newbreed 880x600 - #ItzOnWealthTech Ep 18: A New Breed of Custodian is Shaking Up the Market

#ItzOnWealthTech Ep 18: A New Breed of Custodian is Shaking Up the Market

“Advisors are a breed of entrepreneurs that enjoy finding new ways to solve old problems.”

— James Capps, E*Trade Advisor Services

James Capps joined E*TRADE Advisor Services (formerly Trust Company of America) in November 2014 and serves as VP of Technology, responsible for the technical vision, development, and operation of the firm’s network architecture and technology platform.

Prior to joining E*TRADE Advisor Services, James spent 10 years at Comcast where he was VP of Software and Platform Engineering, leading an innovative multinational team driving business technology for all the company’s organizational business lines, including video, voice, high-speed data, and home security. A career technologist, James is also involved with House of Genius, an organization focused on mobilizing the entrepreneurial community, where he serves as the Denver City Director and Vice President of Strategic Planning for the global collaborative.

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This episode of Wealth Management Today is brought to you by Ezra Group Consulting. If your firm is evaluating new technology or looking to improve your current wealth platform, you need to contact Ezra Group. Don’t spend another day using technology that doesn’t offer an elegant user experience. Your advisors and clients deserve better and you can deliver it to them with the help of Ezra Group.

Topics Covered in this Episode

  • The acquisition of TCA by E*TRADE [03:04]
  • What E*TRADE did to make the acquisition smooth for advisors [04:59]
  • Their biggest challenge in integrating tech platforms for account management and trading systems [07:28]
  • Changes in the Liberty system once the E*TRADE integration is completed [08:43]
  • Discussion on implementing a CRM that actually delivers [10:12]
  • Tips on getting buy-in from advisors around implementing a new CRM offering being rolled out [13:24]
  • The most popular CRM’s with E*TRADE advisors [15:14]
  • What made James jump back into fintech after taking a break from the industry [19:44]
  • E*TRADE’s new account aggregation solution [21:40]
  • How E*TRADE vetted the different vendors in the aggregation space [26:46]
  • Discussion around the potential need for additional aggregators in the fintech space [29:27]
  • E*TRADE’s plans to expand support for alternative investments in the Liberty platform [30:44]
  • Thoughts on Charles Schwab’s change of direction [32:43]
  • Potential plans to re-design the Liberty interface [38:13]
  • What E*TRADE never plans to outsource on their platform [39:33]
  • Thoughts on model managers and how they can potentially change the way advisors interact with asset management [42:37]
  • E*TRADE and artificial intelligence [43:45]

Companies & People Mentioned:

Other Resources

If you are interested in more information about some of the topics James and I discussed, these blog posts would be useful:

wealth management consulting

Complete Episode Transcript:

Craig: On this episode of the Wealth Management Today podcast, I’m pleased to present James Capps, VP for Technology at E*TRADE Advisor Services. Hey James.

James: Hey Craig, how are you?

Craig: Excellent, thank you. Welcome to the program.

James: I’m thrilled to be here.

Craig: I’m thrilled to have you. I know we were chatting just a little bit before we started about what we’re going to talk about, and it’s an action-packed, jam-packed episode here on the Wealth Management Today podcast. One of the things we discussed and I want to talk about briefly is E*TRADE Advisor Services, the formerly TCA, and that acquisition seems like a great move; advisors are very happy with the acquisition. You want to talk a little bit about how things have gone since you guys acquired, and all the integrations?

James: Yeah, it’s been a great journey. I think that the acquisition allowed E*TRADE to expand its opportunities with advisors, and I think, we fit an area that E*TRADE wasn’t traditionally focused on. At the end of the day there’s an investor journey, where that investor starts out with a wealth that looks like a zip code that they are maybe going to manage on their own. And as their value gets more up to an area code they may need some help, on their way to becoming like a full-fledged phone number. That’s my financial goal, I want it to be an international number… you got to get that country code in there.

Craig: Exactly, with all the numbers at the end for dialing the extension. I want the extension.

James: That’s right, and I want the complicated extension too. But E*TRADE brings that to the table now that you can, and throughout that journey. I think that one of the things that people forget often is that investors don’t go from being an individual trader up to being advisor-managed; people change based on their employment and their financial journeys. As a young executive I might choose to do my own trading, and then when I have a new job with more responsibilities, they may have an advisor. And then maybe later on I go back to doing it myself. So E*TRADER offers that entire playbook now, which I think is important for us to ensure that we maintain that relationship with our clients.

Craig: Indeed. And it’s not often that advisors are happy with these types of acquisitions, usually there’s a lot of disruptions. What did you do to make it smooth?

James: For us, the key to our conversation was that our advisors wanted to make sure that we were never going to get into competition with them. And that has always been our theme, that we are a company that is servicing the RIAs, not in competition with them. We were clear in our communication that we were becoming part of that ecosystem that E*TRADER offers, that we were going to bring the advisors along with it, and that they would benefit from it. As we highlighted what E*TRADE brings to the table from a technology stack standpoint, from an innovation standpoint, and from a DNA standpoint, it was an easy conversation to explain to these advisors that it was not just a net win, but a big step up for us to enable them to continue to grow their business. And that is fundamental to TCA’s value proposition historically, and now at E*TRADE Advisor Services that’s the way we think, so we’ve been able to maintain that mindset, even though E*TRADE has a large business that’s focused on the investor. I think what’s neat about it is that actual conversation has happened a lot. It wasn’t an accident, and it’s not been a decision by luck; it was a thoughtful, up-front discussion to say we need to maintain what makes us special, and that approach and look at the customer and the advisor in that manner was key to our going forward.

Craig: What makes you special? That’s important too, to maintain. There’s a lot of outstanding stuff that TCA brings and that E*TRADE brings, so I’m excited to see how it combines and how you get onto one platform.

James: Yeah, and I think that at the end of the day it’s about the service. We always say customers come for the tech, but they stay for the service. Being able to maintain our focus on the client and ensure that we provide that white glove service in the advisor space, that’s our differentiator and always has been. That’s always allowed us to fight above our weight, and E*TRADE has always been a company that’s always fought above its weight. So that kind of a scrappy desire to maintain excellence with our customers is a real natural marriage for the two companies, so that was a good culture fit for us.

Craig: So you’re on the technology side (that’s where I come from as well), so when I’m looking at different types of mergers, I’m thinking how is the tech going integrate? You’ve got very different technologies, especially when it comes to account management or trading systems. So what’s been your biggest challenge with the integration of the two tech platforms?

James: That point regarding customer experience has probably been the most complicated, in the fact that we’ve put the most thought into that to ensure that we don’t misdirect our energies for what would look like some sort of synergy or economy of function that actually degrades the value that we bring to the table. So upfront, when you onboard a client there’s onboarding. And onboarding sounds like you would onboard everybody the same way, but it’s radically different. The advisor is the one that onboards the client, and we want to make the advisor’s job easier and allow them to onboard clients, and that’s a very different approach than you would onboard a retail client. So that integration had to be done not only in an engineering manner, but also in a very business sense. We had to think that through so we would know that in the long-term we would be still providing the quality product that we’ve always provided.

Craig: Will there be any changes in the Liberty platform once the integration between the two companies is complete?

James: First and foremost, you will see the ability for E*TRADE Advisor Services to incorporate services that E*TRADE also offers. So we’ve already rolled out a couple products that were based on E*TRADE technology, which included things related to lines of credit, things that are part of the bank, we’ve rolled out some aggregation tools. So I think just the fact that E*TRADE has the technology behind it is helpful, but I also think that by and large, if I look at my backlog or my feature-set vision that we have for Liberty, it hasn’t changed a whole lot. Our goal is to make sure that the advisor can grow and scale their business, and reach a diverse set of customers. So at the end of the day, that roadmap looks very similar to what it did before E*TRADE came to the table. What E*TRADE did for us though is it allowed us to get to some of those features in a way that was less complicated. We were going to have to partner with banks or lenders, and now it’s all in the family so that makes that feature-set much easier and accessible.

Craig: That’s true. The next thing I wanted to talk about was an article you wrote about implementing a CRM that actually delivers. You wrote a great article on thinkadvisor.com, and I’m actually moderating a panel next month at the InVest conference about implementing CRM, so I liked your article; it was a great lead in to what I’m doing. One of the things you mentioned in your article is to start with a solid plan, can you expand on that a little bit?

James: Yes, absolutely. I think in many cases, people often forget to understand what they’re trying to accomplish. Nine times out of 10, an advisor will have an existing means by which they are managing and tracking their relationships; the “R” in CRM. So unfortunately, many times the CRM implementation is intended to replicate or automate the existing process, and oftentimes you can see the fallacy in that. Like all I’ve done is automate my note cards, that doesn’t take you to the next step. So having a plan on what you’re trying to accomplish, beginning with the end in mind, is always good advice. And expecting upfront and knowing the plan, as far as what is it going to take from a deployment standpoint, what it’s going to take from a hardware standpoint, and what it’s going to take from a supportability standpoint, knowing those things going in just makes the journey that much more painless, and at the end there are fewer surprises.

Craig: Can you talk about the product champion? How important is that and who should it be? Should it be people doing the work, or should it be the senior people?

James: That’s a challenge, especially now in the RIA space because of the different types of advisors you have. We have advisors that are 10 to 15 people, we have advisors that are 40 to 70 people. So the champion can be across the board, depending on the size of the organization. But I think the key is that the champion A: has to understand the work that is being accomplished with that tool. So they have to understand the in’s and out’s and the actual requirements that need to be met. Meaning hey, I need to send emails, or I need to be able to track blood type, or something unique to their business that maybe a senior person may not know; they have to understand how they’re using CRM. And then additionally, there has to be buy-in. Like any major project, you have to have executive buy-in to make sure that the resources are allocated appropriately. I’ve seen numerous CRM deployments fall off the rails because of the unexpected resource constraint, and many CRM solutions get deployed halfway. And that’s unfortunate because you end up with, we’re still using the old tool for this and we’re using the new tool for that, and that’s hardly efficient. It’s risky across the board, so you need to have that champion from the beginning to the end of the effort.

Craig: I agree with that, and I also concur that adoption is a big problem. CRM is sort of a religion with the advisors, that whatever CRM they’re using, they don’t want to change. So using a new one is often a problem. Any tips for how to get buy-in from the advisors?

James: Yeah, I think the key to that is ensuring that you understand the pain points of the advisor, and that you address those pain points. When you get further down the food chain, if an advisor has reps or numerous people in the field, each one of them has a unique set of requirements and a unique use case for each one of those tools. More often than not though, the challenge is that you’re trying to deploy a CRM tool that unifies processes and ensures everybody’s following the same process, so you’re always going to have somebody who isn’t being fully satisfied with their capability, because they have a unique approach. At the end of the day, all projects succeed through two things: honesty and transparency. That’s how I run my tech shop, through honesty and transparency, and that that goes to whether I’m speaking to my developers or I’m speaking to my business partners. And when you have that consistent communication around what you’re trying to accomplish, you’re honest and clear with why you’re doing it, and engaging all the right people (meaning everyone needs to be engaged), you can be more successful. It seems pretty simple, but a lot of projects get off the ground and nobody even knows why we’re doing it, so adoption tends to be pretty low.

Craig: As a consultant, I’ve heard that one before. You get in there and people are talking, you start digging into what they’re doing and go, I didn’t even know we were doing that project.

James: Oh yeah! Or, “You guys are using that tool also? Wait a minute, where did that come from?” That happens all the time.

Craig: Where did that program come from, who put that in? Yeah. So do you have any information about what the most popular CRM’s are for your advisors?

James: That’s a great question. It depends on what the advisor’s trying to accomplish. And it’s a strange discussion, because advisors are a breed of entrepreneurs that enjoy finding ways to solve problems. And in many cases, a large advisory who has been in the business for maybe 10 or 15 years have figured out a great system using Outlook’s address book. Then you’re going to have somebody who has three guys, and they’re crushing it because they’re using Salesforce. There isn’t a cookie cutter argument for what CRM tools are out there. I will say that one of the things that we did with E*TRADE Advisor Services that I was proud of is we put a lot of energy in our API program, and those API’s enable us to be responsive and agile to integrate with other partners. We never wanted to build a CRM that we couldn’t compete with the folks that are focusing on that, so we decided we would create these integrations.

But also, with the challenge that many of our advisors are not technology savvy, so offering them way too many solutions is always a challenge. So we always said that we have an open architecture with an opinion, where it’s open and the API’s will talk to anybody, but we have some solid integrations with a few companies. We did go deep with Redtail and we did go deep with Salesforce, so while you could bring anything to the table for an integration, we went far on a couple of those. And those are the ones that we have found that a lot of our clients have adopted, because of that heavy integration. We’re not just sending a name and address back and forth, with Redtail we can actually open an account; I can actually fund an account from their app through our API. That kind of integration, that’s huge efficiency and a huge time savings. Anytime you can eliminate a swivel chair, that’s a win.

Craig: Absolutely. And I know I heard from someone that you guys are pumping a lot into your API’s, which I think is prescient; it’s definitely on the cutting edge and a lot of firms are doing now. It’s something that will help not only your integration, but any other tools you’re working with. And talking about advisors always looking for ways to make things better, they’re also looking for the latest application, the latest cool thing. The better API’s you have, the better able you are to integrate the next big thing.

James: We’re also learning that every advisor’s journey is slightly different; they offer different value to their clients, and therefore they expect different value out of our platform. So through the API’s, we’re finding that there are things that advisors want to do with different tools, and we’re enabling that. Back to the E*TRADE acquisition of TCA, that API mentality was something that was inherent in the broader E*TRADE ecosystem as well. So coming together in that way and allowing us to grow those two ecosystems as one has been a huge opportunity, and I think there’s a lot of neat ways that we’ll see that we can cross-pollinate those functions, and enable unique use cases that perhaps may have not been thought of before, and partner with tools that we may not have partnered with before, because we are able to do that in a secure and effective way using that API stack.

Craig: You’ve been at E*TRADE for just over a year?

James: Yes, I have been wearing the purple and green for just about a year.

Craig: And while you’ve been in business for a while, you were at TCA and then left?

James: That’s right. I was at TCA for a couple of years before the acquisition, and prior to that I was with Comcast for a long time.

Craig: That’s my cable company!

James: It is a cable company, they do a lot of good cable stuff.

Craig: Oh yeah man, we’ve been using them for a long time. It’s a love-hate relationship.

James: Yeah, I’ve always found that fascinating. I don’t think people like any choice that they have to make when there’s only one choice, it doesn’t matter what it is. But that’s my opinion.

Craig: I agree. So what made you go from where you were to jump into E*TRADE again? Because you took a break from the industry.

James: Yeah. Honestly, at my core I am a software guy. So when I was at Comcast, I was basically doing software. And I was excited that I had the opportunity to be a part of Comcast, as we went from being a hardware integrator to a software company. And I think you can see that in the innovation that that company has made with usability and features. After Comcast I was involved in several organizations that were supportive of the startup community. I’m a big believer in the startup community and what it brings to a city, as far as energy and the population, and just the general view of how a startup community brings people together. So again, bringing that energy around innovation and my software focus, it was easy to come to TCA. They were a company looking to evolve and look at innovation as a means to perpetuate their already solid technology stack. It’s great in that I’m still in Denver; I’m a Denver native, my kids go to the same high school my grandfather went to, not at the same time. That would be weird, the math wouldn’t quite work that out. But I love this town, and I’m excited that E*TRADE is committed to continue to be a part of that community and allow me to bring E*TRADE to the startup community here in Denver and contribute to that. TCA was always a big sponsor of Agile conferences and startup efforts, and we’re continuing that here with E*TRADE. I think at the end of the day it’s just a software problem to solve, so that’s how I look at it.

Craig: So one other thing, I was looking at the news and noticed that E*TRADE Advisory Services has launched a new account aggregation solution. Can you talk a little bit about that?

James: Absolutely. Aggregation products have been around for a long time, and there’s obviously some popular ones out there. But we wanted to be thoughtful in that approach and create an integrated account aggregation solution that was not just a scraper if you will, but it actually added value and was easy to use by the advisors in their day-to-day operations. We evaluated other custodial account tools and looked at what advisors were paying for those tools, and what we ended up doing was building a fully integrated solution that is absolutely free for our account holders. That is a huge jump for them, again, a simplicity play where they can look at an investor’s entire wealth picture, which is super amazing. You’d be surprised how often an advisor doesn’t get to see the whole picture. I’ve seen things where up to 50% of wealth by an investor isn’t necessarily represented in the advisor’s book. And oftentimes, they don’t think to represent that; the investor doesn’t consider that insurance policy or grandma’s house as part of the picture, and an aggregation tool allows you to do that. We already have nearly 50 advisory firms who are interested in the tool, the interest has been more than we anticipated, and our staff is working hard to ensure that they have a great onboarding experience and that they get the maximum amount of the tool. Because we did put a lot of our heart and energy into that, and we’re proud of the product.

Craig: James, did I hear you right? Did you say it’s free?

James: That is correct. We looked at it as an opportunity to help the advisor grow the service that they can provide to the investor. So rather than making it an additional charge, we heavily integrated it into the product and just found it would be a better value proposition if we offered it for no charge. So you’re absolutely right, it comes with your engagement with the E*TRADE Advisor Services, and I think people are going to love it.

Craig: You didn’t raise your overall prices to cover that? I mean, that’s expensive stuff. It’s not cheap to put in data aggregation.

James: No, in fact across the board that’s one of the things that we’re worried about in the industry, is when you see things like price compression and you see competition; those are real issues. But at the end of the day for us, it was about ensuring that our advisors were able to grow their stack.

Craig: I want to take a little break from this episode to talk to you about one of my favorite sponsors, the Invest in Others Foundation. Invest in Others is a non-profit, you can find them at investinothers.org. They look to raise money and give out awards to charities that are sponsored by financial advisors, so it’s financial advisor’s favorite charities and charities that they spend a lot of time supporting. Invest in Others looks to get sponsorships from the industry and funnel that money to advisor’s favorite charities. I like this non-profit, I think you should take a look at it. Again, that’s investinothers.org. They have a couple other programs: one is a Grants for Good program, delivering money to different needy organizations and needy groups. They’re also starting a corporate awards program, which is going to be a little bit different but still within the industry and another way for financial services and wealth management corporations to help donate money to people in need. I like Invest in Others, I think you should take a look at them at investinothers.org.

General 728x90 - #ItzOnWealthTech Ep 18: A New Breed of Custodian is Shaking Up the Market

Craig: What is the underlying technology, is it third-party or did you build your own from scratch?

James: No, we do have a couple partners in that space. We use Quovo as our aggregator partner, and they’ve been a great partner in that space. They’re good at the technology behind that. We did a huge bake-off with multiple providers, and again I’ve been in technology for a long time, and many times it’s not the best technology that wins, it’s the one that you can have a partnership with. We worked closely together to meet the needs of our clients, and they were a great partner; it wasn’t just a subscription. And that goes back to whether you’re integrating for a feature or you’re building a CRM tool, you have to find a company that’s willing to go to the mat with you.

Craig: Right. I’ve done a lot of research on the data aggregation space, and I’m interested in your bake-off. How did you compare vendors, one vendor versus another?

James: It was usability for us. The biggest challenge in the aggregation space is having a means by which not only can the investor easily use the tool, which means inputting the information about their other accounts, their checking accounts and their savings accounts and other things, but also the management around the passwords and the user ID’s that go along with that. And the adoption rate on aggregation tools is relatively high, but the long-term use is surprisingly low. And a lot of that has to do with the challenge of maintaining the currency of your user name and passwords, and therefore the connectivity, What we were able to do with Quovo and our technology is we give the advisor a dashboard to understand if that information needs to be addressed. So no longer does the investor have to remember that they changed their password at their local bank; the advisor will get an alert saying hey, this link is no longer working. And that gives them an opportunity to reach out to the investor and have a conversation around what’s going on; it gives them good data. So that allows that aggregation solution to be much more robust, allows it to be a long-term play, and the advisor is a little more involved in it than just simply trying to goad to the investor into plugging in their data. That was a huge differentiator, and when we looked at how vendors are managing that space and what kind of insights we could offer to the advisor, that was a huge differentiator for us.

Craig: Well that is pretty cool, because it is one of the biggest problems with data aggregation is the authentication breaking, which happens constantly.

James: Yeah, and we’ve seen a lot of products that are on the market today that just don’t have a good way to deal with that. Everybody gets excited about getting all of their information in one place, but your average person can’t focus on their investments all the time, and frankly that’s why you have an advisor. You want to be able to go off and get to soccer practice, take the kids to school, deal with homework and not be thinking about, did I update my password on my aggregation tool? Or, I wonder what’s going on with the stock market? That’s why I have an advisor, and if he can help be part of that solution and E*TRADE Advisor Services can bring tools to help them be part of that solution, then that’s what we want to do.

Craig: Is there a need for another aggregator behind there? I’ve talked to a lot of vendors, obviously you guys are a custodian, but you also have a technology solution. I’ve talked to the tech vendors who offer wealth platforms, and what I’m seeing is many of them are realizing that there’s no one vendor that can provide everything, and that they need multiple vendors. And they are becoming aggregators of aggregators. Are you seeing that as well, or are you happy with just using Quovo?

James: No, I’ve seen that conversation trend; I’ve had that come up a few times in some of some conversations I’ve seen at a few shows, where I’ve heard the term “aggregator of aggregators.” It is a challenging space, and if your goal is to truly bring all that information together, you may run into situations where you can’t. Our use case is pretty well-set and pretty well-satisfied by the implementation that we have. At this time I’m not seeing any sort of huge push for that; I don’t feel like there’s a huge void in the aggregation vision that an aggregation tool provides. There isn’t something that’s radically missing, there isn’t a blind spot that exists. I could probably come up with some use cases for that, but at the end of the day I think there are edge cases and I’m pretty happy with what we’ve got right now.

Craig: Good to know. One other thing I saw in the survey, to switch gears again, is more interest from advisors in alternative investments. Do you plan on expanding support for alternatives in the Liberty platform?

James: Yeah we’ve been able to expand our offerings, in conjunction with what E*TRADE offers. We already provide a solution in that space through E*TRADE ETF custody advantage program, which allows advisors to choose additional products that they can be offering. And then E*TRADE did as a whole offer a larger portfolio of products that were available, and we’re going to be able to piggyback on that quite a bit. So obviously there are some limits to what a custodian in the United States can offer, but we’re looking to ensure that we’re meeting the appetite for those alts in the space

Craig: Because that seems to be happening all over, alternatives are getting more play and advisors are getting more interested in them, especially as they get a little more concerned about the market alternatives.

James: Yeah, I think when you have a market that’s in flux, people are going to look for unique opportunities or safe havens. I think that that survey was interesting in that the press in general and the articles are talking a lot about cryptocurrency and things like marijuana, but at the end of the day the survey didn’t support that or that they’re looking into that too much. Cryptocurrency, I think we said almost 85% of our clients weren’t interested in that space. So it varies.

Craig: Good answer. So TCA, and now E*TRADE Advisor Services, has always been known for their technology. And a lot of custodians are doing the same, all of your competitors have different tech solutions. Although Schwab seems to be going in a different direction…

James: Yeah, I saw that.

Craig: Do you have any comment on that, why you think they did that? And do you see that as a change, or are they going to be an outlier?

James: It’s hard for me to say what the rationale for that type of change would be, and each of our brethren in this space are looking at the industry a little differently. I think from our perspective, providing those additional capabilities is the way that we look at providing the best possible service. I look at the diversity of need out there, with investors and advisors. And honestly, again going back to the fact that I’m just a big fat tech nerd and I enjoy the space, I love the fact that there are four guys sitting in Silicon Valley somewhere trying to figure out how to solve a problem that I may have as well. So when I look at the way that innovation is happening in fintech right now, enabling us to take advantage of those when we think it suits us is going to be a differentiator. The amount of money that’s flowing into fintech just from an innovation standpoint and from a friction reduction standpoint is staggering. And while we’re a heavily regulated industry and you’re going to see lots of boundaries to what some of these startups can do, you’re still seeing some innovation come out of places that you wouldn’t expect.

I partner and counsel and a mentor a handful of companies that are all excited about getting into fintech, because they’re looking at it radically differently. I think a bunch of the interesting companies that are coming out of as developers were in cable or classic desktop software, because they’re looking at fintech in a radically different way. And that’s interesting; it’s fun when you get somebody from Comcast or Coors, or any company that’s just completely orthogonal to the space and they look at the problem differently; that’s what innovation is all about.

Craig: Yeah, I was at the Collision conference two or three weeks ago in Toronto, and there were hundreds of startups there from all different industries. There was auto tech, health tech, environmental tech, and I think there’s a lot to be learned from how they approach problems.

James: Yeah, I agree. I’m still a big believer in the loosely-coupled solution base; there are things that are going to be interesting today that won’t be interesting six years from now. That’s why we looked at the API strategy so carefully, I did not want to get overly committed to a CRM solution that we developed. Two years from now, who knows what that’s going to be, or what CRM requirements are going to be in. So for us to be able to engage in those innovative solutions and work with those companies in a way that doesn’t turn my ship left or right, that’s going to allow us to be very responsive to our client’s needs.

Craig: That’s the name of the game, is being able to stay responsive. That’s one of the reasons why you guys have been successful all these years, you were more responsive than the big box custodians.

James: Yeah, I think that’s right. And I think that as you’re seeing a lot of the real interesting changes in the advisor space, where we’re seeing the succession planning problems start to arise, where you’re seeing younger family members take over those advisory shops. You know, dad always liked Excel and all of a sudden his son thinks Excel is horrible, he doesn’t want to use that, he wants to try something else – we’re seeing a lot of that. So that succession planning, the graying of the advisor is real. So they’re asking us to try different things, and they’re asking us to partner with tools. I think what’s interesting in fintech in general, and I think this goes across the board we could talk about any industry, is it used to be that I would compare this software package with my competitor’s software package. So when we sat down at the advisor’s office and compared products, they’d compare the two. That’s not how it works anymore, they’re comparing my product to Facebook and to Google. And if they don’t have the ease of use that they’re used to having when they’re doing their other stuff, then they’re going to look at our product as inferior. So we have to be agile, we have to be responsive to the software industry as a whole. No longer can we just accept the fact that yes, you’re financial services so you get a blinking green cursor, that’s just how it is. We’ve got to step up and we’ve got to know that our clients are using software packages in their daily lives, and they have an expectation and we’ve got to meet that.

Craig: Indeed, yeah. I was just looking at some surveys about how advisors pick new technology, and client experience was very high on the list for how they decide which technology to pick.

James: Absolutely. When you’re an advisor and your bread and butter is that investor experience and your investor is getting Google alerts on their football team and they’re getting tweets on their phone every time something happens in some sporting event, they would expect the same thing from their financial advisor. So that customer experience has got to be enabled through the technology we provide, and ensure that they have the opportunity to meet their customers where they expect to be met.

Craig: When you’re talking about customer or client experience, does that include the user interface in terms of design? Are you guys planning on re-designing the Liberty interface at all?

James: The Liberty interface has always been one of the most forward-thinking and the most forward-leaning technologies in the space. When I came on to TCA, I was pleasantly surprised on how aggressively we had focused on the user experience. Now, if you go back to the first part of our conversation where we’re looking to have a customer or investor’s journey from area code to phone number, we would like to enable them to have an experience that is consistent across that ecosystem. So I can go into my account of my individual investments, and then I can hop over to my advisor managed accounts, and that experience should be a little more seamless. Our focus right now is to ensure our investors and our advisors have a great experience, but in the long-term we’d like to see that experience spread across the entire E*TRADE family of products. So we’ll be focused on trying to get that to happen.

Craig: Is there anything that you see as core to your platform? So you’re not building a CRM, you want to integrate. Fidelity bought eMoney many years ago, so obviously they see financial planning as core. What is the tack you’re taking, in terms of the things that you would never outsource on your platform?

James: Look, our product was built from the ground up right here in Denver, Colorado, in the building I’m standing in. The first developer that wrote the first line of code on our product is sitting two doors down from me…

Craig: That’s not where your grandfather worked, is it?

James: No, and we probably shouldn’t mention grandfather around him; he’s very sensitive about it. Actually it’s strange, he was with TCA in various incarnations. And then when E*TRADE acquired us, he’s actually now the longest tenured E*TRADE employee; his tenure technically supersedes the existence of E*TRADE, that made the HR people’s heads explode, but that’s neither here nor there. But since we built our product from scratch with the intent of being a service to the advisor, it was never intended to be a product for the investors; it’s always been for the advisor. We are fundamentally different in that everything we’ve done has been in that regard. We’ve always considered the efficiency of an advisory to be key, so that’s where our core function, the core capability of our product has always been around model management. Our system enables the advisor to do one thing, one time and affect multiple accounts using model management. That in itself enables the advisor to scale their business considerably. They can go in and they can adjust the positions on their model, and affect the positions of every one of their investors with just a few clicks.

That is something that continues to be the bolt-on solution in the industry that many are trying to address, but it’s always been at the core of our product and it extends all the way through every part of our product. Your tax statements talk about your models, your front-end talks about the model. Everything is model-centric, and that approach helps the advisor message the strategy that they’re using to their clients better. It helped them to go back to the volatility, to explain that they’re addressing volatility through this model. It’s core to what we provide, and the advisors lean into that as a differentiator for them. To say that they’re bringing that kind of capability to their clients is a big difference.

Craig: I wrote about your model manager, which I believe is called Money Manager Exchange. Is it still called that, MMX?

James: Yes, that’s exactly right. That Money Manager Exchange is a way for third parties to provide models. So if the investor isn’t interested in trying to diversify across a certain subset of products to meet a certain goal, they can bring those models in and leverage them. We have a lot of advisors that choose to do that, and then we have a lot of advisors who feel like they can do it on their own. And that goes again to the diversity of the space.

Craig: Yeah, I remember I wrote about it on a model management piece I was writing about all different model managers that were popping up. It seems like you guys were a little bit ahead of the curve when you went to models, now everyone seems to have a model marketplace and is pushing models. Do you see that as changing the way advisors are interacting with asset management?

James: Yeah, I think it gives them a means to not only manage their system and business at scale, but it also gives them a great way to communicate with their clients around wealth and the growth of the individual’s wealth. People like to understand where they’re investing, but at the end of the day it’s complicated to explain some of the ways that it’s done, and models are an accessible way for people to appreciate what’s going on. I think you’re right, you’re seeing that philosophy permeate the industry. But we’re fortunate that it is at the core of our product, so everything that we do, whether it’s part of aggregation or tax strategy, all of those things are always going to be speaking with model first and foremost. And that helps the advisor be consistent in their messaging.

Craig: Are you guys doing anything with artificial intelligence?

James: Artificial intelligence is a fascinating catch-all, I think. I wrote an article not too long ago talking about how I felt that AI was more about augmented intelligence. So you’re going to find that rather than… I don’t think your advisor is ever going to be a completely automated function, but you can have situations where the advisor will have some augmented intelligence around a certain feature or a certain functionality. One of the things that I would argue in that space is a feature that we provide, which is household rebalancing and household points of view. It allows an investor or an advisor to aggregate multiple accounts into a complete household; that was impossible five years ago, for an advisor to be able to do that math and understand how things are being distributed. So that augmented intelligence, that innovation around how we can aggregate that information together, is what I think the AI space will lead to; where the investor and the advisor will have more data available, they’ll be able to aggregate more of a point-of-view. And using technology to make sense of a complex situation, I think that’s where financial services will be better served in taking advantage of that type of technology.

Craig: Yeah, the rebalancer is more of a robotic process automation.

James: Yes, I agree with that. I think that robotic approach, that RPI or RPA, is something that people are conflating with AI. But I think at the end of the day that’s a little more palatable for the ecosystem

Craig: More palatable, yeah. I think people are a little worried about what AI would do to their business. I’m seeing a lot of usage of big data; a lot of it is CRM-related, since that’s where there’s so much data available.

James: Sure. Big data has its uses, I think we use it heavily. And looking at the way our business is run and operated, we certainly use that in our security space and some of the regulatory areas, to look at the way that our product is being used. The big data is hugely valuable, but we’re also seeing that it’s still complicated; nobody’s got the holy grail yet. You can’t look at 10 years’ worth of trading data and determine what’s going to happen tomorrow.

Craig: I remember when I used to work for Broadridge, we used to always talk about the predictive stock ticker we were going to invent.

James: Yeah, everybody wants it. And if it’s been done, nobody’s talking about it yet.

Craig: That’s right, it may have happened and no one is talking about it. James, I appreciate your time. Thanks so much for being, being a guest, providing so much great information, and for chatting with me. I appreciate it.

James: It’s always a great time, it’s always fun chatting with you.

Craig: I will hopefully talk to you again soon.

James: Yes, I’m certain I’ll see you somewhere soon or we’ll be on the road again together.

Screen Shot 2018 10 22 at 12.16.52 PM - #ItzOnWealthTech Ep 18: A New Breed of Custodian is Shaking Up the Market

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