firm will hook their risk profiling technology into clients' FitBits or other monitoring devices to try and analyze biometric responses in combination with the clients' conscious answers. A form of a risk-focused lie detector, without the legal ramifications.
This data could be used to more accurately determine if a client is answering the questions truthfully or if he is trying to 'game' the system. This would also eliminate another reason for human advisors to be present in order administer the questionnaires.
RoboAdvisor Financial Planning is the Future
It is only a matter of time before roboadvisors improve their automated financial planning technology to the point that it offers 80% of what most investors think they need. Deep-pocketed rivals Fidelity and Envestnet have purchased entire companies outright in order to better integrate their functionality into their wealth management platforms.
These are just a few of the many external pressure points driving financial planning software vendors to burrow their products ever more deeply into advisors' workflows to avoid being replaced by free options. An avalanche of features will continue to fall into advisors' laps, which may endear them to their planning tools or may end up in the virtual trash heap, gathering dust.
I think the line that I used as the title of this post was just a throwaway part of MoneyGuide Pro's Kevin Knull's T3 presentation, but it appears to be a question that his firm and most other providers of planning software are busy building answers for.