Charles Schwab (SCHW) rolled out its Intelligent Portfolios retail digital-advice platform in early March. It launched its Institutional Intelligent Portfolios platform for RIAs in late June, offering 450 ETFs across 28 asset classes.
White-labeled with the advisor’s name, IIP has a $5,000 minimum investment for clients, with no fees to advisors who custody a minimum of $100 million on Schwab’s platform.
In its third-quarter financial results announced in October, Schwab said total client assets in Schwab Intelligent Portfolios rose by $1.1 billion from Q2 to $4.1 billion as of Sept. 30.
Schwab’s unalloyed success with IIP reflects the big story in advisor technology for 2015. The robo-advisors are a force to be reckoned with, and if you doubted the long-term viability and success of the venture-capital funded startup robos, Schwab’s success and Fidelity’s acquisition of eMoney, flirtation with Betterment and eventual decision to launch its own robo should erase your doubts.
Moreover, it’s not just younger and lower-net-worth clients who are using and would use digital advice services. In December, Capgemini’s annual World Wealth Report found that among high-net-worth individuals, automated advice was highly appealing.
When asked in the Capgemini-RBC Wealth survey “Would you ever consider having a portion of your wealth managed by an automated advisory service?” only 18 percent of respondents over 60 said yes, while for those under 30, the percentage was 87 percent, and for all those under 40, 69 percent said they would.
So if that were the advisor tech story in 2015, with lessons to be learned for advisors and their partners, what’s ahead for 2016?
5 technology themes
Dan Skiles, our sister publication, Investment Advisor magazine’s Tech Coach and president of Shareholders Service Group, used his tech expertise and business insights to write in the December issue of IA about five technology themes for the future:
The personalization of technology will be a significant theme, Skiles writes, since each day you are building a “digital fingerprint” of how you interact with technology. This information can and will be more broadly used across multiple technology platforms and solutions. Today, most personalization features are specific to a device or program. The opportunity for the future is how this information (your digital fingerprint) is further leveraged to customize your experience, regardless of the device or program you’re using. Put simply, it already knows what you prefer based on what you have done in the past.
A second theme will be greater access to faster data connection speeds. By itself, this is not a big surprise; essentially, you will have more places where you can do more work. What will be interesting is how we use the faster speeds. Will the increase in data speeds be matched with larger data requirements? The answer is probably yes, which will put more pressure on advisors to keep their technology up to date.
A third theme: in the (near) future, the distinct functional differences between various devices and systems will not be as great. We will still have strong opinions on which ones are better, of course, but the underlying capabilities and options available across devices will be more consistent.
Theme four: In our current business cycle, we are seeing a number of larger technology companies focus on serving the needs of advisors. A lot of this has happened through acquisition, primarily small technology companies being purchased by larger firms. The question for the future is whether this trend will continue. Will smaller tech companies that serve advisors disappear or become insignificant? It might be easy to answer “yes,” but the continued consolidation of technology coding languages and platforms provides an entry point for new companies. Yes, larger technology companies might have sizable market share, but will they continue to innovate? Some will not, and that’s when a smaller technology company or startup sees opportunity.
Wireless connectivity with automation is the fifth significant theme that Skiles sees. We still have a number of cords in our lives, but we have made great strides with Wi-Fi and Bluetooth connectivity, and we are starting to see more devices that provide wireless charging. However, this is just the beginning. The office of the future will have fewer cords and more automatic connectivity. The same way your smartphone connects to your car when you start the engine, your office phone system will know you have arrived and will ring the phone on your desk, and your mobile phone when you leave.
How 5 emerging technologies will affect you
In the December issue of our sister publication Investment Advisor, Lex Sokolin presented five technology trends that he argued would redefine financial advice in the near future. Sokolin, COO of Vanare/NestEgg, which provides tools for human advisors to offer robo-like services to clients, didn’t just list cool tech that may or may not see the light of day, but rather named existing technology and its impact on advisors.
Trend 1: Integrated wearable computing
Just around the corner is the ubiquitous integration of smart computing into the fabric — literally — of our everyday life. What used to be expensive and enormous, in the form of mainframes and desktops, is now compressed into the smallest shapes of hardware. These shapes will be worn on our bodies, attached to clothing and built as sensors into the environment.
Financial institutions will have more information about prospects and clients than ever before. Advisors will be able to access not just financial information, but anything a sensor can track and a client wants to share. From insurance products to service models, this data will create a picture of households that will be truly holistic.
Impact for advisors: Wealth management workflows will be impacted. For example, we already use a tap of the thumb on a small computing device to authorize financial transactions. Similarly, a wearable sensor that authenticates through Apple Pay would be more secure than any paper process the advisory industry uses today.
Trend 2: Image recognition
Now that we have all this data, how do we make sense of it? The answer is machine learning. Based on a recent development in artificial intelligence called “neural networks,” computers can scan billions of images and look for faces and objects within them. As the sheer volume of information continues to increase, machine learning will be the only way we can keep up.
Impact for advisors: Every individual who allows algorithms to categorize their images will, as a byproduct, create a full graph of expressed preferences that is true and accurate in a way that no risk questionnaire can hope to capture.
An advisor can learn if their client is a cat or dog person, whether they like to travel or renovate their home, how many children they have and what age they are. Software can impute risk tolerance and capacity for risk taking.
Trend 3: Natural language processing
In addition to the preferences generated with images, we already have the ability to create personality profiles based on what people say to each other on the Internet. A computer can analyze all of the written and spoken communication from a particular person, and then translate the words and sentences into moods and meanings. Over the longer term, a picture emerges about the personality of the writer, her biases and individual quirks.
Impact for advisors: The IBM Watson supercomputer unearths an even deeper behavioral profile, called Personality Insights, and is working with wealth managers today. It can uncover whether your clients are introverted or extroverted, inventive or conservative, and value achieving a larger purpose or a life of comfort. All this before a single meeting takes place.
Amazingly, many of the tools and technologies to run such a complex analysis are already open source, meaning they are available for anyone to grow and modify.
Trend 4: Digitization of cash and securities
There are numerous innovations happening within asset classes, particularly in improved algorithms for matching lenders and borrowers. But the most fundamental innovation of the decade is, without question, digital currency and its infrastructure.
Bitcoin is famous for its volatility, which unfortunately distracts from the actual vision — the unique technological infrastructure that enables a bookkeeping system without the need for a centralized authority.
Impact for advisors: This infrastructure can be used for much more than digital cash. It can drive trusted and secure authentication, contracting, financial data and private transactions. A digital version of a stock or ETF could also be divisible into infinitely small fractions. As a result, a newborn with a 529 plan would have an institutional-quality global asset allocation model with just $0.25 in her account.
Trend 5: Crowd-sourced asset classes
Who is wiser, the expert or the crowd? Traditionally, the wealth management industry comprises experts with superior information and education identifying the “right” ways to invest. But what if the crowd is indeed wiser?
Impact for advisors: From a retail distribution point of view, crowdsourced investment products have struggled. However, from an asset management perspective, there is a new generation of meaningful and interesting new financial products that could be part of an allocation selected by an investment advisor.
With Quantopian, a crowdsourced hedge fund with a browser-based algorithmic trading platform, developers can write code and share investment strategies as a community. Motif Investing has over 130,000 motifs created and customized by its users.
These online algorithms compete with the beta-only robo-advisors and serve investors of all investment personalities, from Vanguard Bogleheads to returns-chasing day traders. Such investment technology will inevitably become widely available.