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Bill Crager: I've got your back against the attack of the killer robo-advisors

Bringing the wood at the Envestnet Advisor Summit, the president allows that online advisors are crackerjack at providing account views 24-7 but human advisors can close that gap

Friday, May 16, 2014 – 2:57 AM by Lisa Shidler
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Bill Crager: We're not going to be a robo advisor. We're not going direct to consumers.

Brooke’s Note: The thing about the new class of robotically inclined financial advisors is that they have an aura. It includes a sense of being cheaper, better, faster, Motif-ier, blank slate-ier and even more divorced from Wall Street than RIAs. They hire from Silicon Valley, not wirehouses. But this new class of online brokers has enjoyed another advantage as they pound on the legacy advisory business — that incumbent business has never bothered to swing back. In my opinion, it still hasn’t bothered to do so. But Bill Crager, seemingly with the right admixture of concern and nonchalance, did take the issue head on at his company conference in Chicago. For one thing, the poorly named “robo-business” is just an interesting subject to broach and that’s what conferences are for. But as the president of a firm in complete symbiosis with third-party advisors, he needs to be sure his partners sally forth boldly, without a sinking feeling that some Mark Zuckerberg of portfolio diversification is going to take it all away between trips to the Nerf hoop and the latte bar. Still, too, he needs to keep advisors on their toes. It seems for now that the message was received.

These days you need a program to keep track of the player-advisors pouring money and time into their respective bids to create the equivalent of Amazon.com. This online frontier is an exciting one, tinged with the glamour brought by name-brand venture capitalists who invest mega-dollars and alumni of brand-name technology firms who serve as pools of seed management.

But if you ask Envestnet Inc. boss Bill Crager, the emergence of this “robo” contingent muddies the market and instills agita in financial advisors who consume his firm’s outsourcing. See: Why I find the term 'robo-advisor’ objectionable and unhelpful.

It’s an ironic position given that Chicago-based Envestnet arguably brings as much robotics to the financial advisory business as any other firm. So the 1,300-attendees at the 2014 Envestnet Advisor Summit, held at the Hilton on Chicago’s South Michigan Avenue this week, were eager to hear what Crager had to say on the subject in one efficient swoop.

“You hear all of these stories about the robo-advisor and you’ll see all of these stories about how they’ve got piles and piles of venture capital money and it’s something we need to pay attention to,” Crager said. “But at the end of the day, there is nothing like that relationship with a financial advisor and no algorithm can replace that. We’ve got to upset that apple cart.” See: How one 'robo-advisor’ got $25 billion on its platform with a Mint.com mindset, 401(k) friendliness, a merger and 16 years of work.

Simple plan for complex families

There are many online advisory services vying for what they hope is a rapidly emerging clientele — firms such as Betterment, Wealthfront, Motif and SigFig. To that list, Crager adds custodians FIdelity, Schwab Advisor Services and TD Ameritrade as more than worthy of respect. See: Betterment’s Jon Stein talks human-RIA coopetition but breathes fire about fellow online RIAs.

Envestnet’s battle plan involves an if-you-can’t-beat-them join-them component. Crager told advisors that to win the fight against these online companies they need to offer some of the cool features that have distinguished these online firms from their legacy brethren.

“The robo-advisor is always there and it’s a lot of fun. We’re presenting to you today a new era of a hybrid advisor where you can maintain your intimate relationship and deliver a digital experience. You offer the best of both worlds. You can do this in a very low-cost efficient way and it will also enable you to get your hands on complex families.” See: Are ultra-high-net-worth clients really worth it?.

Rise of the machines

Robo-advisors are winning over consumers because of their low cost and enjoyable-to-use options that are available to consumers 24/7. RIAs need to bolster their technology to compete with these firms, Crager says. See: How RIAs are becoming as complacent as wirehouses — and what it’ll take to snap out of it.

He made the point that Envestnet had the big guns to help them with this Herculean task. Where venture-capital-owned advisors likely manage little more than $1 billion in assets combined, In the first quarter of this year more than $25 billion of new assets flowed into Envestnet. See: What exactly lured a sparkling Morgan Stanley advisor and $1.2 billion to a retreaded brand name attached to a fledgling RIA.

Crager told advisors that his company will use its heft to help advisors win the war against robo-advisors.

“Envestnet has core principals. We’re empowering. We’re not going to be a robo-advisor. We’re not going direct to consumers. We’re perfectly positioned in the marketplace. We’re 100% focused. We’re not a bank. We’re not a custodian. We’re not an asset management firm. We’re not a firm that has a different interest. This is all we do. We are providing a wealth management infrastructure for you to grow your practice.”

You up?

One way online firms are beating out old-school advisors is by appealing to investors who like to use their iPads and tablets to get cool statistics regarding their accounts, Crager says. They should be able to access more than their performance results. Ideally, clients could to go to one page and see their 529 college accounts, investment accounts and future goals. If a family is saving to buy a lake cottage and the goal is to save $50,000 for a downpayment, they should be able to see that in their entire financial picture.

Currently, Insomniac investors can access their accounts at any time — and can even message someone at their RIA to ask a question. See: Envestnet unbundles portfolio management software for RIAs and it won’t be a sideshow.

“It’s about being always accessible for investors on the iPad,” Crager says. “If you want to find information, how do you get there.”

The advisor is in

A perfect example of how advisors can leverage the mobile revolution, giving clients access to their portfolios day and night, can be found on the website Web MD.com. As with the dial-a-doctor service, a staffer, or their robo-equivalent, can talk a client down when they imagine they are in grave fiscal condition. Should symptoms persist, a face-to-face meeting with the financial profession may be in order.

Crager says advisors can pattern their client portals and websites after Web MD.

“The technology that serves us will get more and more powerful. The technology tools will become better and smarter,” Crager says. “There’s going to be a great fusion of merging technology for the advisor. We need to adapt and react to this fusion.” See: Why technology is vital for RIAs looking to steady client nerves in stormy markets.

Widening swath of gray

In the meantime, Crager delivered a compelling argument that time is actually on the side of flesh-and-blood advisors.

“We believe you’ll be more relevant to investors in the next five years,” he says. “We strongly believe advisors will be in a better position to work with clients.The robo-advisors say that technology will be disruptive and a strong segment of investors will only be served by iPads. We believe the opposite of that. There will be a segment of investors served electronically but you’ll be the advisors offering electronic meetings for clients.”

In other words, people assisted by technology will beat technology assisted by humans.

That said, the average advisor is going to face some dramatic changes between now and 2020 and Crager says that if advisors don’t better enable technology they will be left behind. To buttress that point, he presented data that the average age of an advisor now is 54 and by 2020, the average age will be 60. Clients are also getting on: The average age of clients will be 68 in 2020 compared to the current 61 years of age. See: CEOs of BNY Mellon, Lincoln Financial and Legg Mason are stubbornly glum on Pershing INSITE panel.

But if clients are getting older they are not becoming more sparse. On average, advisors now have 468 client accounts with 156 households. By 2020, the average advisor will have 750 accounts and 275 households. Average assets will go from $90 million presently to $145 million in 2020.

Alarmingly, however, by 2020 the advisory population will decline by nearly 50,000.

“How in the world will advisors transition from a period of today to 2020?” Crager asked. “Our pot of financial advisors is shrinking. The advisor population may be shrinking but advised assets will grow and clients will grow and require more streamlined solutions. Look at the 2014 profile of an advisor and the 2020 profile. Think of households and the number of clients you need to manage. The expectations begin with the fact that clients expect a lot. How will you deliver those solutions to clients?” See: The 10 biggest threats to the RIA business heading into 2014.

Still relevant

Crager’s meta-message was this: Envestnet will be able to aid in the process of giving clients the views they want.

“We think we can open the markets for you to help you grow your business at a very low cost. You can see more individuals households in one view. We think emerging your practice to emerging sets of technology is really powerful. We think you’re uniquely positioned to take the mantel and prove to the rest of the world that advisors are indeed relevant.”

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Mentioned in this article:

Fidelity Clearing & Custody Solutions
Asset Custodian
Top Executive: Sanjiv Mirchandani

TD Ameritrade
Asset Custodian
Top Executive: Tom Nally

Envestnet Inc
Top Executive: Jud Bergman

Syephen Winnks

Syephen Winnks

May 19, 2014 — 6:47 PM

What Bill is saying is EnvestNet will not compete directly with advisors yet, to stay competitive, EnvestNet will advance modern technology that will electronically manage values and portfolio detail in real time that is otherwise not humanly possible to manage. There is no denying the human three dimensional limitation to reason, thus modern technology is the only way to manage an unlimited number of custom portfolios which incorporates important technologies (that also drive robo advice).

Utilizing advanced technology Envestnet will empower brokers to address and manage a broad range of investment and administrative values in greater detail with a far higher degree of technical competency than is humanly possible which minimizes any competitive Robo Advisor advantage. Yet cost will be a major factor which can only be mitigated through a more modern approach to portfolio construction. The days of expensive retail package advice products which do not constitute individualized advice required for professional (fiduciary ) standing are numbered in a highly competitive marketplace.

Envestnet will not compete directly with advisors as a robo advisor, but it will afford all the technical, cost and pricing benefits of robo advice.


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