Generation Next: Tailoring Financial Advice For Millennials And Beyond

The original article was published on Forbes here:

For each generation and the one preceding it, the notion that “this time it’s different” is a deadly, yet often used, sentiment. Nevertheless, the more things change, the more they stay the same. This isn’t about idioms; it’s about proper perspective.

Let’s take the Silent Generation (born 1928 to 1946), the generation before baby boomers (1946-1964). Members of the Silent Generation experienced World War II, the Cold War and the aftereffects of difficult bear markets, high inflation and immense volatility. Just as well, baby boomers dealt with stronger bull market cycles, as well as successfully being the first generation to bring about great socioeconomic change after WWII. As baby boomers matured, they saw the 1973 oil crisis, the 1979 energy crisis and the market crash of 1987. Today, millennials — one of the most educated generations and also projected to overtake baby boomers this year as the largest — are reshaping business and politics.

Unfortunately for millennials, many are accustomed to an ever-rising bull market (the longest in history) with little volatility, have received limited education of alternative investments, and were largely sheltered from firsthand experience of a major bear market, such as the one in 2007-2009. All these factors create a generation of market participants prone to lower risk tolerances and economic volatilitythan prior generations and an expectation of strong continuous returns.

As I touch on some financial advice for the millennial generation (and even the subsequent Generation Z), it is important to break down what makes up the financial advice category and measure what’s valuable to younger generations.

The Makeup Of Financial Advice And Planning

Historically, financial advice has been broken into two segments: investment returns and budget management. During the past five years, I’ve seen greater appreciation for a true wealth management approach (fiduciaries) and various forms of developing/delivering financial plans. Here is a breakdown of what traditionally composes financial advice, from my experience. These traditional value categories are out of a total of 100 points:

• Developing a financial plan (25 points)

• Net wealth tracking and projections (15 points)

• Cash management (20 points)

• Balanced portfolio management and modeled portfolios (20 points)

• Asset and liability risk management (20 points)

Here might be a different perspective to take with millennials and Generation Z. I chose these following value categories to reflect behavioral tendencies for younger generations, such as their desire to have immediate feedback from their service providers, high preference for mobile-based experiences and inherent desire to learn

• Real-time financial planning (15 points)

• Financial literacy and collaboration (20 points)

• Mobile accessibility and active feedback (20 points)

• Cash and liability management (10 points)

• Net wealth forecasting and decision management (20 points)

• Portfolio management and alternative investment management (15 points)

Next Generational Focus: What Matters And Why? 

Wealth management is more than having financial planning software and a comprehensive proposal. Younger generations will need something more than a financial proposal regarding their future. According to a recent Deloitte report, 57% of millennials surveyed would change their bank relationship if another offered a better technology platform. Ironically, at the same time, the report showed that 84% of millennials seek financial advice (and knowledge).

Clearly there is a need/demand, yet somehow there’s distance between advisors and this generation. Accordingly, the survey also found that millennials tend to revert to their peers regarding investment choices even while valuing more face-to-face meetings. Simply put, financial advisors who fail to appreciate a different process of communicating value and connecting with millennials will be at risk of losing future assets-under-management growth and existing assets once the transfer of inheritance to this generation begins.

It isn’t such a bold statement when you consider how technology has changed communication, making it more collaborative, and the value millennials place on quick response times, accessibility and service. In fact, according to the Pew Research Center, more than 9 in 10 millennials own smartphones, and 85% use social media, compared to 57% of baby boomers (who make up over 40% percent of the country’s financial advisors).

Moreover, educating and engaging younger generations is valuable. According to a 2015 PwC study, out of a population of 5,500 respondents aged 23-35, only 24% showed basic financial knowledge. Nearly 30% of millennials were overdrawing their checking accounts, and despite a lack of financial knowledge, only 27% sought professional advice. These insights are both alarming and an opportunity to consider how advisors work with that generation.

Generational Game Plan: Ideas For Creating Advice Across Generations

Staying ahead of the massive wealth transfer to change hands from baby boomers, here are some ideas for financial advisors to consider when reaching out to the next generation.

1. Help your baby boomer and Generation Xer clients with adult children spark conversations regarding financial well-being and financial literacy with their children. Here are some considerate approaches that advisors can take today. Engage with your client and ask, candidly, whether they’ve had honest conversations with their child(ren) on financial and career matters. Likely, it’s a topic that’s never been truly broached. Be the friendly broker to spark conversations along (usually in a neutral social environment). Alternatively, advisors ought to consider creating financial education seminars for parents to bring their kids and engage in active learning together. Either of these considerations would transform the image of the financial advisor into a generational confidant.

2. Don’t just stick your clients into a turnkey model. Expand your investment model and educate the inheriting generation about the various ways to grow net wealth (such as, for example, incorporating direct investments and secondary market funds).

3. Create an integrated plan and bring other advisors (such as trusts and estates, accountants, etc.) into the conversation. This will help create a total picture for the family and the inheriting generation.

4. Leverage technology to dramatically change your methods of communication and your customer service model. In-person meetings are valuable, but for the younger generations, it also can be helpful to have your service available via a mobile app experience.

Why Wealth Creation Is The Next Frontier In Wealth Management

This post was first published on

Of the myriad segments and niches in finance, wealth management is often the most elusive. What started out as an institutionalized endeavor has become an avenue for entrepreneurs seeking to build their own brand while providing an impactful service for families. From my perspective, wealth management has evolved dramatically, especially from the early brokerage days.

Back in 1994, digiTRADE Inc. became “the first company to bring online brokerage services to the Internet” and brought to bear the digital revolution of stock trading. I would know — my father helped build the company and sold it to Thomson Financial (now Thomson Reuters). Before becoming a household name, fintech was very visible and “in your face.” The change from calling via the phone for transactions and waiting for significantly delayed information (and execution) to immediate delivery, feedback and service was quite dramatic. You could not deny the change because it was so visible.

By the late 90s, the tech boom truly took off and other major players arose (e.g., Amazon, Yahoo). This was not merely a change of format, but rather a dramatic change of what I call the “medium of exchange of value.” The newer medium enabled financial institutions (and individuals) to gain dramatic speed and acceleration in their business; in a major way, the new format of online brokerage enabled firms to be on the offense.

Fast forward to today, I see wealth management as being in more of a transitory change. Having a digital wallet, a robo-advisor or a risk number does not change the medium of exchange of value enough to merit an entire wave of adoption. Throw in a strict regulatory environment and a “gray area” of definitions regarding financial adviser versus financial advisor, and you have strong impediments to gaining market-wide dominance. Case in point: The Securities and Exchange Commission recently charged two robo-advisors, Wealthfront Advisors LLC and Hedgeable Inc., with false disclosures. The problems and hurdles are real, especially for investors seeking the next change agent that will bring a new form, such as online stock trading.

At the end of the day, both humans running wealth management firms and robo-driven solutions still deliver the same results; both deliver financial planning and portfolio rebalancing. There is no true distinction beyond a low-cost provider between a robo-driven solution and a human advisor, especially for families that fit a “mass affluent” or “low mid-tier” category. At higher levels of assets under management (say above $1 million), the needs for an individual approach, such as the formation of trust accounts, require a highly tailored service, something that can’t truly be automated. To put it candidly, there has not been an invention that changed the status quo enough for wealth management; what we are seeing with various innovations in wealth has largely been natural evolution and extensions of existing norms.

What’s The Next Wave?

Wealth management’s true disruption has to open the door to a new market: wealth creation services. Wealth creation, by my definition, implies focusing on wealth creation/origination opportunities away from simply stocks and bonds. Much of today’s and yesterday’s wealth management solutions have been defensive solutions, such as traditional passive portfolios, model portfolios and financial plans to invest into traditional assets and guide families to retire at X age. Unfortunately, this does not truly address the retirement/wealth creation conversation.

Today, we have gaps in retirement for pension funds and for individuals. Across America, approximately 55 million private-sector workers don’t have access to a retirement plan offered by their employer, according to AARP. Millennials were hit particularly hard by the 2007-2009 financial crisis, and should the economy experience a fundamental change in volatility, the compounding effects on subsequent generations could widen the retirement/earnings gap. During the financial crisis, the unemployment rate increased sharply for millennials. Accordingly, those born in the 1980s have 34% less wealth than in previous generations.

For the next wave, businesses need to focus on innovating the wealth creation side of the equation. This means a stronger dive into possibly personalizing alternative investments to personal financial advice and expanding that knowledge and distribution base across all independent and institutional wealth management. By focusing on innovating the wealth creation side of wealth management, businesses will be able to introduce investment opportunities that generate the necessary portfolio returns to truly “retire.” One of the key aspects of retirement is not really working; you’re relying on the run off your portfolio income to support a better lifestyle (“better” being the keyword). Other unique insights and innovations that businesses could explore might take the form of automating the knowledge training aspect for alternative investments or delivering better means to connect the right ultra-high-net-worth family with the appropriate nontraditional financial product.

Getting Out Of The ‘Gray Area’

Wealth management has always been that “gray area” of financial services. It’s stuck between brokerage and private banking, yet at the same time, cannot be ignored. But as the demographics and financial needs of everyday Americans rise with each passing decade, wealth management can no longer be a gray area to simply have a presence in.

The Natural Evolution

Clayton Christensen said it best with, “Disruptive technologies typically enable new markets to emerge.” The maturity of the internet has helped spawn many great business models, some of which are natural extensions of traditional business models but in an upgraded format. When we look at digital wallets, various versions of robo-advisors and mobile payments, they are byproducts of the maturity and security of the internet enabling possibly easier ways to transact. However, the underlying value being transacted hasn’t truly changed all that much. For wealth management, the value being exchanged is personalized financial advice.

What UHNW Families Really Want

What really motivates families to choose or change their financial advisor? For many this is a literal $10MM question.


Wealthy families often reach out to financial advisors due to (A) liquidity event (B) generational wealth transfer timing (C) Poor service and performance by their existing advisor. In order to get ahead of this, independent wealth management firms ought to focus on differentiating factors that elevate the firm’s services.

These are the following areas where wealth managers can generate an advantage:

  • Creating transparency through accessibility, relevant reporting and “quick reads” on the families financial situation.

  • Deliver historical tracking insights and analytics regarding the families net worth, and aspects of the families fiscal life that negatively (or positively) impacts net worth; essentially a “Net Worth 360” report/view.

  • Deliver unique active portfolio insights beyond passive investment or purely active investment - deliver value in terms of wealth risk management and unique wealth creation investments (liquid and institutionalized) that generate net wealth beyond stocks/bonds.

The Concept of Control

As families gain in net wealth, they tend to become more involved and hands on. There is a sense of shared control with the estate and financial advisors need to understand this difference of mentality. To foster the right solution and service - something that will bring HNW/UHNW families with that psychology of “hands on” - wealth management firms need to:

  1. Deliver greater frequency of availability and real time alerts/insights about the families HNW depending on their level of needs and touches.

  2. CRM, financial planning software, portfolio account system and other solutions needs to be integrated and deeply interconnected to drive the value proposition home.

  3. New analytics regarding the clients household and wealth management needs to be created. If a financial advisor has all this information regarding a families historical transactions, historical investment performance

BlackCrown’s Independent Sponsor and Secondary Market

BlackCrown educates wealth management firms by introducing the concept of independent sponsor buyouts for family offices. For UHNW firms where the patriarch has established wealth, often through an exit of a privately owned business, the needs and ambitions do not end with the first sale.

Wealth management firms have an obligation and open opportunity to introduce capital creation ideas whereby the patriarchs can grow wealth by acquiring unique businesses within their line of specialty.

Say for example, the patriarch of the family was the former CEO of a large paper mill business which sold for $30MM. The family has substantial net wealth and the patriarch, “Steve”, is restless. One day, Steve finds a unique opportunity to acquire a niche competitor for $60MM because that owner, “Paul”, is retiring. Being younger, Steve senses an opportunity to build wealth again. However, how does Steve put together the deal to buyout the firm, especially if bankers are circling Paul?

BlackCrown has put together and been apart of numerous institutionalized process as an independent sponsor. In these “Steve and Paul” situations, our firm puts together the networks and debt capital to help Steve acquire the $60MM business with minimum equity involvement, thus preserving 1st generation wealth while creating the 2nd.

Key retirement hurdles to be concerned with and UHNW retirement problems

Wealth management is continuously changing - regulatory reform, SEC best interest, and now Fidelity with their zero fees investment product. This is going to create revenue pressure for independent wealth management firms seeking to provide a comprehensive service. Areas to really focus on is understanding the clients household true needs rather than focusing individually just on the husband vs. wife. Notwithstanding, the statistics for retirement are both good, interesting and alarming.

Onto the good part - the mass affluent and HNW are growing. This means the net wealth is improving - creating opportunities for wealth management and proper retirement. 

In 2017, there were 31 million Mass Affluent households with a net worth between $100,000 and $1 million, not including primary residence. That is an increase of half a million households from 2016. 

  • The number of Millionaires, those with a net worth between $1 million and $5 million, climbed to 9.98 million, an increase of almost 600,000 compared with 2016.

  • The Ultra High Net Worth market, in which net worth is between $5 million and $25 million, grew to 1,348,000 households, an increase of 84,000 from 2016.

  • There are now 172,000 households with a net worth exceeding $25 million. That reflects an increase of 16,000 households from the 2016 total, an increase of more than 10 percent from the 2016 total of 156,000.

The need for conversations between the advisor with the family regarding legacy and finding the right investment model that moves across generations. We can see Exhibit 2 that the UHNW millennials view themselves as stewards of their family's legacy and wealth. 

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Taking a step back from the HNW/UHNW population, we begin to see individual retirement accounts continue to grow and stabilize between Q4'2017 and Q1'2018 (stronger when considered year over year change, see image below). Going into the details and investment mix among the mass affluent - we also see that defined contributions have really taken the market by storm since the transition in 1975. Harder on this is the problem with social security funds. Financial advisors need to plan for the following hits for the baby boomers: 

  • By 2028, Social Security Disability Insurance Trust Fund is expected to be depleted

  • By 2025, Multiemployer Insurance Program trust fund is projected to be depleted

  • By 2035, Social Security Old Age and Survivors Insurance trust fund is projected to be depleted

When looking at the value proposition, and delivering best solutions for clients, advisors should focus on: 

  1. Building a comprehensive relationship and discussion approach to the existing generation and upcoming

  2. Plan for worst case funding situations, liquidity needs and baseline lifestyle income solutions

  3. Consider alternatives to properly hedge against inflation and geopolitical risks going forward

  4. Segment clients based on complexity with investment, compliance and relationship/servicing work

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Money At Risk: Retirement Stats and What to Look For

Many times people ask me: Franklin, does money buy happiness?

I tend to respond: Gosh, never, but it sure as hell buys you the boat to get the island called happiness. 

Retirement is a tricky question, it can mean many things to many people. The shades of color and joy varies from human to human. Nonetheless, money is the bedrock of retirement. Without liquidity, the type of wisdom that comes from a prolonged yoga session just won't be fully realized. Let's look at some key statistics and demographics:

First, the baby boomers vs. Gen X:
There's too much emphasis on millennials. They're just starting out and they are not the ones inheriting the massive "generational wealth transfer" issue. That problem, to the chagrin of many 20 year olds, will be the Gen X'ers - those aged 30-49. (Personally, I fall closer to Gen X, I'm old and missed too many boats in my lifetime already). See here: 

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The key issues driving the conversation between Baby Boomers and GenX are: 

  1. What do I do with wealth transfer issues, cost of living going forward (Baby Boomer issues), and healthcare costs/elderly care (both GenX and Baby Boomers)?
  2. Tax implications regarding generational wealth transfer; am I properly hedged with the appropriate financial structures for my family? 
  3. How is my portfolio relative to my holistic view regarding my beneficiaries and those that will continue to rely on this portfolio?  

Just as well, HNW family assets are rising. This means that there are greater life changing and transitional planning that will be taking place in the near future. The concerns regarding net wealth is not as simple as beating market returns. When considering a financial advisory firm, their technology, operations and general wealth management systems should help a family manage, track and deliver on the entire households (looking at things from a holistic view), financial goals and generational plans. 

Email me to discuss how our firm could help you:

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Money At Risk: Retirement isn't simple and issues are everywhere

Retirement is a result of planning, frugality and self-discipline. Nevertheless, the concept of retirement plagues and and every individual across the globe. The retirement issue is not isolated to America. Let's take at the global issue with retirement and wealth management.

Looking at global household savings rate, we see: 

  1. UK households are getting over leveraged
  2. Portugal and Greece are both in deep negative savings rates
  3. Italy is comparable to the US with 2.37% savings rate
  4. France and Sweden ebbs on the high end with Sweden taking the top country out of the entire EU bloc with 15.77% savings rate  

Americans save anywhere between 2.7% to 3.1% per household. Interesting enough, here are some additional facts about US household net wealth: 

  •  On average, there is $60,200 worth of debt per household 
  • In 2017, mean wealth is $388,585 and median wealth is $55,876 
  • Just as well, inheritance sizes vary and for most of the population, they average between $50,000 (usually) to $249,000. Given the statistics of households, rising healthcare costs for elderly care, and inheritance related taxes, these numbers are unlikely to make up for the retirement gap for Generation X 

Just as well, when you begin to explore net wealth outside of one's home (primary residence), we begin to see increased probability of liquidity issues. Despite net worth being a combination of hard (real) assets with financial assets, it is the latter that pays the bills, and ensures the quality of life for retirees.

More importantly are home owners of the next generation. Many net new homeowners (those aged 25-40) will likely need to over leverage to afford that "first home". Sadly, savings rate do not support the trend and coupled with student debt (another story entirely), the odds of savings and buying a home (and thus owning real equity/net worth) becomes much less than the previous generation. 

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Again, the forces at play with retirement or the lack thereof also permeates to the same younger generation in Europe. Looking at the EU and across the European countries, you begin to see that savings rate coupled with difficult employment opportunities create a worse off scenario for the current and following generations. 

  • 17.2% of people aged 20-34 are not employed in the UK 
  • 28.8% in Greece 
  • 29.5% in Italy 

What to do next:

Sign up for our webinar, our portfolio company (AppCrown LLC) has the necessary tools to help financial advisers craft the financial conversation with families and prospects, present their value and guide their clients to meet their retirement goals.

Money At Risk: Wealth management founders are better entrepreneurs yet are hurting

What is it like to start a business? What is it like to build something from nothing? It's grueling, difficult, and you're essentially fighting in the trenches. I've been there myself and my family has been there. My father was an immigrant and in the mid 90's founded digiTRADE Inc., one of the first online brokerage/stock trading systems in the world. We started off poor but found ourselves right in the middle of the "American dream". Movin' on up for the Jefferson's - but the Asian American version. When I started BlackCrown in 2009, it was originally a whole loan trading operation seeking to arbitrage the pricing differences between portfolios of whole loans that banks often sell to Wall Street (pre-securitization process). One thing, I had limited institutional experience selling whole loans. Through grit, street smarts, persistence, cold calling, navigating the inner workings of whole loan trading desks (and 18 months of consecutive failure), I was able to close on a transaction between Redding Bank and Deutsche Bank for $100MM.

For wealth management firms, I credit RIAs as one of the better entrepreneurs in a world where everyone wants to "start something to disrupt something". (Note: I'm a series 65 and a series 7 holder too). Independent wealth management firms start a business to leverage their entrepreneurial spirit to help families save, retire and accomplish their life goals through financial means. There is a different type of grit to calling and building new relationships and gaining the trust of families to entrust an RIA with their assets. The affect is tremendous as is the responsibility (and liability). This type of grit surpasses the grit of any young gun raising billions of venture capital to become the next Uber. In many cases, RIA's are bonafide motherfuckers that are relentless for the best reasons (fiduciary) and their impact is truly lasting. 

Today, wealth management firms revenue models are being challenged. One of the key things to add value is to segment your clients beyond simply revenues and "Tier 1, Tier 2 etc.". A candid view is to segment clients based on other aspects such as demographics, race and culture. Why? Because knowing more about how a family lives can help advisers understand the liquidity crunch/needs in world of retirement (and living off of savings/portfolio returns). Just as well, the demographics for families coming out of the 2008-2009 recession implies lasting negative wealth impacts despite a rising stock market. 

Consider this:

  1. Wealth loss occurred across the age spectrum post 2008-2009 recession
  2. Families younger than retirement age suffered the most and rebounded slowly
  3. Families headed by someone born in 1960s, 1970s, 1980s were significantly below wealth management benchmarks 
  4. Families headed by someone born in the 1930s, 1940s, 1950s were slightly above their age specific benchmarks 
  5. On a recent survey across 3 generations (baby boomers, gen x and millenials) - “Outliving my savings and investments” is the most frequently cited retirement fear among Generation X (57 percent) and Baby Boomer workers (55 percent), while “not being able to meet the basic financial needs of my family” is the most frequently cited fear among Millennials (47 percent). 


Illustration of deviations from median wealth per generation.   

Really good chart from the Transamerica Center for Retirement Studies

Really good chart from the Transamerica Center for Retirement Studies

Astonishing is the risk for those born in the 1980s to accumulate less wealth over their life spans (excluding inheritance) than members of previous generations. 

As inheritance picks up - transfer between boomer and generation x will intensify. With the vast majority of generation x turning 50-60, this leaves about 25-15 years left for retirement. This means the requirement for yield will only increase. Financial advisers should take note.  

Perhaps a way to add value is to segment retirement and cash flow/liquidity planning based on individual investment policy statement + social demographics. It's candid but it offers a view in how retirement savings would be spent (statistically speaking) based on age, demographics, race and culture. 

  1. Between 2014-2016, the average household pretax income was $70,448
  2. Highest was for Asians with $93,390 
  3. Lowest for Blacks/African Americans with $48,871 
  4. Gap between those in the lowest 10% of income and those in the highest 10% was widest for Asians and smallest for Hispanics/Blacks 

Amazingly, families just do not talk about money. This is the opening and requirement for wealth management entrepreneurs/advisers to build that conversation piece. 

Sign up for our webinar, our portfolio company (AppCrown LLC) has the necessary tools to help financial advisers present their value and guide their clients to meet their retirement goals.

Pershing conference takeaways and how to justify your fees as a wealth management adviser

Change challenges every industry and technology seems to be the key disruption factor across every industry from retail, fast food/restaurants, to financial services. The truth of the matter is that technology has always been a disruption. Did you know, Proctor and Gamble ("P&G") use to be the leading manufacturer of candles? However with the introduction of kerosene around the civil war, the new format or "technology" forced P&G to move onward and by happen chance entered the soap business. Today, these innovations take the form of automation. We see innovation around robotics (physical) and robos (software) everywhere, even McDonald's. You might soon see these at higher value restaurants.

See here (video about a restaurant with a robotic kitchen):

Within our segment, wealth management, robo-advisers are creating pricing pressure on RIAs, challenging the "value proposition". Nonetheless, I hardly believe that Robo's will upend and destroy the livelihoods of financial advisers just as much as I do not see automated restaurants become the end of chefs. Technology is but a means to an end, and since the dawn of time, technology has advanced humanity because of the leaders that leverage technology to further the business model (purpose).  

Coming from Pershing INSITE (AppCrown was a Gold Sponsor), we've learned much from Lisa Dolly (Pershing CEO) and where the organization is heading. Pershing is looking to leverage technology to become an enabler for financial advisers to grow/build a better business. The conference highlighted: 

  1. Focus on technology to change how engagement happens after the client meeting; operations, integrations and better collaboration with the custodian platform. 
  2. Using technology to create better business models - Pershing actually discussed and their new account opening solution they're looking to deploy to advisers. 


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With robo's offering 25 basis points providing what is essentially a modeled portfolio, RIA's will need to defend their value proposition going forward. Perhaps the future is to go up market (in terms of service and value)? 

Let's consider the value proposition and why Robo's are attractive: 

  1. Ease of use - a "think less" approach. 
  2. Quick and dirty - the concept that the liability falls on the software and less work required from the individual. 
  3. Tax savings and long term benefits - that's certainly the selling point from Wealthfront. 

For the RIA, technology needs to be seen as a great tool rather than a "be all solution" that will help the wealth management firm overcome value proposition challenges. Here are some ways to accomplish this: 

  1. Create a unique mobile experience for your clients by changing how your firm interacts with younger generations (and I mean Generation X, those in their mid 40's that is using mobile and inheriting money from the baby boomers). 
  2. Create an automated new account opening process that streamlines the client engagement and onboarding process. Make it simple, seamless and sophisticated (3 S's). 
  3. RIA's ought to consider incorporating greater value into their firm's service beyond financial planning and investment management (and seek to charge more). Since most RIA's are outsourcing their investing work through TAMPs, it makes more sense for financial advisers to add more services to their clients such as: 
    • Net Worth tracking and assumptions of economic risks that affect liquidity requirements for retirement 
    • Estimated true net worth liability tracking - track liabilities that affect an individuals net worth based on healthcare, estate/wealth transfer taxes, and beneficiary risks 
    • Portfolio optimization risk analysis - how optimized or "optimal" are your clients portfolio given their age and retirement requirements? 
  4. Service Tip: Consider adding comprehensive tax planning, estate and trusts planning to enhance the value of your firm beyond purely planning. Consider what technology could automate, enhance and go up market in what your firm can provide to the client. This, in turn, ought to provide a basis for increased fees. If we consider the following demographic change, we see how much education and services to hedge the risks of transferring wealth can become an "in demand" service within the next 5 years. 

If we look at historical information, the reality is that robos are attacking a very small % of the wealth management pie (trillions vs billions). Independent financial advisers should focus less on the fear of "robos", because that's what the press wants - they all need a villain to sell viewership - consider where technology fits within your wealth management organization and focus on truly making a difference in your operations through integrations. 

If you can spare some time, let's schedule a discussion about your wealth management firm and our technology solution:

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Money At Risk: Wealth Management firms might soon lose and fight harder for assets

It’s easy to get swept away with the tides of change and the sensationalized themes that media tends to push forward. Don’t forget, the media needs ratings, conferences and awards to stay relevant and appear “in the know”. How many “industry maps” do you see from companies seeking to outline all the VC’s backed disruption? But here is the staunch reality for wealth management; despite the many innovations and focus on self-directed/digital wealth management – people still lack the ability to retire and robo advisor market share penetration is awfully lacking. A great statement to consider is that $1MM doesn't last as long as it use to, especially considering where you live. 

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1.       Lowest savings rate (2.4% in 2017). We just aren't seeing American's saving more and the odds for retirement are increasingly difficult. This will put pressure on yield adjusted returns for every amount of risk taken - basically, people will adamantly seek yield. Personally, I'm a big supporter of structured products, but that's another story. 

2.       Cost of living increases in major cities while median income remains stagnant (average hourly wage growth adjusted for inflation has been weak). 

 3.       $1MM doesn’t go far as it use to, especially with the generational wealth transfers that's happening. Most broker dealers are grappling with inheritance related issues - aka the son/daughter blames the broker for putting their parents in financial products that are not suitable. For wealth management firms, this also remains true where you have sons/daughters that complain about the efficacy of their wealth managers. There is a sense of "my turn to lead my financial life" that puts many would-be advisers and brokers at risk. There needs to be more value and relationship investment made in following generation.  

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At the same time, RIA’s are contending with:

1.       Fee pressure - wealth management firms are facing increased scrutiny (from generational transfer of wealth issues to SEC related issues). With Robo's offering a seemingly appealing alternative to provide a digital solution, independent firms will naturally be forces to consider ways to exemplify/communicate and showcase their value proposition at each touch point. 


Consideration: perhaps wealth management firms might consider other ways to provide added value (beyond financial planning), and thus increase fees in a down trending environment? 

2.       Reverse Churning - SEC and FINRA focus regarding this topic. Naturally, the focus will be on brokers switching clients to fee based accounts. However the flip side of this coin is the focus on RIA's - the fee billing history, value add and whether financial advisers have been providing their "fiduciary duty". Regulators will seek evidence of such even though it will come across as insulting from the RIA perspective. 

At the same time, we see TAMPs seeking to evolve by using risk adjusted models to sell more solutions and justify their shared basis point existence. It’s not a new thing (quants/hedge funds have been doing this for some time), and from their perspective this is about 5-7 years behind the wealth tech available for the top 1% of the population. 

It's from this authors humble opinion that comprehensive models and solutions (especially structured products) must take into consideration a comprehensive view of a client's cost of living (health related costs) and true yield requirements to meet retirement goals. Some fun facts on Cost of Living per state here:

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Lessons for Broker Dealers and Wealth Management firms from FINRA Annual Conference

Last week, I attended the annual FINRA conference. While I've been in financial technology. I attended as both a technology executive and a financial professional (I hold a Series 7, 65 and manage a small UHNW/Family Office business); finance professional since 2005, and fintech executive since 2010.

While you can't say FINRA's annual conference is a compliance summit the reality is 99% of the attendees are compliance executives (as well as the vendors). Here were some startling trends: 

  1. Broker dealers  (as an organizational level) have moved away from nontraditional and structured products, even annuities: IBDs have largely abandoned the commission model seeing it as flawed and are all seeking a "wealth management" strategy that is fee based. The issue at hand is that not all commissions are bad and not all fees based revenues are good (aka reverse fee churning). You can't simply put an account into a fee based revenue model and consider yourself free and clear of regulatory burdens. This is certainly a "grass is greener on the other side" complex. 
  2. Fee based revenue is a "thing" now: it's always a thing but evermore so, in the face of rising operational/compliance costs, IBD's are grappling with wealth management. 
  3. Marginalization of commission brokers and compliance people; its all but certain that commission (series 7) brokers are a bad word (or it's made to feel that way). This isn't necessarily the case but it does certainly that way when FINRA makes a huge case of identifying "high risk brokers" and are making it an effort to weed them out. 
  4. Fear of Robo platforms: one thing for certain is the fear of "robo-anything". The advent of technology is creating this immense pressure on financial institutions to examine their value add proposition - justify your fees when robo adviser platforms can offer seemingly comparable services for lower fees. 

Here's what I see as a major need in the entire retirement industry; alternative yield and advanced hedging solutions beyond a "modeled portfolio". Why? because everyone is going and has gone the route of a "model" portfolio and forgoing the risk of being a hands on investment manager. Advisers have been doing this for a long time. And while outsourcing is not a new phenomenon, the concept of outsourcing "investment management" to firms such as Envestnet has gained rapidly over the last 10 years (since 2008/2009). However with the vast majority of wealth management solutions (across every segment) opting for this "outsourced investment management" solution, it will challenge the value add proposition from independent wealth management firms. Why? 

Well,...let's explain this phenomenon of lowest cost value add provider. Clients seeking retirement will always gravitate towards lowest cost-highest comparable combination. If RIAs, broker dealers and bank wealth management firms and "robo advisers" are all opting for a "turnkey modeled portfolio of stocks and bonds" - then everyone will have the same portfolio model given their risk. At the same time personal savings rate stands between 2.5% to 3% (depending on the statistic source). Retirement requires yield and hedges against volatility. So if everyone is offering all the same modeled solution - where is the "competitive advantage" going to come from to help Americans retire? 

Furthermore, consumers will wonder if I can pay a robo-adviser a smaller basis point compared to an RIA but they both offer me similar/comparable portfolio solutions - then is the financial planning and follow up service really worth that difference of fees? This then creates fee pressure on the traditional RIA model. 

The solution: going to back to my earlier point, RIAs and broker dealers ought to consider structured/alternative products that offer smart beta solutions (adjusted for the client's risk and retirement profile). This would be the non-modeled portion of a client's overall retirement portfolio. What this might do for the RIA segment is increase the added value by going upmarket in the value chain of financial services. Certainly something to think about......

Franklin Tsung 

The headaches of 12b-1 fees and why this matters

What does PNC Investments LLC and Geneos Wealth Management have in common? Both firms were fined by SEC for its mutual fund share selection practices. What tends to occur is the massive amount of client account information, ADV Part 2A's, and day to day operational processes often creates operational limits. There's always room for operational improvement and scale makes all great firms seem mediocre at one point or another (and of no fault to the executive teams). For 12b-1 situations, things can get murky. For PNC and Geneos, both firms had aspects where they recommended advisory clients in mutual fund share classes that charged 12b-1 fees rather than cheaper share classes of the same funds. This was inconsistent with the duty of best execution. An interesting aspect to note was the disclosures made by both firms that it "may" receive 12b-1 fees from the sale of mutual funds and that the availability of such fees created a conflict of interest. Obviously, if one were to read the SEC filing, one can clearly see how they enjoy sensationalizing the experience. Clearly, best execution was emphasized but based upon the structure of the language in the litigation filings, you'll see where best execution and "best interest" can easily be interchangeable.  

Here is the takeaway point: When a firm potentially faces a conflict between generating revenue/disclosing or finding best execution - best execution will take priority from the eyes of the regulators. They have little or no care with how much revenue you've generated as a firm - what they are looking for is:

  1. Extensive disclosures (formal FYI) to advisory clients that they understand there can be a conflict of interest that will affect best interest. If the client agrees and continues to move forward, then the onus/liability is pushed onto the client's decision. 
  2. Proper diligence and pre-sale communications. Let's say PNC offered its investment advisory clients the choice of Class A Shares vs. Class I Shares of a mutual fund (Class I shares waives 12b-1 fees, often 25 basis points) and provided explanation of why A shares might be suitable over Class I. Let's say the client agrees to the explanation and that is documented and approved by the OSJ/compliance officer. In such a pre-sale diligence and acknowledgement, the SEC would surely have disagreements but the likelihood of being litigated fully would be lower.  
  3. Point of sale fiduciary? Fidelity made great use of this legal aspect. One could argue that a "best interest" standard implies point in time fiduciary and best execution pending best suitability per the clients investment profile/policy. For broker dealers and bank broker dealers, it might be time to consider integrating OSJ/compliance functions during the point of sale process. 

Breakdown of Law into Operations: 
Everything here tells me that firms of size and complexity needs checks and balances (often a hybrid between automated workflows and manual checking). What firms ought to consider is not having "automated workflows" rather break down the sale process into teams and implement a team based approach that ties in compliance with sales representatives. 

What is the role of compliance? Is it a cost center? 
Personally, I enjoy the notion that executives tend to roll their eyes at compliance or bring a heavy sigh into "compliance meetings". But at the end of the day, without compliance a broker dealer cannot expand itself beyond traditional asset classes (which doesn't differentiate your firm). Perhaps the better stance to take is to consider how could compliance expand my business by protecting my revenue generating opportunities?