- Big asset managers like BlackRock, Vanguard, and WisdomTree are increasingly offering or investing in technology for financial advisors to use with their clients.
- Some advisers said that the move from offering investment products to technology solutions could raise conflicts of interest and privacy concerns.
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Big asset managers like BlackRock and Vanguard have much to gain from pushing into technology for financial advisers – but some advisers are eyeing what they have to lose, with concerns around client privacy and conflicts of interest.
At a time when the industry is seeing an exodus of money from high-revenue products like mutual funds, managers have invested internally and externally in platforms aimed at financial advisers. The products help advisers, who manage more than $6 trillion in North America oversee portfolios and evaluate risk. For managers like BlackRock, adviser technology is adding new revenue streams, increasing brand loyalty, and bringing in more money to its products.
But some advisers say they’re wary of using products directly or indirectly owned by managers, concerned that asset managers could exert too much influence on where their clients’ data and money go.
The stakes are high. A March report from Morgan Stanley said managers could add $10 billion to $15 billion in revenue by 2023 if they continue to expand mass customization solutions, technology that allows advisers to tailor their offerings to individuals. That could be a critical source of revenue as investors flee higher-fee active funds. Morgan Stanley predicted that iindustry revenues will grow 1% annually for the next five years, compared to 4% for the last five years.
At recent events and in conversations, financial advisers highlighted the potential pitfalls – and a few positives – of asset managers’ tech efforts. The discussions come as asset managers are expanding their reach. Earlier this month, Vanguard’s CEO revealed it’s in the early stages of building a platform for financial advisers, which will be similar to its wildly popular Personal Advisor Services.
‘No voice with BlackRock’
Heather Fortner, the chief operating officer at SignatureFD, which oversees more than $3 billion, said the tech push presents "an enormous risk" to advisers, despite some upside.
"I love the investment in the technology. Taking a really good technology platform and putting a ton of money into it so it can be better and develop at a faster pace and that it can actually master what it’s doing in a better way – I love that," Fortner said at Morningstar. "What I don’t love about it is putting all our eggs in one basket."
She said she’s concerned about choosing a single provider that may not offer flexibility to advisory firms.
"I have no voice with BlackRock. BlackRock’s enormous," Fortner said. "If I choose that firm, and I have no voice, and they eventually decide that this one small thing that they’re doing doesn’t make economic sense to their overall business, but it is my whole business, and it fuels my whole business, I’ve really put our business in a really bad spot."
Joel Bruckenstein, who founded T3 Consulting Services to advise wealth firms on digital transformation, countered that advisers have that risk with any platform, since "things could change tomorrow."
He recommended advisers think through when, if ever, using an asset manager’s platform would breach their fiduciary responsibility. Surveying the tech options right now, Bruckenstein said that’s not a concern, "but that doesn’t mean it couldn’t turn into a problem in the future."
While some advisors relayed worries about clients’ data being stored and potentially misused by asset managers, one wealth manager told Business Insider that his younger clients had no such concerns since they’ve become accustomed to frequent privacy lapses from Facebook and other major companies. They, unlike Baby Boomer investors, have no expectation of privacy from the start.
Managers’ tech evolution
Vanguard is only testing its platform right now, so it’s too early to understand any specific risks – or benefits – for advisers.
"We’re continually looking for new ways to enable advisers and expand our existing suite of services to our financial adviser clients," a Vanguard spokesman said. "We often receive requests for access to methodologies that have been perfected in our Personal Advisor Services offering and we’re in the beginning stages of building out those capabilities in order to help advisers improve end investor outcomes."
Vanguard’s product, coming by 2021, will enable the $5.2 trillion firm to compete with BlackRock’s Aladdin Wealth, which is used by more than 30,000 financial advisors at nine wealth management companies, including Morgan Stanley, UBS, and HSBC. In November, BlackRock said it would buy a minority stake in financial technology firm Envestnet for $123 million. About 92,000 financial advisers use Envestnet’s wealth management platforms, which include portfolio management, reporting and other capabilities. There are about 300,000 financial advisers in the US.
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"We engage advisers through a combination of personal engagement and technology," a BlackRock spokesman said. "We want to understand their needs and deliver solutions that meet them. Digital solutions save advisers time to focus on their clients’ needs, help them forge deeper personal connections with clients and put the value of their advice at the forefront of their relationship."
WisdomTree, meanwhile, owns a 41% stake in digital advice firm AdvisorEngine, with the option to buy out the remaining interest this year. AdvisorEngine was used by 14,000 managers at 1,500 firms as of last June, according to its most recently available figures. WisdomTree did not respond to requests for comment.
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