Marketplaces and gateways for financial advisors – Schwab’s approach

I’ve been a fan of  Bill Winterberg and his FPPad channel. If Alexa is in your Christmas shopping cart, you should know that Bill is on Alexa for you to listen while putting on makeup or shaving in the morning. Just say “Alexa, enable FPPad”.

In early November, Bill covered the Impact2018 annual event by Schwab for advisors. The Schwab Intelligent Portfolios, the infamous Schwab Robo-advisor, that we have covered on DailyFintech from the start of the robo movement, is not what was the focus at Impact2018. This is an annual event for advisors who are being empowered by brokers, custodians, tech companies, asset managers, and banks.  The sponsor of the Impact2018 FPPad interviews was Envestnet | Tamarac. As a side note (not an insignificant one) Blackrock invested in Envestnet by acquiring 4.9% of shares. The world’s largest asset manager buying a piece of one of the largest adviser technology providers. Add to that that Blackrock owns another 5% through its passive financial products.

 Charles Schwab in a way has it all. For the 100% DIY investor, there is Schwab’s brokerage arm and the free robo service (continuously criticized for the high cash allocation). In the middle, there is an automated investing management offering with a free personal finance guidance (with financial advisors) with only a $5,000 minimum balance requirement. And at the other end of the spectrum, a rich and improving marketplace for in-house (using Schwab as a custodian) and third-party advisors.   

Andrew Salesky is a 20yr Schwab veteran that now runs the Digital Advisor Solutions at Schwab. His vision is to transform Schwab into a Digital Services organization. He is focused on serving and empowering financial advisors, both those in-house but also with third parties in the Advisory space.

Schwab scores high when benchmarked as a Digital Services organization, for the in-house custodied part of the business.

First and foremost, they have mastered the Digital Account opening, which is now a completely paperless workflow for advisors which takes 5min to open an account (regular account, pension, or charitable). This electronic authorization, itself gives the end customer a great experience. The first impression always creates a predisposition, and Schwab has its advisors back covered in 80% of account opening cases. The remaining 20% is the so-called NIGO (Not in good order), which means incomplete or incorrectly filled applications; and Schwab is tackling this business opportunity by experimenting with technology that can serve electronically advisors’ customers in this case.

Second, the Schwab Advisor Portfolio Connect, is an all-in-one solution at no fee, that is simple and efficient. Its main advantage is an operationally efficient portfolio management solution. The magic happens behind the scenes, taking advantage of ‘custodial data direct’. Advisors using this service don’t need end of day downloads and reconciliations and creating performance reports, billing and other crucial reports because all is completely automated.

On top of these digital capabilities for all Schwab advisors, the Digital Advisors Solutions department is strategically positioning Schwab as a Marketplace and a Gateway for third party advisors. This is multifaceted.

First is the MarketSquare. I love the name by the way. It feels like Piazza San Marco or some such. Schwab advisors can research technology vendors and products to help them make better-informed buying decisions, see product ratings and reviews from peer advisors, who understand the specific needs of independent advisors. The MarketSquare is creating an advisor community and tech vendors compete for their attention.

Screen Shot 2018-12-10 at 8.25.36 AM

 Second is the OpenView Gateway: Third party advisors can enjoy secure, high-quality integrations, for example with Orion, Salesforce, Addepar, and at same time have access to Schwab data. These integrations combine the best of Schwab and third-party capabilities and include many of the major technology tools firms depend on, including CRM, portfolio management, financial planning, trading & rebalancing, risk analysis, and more.

Screen Shot 2018-12-10 at 8.22.07 AMScreen Shot 2018-12-10 at 8.22.16 AM

Several other tech vendors are in the pipeline to be listed on the OpenView Gateway. Advyzon a provider of CRM solutions, client reporting, billing, document management, and a client portal; and LifeYield allows advisors to get their ‘Taxficient Score’ for all their clients to measure their tax efficiency.  Reports can be shared directly with the clients to show where they are adding value.

Last week I took a look at Morgan Stanley’s “WealthDesk” rollout for its advisors which is an integration of Morgan Stanley’s Goal Planning System. In Incumbent Robo-advice platforms, software, products: A look through Morgan Stanley’s WealthDesk platform I highlighted the Machine learning support through “Next Best Action” tool.

Schwab’s approach is very different that Morgan Stanley’s. “WealthDesk” is the integrated toolbox that MS advisors operate their business on. Schwab allows for 3rd party advisors and in-house advisors more choices of vendors and in that respect each advisor can tailor their toolbox differently. The “WealthDesk” toolbox is not available for 3rd party advisors.

MS is focused on empowering and retaining its current advisory network of 16,000 advisors. Schwab is increasing its outreach through a marketplace approach that if successful, can become the app store for tech targeting advisors (with genius capability and a community tying them together).

The end customer will decide of course; Financial advisors are being served through Fintech vendors that offer them dazzling choices. The platform that can help advisors make smart choices for their toolbox, will be the winner.

MS claims that their integration is ahead of the curve. Schwab positions itself as hub that filters tech vendors continuously and offers integration a la carte plus peer reviews.

Stay tuned.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.