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Technology Is Critical to BD ‘Information Business’

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At the 2016 Broker-Dealer of the Year roundtable in August, we asked the winners to imagine they had launched a digital advice platform but growth had been stagnant. They responded that they had done just that and were having no such problem.

Lon Dolber, American Portfolios, Division III: The challenge in building a platform is being disciplined and establishing an approach to your development. That always, for us, was important: managing your initiatives and priorities.

To me, when you’re developing your own systems and your own technology, you must have a discipline. If you don’t, you’ll have a lot of weeds growing in your garden. That was the start. Now we’ve taken it to another level, for the last couple of years, with the hiring of a master Six Sigma black belt.

Jamie Green, Investment Advisor: Do you need to have a digital advice platform?

Ralph DeVito, The Investment Center, Division II: We used to partner with a third party. We looked at a whole bunch of them and picked the one that we thought was the most compliant and had enough infrastructure. It’s not just an algorithm. There’s actually people underneath the digital part of it, and we’re growing, gangbusters. It’s not stagnant at all.

Green: Now this is for your people working with your advisors, not as a separate channel bypassing your advisors?

DeVito: They can do it on their own, but they’re working in concert with the advisor. We’re taking that smaller account that’s going to be affected or dismissed by this DOL rule. They’re not serviced, and the reps are using it to augment that process, get prepared, and it’s growing leaps and bounds.

I don’t have the demographics of it — is it millennials or older people — but it is, in general, the smaller accounts.

We wanted one that asked the questions. It wasn’t just going to be one of the huge names that we see on TV. You can open up that account the way we used to open a brokerage account in 1970 — name, address, [Social Security number].

I said, “There’s no way I’m going to allow that kind of product.” We do a little bit more indepth look at the client for suitability. The reps are embracing it, and they’re using that also to transition to those accounts that might be just strictly advice accounts to the advisory model.

Dolber: A big key decision was to acquire an advisory platform company called TrustFort, so I could manage the development schedules. We now have 25 individuals in India that we work with, and we’ve always had the six or seven in Romania that have done our .NET work.

Managing people in other countries is a bit of a challenge, but we’ve done it. The main purpose, again, is that I wanted to control my own technology and the things that I build, when I build them, and why I build them. To me, it’s not about DOL, it’s about whatever’s coming down the pipe. I want to be able to move to the left, move to the right, and be in control of that situation.

Eric Schwartz, Cambridge Investment Research, Division IV: Clearly, technology is the backbone of the information business, which is what we’re in. We are not interested in having a robo-platform that competes with our advisors. We don’t want somebody that doesn’t have an advisor to come and see our platform and decide to invest their money with us. That’s not the business we’re in.

I’m not saying it won’t ever. We never know where the world’s taking us, but our business is to work through advisors to their clients. Before robo ever existed, we already had 80% of a platform that could become robo.

We have put together a committee of about 20 advisors, most of whom are somewhat younger, who are more interested in having this platform available to their clients. We are continuing to figure out exactly how they would use it and what they would want, so we can complete the final pieces of it and make it available for clients.

For example, what many advisors want is [that] the client can go in, look at everything. They could make trades, but before that trade went through the advisor who would look at it and say, “Yes,” and push a button in order to [complete the trade]. The client will know that the advisors going to take a look before it happens and the trades might be delayed. It’s not designed for someone else who wants to trade actively.

We’re trying to determine what’s really going to help advisors be successful and then complete the platform once we see what that is.

What we have found is there’s two models, I would say. One is the $25,000 account. Basically, [reps are] not going to be very much involved with that person but that person likes to trade anyway.

Then there [are the] million dollar accounts; they want to see what their account’s doing. They go in already through the clearing firm or through our technology and do that — it’s only a hop, skip and jump beyond that for them to actually be able to make trades.

We know that even today, and certainly 10 years from now, the client with $20 million isn’t going to do business with you if you don’t have a pretty sophisticated interface that looks a little bit more like a Betterment, combined with the stuff we already have that they can go into a brokerage account, see what’s going on. It’s really a question of building what the advisors want and that’s what we’re doing. Brian Murphy, Lion Street Financial, Division I: We haven’t rolled [a digital advice platform] out yet, but yes, we will. Like [Cambridge], we’re an advisoronly platform. We’re not going to use it as a competitive feature, but we are going to use it as an efficiency and increase-your-commercial-value tool for people.

I’m not concerned about digital at all for the company to be relevant and necessary. I think our industry is wildly behind other segments. You think about back in 1969, we put a man on the moon in, what, six days from start to finish? You can’t get a life insurance policy underwritten inside of 60 days.

We’ve got a lot of catchup to play, but at least for Lion Street, we want to make sure we know what our value prop is. Our value prop is how to make that advisor a better advisor for consumers. Consumers’ needs are changing and evolving with the time.

That’s why I’m not bullish on verticals, because I don’t think that clients view their needs vertically. Everything is connected with them; you can’t be everything, but you’ve got to be more than just a broker dealer or more than just an RIA platform.

Schwartz: In the old days, if you could pay people commissions regularly and not lose their applications when they sent them in, you were a successful broker-dealer. A lot more is expected from us these days: Technology, robo, insurance, RIA, practice management.

We spend $17 million a year on technology, which is way more than I would like to, but we’re not trying to do what [American Portfolios] is doing, where we’re building all of it from scratch. We’re incorporating stuff that the clearing firm has, other things, and also then building a lot to assemble it together.

That’s partly because we also want advisors to be able to choose. If they don’t like a CRM that’s embedded in our system, they could pick five or 10 others to use, and we can connect them. Then if Redtail is the popular CRM today and 10 years from now it’s not, we can unplug it and plug something else in.

Dolber: Integration is quite a skill. I would say 50% of what I do is integration.

— Click here for more coverage of the 2016 Broker-Dealers of the Year


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