The growing complexity of wealth management requires better technology, says Anton Honikman, the CEO of MyVest, a wealth management software firm that TIAA acquired in 2016.
“Ultimately I see an evolution of the wealth management industry away from a product-centric view of the world to a client- or customer-centric view. The challenge for the industry is that the legacy systems that support wealth management firms are fundamentally product-centric. We are positioning MyVest in the vanguard — small v — in the move to a customer-centric view of wealth management.”
That will require personalized investment solutions rather than products, he added. “It will also require tax management, optimizing an investment solution for taxes, and a holistic purview that looks into as complete a profile of the customer’s financial circumstances. That means an understanding of the household balance sheet including accounts held away, plus a customer’s preferences, goals, values, tolerances — these are all central to wealth management, not incidental.”
Successful firms understand this isn’t just an issue of technology, he said.
“It’s an ongoing process that has to be nurtured, new types of advisors will be required, new channels created.”
He foresees a new tension emerging — concerns about data privacy coming up against the huge benefit people can receive if their advisor is able to look at their entire financial life.
“It will require appropriate cyber security, data privacy and governance on how all this will transpire.”
Personal Capital has demonstrated that MyVest tools can attract high net worth clients to a predominantly tech, or tech-first, wealth management program supplemented by human advisors.
“They have made the interaction between the advisor and the client predominantly virtual — virtual meetings, interactive dashboarding, screen sharing — and it’s a far more scalable and less expensive model of advisor-client interaction and collaboration. They have proven it also works for affluent clients.”
Using MyVest for portfolio management, Personal Capital developed a socially responsible strategy which recently hit $1 billion in assets just two years after it opened to investors. Record asset inflows helped fuel 109% year-over-year growth in total assets managed in Socially Responsible Personal Strategy Investment portfolios. Just last month alone it saw more than one in five dollars from its clients going towards ESG.
“Personal Capital has been a high growth investment manager since the beginning, and MyVest has been with us for the entire ride,” said Brendan Erne, director of portfolio management at Personal Capital. “We now manage over $12 billion in asset for more than 20,000 households. That kind of growth wouldn’t be possible without a portfolio management system that can truly scale. Moreover, their platform is extremely flexible, allowing us to turn numerous processes on autopilot while also maintaining our desired level of human oversight.”
The firm has recently announced a collaboration with One Tree Planted and is committed to planting a tree for the next 2,500 future clients who invest assets into the Personal Capital Socially Responsible Personal Strategy, as part of an ongoing effort to positively impact the environment. (This ought to resonate with Honikman who was getting a rather large olive tree planted at his house during my phone interview with him.)
“We have a big enterprise platform that is highly configurable,” Honikman said. “TIAA and Personal Capital don’t have the same business model but both use our software to build personalized investment solutions for customers.”
He expects COVID-19 will make virtual delivery increasingly popular in wealth management.
“Post COVID I think more and more services will be delivered virtually by real people. Voice assistants will still exist, but particularly in the world of money, having somebody assigned to you is important. COVID will accelerate every large financial institution’s plans to more of a hybrid, digitally enabled delivery service model.”
A virtual model will also help wealth management firms improve profitability, he said.
“I see a lot of pressure on margins. They have to invest more in technology and lower their fees at the same time. The Wealthfronts and Betterments of the world have had influence disproportionate to their size, especially around transparency and fees. The other source of the cost of doing business is regulatory pressure — the cost of compliance is going up. The cost of doing business is higher than it has ever been for a regulated entity.”
Wealth management firms also face a generational change among their advisors, he said.
“They have an advisor force that is aging and will start retiring at a faster pace. They have some challenges with inertia, customers doing things the old way, advisors doing things the old way. The newer, younger advisors coming in are faced with rapidly changing consumer expectations. Consumers are increasingly more informed, more digital, and feel entitled to immediate response to questions – and modify their practices accordingly.”
There is also pressure from the end of a 10-year bull market, he added.
“You are seeing a big wave of M&A in small and mid-size advisory firms. I think it is a response to margin pressure, because scale matters. It is very, very hard for small firms to survive.”
TIAA uses MyVest software to help run three very different managed account programs serving three different segments (retail, mass affluent, and high net worth (HNW), using multiple custodians on a single unified system.
Honikman said one of the benefits of being the subsidiary of a large institution is deep pockets.
“We are continuing investment in our platform, in three directions. One is further investing in the world of tax management, tax optimizing investment solutions, a sophisticated ongoing influence over how a portfolio is managed on an ongoing basis to minimize tax burden,” he explained. “Another area is user experience for all the multiple members of an organization who have role-based entitlement to the platform…advisors, operations, the investment team, investment IT people, compliance. We are investing in improving the user experience in all those roles. And third is data analytics to understand customers better and achieve better outcomes for the individual investor.”