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    SecondEdit…Highlights From The 2020 Tegra118 Elements Virtual Conference

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    Executive Summary

    In September 2020, InvestCloud hosted its Elements Virtual Conference, which brought together industry leaders and influencers to examine what they referred to as the four pillars of wealth management technology: 1) a hunger for greater productivity; 2) the drive for faster growth; 3) a call for social consciousness, and 4) a compulsion to race forward into the future. This conference paid special heed to how the onset of the coronavirus delivered a monumental shock to the wealth and asset management industries and hyper-accelerated industry shifts towards remote work, artificial intelligence, and automated company processes. Companies of all sizes were forced to pivot quickly and reinvent themselves to deal with these evolving industry trends. As these changes are expected to be long-term, if not permanent, shifts, it is essential for advisors to proactively adapt to them rather than passively wait for a return to normal.

    In this guest post, Craig Iskowitz – CEO and founder of Ezra Group, a financial technology consulting firm – shares his signature Twitter-driven recap of the conference, which featured five key industry experts sharing their analyses of these four central pillars. Craig commences his recap with highlights from Margaret Regan, President and CEO of The FutureWork Institute, and Douglas Contant, President and CEO of the Campbell Soup Company, on reducing the barriers created in remote work while maximizing its advantages. Paul Romer, NYU economist and co-recipient of the Nobel Prize in Economic Sciences, discussed how technology has transformed our economy from the natural limits of physical resources to the eternal growth of ideas and technology.

    From there, panel discussion highlights included:

    • Data Utilization – In the digital age, a proactive advisor is an advisor that uses data well to recruit clients, anticipate life events, and streamline processes, a feat which is made infinitely easier by combining data and AI technology, and frees up the advisor to maintain a deeper focus on their clients and growing their firm;
    • Impression Management – Hard skills can help a firm grow far, but interpersonal skills, even one as simple as being authentic, are critical to connecting with clients over video or in-person;
    • Wealth Management – As while the typical wealth management advisor is currently swamped with choices, often juggling five to 15 financial services at once, there is a great need to simplify and streamline their services under larger, more variable platforms, paying special attention to transparency, hyper-personalization, and high responsiveness to allow for the best experience for them and their clients;
    • Retirement Personalization – Using AI in smart retirement planning has been getting a lot of hype because of its potential for education and personalization, but it often takes a technologically savvy advisor to make wise decisions – and to optimize their efficiency – while using AI tools.

    True to the themes of the conference, the Elements Virtual Conference leveraged technology to its advantage in light of the pandemic. It spread over multiple days and featured a wide range of topics and speakers from outside the industry.

    Ultimately, the Elements Virtual Conference embodies the future of the wealth management industry: leveraging technology, flexibility, and a plethora of expertise to deliver unique, applicable information that financial advisors can use to make wise decisions about helping their clients and growing their businesses.

    Author: Craig Iskowitz

    Guest Contributor

    Craig Iskowitz is CEO and founder of Ezra Group, a management consulting firm providing advice to the financial services industry on marketing and technology strategy. Ezra Group works with RIA’s, broker-dealers and banks to help them make sound technology decisions, identify growth opportunities and energize their marketing.  Craig is also the publisher of the blog Wealth Management Today, which provides in-depth analysis of trends and issues facing the wealth management industry. Craig can be reached at [email protected].

    "People who cannot invent and reinvent themselves must be content with borrowed postures, secondhand ideas, fitting in instead of standing out."

    -- Warren Bennis, American Writer

    In 2020, we witnessed the wealth and asset management industries adapting and transforming in a world that was changing more rapidly than ever before. Those companies that were able to quickly pivot to address the new normal were rewarded with explosions of new revenue, with some experiencing their best year ever in 2020. The ones that were slow to adapt have fallen by the wayside, struggling to remain relevant.

    We've heard many versions of the phrase, "the pace of change will keep accelerating." We have seen this buffet our industry as wave after wave of mergers and acquisitions continue to reshape the competitive landscape. With a future that is being driven by hyper-personalization and intuitive experiences expected by both investors and advisors, we expect to see a continued stream of deals as tech vendors and their private equity backers play a multi-billion dollar game of musical chairs. Last one left without an acquisition partner loses.

    InvestCloud and Tegra118 announced their own merger just last month (Feb 2021) with Tegra118 morphing into the Financial Supermarket division of InvestCloud, which in turn, greatly expands their footprint in the wealth management space. The newly combined entity, which also includes private banking tech vendor Finantix, a Motive Partners portfolio company, is now valued at $2.2 billion and has a suite of products targeting RIAs, broker-dealers, asset managers, retail and private banks.

    To help illuminate the path forward, InvestCloud Financial Supermarket convened their Elements Virtual Conference, which brought together industry leaders and influencers to examine what they referred to as the four pillars of wealth management technology: 1) a hunger for greater productivity; 2) the drive for faster growth; 3) a call for social consciousness, and 4) a compulsion to race forward into the future.

    With the pandemic shutting down all in-person events, we have come to rely on virtual as a thin replacement. But this online conference was quite different than most we have seen since it was spread out over multiple days and included a wide range of topics and speakers from outside the industry.

    We covered the following sessions:

    1. Game Changers: Deepen Your Talent Pool - Cheryl Nash & Margaret Regan
    2. Driving Growth in the New Normal with Assetmark, Finantix & Pershing
    3. A Conversation with Economist Paul Romer
    4. The Industry Speaks: Technology Trends in Enterprise Wealth Management
    5. Retirement Personalization: The Future is Now

    Game Changers: Deepen Your Talent Pool

    Margaret Regan is the President and CEO of The FutureWork Institute, a global consulting firm that translates future trends to transform organizations.

    Cheryl Nash is now CEO of InvestCloud's Financial Supermarket division.

    As Regan noted, remote work is the new normal. After more than nine months of a nationwide experiment with remote work, there are 3 key benefits for employers and employees:

    1. Improved Workplace Outlook - Remote workers are happier than their on-site counterparts. In an Owl Labs survey of 1,200 professionals for its “2019 State of Remote Work” report, those who worked remotely full-time were 22% happier at work than professionals who never worked from home. Especially after the COVID-19 pandemic, and the stress and uncertainty it produced, business owners will need to prioritize high morale and optimistic company culture. Maintaining remote work policies after COVID-19 could be an integral part of establishing a new normal within their businesses.
    2. Higher Employee Retention - When employees have a strong workplace outlook, they are not as likely to search for new jobs. Remote work policies not only contribute to employee happiness but also inspire them to stay, which is good for business. Job applicants notice when a company’s vacancies appear as if through a revolving door, and customers are also keenly aware of staffing changes. Reducing employee turnover rates helps businesses retain resilient reputations, ensure consistent workflows, enjoy high morale and cohesiveness, decrease new hiring and training costs, and maintain a positive workplace culture.
    3. Fewer Missed Days - Telecommuting is synonymous with flexibility, which provides employees with greater control over how, when, and where they work. The remote work flexibility advantage is good for both employees and employers in that it leads to reduced absenteeism. Amid the COVID-19 pandemic, remote work has allowed asymptomatic employees and those with mild COVID-19 symptoms to remain productive while self-isolating at home. This principle can also be applied long-term.

    The free flow of information across all levels in a company is essential for any business to function efficiently since it reduces confusion around common goals. Smooth communication increases employee engagement and productivity both within the firm and with each other.

    The manager/employee barrier is the biggest obstacle to great internal communication, according to job site Ladders. This virtual barrier is mostly mental, where managers become worried about becoming too friendly with their staff, and employees have difficulty relating to those in positions of authority. To break down this barrier, try implementing these five tips:

    1. Hold regular one-on-one meetings - Build individual relationships with your team, free from distractions. That includes closing your office door, putting the computer to sleep, and keeping mobiles on silent. Encourage your employees to speak freely with you away from the rest of the team. You will probably find them opening up more than they might within the group, and it will allow you to learn what they think of their work as well.
    2. Make time for a chat - It can be difficult to have a non-work conversation at work. Try and make time to chat with your staff. One way to do this is to have a 15-minute team huddle at the beginning of the day to see how everyone’s doing. This allows you to relate to your team as people, rather than simply as employees.
    3. Talk face-to-face - Email may have become the default method of workplace communication, but it also creates an unexpected barrier because you are no longer communicating face-to-face. It may be fast, convenient, and mean that communications are in writing and easily surfaced if required, but nothing builds relationships like in-person interaction. Email can also be easily misconstrued. As Inc. put it: “words on a page or screen lack the context, tone and nonverbal cues that help people understand your meaning in person. When in doubt, talk face-to-face.”
    4. Ask open-ended questions - Open-ended questions provide an opportunity for you to hear everything someone has to say, rather than just zeroing in on what you want to know. They’re also an invitation for the other person to talk. Be sure to listen to the response. Don’t finish other people’s sentences or second guess what they’re going to say. You just might learn something.
    5. Be open with your employees - Trust is quickly rewarded. Be open with your employees about what’s going on in the company. It will help break down any ‘us vs. them’ mentality and make employees feel more included in the organization as a whole, as well as more valued by you for placing your trust in them.

    Douglas Conant, is President and CEO of the Campbell Soup Company and he specializes in taking companies that are in bad shape and then turning them around by focusing on employees first. Many of the examples, both good and bad, came from Conant’s personal leadership experiences:

    • Touch points take place any time two or more people get together to solve a problem or get something done. This could be casual conversations during a lunch break, an email exchange, a one-on-one meeting, or a conference call. They can be planned or spontaneous, casual or carefully choreographed.
    • Every time you are engaged in a touch point, you have the opportunity to make a difference in the work or personal lives of those you are interacting with. Per Conant, a successful touch point requires that you listen intently, bring logic, heart, and competence to the discussion, and then follow-up.
    • Another aspect that Conant discusses is what he calls the exponential effect of a touch point. In simpler terms, it is the social media effect or the idea that any person you interact with may repeat or describe that interaction with 1 or hundreds of others. You need to think beyond that one discussion, and how it could impact many.

    Driving Growth in the New Normal

    The panelists for this session were:

    There are 40 life stage events in any investor’s life, Raneri noted. He recommended that advisors engage their clients proactively to help them prepare for these life events. Many advisors work in reactive mode, just waiting for clients to come to them. It's important to get to clients *before* they ask the question in order to demonstrate the most value in your relationship.

    Enterprise wealth management firms and insurance companies should implement artificial intelligence-based solutions that can help identify potential life events early enough and generate next best actions for advisors to communicate to their clients. One up-and-coming startup in the space is Intergen Data, which was recently named one of the Top 250 Insuretech firms.  Their proprietary technology allows firms to understand what’s likely to happen to each individual, when it's likely to occur, and see how much of an economic impact that it could have on their financial journey. It removes a lot of the guesswork that has been holding back the financial services industry from efficiently assisting clients through these life events.

    Data is the lifeblood of the next-generation advisor. Tomorrow’s successful advisor will leverage a wide variety of internal and external data to put together a 360-degree picture of their clients and prospective clients, according to a recent white paper from Broadridge.  Statistics and data will drive next best actions:

    “An advisor will come into the office and get notifications on a mobile device about social media posts or life events of their customers — such as the birth of a child. So, it might be a good time to suggest starting a college savings fund or increasing retirement savings.”

    Broadridge believes that technology will change the role of advisors, but not eliminate it. “Their human experience and industry expertise will still be vital, but their work will focus less on generating commissions and more on providing clients with the best communications and the best possible advice."

    Eliminating distractions and manual work through automation and AI-based prioritization will help wealth managers become more laser-focused on their clients. Leveraging machine learning will enable micro-segmentation for even the smallest advisory firms to enable better targeting of marketing and client interactions. AI can generate more qualified sales leads and business development opportunities. It can crawl through dozens of marketing, demographic, psychographic, public record databases to identify consumers with the right profile for a particular advisor. AI technology is taking what advisors would normally do, such as going to networking groups, joining clubs, asking for referrals, and automating it.

    The psychology term “impression management” describes how people present themselves publicly. There are two competing drives: a) to display our best self and b) to be genuine, and keep it real. Psychology Today Magazine lists 5 Ways to be More Authentic on Social Media:

    1. Use authentic photos - You don't want to get caught photoshopping or using someone else's photo and saying it's you.
    2. Cultivate an attitude of genuine pleasure in other people’s success - It's natural to feel envy when people you know are successful. Try learning the Buddhist concept of Mudita -- feeling joy for other people who are happy. Mudita is an antidote for envy. People will respond more favorably to your posted successes if you show them that you can be supportive.
    3. Be honest about your interests - It's tempting to try to create the perfect online persona for yourself and try to be everything you think people want you to be. But that's not who you really are. When people meet you, they will quickly discover you're not that person. But if you post about topics or activities that you actually enjoy and are interested in, people will see that your online life and your real life line up perfectly.
    4. Pair self-promotion with expressing gratitude to others - Many times when people socially share positive things that are happening for them, it’s because they’re feeling excited, rather than because they’re trying to shill or convince the reader of something. One way you can make these types of shares seem more pro-social is by adding a note about how you’re also feeling grateful to others.
    5. Keep a balance between personal sharing and sharing things that are interesting, useful, or humorous - Try to mix up your social sharing so that you’re letting people know what’s going on for you, as well as connecting your friends and family with content that's funny or useful and surprising, and will brighten their day.

    Even though most RIAs do not come anywhere close to fully utilizing the tools they have, owners continued to add more and more technology to their stack, hoping the next software application they implement will be the silver bullet that cures all. While this line of thinking is problematic in a number of ways, the biggest issue is that with multiple competing apps with overlapping functionality, none of them have a chance of reaching firm-wide adoption. The staff soon comes to realize that by the time they start to master a new system and see some of the benefits, another app is going to be dropped on them and they will have to start all over.

    This becomes quite frustrating for most RIA staff.

    Matt Sonnen from PFI Advisors wrote that firms should take a step back and "reexamine why you initially chose the systems you originally put in place, and determine which one solution will work best for each of the disparate components of your back office. This is the classic addition-by-subtraction scenario – by removing duplicative technology and reducing the overcomplicated web of systems, you will achieve optimized integrations, workflows, and functionality. This, in turn, will lead to happy employees and satisfied clients, which ultimately will lead to an improved bottom line."

    Data-driven personalization of end-client experience has been in use by large retailers for a number of years. It has been spreading to other industries, and wealth management firms have been slowly expanding their use. The underlying are similar for building successful personalization infrastructure:

    1. Capturing Context-Rich Customer Data - Most wealth managers are stuck in the past when thinking about digital. They offer minimal tools and focus on delivering investment-related data through their client experiences. Expanding into educational content and building partnerships with providers of complementary services such as insurance, legal and accounting can build a rich data set that can be mined for insights into what customers will need in the future.
    2. Deep Analytics for Actionable Insights - If the output of all your data is not actionable, then it is not useful. Focus must turn away from vanity metrics and towards AI-driven output that provides advisors with a list of choices for next steps to take with each client. Just as retailers look at a consumer's buying history, wealth managers can look at a client's investment history to better understand how they approach the market and what options to offer them going forward.
    3. Data Security and Customer Privacy - More clients have become wary of sharing their personal data as hacking, phishing, and online scams become commonplace. The ethical and responsible use of customer data should be built into governance processes and compliance oversight to avoid accidents that can negatively impact clients and damage the firm's reputation.

    Digitalizing the content of advisor recommendations will enable their clients to self-service the information, Ciriani pointed out. We have moved beyond emailing PDF files. Clients expect online reporting tools and dashboards that can display recommendations digitally with the ability to adjust inputs and see the results in real-time.

    Morgan Stanley was one of the first to roll out a tool that delivered Next Best Actions, which uses artificial intelligence to help advisors better target their communications to clients. The effort is part of a broader technology strategy at the firm that included teaming up with BlackRock to offer access to their risk analytics platform Aladdin.

    Finantix has leveraged AI to help generate investment recommendations, Ciriani explained, applying machine learning (ML) and natural language processing (NLP) to drive KYC. They have also developed the ability to provide automated screening of prospective clients to avoid manual processes and give time back to relationship managers and advisors that would normally spend reviewing data, she said.

    Their technology combines screen scraping and analysis of structures and unstructured data to identify prospects that have the highest probability of becoming new customers and recommending how advisors should reach out to them.

    A Conversation with Paul Romer

    Paul Romer is an economist at the NYU Stern School of Business and co-recipient of the Nobel Memorial Prize in Economic Sciences (shared with William Nordhaus) in 2018 for his contributions to endogenous growth theory. He was awarded the prize "for integrating technological innovations into long-run macroeconomic analysis".

    Romer has been referred to as "an economist for the technological age". He burst onto the economics scene in 1986, with the first in a series of ground-breaking papers that revived the study of economic growth, which had been moribund for a generation. "Paul single-handedly turned it into a hot subject," says MIT economist and Nobel laureate Robert Solow.

    The world is a veritable playground of unbounded opportunity, in Romer's view, and is no longer defined by scarcity and natural limits on growth. Instead, new ideas generate new products, new markets, and new possibilities to create wealth. "Old growth theory says we have to decide how to allocate scarce resources among alternative uses," he says. "New growth theory says, 'Bullshit!' We're in this world, it's got some objects, sure, but it's got these ideas, too, and all that stuff about scarcity and price systems is just wrong.'"

    If you're an average Internet-connected human, you have accepted dozens of end-user license agreements (EULAs) but never read any of them. One study says you’d need to take a month off work each year to have enough time to read all the privacy policies you encounter. And even if you did try to wade through the legalese, you could hardly be expected to understand it.

    You can't check everything everyone tells you, Romer noted, and in a healthy society, we should be able to trust what most people say since they’re just trying to defend their reputation for integrity. But the standards of integrity in technology have eroded. We now ask who can we trust? And are the developers trying to trick me?

    Romer is a proponent of moving to user-centered software design and marketing in order for the major technology companies to begin to rebuild trust. A panel of experts recently gathered by Forbes came up with a few recommendations:

    1. Invest In Blockchain Technology - Blockchain-based digital profiles would put the control of personal data back into the hands of the user. It could even monetize sharing of their data.
    2. Adopt A ‘Privacy By Design’ Approach - The collection and use of private data must be intentional and explicitly communicated to consumers. If a personal data element is not required, then it should not be collected in the first place. This approach to process and application development will help maintain compliance and begin to build confidence with consumers.
    3. Apply Transparent Data Use Standards - Consumers view tech companies as independent operators, each with their own agenda for personal data. Tech companies can create trust by creating joint, transparent standards that are consistently applied to the use and management of personal data.

    Advancements in technology have not always been favorably received. Over the last 30 years, we have seen more discussions that highlight the potentially harmful effects of technological advancement, such as a displacement of face-to-face interactions, its role in environmental degradation and threat to employment, and a general fear of the unknown. Images of dystopian futures filled the imaginations of filmmakers in the 1980s and 1990s, as depicted in the film Blade Runner, Mad Max, and The Terminator, and helped to fuel concern about the dangers of rampant technological growth, especially in the fields of robotics and artificial intelligence (AI).

    Technology can be liberating or can be used to imprison the human soul. Arthur Lyon Dahl of the International Environment Forum observed:

    Now we can dive under the sea, go to the moon, fly faster than the speed of sound, or go anywhere on the planet, speak to anyone around the world, record our thoughts and experiences, and manipulate our environment as we wish. It would seem that our liberties have no limits, and the consumer society is there to cater to our every want. And that is the paradox. We have trapped ourselves in our consumer culture, forced to keep upgrading our technologies to avoid falling behind. Our home is our castle, protecting us from unwanted encounters. And our motor vehicles are similarly designed to protect us from other people. We have become prisoners to our technologies. Rather than liberating us from the struggle for existence so that we can devote our energies to more important things of the spirit, we surround ourselves with distractions so that we do not have to face the spiritual void within ourselves.

    In the beginning of the pandemic, Paul Greenberg uploaded a long blog post onto the technology website, ZDNet, where he explained the positive aspects of advancements in technology:

    The very hallmark of continued human social existence has been that each of us as a human, has an infinite capacity to create something that in some way, incrementally and on occasion profoundly impacts the continued existence of society and the human species. It's happened frequently enough throughout history, with the right combinations of people and resources, to so far, ensure, at least for now, the continued existence and even flourishing of humanity and the cultures and society associated with it, with all their problems, glitches, denial of opportunities, errors of judgment and action, and even criminality. Despite the bad, we survive as a species and grow. Because the good always outweighs the bad, and over time, even if it doesn't seem so, overcomes the bad. That tells you something — human beings, as a rule, are good, not evil, despite the cynics who would have you think otherwise. Complaining doesn't solve problems — finding solutions to the problems solve them.

    The Industry Speaks: The Future of Wealth Management

    The panelists for this session were:

    • Nalika Nanayakkara, Wealth and Asset Management Consulting Leader, EY
    • Tom O'Shea, Research Director, Cerulli Associates
    • Will Trout, Head of Wealth Management, Celent

    Over the past 5 years, wirehouses have been slowly consolidating their siloed managed account programs onto a centralized technology platform to offer advisors a supermarket of program choices, O'Shea explained. Merrill Lynch was the first followed by Morgan Stanley and then Wells Fargo to migrate everything onto their unified managed accounts (UMA) platforms.

    According to Cerulli US Managed Accounts Report: A majority of managed account sponsors are moving toward consolidating all of their managed account programs onto a UMA, with 14% of executives surveyed indicating they have completed consolidation, 57% indicating they plan on consolidating, and 5% indicating they are relying on their turnkey asset management provider (TAMP) to do so. One-quarter of firms (24%) will continue to allow programs to exist on different platforms — a model that may soon be challenged by competitors that have fully embraced consolidation.

    The industry trend has been towards moving everything into one silo so that advisors can be agnostic as to the type of programs and investment vehicles to use, O'Shea noted. The impact this will have on the client is increasing the use of ETFs and separate accounts, supplanting higher-cost mutual funds. This will continue the price pressure on mutual funds, as advisors are able to compare very similar products side-by-side. This is in tune with the theme of compression all along the fee stack driving down the total cost of portfolios, he said.

    Before this platform consolidation occurred, advisors typically operated in silos and had to log into different technology platforms to access different programs. One interface for separately managed accounts, another for mutual fund wrap ETFs, etc. This had the effect of hiding the pricing of programs from being readily accessible across the firm.

    Once everything is available through the same interface, advisors can see that instead of paying 60 or 70 basis points for a mutual fund from a specific portfolio manager, they can get the same portfolio manager for only 28 basis points through a different program. This is the supermarket effect. Fee compression has made advisors more sensitive to total portfolio costs, pushing them to squeeze the other elements to maintain their own profitability, O'Shea stated.

    Most large firms now include goal planning as a foundational offering and provide everything in the surrounding solutions from bank accounts, mortgages, credit cards, insurance wealth management, but clients seem to want to shop around for more point solutions.

    The conventional wisdom has been that the firms that provided the best investment solutions would consolidate a majority of their client's assets, but the opposite is happening, Nanayakkara explained.

    Research from E&Y shows that clients' wallet share is becoming more and more fragmented, driven by a number of factors including an explosion of new entrants and new options from incumbent wealth managers that have created a market with too many choices.

    The typical wealth management customer has relationships with five to 15 financial services firms, Nanayakkara reported, and most are eager for simplification. UMAs could be one program that could help consolidate accounts for some clients and reduce account paperwork is, but it requires firms to go all-in on advisor education and improvements across the board in both technology and operations.

    They've got multiple client onboarding platforms, multiple client reporting platforms, multiple custodians. So even if you wanted to come up with a new product or solution, it's not three to four weeks, it's not three to four months, you're looking at a year or more. Right. So you're always getting by your legacy debt. And then what's better? It really depends, right? If you're trying to go for hyper-personalization, you want your brand to have something unique in the market.

    Trout is seeing a couple of big trends emerge in the industry. First, client experience has become the real differentiator. There has so much investment in front-end tools over the past five years, but it's really the middle and back office that powers the front end, he observed.

    Starting with onboarding, the client experience must be seamless, with access to the right information, Trout said. This must be paired with operational efficiency and transparency into the back office so the advisor can view things like status updates and the progress of clients from KYC onward that maximize the use of their time.

    Because with the economics of the business today, especially given regulatory pressures, you need the ability to serve customers at scale and do so in a way that's highly personalized and highly responsive, or else you're just not in the game anymore.

    We've seen this come full circle during the time we've been in the industry, Trout noted. Back in the day, there were technology solutions that were only vaguely connected to the right platform. So from the early 2000s and onward, the focus has been on implementing straight-through processing to improve workflow and efficiency.

    The proliferation of APIs has enabled firms to get the best of both worlds, starting with a solid custodian platform, such as Schwab or Fidelity, and bringing in tremendous third-party tools through API integrations, Trout stated. That's an incredibly powerful mechanism for gaining traction with clients.

    The vast majority of investors don't really care about the specific managed account product their advisor chooses, Trout insisted. They’re more focused on achieving financial peace of mind.

    Retirement Personalization: The Future is Now

    The panelists for this session were:

    • Kelli Keough, Head of Digital and Client Solutions, US Wealth Management, JPMorgan Chase
    • Rob Scheinerman, CEO, AIG Retirement Services
    • Scott Stolz, President, Raymond James Insurance Company
    • Michael Roth, Head of Retirement, Tegra118

    Money is often the #1 source of stress for consumers around the world, and the stress levels often skew towards the lower end of the income spectrum. And often, those who need personal finance education the most have the least access to it.

    “Education is critical. That is the great equalizer. We always say we’re a land of opportunity, and opportunity in a knowledge economy comes through education and training,” Merck CEO Ken Frazier recently told CNBC’s “Squawk Box.”

    According to the Next Gen Personal Finance’s report, only 17% of U.S. high school students were required to take at least one standalone semester of personal finance for graduation, which is pretty bad. But it gets worse when you see that only 4% of students from low-income schools were required to take a personal finance semester to graduate.

    A survey conducted by Forbes, titled “The Next-Generation Wealth Manager,” found that 64% of wealth management executives said they are able to create distinct client profiles for highly personalized service, and 86% said artificial intelligence is important in delivering data analysis and personalized insights. That’s significant because nine in 10 said analytics has the same level of importance.

    AI has been getting a lot of hype, but the direct benefits to wealth management firms have been slow to materialize. While customizing communications, marketing, and portfolios to client preferences is useful, leveraging the predictive capabilities emerging from AI and data analysis can provide more precise readings on client satisfaction levels. New AI products claim they can accurately predict when a client plans to leave a firm, which would enable action to be taken to increase retention and lower churn.

    Financial technology conglomerate Broadridge has partnered with AI company Fligoo to build a proprietary suite of services for financial advisors capable of connecting to CRMs and other third-party software. Using data from its marketing, communications, compliance, trading, and other sources, Broadridge and Fligoo fed it into predictive models that advisors can use to inform all kinds of decisions.

    By analyzing data from an advisor’s previous clients, the companies claim that their model can predict when a current client is planning to leave a firm with between 90% and 95% accuracy. They plan to launch the new service in March.

    According to a report by Accenture, "There is approximately $78 trillion of assets in motion for wealth managers to capture, underpinned by the global expansion of the affluent middle class, women with wealth, and the wealth created by entrepreneurs and business ownership. Seizing this opportunity requires a significant shift in strategy and approach, as wealth managers recognize how the digital agenda of the past has quickly become the digital imperative of the future."

    Artificial Intelligence is going to be a major driver of scale for global banks and broker-dealers like JP Morgan and others. Based on Accenture's survey results, 76% of these wealth management executives struggle with how to scale AI across their enterprise. They noted three common roadblocks to scale:

    • Foundational data capabilities: Data privacy is paramount in wealth management, and there are substantial regulatory requirements to consider, especially in light of CCPA and GDPR. Firms should not only understand where their sensitive data sits but also put in the right controls and tools to protect against both internal and external threats.
    • Governance and risk management: AI decisions in wealth management have a real bearing on people's lives. Placing decision-making capabilities in the hands of a machine raises big questions around ethics, trust, legality, and responsibility. Both explainability and oversight are essential, with a human + machine approach.
    • Employee adoption: New ways of working are required to achieve the full potential of AI. Our survey indicates that the most long-term value for AI is perceived in the front office. In an industry where a traditional playbook is still the norm, wealth managers cannot underestimate the criticality of engaging advisors early in the journey.

    20% of advisors say they are currently not using any financial planning software, according to a survey by FinancialPlanning.com. Factor in that some advisors are using in-house solutions or consumer-facing tools, and the adoption rate of dedicated financial planning software falls even lower.

    What they're missing is the expansive ability of financial planning software to customize plans for clients in much greater depth than ever before. As explained by Michael Kitces, many financial advisors feel compelled to illuminate the complexity in a client’s financial plan as a means of justifying their value, and the ability to simplify complexity, especially as pertaining to the client’s investment portfolio, is really what defines an advisor’s value in the first place.

    As Stoltz noted, financial planning software tools are evolving to provide more interactive capabilities, from easier data gathering input workflows to a better user interface to an outside series of sliders to allow the planner and client to engage.

    Many investors mistakenly believe that target-date funds offer a lifetime income benefit. One of the things that target-date funds don’t do is address the needs of those seeking a guaranteed monthly income. Over the past few years, more fund companies have begun introducing annuities to their target-date funds to provide a guaranteed income component. The Department of Labor (DOL) has stipulated that these funds must maintain liquidity in order to be included.

    Annuities may have trouble gaining acceptance within target-date funds because investors are often confused about the following aspects:

    • Complexity – Annuities often have complex structures, and risk/reward tradeoffs are difficult to understand.
    • High Costs and Hidden Fees – Annuities are notoriously expensive, and there are a number of ways investors could be dinged with fees.
    • Longevity Risk – Many investors end up losing money on annuities because they don't live long enough to recoup their initial investment.

    The record keeper industry has been on an M&A tear with Empower acquiring Personal Capital and the record-keeping divisions of MassMutual and Fifth Third Bank. It was just in 2019 that Principal Financial made its big announcement about the deal with Wells Fargo.

    Some retirement plan advisors are concerned that the gaps are widening between record keepers for plans, assets, and participants. The market has bifurcated into big providers that are either buyers, like Empower and Principal, or organic builders, like Fidelity and Vanguard. And then there are most of the other larger record keepers caught in the middle that must either buy or be bought.

    The good news is that with interest rates low, disruptive tech-oriented record keepers are attracting private equity money and building their infrastructure that is more efficient and user-friendly, integrating payroll, providing more data, and supporting new products.

    The bad news for annuity providers is that there doesn't seem to be much interest among record keepers to support annuities in their plans. A Google search for "record keepers" and annuities returned no results.

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