Ep. 104: July Wealthtech News Roundup

Thanks for joining me on the WealthTech Today podcast, I’m your host, Craig Iskowitz, Founder and CEO of Ezra Group. We help wealth managers, asset managers, and wealthtech vendors make better business and technology decisions. This podcast features interviews, news, and analysis on the trends and best practices all around the wealth management technology industry. A few housekeeping tasks before we start, be sure to subscribe to this podcast wherever you listen to podcasts so you don’t miss future episodes.

This is our July News Roundup, and we are covering four stories. In the past we had covered more than that, but we’re going to go more in-depth on fewer stories. We are coordinating with our partners at Kitces.com, so please check out The Latest In Financial #AdvisorTech (July 2021) and their Advisor Tech Map.

Click here and schedule a Discovery Session to find out how Ezra Group can help your fintech firm grow revenue in the wealth management space.

Companies Mentioned

Topics Mentioned

  • Addepar Grabs More Funding and Doubles Their Valuation [01:50]
  • Fidelity Investments Unveils Sherlock, a Data and Analytics Dashboard for Cryptocurrencies [16:10]
  • Broadridge Acquires AdvisorStream [23:00]
  • Principal Financial Shuts Down RobustWealth [30:00]

Addepar Grabs More Funding and Doubles Their Valuation

Craig: Come on in, sit back, relax and enjoy episode 104 of the WealthTech Today podcast. I’m your host, Craig Iskowitz, the founder of Ezra Group Consulting. Over the past 16 years, we’ve worked with hundreds of FinTech vendors and enterprise wealth management firms to guide them towards better business and technology decisions. Please head over to our website EzraGroupllc.com and register for our upcoming webinar, The Last Mile: Data Powered Client Experience in Wealth Management. You’ll be learning from industry leaders who are sharing their best practices in leveraging data that will shape how you think about and manage data as a key component of your client experience. Click the Register Now link at the top of the homepage on EzraGroupllc.com.wealthtech m&a

The WealthTech Today podcast features interviews, news, analysis on the trends in best practices in technology for wealth management, asset management and related areas. This episode is our monthly roundup of the news. I’ll be covering the following stories for this episode, July 2021: “Addepar Grabs More Funding and Doubles Their Valuation”. Story number two, “Fidelity Investments Unveils Sherlock, a Data and Analytics Dashboard for Cryptocurrencies”. Story number three is, “Broadridge Acquires AdvisorStream”, and number four, “Principal Financial Shuts Down RobustWealth”. Now let’s get the news started.

Just six months after their last funding round, Addepar grabs more funding and doubles their valuation. Addepar, a wealth management platform that specializes in data aggregation, analytics and performance reporting closed the Series F funding round of $150 million at a $2 billion pre money valuation from New York hedge fund D1 Capital Partners. Are they worth it? Is it worth $2 billion for this company? They’ve doubled their valuation from just last November when they took another $117 million in a Series E round. I wonder what the last round is when they get to Z, they go back to AA? Anyway that brings Addepar’s total funding to date to approximately $475 million.

In case you don’t know who Addepar is, they launched more than a decade ago. As I said, they focus on data aggregation, analytics, and performance reporting. They started out really at the high end family office space and they quickly became one of the leaders in this space in that they were offering a differentiated solution that could deliver elegant, really beautiful reporting that had data that other firms couldn’t provide, especially specifically around complex investments. Now they currently have more than $2.7 trillion in client assets on their platform. That’s AUA, not AUM, cause they’re just reporting and aggregation, with over 600 clients, including family offices, which was their core and expanding into high net with RIAs, some private banks and large financial institutions. They also claim to be adding an average of $15 billion in assets every week, which is up from November when they were adding $10 billion. So they are growing and their growth rate is increasing over time. They’ve said in the press release, they plan to use the new funding to scale up their sales force globally because roughly 90% of their client base is in the US, so that’s a huge opportunity.

As I mentioned Addepar started out targeting single family offices, multi-family offices and ultra high net worth RIAs, and became the leader because of their analytics and reporting on these illiquid asset classes like private equity and hedge funds and the partnership accounting and other idiosyncratic needs that gets displayed on the same screen. And it’s in the same reports as your normal investment stocks, bonds, and mutual funds, etc. That gave them a differentiated solution in the market and they were charging for it. They’re one of the most expensive solutions out there. I believe their list price is 50 basis points, which is crazy for tech. Most vendors charge on a per seat basis, per license basis or per account basis with very, very few tech vendors who aren’t also TAMPs and offering investment solutions, which makes the tech just a loss leader. If they’re really a tech company, it’s very rare they can charge basis points to charge an asset based fee.

So Addepar has done that since since day one, I believe, and they’ve gotten away with it because they provide a differentiated unique solution. Their solution is multi-currency, they’ve got a pretty nice client portal and their performance reporting and visualizations on these assets with complicated ownership structures is gorgeous in my opinion and unique in that other firms can do it, but not quite in the way that has designed their interface to be easy to use, drag and drop. Visualize almost like building a pivot table in Excel, but pulling in data from private equity, hedge funds and partnerships.

“This data is notorious for creating challenges in any portfolio reporting system. When it comes to these illiquid investments, the transactions are sporadic, pricing and quotes are often subjective and the risk attributes of these underlying assets or anyone’s guests.” That’s a quote from Bill Winterberg, an industry expert and he’s right. That’s one of the problems that a lot of friends run into is they just can’t get the data clean. A lot of this data is coming in through PDF files and paper reports. So being able to scan them in, analyze it, and put it into the database and update immediately is very difficult, but Addepar has built out their processes, their data management processes and data import processes to be able to handle these asset classes that other firms can’t handle.

So another thing that Addepar can do that we like is the, what if scenarios. So it’s not just a reporting solution, it is a bit of a stress test solution where you can say, well, the fed just raised interest rates, and we have a client that wants to know the impact across their entire portfolio, not just stocks and bonds. And let’s say half the portfolio is in private equity, hedge funds. The advisor may want to know, how should we reposition this portfolio? And that’s something Addepar can do. Similar to how tech like HiddenLevers works, which is now owned by Orion, but they can’t apply to alternatives the way Addepar can do it.

It’s also an interesting overlap with higher end trust and estate planning solutions like NaviPlan, eMoney, and other software. But those firms don’t do performance reporting and the client portal, like eMoney has a client portal, but the way these the way Addepar can handle it, and the way to Addepar can manage it and visualize it. That’s a bit different from the way the financial planning firms handle trust and estate planning. So common question with these large trusts and high net worth families is they want to know what part of the trust is attributable to a specific family member and most RIA software that Addepar will soon be competing against, can only look at it on an account by account basis. It’s difficult to look at it on a trust basis and a percentage of that trust. Addepar can do that and can say, well, based on the data we have this particular individual owns 8% of the trust or 10% of the trusts, whatever that number is, as opposed to they own this account, or they’re sharing this other account.

So Addepar with their data model as opposed to being an account based data model where you might have to overlay other tools on top of it or other aggregation functions, they’ve got that built in. But are they worth $2 billion? That’s the question. Looking at other firms that they are somewhat competing with firms like Orion, there were rumors that they were on the market late last year for under $2 billion. InvestCloud just closed a funding round merged with Tegra118, the old Fiserv division, and now their valuation is $2 billion, so that’s a common number. And the largest firm in the wealth management space, wealth management tech space, Envestnet is worth $4B. And it’s easy to look up because they’re a public company, just check Yahoo finance.

So these numbers aren’t unusual for firms with the kind of asset cap that Addepar has with $2 trillion. So having a $2 billion evaluation doesn’t sound unreasonable, and especially looking at the growth, they’re really outpacing other firms in terms of growth. As I mentioned earlier, they had 450 clients last November, and now they’re at 600. They have $2 trillion in assets, now they are $2.7 trillion. If you look back in time, when the current CEO Eric Poirier joined Addepar back in 2013, they just had $50 billion in assets. 2013-2021, 8 years went from $50 billion to $2 trillion. That’s quite a growth curve.

Other competitors in the space, the big four RIA platforms, Tamarac, Orion, BlackDiamond, Morningstar would be your big four. They never really saw Addepar as a competitor. They saw them as a partner because Addepar was just handling reporting. And they were handling asset classes that those four vendors didn’t really get involved in. And that is changing. We’re seeing these other vendors identify Addepar as a threat to their business and especially to their largest clients. And there’s an old saying that you don’t defeat a competitor in business at least, by stealing all of their customers, you just have to steal the best customers. And I believe that’s Addepar’s strategy, steal the best customers from the competition and win the market that way.

They’ve been investing heavily in the RIA space, which they never really cared about before a couple of years ago, they built out some new products, something called Addepar Teams, where teams of advisors can decide which clients different advisors see on a team and share clients. And also a little bit of a downmarket version since it was expensive, as I mentioned earlier, they built out a lower cost version called Addepar Go, it’s a plug and play pre-configured version of the software. That’s another thing that firms didn’t realize when they were choosing Addepar, it’s expensive to implement. You can’t do it by yourself. You need a consultant to come in and help you, and that’s not cheap, but firms will still do it because of the value they saw, Addepar’s reporting, their visualization, their data aggregation, delivering to them and their clients.

Oh, I wanted to read one more thing. So this is a great quote from a good friend, Doug Fritz, who is principal at F2 Strategy. And he said this in an RIAbiz article from April, 2019. So it’s already two years old, but I’m sure he still feels same way regarding Addepar. He said the hype is real, Addepar’s made massive improvements in their model, delivering support over the last few years, we’re seeing their name come up in conversations with the larger clients. And they’re definitely going to win larger and larger mandates. That’s something we’re hearing across the board, not just from Doug Fritz, but from other consultants and other clients that they’re taking larger clients. We’re taking new looks that Addepar. I mean, they already have signed some pretty big deals. They have a deal with Morgan Stanley, which is one of the largest wirehouses, so you can’t go wrong with that. They’re winning more deals and they’re also building up more tools, and we’re expecting, I know we are in our research division that looks at fintechs, we’re expecting Addepar to announce some sort of portfolio accounting, portfolio management tool soon, just based on who they’re hiring.

For example, they hired Steve Strand who co-founded Advent Software and wrote the first few versions of their access portfolio accounting and reporting product. You don’t hire this guy unless you’re building out the portfolio accounting engine. So the writing’s pretty much on the wall. They’re also targeting smaller firms and now they’re partnering – of course they don’t have their own portfolio management yet – but they had partnered in the past with firms like RedBlack portfolio management solution, which is owned by Invesco now and FolioDynamics for UMA, which is owned by Envestnet. But once they have their own platform, they won’t have to partner anymore. And they’ll own the end to end product for these clients, which is going to make them stickier and make them able to go after bigger and bigger projects and bigger and bigger clients.

In the past, they didn’t have their own portfolio accounting. They basically did. What’s called a wipe and load. They just pulled the daily custodial files down and wiped out what they had yesterday and uploaded what they have today. But that led to some minor discrepancies because it makes it more difficult to manage since you don’t have access to the intraday changes, you only can look at what’s on the custodian. But again, building their own portfolio accounting and portfolio management will change all that.

The last thing we see as being part of their value and why we think it’s worth even more than $2 billion is their alternative investment marketplace. They are experts in alternative investments and managing the data behind alternatives. So they started their own marketplace where either they become the integrated platform that ties the clients together, manages the workflows and delivers these alternative assets to their clients. Even so only 30 to 40% of the assets on the Addepar platform, according to Addepar, are actually alternatives. That means 60-70% are your everyday run of the mill stocks and bonds. So there’s some room for growth there into more alternatives. And about 25% of their current clients out apart have started using their alternatives marketplace. We see these alternative marketplaces as huge growth in the RIA space firms like Luma, SIMON Markets, Halo Investing. We’ve talked about these firms on our blog and in other reports and done work with other clients about the marketplace for alternative investment structured products, annuities, and such. We see huge growth here, and this is another revenue stream for Addepar.

So to summarize, why do we, we think Addepar is in such a good position, why do we think they’re going to be worth more than $2 billion, accelerating asset growth expansion of their tech stack into an end-to-end advisory platform, big deals like Morgan Stanley and Dynasty, we didn’t even mention the Dynasty deal, and their alternatives marketplace, those add up to continued growth for the firm and continued problems for their competitors, and we see them only accelerating and being more successful in the future.

Fidelity Investments Unveils Sherlock, a Data and Analytics Dashboard for Cryptocurrencies

Craig: Next up in our News Roundup, Fidelity Investments Unveils Sherlock, a Data and Analytics Dashboards for Cryptocurrency. So let’s take a look, let’s talk about this, this new dashboard, but first let’s do a quick history of Fidelity and their involvement in the crypto and digital asset world. They were one of the first Wall Street incumbents to officially provide cryptocurrency solutions. They even started Bitcoin mining back in 2014 when the price was around $180, you can imagine what their Bitcoin is worth. And I’m sure they were just seeing it as interesting technology to work wit and it became a huge moneymaker for them. The goal, according to CEO, Abigail Johnson, was to make digitally native assets such as Bitcoin more accessible to investors. They launched Fidelity Digital Asset Services in October 2018, which enabled cryptocurrency custody and supported trade execution for institutional investors.

We’re seeing Fidelity offer more and more services and functionality around crypto, they’re really building out a very strong offering around crypto. They also have a partnership with Coinbase, which is the largest digital wallet and one of the largest places that consumers can buy cryptocurrencies. And this partnership allows Fidelity customers to check their cryptocurrency balances on Fidelity app. In 2015 they even started facilitating charitable donations in Bitcoin. So a great place to go if you’re looking for crypto is Fidelity investments, it makes sense that they would start offering tools for RIAs to learn more about crypto and do research on crypto.

Sherlock, this data and analytics dashboard is aimed squarely at institutional crypto traders, including RIAs, according to the firm. The Fidelity Center for Applied Technology developed Sherlock in secret, I don’t know why it was such a big secret, but they did it in secret, and I believe Fidelity spends about $2.5 billion on technology every year. They’re a huge provider of tech and it makes sense that they would be able to build something like this. According to the firm, they plan on charging $500 per user per month for this toolset with some sort of tiered pricing for larger firms.

Bitcoin digital asset cryptocurrency expert, Lex Sokolin from Consensys was quoted as saying, “the main thing Fidelity can do better than others here is integrating this data into the rest of its traditional investment management toolkit.” I agree a hundred percent. I’d rather see you know, a so-so tool maybe without all the features and functionality that was tightly integrated than the latest and greatest tool that’s a completely separate option. So hopefully they’ll integrate this into their other tools, their other advisor systems, but right now it’s not, it’s still standalone.

The problems I’m seeing, and I haven’t gotten a full demo of this yet, hopefully the next few weeks I will be able to get a demo. All I have is screenshots on the website, which is SherlockAnalytics.com. It really doesn’t look all that great. It’s certainly not worth $500 a month. It looks to me like someone built it using the roadblocks game development kit, very choppy, not a lot going on here, missing a whole lot of stuff. Although again, this is just screenshots, but not a screen I want to stare at and make decisions on investments on. There’s so many other tools out there that can do this, that offer data analytics in way more detail than what we’re seeing with Sherlock.

So I would wait on Sherlock, if you’re looking to get involved in cryptocurrency trading, or you’re just curious about it, I would look at some of the tools like Glassnode.com, you can sign up for a free account there. Way more tools, hundreds of options that look at supply and demand, derivatives, distribution across wallets, different exchanges, lifespans of wallets, you know, market indicators really, really great tool. So that’s Glassnode. Another one that I like is called Skew, also a really nice dashboard, they have a free version as well, which you can take a look at. Great for technical analysis, lots of options going on here. I really like their buy-sell ratio charts and their Grayscale Bitcoin trust volume inflows and outflows graphics look real useful as well. Of course, there’s also the old standard that anybody trading any crypto would have used at some point, which is called TradingView, and on TradingView you can’t do any investment security, but really strong on crypto. Great for technical analysis, it rivals some of professional tools that I’ve seen out there.

So why would you use this tool? I wouldn’t. If you’re an advisor personally, I would go for models. There are a number of asset managers offering cryptocurrency digital asset models. And the best way to get them is through a company that I’m actually on the advisory board for called Blockchange.ai, and the reason why I’m on the advisory board is I did a lot of research on this and they’re the only ones that have built this digital asset network and crypto rebalancer that connects crypto asset managers, let’s call them that crypto asset managers with RIAs.

So if you’re an RIA or a broker dealer and you want to give your advisors and their clients access to the best money managers offering crypto models, you want to go to Blockchange.ai and they can hook you up. Why not go to the experts rather than trying to do it yourself? It’s too complicated. There’s too much going on. I think advisors should be focusing on building the business, servicing their clients, rather than trying to pick the best crypto or even the best stocks and mutual funds. Just take the asset, take the models from the best managers, take the best intellectual property and then run your business that way. So Blockchange.ai, it’s a quick commercial for them. And overall as of saying Sherlock, hopefully this is the first version that will get better over time, but there are a lot of other options. If you are insisting on dabbling in cryptocurrency as an adviser, use Glassnode, Skew or TradingView, that’s my recommendation.

Broadridge Acquires AdvisorStream

Craig: Our next story this month is Broadridge Acquires AdvisorStream As Digital Marketing for Financial Advisors Continues to Heat Up. According to a 2020 survey, there were 8,000 marketing automation tools on the market, we call the MarTech. MarTech tools, over 8,000. That’s a tremendous amount of logos on a map. I hear people commenting how crowded the Kitces advisor tech map is, which I happen to partner with Michael on, and we only have a few hundred logos on that map. Imagine 8,000. You’d need a microscope to see them. So there’s so many choices available for generic MarTech platforms that are industry specific the biggest and most popular platform is called HubSpot, which you may have heard of. I believe that the most popular they’ve got over 15,000 clients and they’re also expensive, but they’re expensive because they are the most popular. Other firms that have provided similar products and MarTech products that aren’t tied to any specific industry include Pardot, which was acquired by Salesforce, Marketo, Infusionsoft (now Keap) and SharpSpring, which it was just recently announced being acquired by Constant Contact and is also used by my firm, Ezra Group.wealthtech m&a

Anyway. So all these players, 8,000 MarTech firms didn’t stop a bunch of companies from thinking that they could build a better mousetrap that would work better for financial advisors. And on the Kitces advisor tech solutions map, which you can find at Kitces.com, we currently have 16 products in the digital marketing category. You can take a look at that anytime you like. So every month, Michael and I sit down and we review the map and discuss changes and additions and reorganizations. And next month, as you mentioned, we’re probably going to have to remove AdvisorStream since they’ve been acquired by Broadridge. And we’ve also seen other consolidation other acquisitions in the past 12 months or so. And even before that, there’s been a pretty, pretty steady stream, especially with the bigger players.

The biggest player in the space is probably FMG Suite, according to our research, and they have been a pretty steady acquirer of other MarTech firms to build up their platform. They started the company in 2011, but their first acquisition, I believe was in 2016. When they bought Advisor Launchpad, they then bought Advisor’s Assistant, which is a CRM for advisors. In 2017 they bought agency revolution, which is marketing for insurance agents. In 2018, two acquisitions, MarketingPro and Platinum Advisor Strategies. And finally, last year they made a big acquisition of TwentyOverTen and their Lead Pilot email marketing system. And that came just six months after FMG Suite themselves were acquired by a PE firm Aurora Capital. So a lot going on with FMG Suite.

Another company that’s got a lot of market share in advisor focused marketing automation is Seismic and their live social tool, which was previously called Grapevine6 before they acquired them this year. That’s an AI based engine that scours the web for content analyzes it, tags it, and then builds curated databases. A great tool, has a lot of traction in the enterprise space. Grapevine6 does, are now called LiveSocial. They do a really good job measuring end-user engagement and distributing and compliance, being able to manage and manage these curated content databases.

So of course Broadridge got into the business when they bought a company called Direxxis in 2015 and now AdvisorStream. And another of the big players, we would call Snappy Kraken who just got a $6 million Series A round. And by the way, they’re having their Jolt marketing conference in Las Vegas in October. And rounding out the list of vendors we think would be the biggest would include Hearsay Systems, which used to be called hearsay social, a company called Clout, ReachStack and Advisor Websites.

When we look at the market for advisor marketing software, we divide it up into four main feature segments. So the functionality is divided up into four areas, websites, building out websites like Advisor Websites does. Content development, that’s web content, marketing content, other types of content. Marketing automation, that’s single step push multi-step, push multi-channel marketing and campaign marketing, and finally reporting analytics and integration. So those four areas is how we look at the functionality breakdown of marketing software. So back to our story, why did Broadridge buy AdvisorStream, they fit a number of gaps and fill number of gaps that Broadridge had in their solution. And one of them is AI driven content and AdvisorStream has got some pretty nice technology that measures how the content is working, the analytics to come back and tell you where the user interactions are by content, by subject, by source. A really nice dashboard that they’ve built that looks a little bit like Google analytics in effect, but just for your advisor measured content, and it’s a lot easier to use than Google analytics.

Another couple areas where we found AdvisorStream filling gaps for Broadridge is around content creation and customization. Broadridge doesn’t have the best functionality in that area, and AdvisorStream does. And the final area we see where AdvisorStream is really a differentiated solution and no one has, this is their a huge group of a paywall content provider agreements, where they’re paying these paywall content providers so advisors can deliver this content to prospects and clients for no charge to them. So they get an article from the Wall Street Journal or Barron’s or Forbes, and they don’t have to pay, they don’t have to go through the paywall. They don’t have to see any other content on the sites. They just see the article that the advisor is sending them, white labeled with the advisor’s logo and other information. Really great differentiated solution sets them apart.

The one area we found Broadridge having a bit of a problem is they’re not the best at keeping innovation going. They bought a lot of companies, in many different areas, not just advisor marketing, but in many different areas around the advisor space. And the applications tend to stagnate. They buy a great app, and then it just doesn’t continue. It’s still good. It just doesn’t continue to innovate. So we’re hoping that that doesn’t happen with AdvisorStream, we’ve followed them for a while. We really like what they’ve got going, what Kevin Mulhern and the team have done up in Toronto. So we’re looking forward to breaking the streak, and AdvisorStream continuing as a product and continuing to innovate and bring new and better solutions for advisors.

Principal Financial Shuts Down RobustWealth

Our final story this month, Principal Financial Group Shuts Down Robust Wealth. This has been something I’ve been following for a while. I’ve known the RobustWealth guys since 2017, they were acquired by Principal in 2018 with the goal of what many asset managers think when they’re buying interesting tech platforms, build out a new distribution channel, grab some space on advisor’s desktop become stickier, push out product to them on the marketplace. And it just doesn’t seem to have worked out, which is a shame because I really liked what Mike Kerins, who’s a founder and CEO had done with RobustWealth. I’ve seen them a lot at conferences and talked to them a lot and talk to the team a lot, seen demos of the product, I was really interested in what they, what they were doing. And so, again, it’s a shame that it was shut down.

A number of other people in the industry felt the same way. T3 head Joel Bruckenstein was quoted as saying, “when an insurance company purchases, a wealth tech firm, there’s often a culture clash.” And he’s right about that. I posted on Twitter another example of, well I said insurance company, but it’s more than asset manager and asset management company spending money, trying to be innovative, but being unable to leverage good tech and a good team. Selling tech to advisors is not as easy as it looks.

I also had a bit of an inkling that things weren’t going so well last year, when I heard from a source that the romance was over between Principal and RobustWealth. Again, didn’t know what was going to happen or when, but things didn’t sound good. I really liked, as I said, their platform, they had done a lot. The platform featured, basically everything you needed for an RIA, tech platform, rebalancing billing, a client portal, electronic account opening. They had built out goals-based planning tools, they had open architecture. What was also interesting about them was while they were still small, they were a TAMP, so they had an RIA, they could take discretion and handle trading.

So they were coming at it from a number of different directions and plus their digital onboarding solution that was available to advisors to launch a digital channel, which they could also support the trading for a dollar per account per month or something like that. They built their own e-signature technology, a lot going on there. So the fact that they were shut down is disappointing, but not surprising considering other insurance companies, asset managers, who didn’t do so well with the technology that they purchased, whether it’s Northwestern Mutual and LearnVest, WisdomTree taking a bath on their investment with AdvisorEngine.

Now other firms like Invesco acquire Jemstep and while that didn’t fail, they didn’t shut it down. They did roll it up into a what they’re calling Intelliflow platform with a number of other companies. And BlackRock acquiring FutureAdvisor, which also didn’t shut down, but didn’t set the world on fire either. It just didn’t seem like a good fit. If you think about it, Principal Financial Group is such a huge company, a conglomerate $820 billion in assets, $8 billion in net cashflow, huge in retirement plan servicing, insurance, their principal global investors, their asset management arm, tremendous, really, really large. So it was just hard to see how they weren’t going to get swallowed up and their innovative solution, innovative technology that innovative workplace just couldn’t survive. So again, not so surprising, but what were the reasons for failure? If again, I don’t have the details, I don’t have any inside information, but a lot of it probably centered around the model marketplace idea that Principal could push out their funds from their asset management arm through a model marketplace, run by RobustWealth and then manage through their platform.

Model marketplaces while they have had some success, and a lot of firms have launched them the past couple of years. They’re not standalone. You can’t launch an independent model marketplace that people will just flock to, or firms will flock to, asset managers and sponsors and advisors. It just doesn’t happen. Any model marketplace that’s used by RIAs is one that’s built into the platform they’re already using, whether it’s Orion Advisor Communities, TD Ameritrade’s iRebal which is now Schwab’s iRebal, Riskalyze Partner Store or Envestnet’s Manager Portal, and manager solutions or others. You’re giong to have to pull out some things, is where I’m going with this, you need to take out someone else’s technology, if you want them to use your model marketplace. And as my good friend, Michael Kitces said, “tech matters, but switching costs are brutal, advisers are much more likely to use expanded offerings where they already are, and that’s why the incumbents who added marketplaces ‘won’.”

The modern marketplace part isn’t the reason why they won, it’s the other tech platform. It’s the other solution, it’s service. There’s a lot going on. It’s hard, switching costs are brutal. It’s hard to change a platform once an RIA is using their platform, whatever it is. You can check out a Kitces.com article I wrote called 50 Portfolio Management Solutions Can’t All Survive. There’s so many technology solutions out there for portfolio management, rebalancing, onboarding the advisor’s just swamped with salespeople calling them to switch their platform. Plus you’ve got the custodian platforms that are all free and are available at any time.

So it’s very difficult for any firm the startup, but the fact that RobustWealth made any traction at all, and I know they did have some traction is impressive. But it’s a shame that they were shut down a shame that they couldn’t take their pseudo TAMP/onboarding/portfolio management platform any further. I wish them all the best and hopefully everyone landed on their feet, but just another example of why asset management firms need to really be careful, really think carefully about how they’re getting into the space, why they’re buying a tech platform, what the reasons are, it’s not just a shiny new object, what your strategy is.

We work with a number of asset managers and they’ve come to us as to what they should be doing, and one of the key feature things we tell them is you need to have a strategy and you need to be realistic about the strategy and all the things we just said before. It’s not a build it and they will come or buy and they will come process. You really need to think about it. You’re going to have to invest some money. You get to think outside the box. You’re going to have to allow this firm that you bought to run independently if you want to keep that innovative innovative thought process going. And it’s very difficult for asset managers who live and die on scale to do.

So another one bites the dust, another asset manager has thrown in the towel and admitted defeat that their acquisition that seemed to have so much promise just three years ago is not working out. And they just decided to cut their losses. I’m expecting to see more of this as time goes on because everyone seems to think they can make it work. And it’s just very difficult to do so we’ll see who’s next up.

Hey, it’s Craig again, hope you enjoyed this month’s News Roundup and all four stories. Please go to our website EzraGroupllc.com and sign up for our newsletter. You will get a monthly little dose of goodness in your email inbox with news information, content and links and other stuff around the around the industry from us. You will not be disappointed. And look for us again next week with more great podcasting content.

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