With more than $700 million in client assets under advisement, three Merrill Lynch Wealth Management advisors and their staff broke away from the wirehouse in 2014 to form an independent registered advisory firm, Cable Hill Partners. The partners’ frustration over Merrill’s technology platform was one of the big reasons why they decided to leave.
“Merrill put a lot of money into building their own homegrown Monte Carlo-based financial planning software,” says David Christian, a founding partner and managing director with Cable Hill, based in Portland, Oregon. “But I found in using the tool that it was not as robust or customizable as my clients’ situations needed it to be.”
As Christian and his partners did their due diligence before breaking away, they tapped into the RIA-focused technology offered by integrated services platform provider Dynasty Financial Partners. Among other things, they liked what they saw with the financial planning software (NaviPlan, eMoney Advisor and MoneyGuidePro) that Dynasty offered.
“It felt so empowering to test drive the solution. We ended up picking MoneyGuidePro,” says Christian. “The main reason why technology played into our decision to go independent as an RIA was our ability to create an environment that was a better fit for our clients and employees. We could switch software vendors tomorrow instead of waiting for the next iteration from Merrill’s back office.”
The Customization Challenge
Wirehouses’ greatest tech challenge is the development of platforms that are tailored to both advisors and their clients, according to Edward Swenson, Dynasty’s chief operating officer and co-founder.
“When you’re developing something for 16,000 advisors, even if you’re buying them lunch, it’s going to be a very different outcome than if you’re working with a small number of RIAs,” Swenson says. “It’s impossible for Morgan Stanley to customize technology for 16,000 advisors.”
In a trend begun in 2007, according to an Aite Group report published in August 2015, the wirehouse advisory channel continued to lose market share in 2014, ceding 1.3% in 2014 compared to 0.7% in 2013, partly due to technology issues. The independent RIA channel, meanwhile, has continued its “torrid” pace of growth, following a 23% gain in 2013 with a 15% gain in 2014, Aite states.
Aite predicts that the four wirehouses (Bank of America-Merrill Lynch, Morgan Stanley, Wells Fargo Advisors and UBS), with more than 54,000 advisors, will continue to retain the largest share of client assets. But that share will drop to 31% by 2018 from 41% in 2007, Aite believes.
To survive, channels must adapt to the changing regulatory landscape, the competitive environment, and yes, fast-changing technology, Aite concludes.
Wirehouses since the 2008 financial crash, however, have been kept busy merging their legacy mainframe systems with their parent companies’ banking systems, said Tim Welsh, president of wealth-management consulting firm Nexus Strategy. Bank of America bought Merrill in 2008, Wells Fargo acquired Wachovia Securities that same year and Morgan Stanley took control of Citigroup’s Smith Barney unit in 2009.
As a result, Welsh said, the wirehouses have been limited in their resources to develop innovate technologies. “RIAs peel these guys out of Merrill and Morgan, and they’re blown away by the technology that’s available to independent RIAs,” Welsh said.
‘Spoiled With Technology’
However, wirehouses have recently started to do a better job with financial technology and are showing signs of surpassing indie RIA tech, Aite Research Director Alois Pirker tells Research magazine.
“Wirehouse advisors are spoiled with technology,” Pirker says. “If they think that they’ll be better off technology-wise in the independent space, they better think again. The gap between the wirehouses and independent technology has been closing quite a bit.”
Calling the RIA space “something of a sandbox,” Pirker says wirehouses are keenly watching how the Schwab Intelligent Portfolios automated investment advisory service, or “robo-advisor,” is performing in the RIA space. “They’re absolutely studying what’s out there and making buy or build decisions.”
Already, software popular with RIAs has been incorporated into large broker-dealer platforms. Morgan Stanley, UBS and Raymond James, for example, use MoneyGuidePro, and Merrill Lynch uses the cloud-based Salesforce.com customer relationship management (CRM) system.
As technology improves, wirehouses’ fintech strengths will once again be a selling point in terms of advisor retention, said Dennis Gallant, president of GDC Research, a financial services research-consulting firm.
Deep integration is crucial to how wirehouses are buying and building the component parts of their fintech platforms, so that everything from a CRM system to a financial-planning tool to a trading platform to statement reporting software operate smoothly across functions, Gallant said.
Merrill Lynch’s Workflow
For example, Gallant said, the Merrill Lynch One goals-based wealth management platform offers a single sign-on with a uniform look and feel across applications.
“It consolidates the advisory platform, which is harder for independents to do,” he said. “By Merrill not integrating every tool out there, and not giving advisors a choice of three or four tools of CRM and reporting and such, they can focus on integration. They took their advisory platform and integrated everything. It’s easier and simpler to use, with fewer keystrokes. If you don’t do it right, you’re going to lose reps. Merrill spent a lot of time on rolling out the platform and new training. Now the rest of the industry is saying, ‘We have to go in that same direction.’”
As of December, 92% of eligible client assets, or $490 billion, are now on the Merrill Lynch One platform, according to a Merrill Lynch Wealth Management spokesperson.
The platform represents a decided shift in Merrill Lynch’s fee structure, as it favors fee-based accounts and financial planning over sales commissions for financial products such as stocks and bonds.
“Our advisors expect that the technology investment we make will support their ability to meaningfully engage clients in conversations about how they can help them achieve their goals,” Scott Logan, managing director, Merrill Lynch Wealth Management, said in a statement. “Staying up to date with emerging technologies and advancements in digital capabilities, the ability to easily share content and information, and using data to try and stay one step ahead of client preferences, are areas of particular focus for us.”
Reflecting Logan’s statement, Aite’s Pirker says workflow integration is the new fintech frontier, and he believes wirehouses are at the forefront of that trend.
“The latest aim firms are trying to achieve is multiple tools neatly integrated on the desktop, all next to each other. This is typically not the case in an environment that uses multiple vendors. Wirehouses are absolutely doing better workflow integration,” Pirker says.
Wells Fargo’s Integration
Wells Fargo Advisors in its efforts to integrate stays connected with fintech entrepreneurs and leverages the work of smaller firms, says Joe Nadreau, director of innovation and strategy for the wirehouse’s 15,000 advisors.
For example, Wells uses Envision as its financial planning platform, which the firm developed 10 years ago with the help of third-party vendor FinanceWare Inc. Since then, Wells Fargo has taken the software code in-house and continues to improve it.
“Our capital is such that we can have a higher level of investment,” Nadreau says. “Within our Smart Station brokerage platform for financial advisors, one-third of the platform is from BondDesk [now Tradeweb Direct] and NexJ Systems, one-third of the platform Thomson Reuters and one-third is internally developed systems. I’m not after the next great bell and whistle. I’m after the complete integration of components into the workflow of our advisors.”
Nadreau points out that Wells Fargo’s recent tech innovation, called My Home page, uses 10 different applications and integrates them in a single user interface that includes predictive analytics suggesting selling opportunities such as bonds reaching maturity or loan refinancing rates. Further innovations are designed to be predictive, collaborative and mobile. A client dashboard now in pilot supports the advisor’s daily workflow by pulling up a customized dashboard for advisor-client conversations.
Morgan’s Silicon Valley
Morgan Stanley Chief Information Officer Chris Randazzo, noting that 5,000 tech employees nationwide and in India support the wealth management business, says his firm also has a pilot project underway with the wirehouse’s 3D platform for advisors.
Plus, Randazzo points to the new Morgan Stanley Online platform that gives clients a better account opening experience with e-signatures, views of their assets and liabilities, quick payments and transfer capabilities, projected income and breaking news.
“We use many vendor partnerships,” Randazzo says. “For example, whether it’s e-signature or a lending platform, we ask ourselves, ‘What are we trying to solve? Do we develop it ourselves or look for a vendor partnership?’ We’re looking for the best-of-breed technology to solve issues.”
To that end, Randazzo keeps up to date by attending tech conferences and visiting Silicon Valley for a week every month to visit companies big and small. (He takes his Wall Street tie off while there, he said, though he doesn’t wear a hoodie.) In addition to relying on its knowledge of institutional software, Morgan Stanley also takes inspiration from companies like Apple and Google, notes Randazzo.
Asked about reports that Morgan Stanley will introduce a robo-advisor of its own, Randazzo says the firm does indeed plan a digital offering for clients so they can choose how to interact with the wealth management business.
“I view robo-advisors in a good way,” Randazzo says. “I don’t worry about robos taking over our business. We learn from them. They teach us how technology helps us at different points of the value chain for advisors and their clients.”
Naysayers Not So Sure
Despite such efforts, not everybody is convinced that wirehouses have the upper hand.
Michael Kitces, financial planner and Nerd’s Eye View advisory industry blogger, has been saying for years that the shift from proprietary to external independent solutions has given advisors more flexibility than ever to change the firms they affiliate with. Speaking with Research magazine, Kitces reiterates that the explosion of quality independent software has greased the wheels of the breakaway broker trend.
“The rise of independent software companies over the past 10 years means as an RIA you have a vast range of technology solutions you can integrate together. I’ve never met an advisor in the history of the business that ditched an RIA to buy wirehouse tech,” Kitces said.
Executives for Advent Software Inc.’s Black Diamond portfolio management and performance reporting platform, meanwhile, say the wirehouses are scrambling to re-up their tech game because they’re afraid of losing top-earning advisors with $50-million-plus clients and complicated portfolios. As a result, some of the large broker-dealers give in and let their top earners use Black Diamond, which is more typically used by independent RIAs.
“The typical situation is that it’s a team from UBS, Raymond James or Wells that says, ‘Your system isn’t good enough. I want to use Black Diamond,” says Dave Welling, general manager of Black Diamond. “The wirehouses say yes because they want those teams to stay with the firm and they know that the technology in the open market is better than within the firm.”
Fee pressures also have hamstrung the wirehouses as they struggle to invest in new technologies with lower profits and smaller budgets, says Pete Hess, general manager of Advent.
“Culturally, the wirehouses like to have a differentiator. But how do they differentiate if they have a product that everybody else can buy? That’s the religious issue that still exists, and the trend is toward buying rather than building,” Hess asserts.
The ultimate differentiator may be advisor technology that is best shaped to handle higher compliance costs, tight account margins due to low interest rates, and the costs of the technology itself. In any case, the wirehouses are showing a great deal of determination to be dominant on the fintech frontier, no matter how that tough the environment may be.
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