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.