A good argument could be made for excluding Wharton professor Kent Smetters from the IA 25. He’s responsible for an online service called Veritat Advisors that provides goal-based financial planning to a broad base of underserved clients, and on the face of it, Smetters’ new website would seem to spell doom for the advisory business.
Launched just over a year ago and now in the implementation phase, Veritat offers advice at the low price of $40 a month per family after a $250 initial planning fee, and clients themselves input the data online, prompted by user-friendly guidance. The website does all the scheduling, creation of personalized plans and portfolio management. Smetters calls it the “Turbo Tax approach” to financial planning.
Looks like the human factor gets cancelled out, doesn’t it? But wait — there’s a select place reserved for advisors on Veritat. According to Smetters, most advisors only spend about 20% of their time in front of clients, and he means to change that.
“A lot of websites have tried to get rid of the advisor, and we know that doesn’t work,” says the Ph.D. in economics from Harvard University. “So we went in the opposite direction and said, ‘Let’s allow advisors to focus on what they really enjoy, which is the relationship and not all the data-gathering, compliance, execution and implementation.’ You don’t need a human being for a lot of those steps. What you really need a human being for is the emotional part. Money is a very emotional issue, and that’s where you need the human touch.”
In fact, Smetters says, the startup’s “real sweet spot” is empowering advisors. Veritat allows financial planners to join the firm’s registered investment advisory as independent contractors rather than as W2 employees or central-office advisors. The RIA had less than 100 advisors as of early spring, but Veritat keeps bringing on more advisors and targets adding several dozen a month, according to Smetters, who reckons that 25% of approximately 65,000 certified financial planners nationwide are working moms who should find his model appealing. Advisors and clients can meet in person or via webinar technology that simply relies on a telephone and a web browser.
Smetters, 44, is the Boettner Chair Professor at the University of Pennsylvania’s Wharton School as well as a faculty research fellow at the National Bureau of Economic Research. His recent research has focused on incomplete markets, investment risk management in the presence of fat tails and the interaction of risk management and public policy. Previously, he held policy positions at the Congressional Budget Office and the U.S. Treasury.
To be sure, Veritat has a Wharton pedigree, with a staff comprising student interns as well as full-time paid Wharton MBAs. The firm’s low-cost structure includes arrangements with product and service providers in which Veritat derives no economic benefit because the idea behind its business model is serving middle-class clients. Veritat uses Scottrade as its main custodian and charges no transaction cost and no commission on exchange-traded funds. Most of the trades don’t create ticket charges, and Scottrade gets some of the expense ratio as owner of Focus Morningstar ETFs. As for the insurance piece, Veritat uses a broker that works with fee-only advisors, and for wills and trusts, Veritat’s relationship with Legal Zoom provides the four documents that Smetters says clients who are not ultra-high-net-worth need the most.
Advisors’ role at Veritat? To help clients pay down debt, set aside emergency reserves, obtain the right amount of life insurance, save for college, set up wills and plan estates.
“Our whole mission is to provide financial advice for the middle class,” Smetters says. “Veritat is honest, it’s affordable, it’s comprehensive, and it also empowers advisors. There’s a huge blue ocean out there right now in terms of the middle class.”
Find out who was named on the 2012 IA 25 in Investment Advisor’s May issue.
Check out more extended interviews of the 2012 IA 25 at AdvisorOne.