Think About Your Digital Engagement

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Hi everyone, this is Sterling Shea from Barron's. I'd like to thank you for joining us for another episode of The Way Forward. Lately we've been asked by a lot of listeners and people across the industry, what are some of the attributes of advisors who are really thriving in this environment and who are getting referral-driven growth at an exceptional rate? In our opinion, they're characterized by a couple different attributes. First, I think they're forward-thinking teams that are creating excellent investment ideas and output and execution for their clients. They're doing great work in foundational planning and touching on the multi-generational needs of the families they're working with. But another attribute that's come to mind to us is very consistent among those who in this pandemic have been really utilizing as an opportunity to grow primarily through referral-driven growth is that they're leaning forward to try and merge the digital and analog wealth advisory experience. Well, our guest today is an individual who can lend a lot of perspective and opinion to that. That situation. It's Bill Craiger, who's the CEO of Envestnet. And if you don't know a lot about Envestnet— I know many of you in the audience are very familiar with this company— but you can think of it as a digital investment planning and resources platform for advisors with nearly a trillion dollars, in fact over a trillion dollars, in assets represented by the advisors who utilize the platform. Bill's been there a long time. He's been the architect of many of the firm's successes, and he has a remarkable vantage point on the development of that merged digital and analog experience and what it's going to mean for the future of the business. Bill, thanks so much for joining us. How are you doing?

Sterling, good to be here. Really looking forward to this. Thank you for having me.

Where are you calling in from?

I'm in Philadelphia today, suburbs of Philadelphia. I'm actually— I snuck into my office and getting a lot of work done. So quiet here.

Well, yeah, you know, the story of Envestnet is fascinating, but more than just the company itself, it illuminates a lot of interesting trends that I think are going to be very germane for the future of the business. For a little background for the listeners out there, can you give us a snapshot tour of the story of how Envestnet was founded and the breakthrough moments, and what do you attribute to the firm's success?

Yeah, you know, I was here when we started the company. We plugged a computer into the wall, two computers sitting on two card tables, my very good partner, Jud Bergman, and I. And we put our dial-up into the wall and connected through a 288 modem. And remarkable is that seems, and how much has transpired over the last 20 years, But we really wanted to try to build a digital environment that rivaled what the large firms were offering to their financial advisors. So how could we build— I wish we called it the cloud back then— but build out in the cloud an infrastructure that could be plugged in and utilized by advisors to be able to level the playing field so every advisor could offer the same level of advice. And we did that using technology integrated with a network of solutions, and then offered that in this virtual cloud-based environment. So it was available to advisors, whether you were sitting, you know, in downtown here or downtown where you're sitting today, Sterling. And it's been remarkable as I look back over the 20 years since we've been in business, as we serve, you know, roughly one-third of US financial advisors who use our platform to offer advice to their clients today.

Wow. Amazing. Um, and you mentioned Judd Bergman, who, uh, many of the listeners are aware of his story. Uh, the founder of the firm, an amazing guy, a pioneer and a visionary who was tragically killed with his wife last year in a car accident. Um, you endured that heartbreak and I'm sure miss him so much as many, uh, many others do. What's it like? Having to have had to succeed your long-term partner and friend?

You know, it was so difficult, Sterling. When I look back, it's been, you know, 7 months now, 8 months, and I'm still shocked. You know, the only word I could say is shocked. And each and every day I stop in my tracks and I think of Joe Judd so near, you know, so close in the way that I think, in the way that I relate to the business. You know, it's It's just constant and very present. He was a remarkable person, not only as a business partner, but as a friend and just a human being. And the incredible things we have been able to accomplish together, but also the fun we've had and the relationships we've built across our company now that we employ over 4,000 employees. And I think each and every one of us was touched so deeply by Judd. We miss him every day. I mean, just a huge presence that suddenly is not there. But I will say that we forged on. Judd had this very uncanny awareness and all along he was— Somehow Sterling, over the last 20 years, we both got older. Judd by himself, we were pretty young when we started, but he was beginning to get a little— think about the future quite a bit and thinking about how close we were getting to what we, you know, the vision of what we really wanted, we aspired to. And he used to tell me all the time, look, I'm going to get you within sight of where we're headed, but Bill, you're going to bring it home. And incredibly, that turned out to be the case.

Fascinating and so emotional, I believe it. Bill, when you started Invesna and plugged those two computers on the card table into the wall, you were leagues ahead of anyone else in thinking about how to build a rich digital experience around portfolio and planning solutions for advisors. And quickly that attracted such a loyal following of people who depended on the firm and the richness and robustness of that platform. But in the ensuing 20 years, you know, now everybody's upping their game on the digital sphere. Custodians, wirehouses, robo-advisors, they're pouring tons of money into that same set of services. As you think looking forward, what are the key priorities for Investnet right now? And also while you're answering that, can you put a spin on it as well as to how have they changed as a result of the pandemic?

The technology I always view as like the engine, right? And you've got, you've built this beautiful engine And more and more, we're utilizing data to fuel the engine. And with data comes all these incredible insights, Sterling. And for advisors out there who kind of think of them as one, begin to separate them in your mind. I've got these rich— I've got data. And I've got access to this information. But how am I using it? What insights are coming out the other end? How am I getting better? How is my business improving? And how is the advice I'm offering getting more individual to each and every one of my clients. And so that's really what we've been thinking so much about is combining data with our engine and networking to a broader and broader set of solutions so that advice can be inclusive and incorporated and comprehensive. And the idea that we have is that a person's financial life, whether it's the way they spend their money each and every day, the paychecks that are coming into their accounts, those daily transactions that they're making, can connect to these hopes and dreams and aspirations that they have, which are their financial goals, their financial plan. When you put those two pieces together, you have something that is really profound. It helps that individual manage their daily financial lives, but also keep in mind each and every step of the way of where they want to get to, what they're aspiring to do. And the connectivity between the two, Sterling, is data. And data that runs through the engine. So as you're an advisor and you're thinking about the future of advice, you have to really think not just of the technology you're using, but who has your data? It's your data. How do you have access to it? And how are you utilizing it to improve and scale your business in a way that really fundamentally helps you offer a different scope of advice to each and every one of the families that you serve today? So it's an exciting period of time. To me, I look out in the next 5 years, and there's going to be incredible innovation. This is going to move very fast, but we're just beginning to see the impact of these two things. We felt the impact of technology. We're just about to feel, as it's being fueled with data, what that's going to mean.

Can I put you on the spot to give us a little snippet, a takeaway of data that came out of some of the information you're collecting that was surprising or particularly interesting for you?

Let's look at what happened in March with financial advisors, which was different than happened in the 2008-9 crisis. We saw advisors absolutely do remarkably well on behalf of their clients. They did what clients hired them to do. They protected them. They dialed risk back during a very volatile period of time, incredible uncertainty. I mean, the world was suddenly— we're all racing to our homes and everybody was checking their balances and wondering what the heck is going to go on here. And the world around you became incredibly— they just couldn't see it. April, the market starts to turn back. And what we saw in the data is advisors began to turn back with it. And so, it's remarkable to see when you can pick your head up above those clouds and look back down at the behavior of advisors overall, Sterling, you see what value they offer to their clients. And in the March April time period, they absolutely helped protect their clients during the worst of it. But then they didn't miss what's occurred since then. And their clients have invested and been very successful compared to past periods of volatility. Why is that? Why? They have more tools at their fingertips that they can access from any place and affect change much more effectively and quickly than ever before. And Investnet, along with the other technology providers, really made that possible. A couple of clicks of the mouse, and I can rebalance and protect hundreds of my clients versus in the past where that was a one by one by one that would take them a long time and conversations and every other thing that had to happen. Now it's very streamlined and integrated. But data overall also is leading us towards understanding best the ways advisors offer advice and then the needs of their end clients and being able to suggest things to advisors as to what might be on their clients' minds and do that in a predictive way. That's very powerful. So as you're beginning to check in on your Monday or Tuesday morning and you see a list of things that you need to do, mostly that comes out of your head and conversations with your staff. But now you're going to have a third person at the table, and that person is the insight and intelligence of your data and technology platform. These are the opportunities for these families. Here's why and here's what to do about them. And that's really coming to market, you know, now in 2020, is beginning to become a reality.

That's fascinating. You know, one of the things that I admire about Envestnet that I think is worth other wealth firms emulating is yours is a company in almost a constant state of innovation. There's so much that you're offering. You're always tweaking those offers. Right now, as you look across the product set for Envestnet, what's the fastest-growing offering that you have?

Last year, we acquired a firm named MoneyGuide. They're the market leader for financial planning. And, you know, planning is the crown, right? Because, you know, and I think it's particularly essential as you went through a period like the, the, this COVID period of time, um, were you prepared? And the answer is different if you have a financial plan and if you don't have a financial plan. So again, for advisors, a word of advice, or just, just something I'd really encourage advisors to think about, is to make sure each and every one of your, your families has a financial plan. That's the, the thing that you put in the lockbox and you pull it out on that, in that emergency, to say, here's the plan, here's why we're doing what we're doing. But money MoneyGuide has grown incredibly over this period of time since we've acquired it because what we've done is we've now stitched it together with all of what Envestnet does. So as you come up with a financial plan, Sterling, say you want to send a kid to college or a second home or think about a next generation, each of those things is going to have its own strategy. That strategy is going to have investments. It's going to have income. It's going to have protection. It's going to have debt. Things that you have to bring together in a way and optimize to achieve the plan. And that— those relationships between each of those things is going to change between today and the day that you reach the plan, right? As you get closer, you're going to be more conservative. But as you're further away from it, you want to lean into it and try to achieve it. And so to me, what we've seen such a great adoption of is as we brought data together with MoneyGuide and networked it with all of our solutions, the adoption rates have gone way up. The other very interesting thing is these bite-sized FinApps. We call them MyBlocks that we've been building. So in less than 10 minutes, your clients can optimize their credit cards or think about whether I should rent or buy a home or lease or buy a car. Really small snippets of financial planning that can be completed in like 5 minutes. Can be used by the kids who are just, you know, in college all the way up to retirees who are trying to figure out how to generate income long-term. Very sophisticated underneath, but very simple from a user standpoint. And those are being utilized by a broader and broader group of advisors and their end clients.

That doesn't surprise me. You know, we're asked often by advisors, what's the most exciting dynamic component of the future of sophisticated wealth management? To which we respond, financial planning. But even if advisors are building out their base and, and ability and acumen and planning, a lot of them are still doing it the same way they used to for a very long time, and, and the game has changed. Applying software to drive efficiency and scalability can greatly help that process. So it's not, it's not the— it's not necessarily the way you used to do it.

No, I, I used to think Sterling, I mean, what's so incredible is you'd get a plan, and I have the leather-bound one from, I think it was 1989, that I created for— how relevant is that to my life today? It is absolutely not. And the thing with planning today is it's a living plan. So, meaning, you know, the way the markets are reacting, the way my investments have performed, the way my income has changed, the amount of money that I have in the bank, all those influence what the plan is. And, and, and so it's, it's really a dynamic environment, and it's helpful, you know, at the end of the day, again, to see the shock of what occurred, has occurred in the last several months. Um, hey, am I on track or I'm not on track? And if I'm not, it doesn't seem like the end of the world. And if I am, that's incredible.

Bill, you recently announced a partnership with Dynasty Financial Partners. Can you explain a little bit about how that came to be and how it affects your strategy moving forward?

Sure. You know, we're excited. We're very excited about it. It's one of the last things that Judd and I worked on, to be honest with you, in October. It was, you know, just, just a couple of days before he passed away. What Envestment has built, Sterling, is to help advisors provide advice to their clients. So all the things that we've done are really to help that engagement with their client. Whether it's to make an investment choice or to present them information, to do performance reporting. All these things that we do is to help to bond the advisor with their clients and the advice they offer. What we haven't done is help advisors build business, build their business. And how do we— how can we support them as they look to grow? And to me, we have such a data asset. We have such a technology infrastructure were there ways for us to really reach beyond what we'd done traditionally and think about the advisor's practice and help them just grow? And we— a long partnership with Sheryl Penny and the team at Dynasty— began to noodle this idea. And we came up with an idea called the Advisor Services Exchange. And really, what that does is help advisors begin to get a sense of their value. With the data that they have, we can help them interpret their current valuation, steps that they could take to improve the value of their practice, provide a capital infrastructure through Dynasty in which they could borrow against their practice to either do an acquisition or think about succession, as well as built out outsource network of services for finance, for marketing, for compliance. And by doing that, you know, you really get some more scale in the business and the, the ability to, to grow along with the state of the art versus being dependent on a, on a smaller staff that, that may not be, be as agile or adaptive to, to what's going on out in the, in the, in the greater industry. So, so to me, again, this was a, a natural step for us. We made the announcement, the feedback's been incredible. We've had lots of advisors reach out to us to, to say, hey, how do I take advantage of this? And advisors are thinking, and everybody should think about, okay, strategy. What's my next 5 years look like? Whether that's succession, whether it's acquisition, whether that's sale, whether, you know, think about the valuation of your business and your practice. And we can, you know, with the Advisor Services Exchange, we can, we can absolutely be helpful.

Well, it's exciting. You and the leadership team there are making a lot of bets, uh, for Envestnet on what the future of the business is going to going to look like. Can you maybe give us a view into your crystal ball there? You know, how do you see the business changing and being different, you know, coming out of this pandemic situation? What facets will be different forever, and what will it look like?

Yeah, I mean, you know, I think there's a different level of preparedness that each and every that every advisor is going to be thinking about. And that's for their business, but that's also on behalf of their clients. How do you make sure that you're prepared and helping your clients be prepared for whatever comes your way? And I think that's in helping them bring together information, having them access 24/7 access to you, the advisor, through a digital portal. Have the ability to have all documents in one place, have the ability to, to answer the hard questions that families have when, when they're under incredible stress. Do— can I get through this? A. B. What if something happens to me? And those are really difficult questions, and, you know, the, the vulnerable questions for families to ask, but the advisor is in a great position to be able to answer them. So I think preparedness is really kind of something that everyone will give a lot of thought to as you get out of this period of time. For businesses, for advisors, organizing data, managing data, and utilizing data to help you monetize and grow your business faster, it can be done and should be done. Just as Amazon has provided a cloud service for large organizations, Firms should think about cloud services for their practices so they can access data. They have it whether there's some sort of reason why they can't be in the office or there's some natural disaster or something. It's always there. And you're always on. You're always able to continue your business. But as I look forward, really, I see this. And it's something we've talked about for a number of years. And going back to, again, to my friend Jud, he coined the phrase the Kasparov principle. He loved chess. And Gary Kasparov is a great chess master, and he beat every human being that he could beat. And then IBM built this machine, and they took him on. The first time, Kasparov beat them. Second time, though, the machine won. And it wasn't the machine that beat him. It was the machine plus experts. Behind the wall, behind the curtain, behind the computer was 100 of the top chess masters in the world trying to beat this guy. And they beat them. And it was this combination of experts plus machines that offer better outcomes. So as we go forward here, advisors are the essential value of every relationship. But they can be that much greater when combined with technology and data to provide really the most progressive and most valuable advice to families. And so as we go out of this period, digital. This idea that practices become digital and human, I think, is essential. It's not a, it's not a choice anymore. Your firm needs to have this digital front end backed by, you know, the best and brightest advisors in the world.

Are investment platforms going to be more streamlined with fewer choices, both the rise of model portfolios and a general trend that we see of advisors in terms of their utilization of third-party asset managers doing deeper and broader business with fewer trusted providers? Are platforms going to look a lot different in 5 years?

I think so. I think platforms, you know, the bigger getting bigger, but the smaller providers offer incredible value in the types of services they provide and the focus that they do in different spaces. So call it impact, or if you're an international player, you've got an interest in hard assets or whatever, you know, that's real value. But the The larger players will continue to get larger. What I do think, Sterling, is the platform won't look anything like it does today. It will not just be investments. It will be investments plus banking plus insurance plus credit plus healthcare plus this integrated environment around a person's financial life so that they can optimize their well-being and their quality of life. And it is within reach. It's so exciting to me to think about the way advice will be offered in the next couple from, hey, you know, I make this much money, is this— and, you know, what's the ideal time to retire and what's the ideal income, uh, that I can generate? And people have a much better understanding of that in a couple years than they do. It's sometimes— it's a real guessing game, you know. It's a— it, it, it, it is not a certainty. I think we can get more and more certainty around how advice is offered to the individual family, and that's exciting to me.

How do you think advisors are going to have to differentiate themselves in the next 5 years?

Being available at all times, no matter where you're at, and have very usable technology on the front end. So Tuesday at 11:30 PM, I'm logged on and I'm asking questions, and the advisor's platform is responding to me through chatbots, through AI. There are tools on my, on my portal that I can, can do basic financial planning. I can leave questions for the advisor. I can schedule meetings. I can express interest in lots of things. The The digital portal itself is going to make suggestions to me that the advisor normally would make on their own. And I'll be much more informed about all the components of my financial life. That's a value proposition individuals, families will absolutely pay for, and firms will prosper and be very successful as they offer that scope of advice. It's not there today. If I told you that was the value proposition, you'd be all over it. I think every family would be all over that. But that's coming. And I think advisors— again, one of my strong suggestions is for advisors to lean into the data because the data begins to set you up to do exactly what I just said. It will fuel this network of capabilities that will bring together that advice in a very comprehensive, scalable, and sometimes automated way for you on behalf of your clients. And again, so I think that value proposition grows and advisors become more essential, but the value proposition that a client will see will be both digital and human. I love this person, I trust them, I believe in them, but they also serve me every day of the week at any hour through the technology that they offer me when I click on their app on my phone.

Bill, I'm getting a lot of great takeaways here. Lean into data, let that fuel the machine, lean into technology, think about AI and other facets that can drive efficiencies and the better client experience, lean into planning, because that'll be a guide that'll help enrich the value proposition. You're giving us a lot to chew on here. I'm wondering if you could, if you could close by offering us a final high conviction actionable idea.

Absolutely, Sterling. Again, I think that first and foremost, as you're thinking about the rest of this year and 2021, think about your whatever your web address is, think about that experience. Your clients are going to want to access you, want the information that you're offering to them at all times, and they want to make sure you're available at all times. And I just think that advisors are behind here. You know, I look at the overall landscape of our industry. The fintechs, they're serving a much different profile client. Client. They're serving a client that is younger, doesn't have the assets, has far fewer kind of material concerns about their wealth, but they're anxious about it. And they're turning to a digital environment because that's easy for them to do that. That is creeping up from an age category towards your business, towards your practice. The good news for you is that all the capabilities that those fintechs are being disruptive with are available to you and can be implemented on your behalf without disrupting the value that you, the human being, the advisor, the essential, you know, kind of expert here, um, provide. It actually just enhances it. So to me, that, that one takeaway I would think long and hard about, you know, plan for it for the next couple months, but be, you know, swing into action by the time we get to the new year, is think about your digital engagement and your, your portal, how you're connecting to your clients digitally. It'll be a difference maker. And I think, you know, a couple years down the road, firms that do Firms that do it will prosper. Firms that don't do it, it'll be like the older commission-type advisor who stuck to stock sales that wasn't the advice path of the future. This one is. And I really feel strongly about that.

Well, Bill, that's great. You've given us a lot to chew on here. We appreciate it. Thank you very much for your insights today.

Sterling, it's been awesome. Thanks so much for having me. Be safe, and I hope to see you soon, OK?

And I'd like to thank everyone for tuning in. We'll be back next week with another newsletter and episode of The Way Forward.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.