Below is the November edition of the Fintech Report Card, a monthly piece by Riskalyze CEO Aaron Klein originally published in WealthManagement.com.
Welcome to the November edition of the Riskalyze Fintech Review, where Riskalyze CEO Aaron Klein gives you the thumbs up or thumbs down on the biggest pieces of news to hit advisor technology in the last month. Failing to read this piece may be the riskiest move of all!
SS&C Acquires Modestspark
What happened: SS&C Technologies Holdings announced its acquisition of Modestspark, a provider of client portal and digital “client experience” tools. SS&C plans to embed the technology into its Axys and Advent Portfolio Exchange portfolio accounting systems. Eli George, a senior director of advisory solutions management at SS&C, said the idea behind the acquisition is to help the wealth management firms still using Axys and APX take advantage of modern client communication tools without having to commit to a full migration. As a pure overlay, Modestspark can provide a digital front-end experience for older accounting systems.
Why it matters: Improving the front-end experience is always a good bet and for those advisors on older platforms, I’m sure it’s a breath of fresh air. The only caveat—while this is great for those advisors who aren’t good candidates for a full migration, this feels more like a band-aid than a full-blown solution. Will it provide an “out” for advisors that should migrate, but don’t want to? Regardless, SS&C is addressing the needs of the advisors that use their products, even when it doesn’t add to their bottom line, and that’s a refreshing thing to see.
Neighborly Investments Ready for Municipal Bond Market
What happened: Neighborly Corporation, the San Francisco-based fintech company focused on public projects and socially responsible investing through the municipal bond market, announced the launch of Neighborly Investments, a next-generation investment manager that will deliver tailored impact investments through municipal bonds. To lead this, Neighborly has brought in Christine Todd, the former president of Standish Mellon who comes with more than 28 years of industry experience in the muni market and led Standish’s $150 billion fixed income lineup. Neighborly Investments ensures that each opportunity meets specific criteria indicative of strong economic fundamentals, transparent financial disclosure and clear impact value.
Why it matters: Municipal bonds are a great way to get involved in local public projects, and we’ve noticed a slant toward the socially responsible/public good in fintech innovations for 2017. But municipal bonds are not a one-size-fits-all, tax-advantaged strategy. Finding the right municipal bonds requires more care than Neighborly suggests, which makes Neighborly Investments a tough sell. For those looking to do public good, regardless of cost, this may be a viable option. But for those who need guidance on navigating the right bond options, an advisor is still the ideal way to go.
Smarsh and Actiance Merge for Combo Compliance/Archival Solution
What happened: K1 Investment Management has acquired communications compliance, archiving and analytics provider Actiance. The firm plans to merge Actiance with Smarsh, its own archiving and compliance platform, and the combined platform will support more than 100 different content and messaging types and expand the markets they serve. “If you look at our customers today, especially on the high end, they are challenged with the explosion of content that’s coming from these new communication channels,” said Kailash Ambwani, CEO of Actiance. “Not a day goes by when there isn’t some new messaging app that’s emerging, new collaboration app.” K1 believes the merger makes them better positioned to address organizations’ needs for mobile compliance.
Why it matters: It’s great to see the industry catching up when it comes to messaging mediums (see the latest announcements to come out of Redtail). Communication takes place everywhere—compliance and archival tools equipped to handle over 100 different content and messaging types is going to be a huge asset in the years ahead. Great forward thinking.
cleverDome Launches Cloud Cybersecurity Solution at T3 Enterprise Conference
What happened: cleverDome, Inc. announced the commercial launch of a cybersecurity solution to protect confidential consumer information during a special lunch press briefing on Oct. 30 at the T3 Technology Conference. Powered by Netfoundry, this solution is designed to protect sensitive data in the cloud by providing a path forward to take that information “under the Dome,” i.e., secured off the open internet. cleverDome’s focus for late 2017 and 2018 is to quickly bring software service vendors, broker/dealers, registered investment advisers and financial advisers “under the Dome.” Initial financial services participants include United Planners, Redtail, Orion, Riskalyze and Entreda.
Beginning in 2019, cleverDome will develop a retail model to deliver the Dome to American consumers, a group that is vulnerable to cyber attacks.
Why it matters: Aaron Spradlin, the CEO of cleverDome, is a mad scientist offering next-level cloud security solutions, and as more advisors look to the cloud, products like cleverDome are going to have a major impact on cybersecurity. I’m happy to know Riskalyze is one of the participants that get to be on the ground floor of what cleverDome is doing!
Fidelity Announces Plans for API Data-Sharing
What happened: Fidelity Investments announced plans to begin sharing customer account data with others through an application programming interface. The new service, called Fidelity Access, will give third parties access to Fidelity customers’ account data for use in apps and services like tax preparation, budgeting, financial planning, spending analysis and portfolio advice, with Fidelity customer approval. Customer data to be shared includes Fidelity account balances, securities holdings and transactions. Sharing data through an API cuts down on consumers sharing their IDs and passwords with apps and other services, reducing risk of security breaches. “In the current cyber environment, with all the breaches that have happened in the past year, we think it’s critical to get this notion of sharing IDs and passwords out of the system,” said Stuart Rubinstein, head of data aggregation at Fidelity Investments. “Many clients use the same IDs and passwords for many different sites, and as those breaches happen, they put their financial accounts at risk. Anything we can do to eliminate that and make it more secure for clients we think is important.”
Why it matters: Breaches are going to continue to be a big threat to consumers, so Fidelity’s opting to take advantage of API technology is going to have a big impact. Advisors are also going to have a much easier time updating assets for their Fidelity clients, and the fewer people who have access to login info, the better. Thinking “security first” is a benefit to consumers and advisors, and I’m sure fintech companies everywhere are throwing a party right this minute.
Advizr Announces Two Platform Extensions for 2018
What happened: Advizr, the financial planning technology platform, announced the launch of two Enterprise platform extensions: Advizr Workplace and Advizr Accelerate. Advizr Workplace is a financial wellness program that allows 401k participants to plan on a self-directed basis or through an advisor from a designated advisory partner. Advizr Accelerate has product execution capabilities, enabling advisors to implement their recommendations directly from the Advizr platform. In the near future, Accelerate will have capabilities to get quotes for insurance coverage and start applications, as well as refinancing mortgages and student loan debt. “We are turbo-taxing the financial planning process so that more clients can receive financial plans, regardless of their net worth,” said Hussain Zaidi, CEO of Advizr. “Our self-directed planning is an ideal fit for the 401k space as well as for lower asset and younger investors, enabling advisors and wealth management enterprises to offer planning on a scalable basis.”
Why it matters: Most technology in the 401k space is a mess, and I know the enterprise advisors on their platform are going to get some great use out of Workplace. Advisors having the tools they need to serve clients, both large and small, is going to be an important part of bringing young investors into the fold. Congrats to Advizr on these two great enterprise offerings!
Betterment Announces Charitable Giving Capabilities for Users
What happened: A new feature from the digital advisor, named Betterment Charitable Giving, allows investors to donate directly from their accounts to charities on the Betterment platform. After a user decides how much to give, Betterment funds the donation with the most appreciated shares from their portfolio, allowing clients to get the tax deduction and avoid capital gains taxes. The shares are transferred to a Betterment account owned by the charity. Betterment handles selling the shares and sending the charity cash to avoid credit card processing and brokerage, ensuring the charity receives the full donation. “Investors have done this for a long time, but typically on the high-net-worth end of the spectrum,” said Alex Benke, Betterment’s vice president of advice and investing. “For people who haven’t been investing for decades, we’re enabling something, and making it super easy, to help people get an edge in their finances.”
Why it matters: The problems with automated advice platforms are myriad, but supporting charitable contributions in a tax-efficient manner is commendable. We need to do more with tech to detect when clients need more tax relief and could use to make some charitable contributions at the end of a tax year. This has long been a value proposition for advisors, and robos are catching up. We never say this, and may never again, but great job, Betterment.
Trade Groups Urge SEC to Update Broker Electronic Retention Rule to Match CFTC Update
What happened: Industry trade groups urged the Securities and Exchange Commission to update its broker/dealer electronic retention Rule 17a-4 by eliminating an outdated recordkeeping requirement known as WORM (write once, read many). The trade groups, which include the Financial Services Institute, the Securities Industry and Financial Markets Association, and the Financial Services Roundtable, proposed “a rigorous retention standard that is technology-neutral and consistent with current business record management principles.” The Commodity Futures Trading Commission recently modernized its electronic storage requirements by eliminating the antiquated WORM standard and the third-party technical consultant requirements from its own rules, and without the SEC doing the same, b/ds are now the only regulated financial service entities, including other SEC registrants, subject to the burdensome and outmoded WORM standard.
Why it matters: This may be a pretty obvious statement, but b/ds can’t give the best service to their clients when their hands are tied by archaic and outdated rules and regulations. Hopefully, the SEC takes action on this quickly so that advisors across the board can get on the same page. Ditch the WORM.
BrightPlan Robo Advisor Goes Live
What happened: BrightPlan, a new robo advisor, went live with both self-directed and hybrid options, in partnership with Plancorp. BrightPlan was certified by the Centre for Fiduciary Excellence, showing the platform follows a certain set of best fiduciary practices to provide clients with a service they can trust to act in their best interest. BrightPlan Founder and CEO Marthin De Beer says the inspiration to create BrightPlan “was to provide everyone access to trusted, affordable financial advice in order to achieve life’s most important goals.”
Why it matters: On the plus side, robos seem to be getting the hint that investors need access to human advice, so we’re glad to see new robos offering hybrid advice as an option across the board. On the minus side, yes, it’s another self-directed investing platform, and I see no evidence that this one has a solution to the problem of all of these self-directed platforms: How do you grow them profitably?
SEC Warns Celebrities: Promoting ICOs May Be Against U.S. Securities Law
What happened: Wall Street’s main regulator warned that individuals may be breaking U.S. securities law when promoting investments in initial coin offerings. ICOs have become an increasingly popular fundraising mechanism for some technology companies, enabling them to quickly raise millions by creating and selling digital bitcoin with little regulatory oversight. Projects have received endorsements on social media by celebrities such as Paris Hilton, boxer Floyd Mayweather and others. But the U.S. Securities and Exchange Commission said in a statement that endorsements may be unlawful if the coins are considered securities and the celebrities do not “disclose the nature, scope, and amount of compensation received in exchange for the promotion.” A failure to disclose this information is also a possible violation of anti-touting provisions. Promoters could be liable for possible violations of anti-fraud rules and for acting as unregistered brokers, the statement added.
Why it matters: Without a doubt, this is one of the most egregious violations of federal securities law since the penny stock scams of the 1990s. It’s only a matter of time before we settle the argument on whether bitcoins are securities, but when you sell them in an “initial offering,” you’re kind of answering the question. In the meantime, we’d advise not to take the endorsements of Paris Hilton to heart, not just based on securities laws, but on principle.
Aaron Klein is CEO at Riskalyze.
Editors note: The views expressed in this column are Aaron Klein’s, and do not necessarily reflect the opinions of Wealthmanagement.com.
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