WealthTech Insights #20 with Jeff Marsden: Robo-Advisors Bring Leverageable Advantage to the Advisor Marketplace

Continuing our series of interviews with industry experts, this time I spoke with Jeff Marsden, a FinTech innovation and strategy expert from Canada.

Jeff Marsden
Chief Product & Strategy Officer at Xtiva Financial Systems.

Jeff is responsible for the company’s overall product vision, strategy, and development, as well as leading Xtiva’s partner strategy. He has a strong strategic innovation skillset, deep financial technology experience, and intimate knowledge of the financial services market.

During the interview, Jeff shared his vision of the wealth market in the US, UK, and Canada, and expressed his expectations of using big data analytics and the benefits this may bring. We discussed how financial advisors may turn robo-advising to their advantage, the promise of the blockchain, and the anticipated future of wealth management. Jeff also named a few companies he feels are offering some innovative product to the Wealth Management market.

A Perfect Storm in Wealth Management

Jeff characterizes the current situation in the industry as a perfect storm, and one that is not just limited to external factors. Distributors and manufacturers in wealth are facing several significant internal issues. There are several perspectives from which to observe the industry changes:

  • Regulatory changes attract a lot of attention in every major wealth and capital markets jurisdiction. The DOL rule in the US has stimulated dialogue not only in the US, but in Canada as well. “In many respects the regulators are just trying to keep up with the complexities that have emerged on the manufacturing and distribution side over the last ten years. The market has moved faster than the regulators on many dimensions.”
  • Customer expectations have evolved significantly in the past decade. “There’s no coalescing around a small number of behavior profiles. We’re seeing subsegments or microsegments of customers emerge. Distributors are struggling to deal with that and some of the technology solutions that are coming into the market are focused on that. These strategies, product diversification, the broader platforms and tools… information is a big trend, perhaps the biggest change, although some might say the most subtle.”
  • Information is more readily available, and financial institutions, advisors, and their customers are now better equipped with it than they have been in the past. However, in Jeff’s opinion that information does not always consist of facts. Jeff talked about his story: “I used to provide some advice to a medical technology firm, and one of the things that I learned while I was there was the concept of Dr. Google being the person that gets first calls. In many respects this is true in wealth management. There’s a Dr. Google Financial Advisor that many consumers are contacting first.”
  • Technology is changing both the infrastructure and the problems that the industry is trying to solve. Jeff said, “The monolithic suppliers are being challenged by small, highly focused firms that have interesting solutions. The advisors are changing too. Their value proposition is different than it was 10 years ago. They are more focused on planning, on holistic advice; less on asset management. They’re learning to diversify their products, they’re focused on the footings of the customer, instead of the assets of the customer. There’s been a massive generational shift in the advisory community in the Western world, which is something that the distributors are just starting to get their heads around so as to figure out transition strategies.”

Digital and Human Advisory Coming Together

Robo-advisory is a hot topic nowadays; however, Jeff is not a fan of the term “robo-advisor” because it misrepresents the promise of the service and the value proposition sought by the customer. “In the most basic of definitions, a robo-advisor would provide an expert system substitute for capabilities offered by a human or a human system on more reliable and more efficient, or a more cost-effective, basis… most robo-advisors today are focused on a very narrow aspect of wealth management—investment selection, asset allocation, to some extent risk profiling.”

Most robo-advisors deliver the following services:

  • asset allocation,
  • portfolio management,
  • risk modeling,
  • some basic financial planning.

Many human advisors already rely upon these tools and successfully use dynamic balancing capabilities that are embedded in robo-advisors. But the real challenge that robo-advisors have brought to the market is that they have disrupted the pricing model of the wealth industry.

Jeff further stated: “The (financial services) world is going at a breakneck digital pace right now. And robo-advisors do something that financial advisors have not done a good job of and, more importantly, the institutions that support those financial advisors have not done a good job of, and that is deliver a compelling digital user experience. That’s important to note, and it’s important that advisors in the wealth industry acknowledge it and catch up.”

Though, a few years ago, human advisors didn’t want to go into partnership with robo-advisory platforms, many of them have now changed their minds. “They’ve seen the light. They see that a robo-advisor can fit into their overall practice model and in fact the robo-advisors have made a compelling case to the advisor marketplace that there’s real leverageable advantage there. I would question why so many wealth-management firms miss that or choose to ignore it.”

In the future, robo-advisors will continue to evolve. Jeff believes that WealthTech platforms will absorb and deliver more context to the customer and to the advisor. “They’ll probably embrace more dynamic portfolio models. They’ll support advisors on more high-value services. And I would anticipate that robo-advisors or digital advisors will become effectively the primary or main service interface between advisor and customer. The lines will become increasingly blurry, and in some way, shape, or form digital advisors and human advisors are going to come together and deliver a more compelling proposition to customers.”

Calculating Risks

Risk management is an essential part of asset allocation and financial planning. Today, digital advisors build risk profile based on:

  1. historical and current market and investment vehicle data;
  2. information shared by clients as they complete a questionnaire.

“The challenge is that the facts that really influence the customers’ risk go beyond those questionnaires. The questionnaires frequently ask either the customer or the advisor to make some assessment of a broad set of factors. I’m always amused by the picture saying how much volatility are you willing to take for ‘X’ return. I don’t believe a customer can properly contextualize that, because they don’t realize that over a long-run period, absent of material change in their life, they’re probably okay with that wide variation in risk–return. However, (because) they can’t contextualize, they wrongly assess the risk.”

There’s a discussion as to whether more data should be used to customize services. Jeff stated that “Big data would drive an awful lot of incremental information into the process and therefore could materially improve the risk management value.”

My interlocutor highlighted the following benefits of utilizing big data and expanding data resources:

  • Improved ability to predict the risk of something happening that we as humans would naturally under-assess.

More information around the customer’s context brought into the decision set.

User Classification

In contrast to many experts who consider that millennials tend to be more tech-savvy than older generations, – or rather the older generations are less tech-savvy than the millennials, Jeff suggested that there is a need to discuss how we understand different adoption profiles, and what those adopters look like.

“If you look at robo-advisors today, there are many established investors, middle-aged baby boomers, even older investors who are embracing robo-advisors either solo or in collaboration with their human advisors, maybe because they have the means, and therefore see the economic case or financial case for the robo-advisor, the price advantage, and so on. Robo-advice is an excellent example of a sector where there was an emergent need and a focus on the adopters in that segment. If you just take a look at the US market from a robo-advice perspective, there were some remarkably different strategies around how some of the current leaders chose to go to market with their robo-advice platforms, who they focused on. As an example, Betterment and Wealthfront are very different.”

Instead of dividing investors into age-based groups, Jeff prefers to talk about how they behave, and highlighted the following three segments as examples of macro behaviors:

  • The ‘I want to call the shots’ Investors,
  • The ‘I want to partner with an expert I trust’ Investors, or
  • The ‘I want to outsource it all’ Investors.

“If we think about the legacy wealth businesses, we might have discount brokers or online brokers on the ‘I want to call the shots’ end of the spectrum and the private bank/family office on the ‘I want to delegate everything, end of things.’ Somewhere in the middle falls the rest of the market.” According to Jeff, digital advisory platforms may change this. “The question is how do the channels change from what they used to be to what they might be in the future and how they fit into that. We’ve had a mixing of the waters.”

Use Cases of Blockchain

As we touched on the topic of blockchain technology, Jeff expressed his confidence that there’s something valuable in terms of blockchain applications in wealth management. This is why Xtiva will be conducting some experiments with this technology.

There are many use cases of blockchain. For Jeff, the most interesting are the following:

  • Private data stores. “I can foresee using the chain to keep my private information secure and share it with an institution or individuals that I want to and have that potentially validated by third parties, in terms of government identification, for example. I can see that being very beneficial to compliance applications and customer onboarding, potentially seeing some of that emerge in the next few years. There are some firms in London that are doing some interesting things on using the chain for identification management. Over time we could see that even expanding to benefit financial planning capabilities.”
  • Operational leverage. “The amount of work and time that goes into reconciliations in the custodial and asset-management world is massive, it’s a huge cost. Imagine what you could do with the distributed ledger to dramatically reduce that reconciliation time. It could be a huge profit lever or cost-reduction lever for the custodians.”

Many incumbent financial technology companies are waiting to bring blockchain solutions forward, but, according to Jeff, they will soon be pressed by those innovators who already are exploring it. “In the context of the three markets I know best, Canada, the US, and the UK, I would expect that none of the top suppliers come to market aggressively, but I think they’ll all be fast followers when pushed. The value to them and the value to their end customers is too significant if it can deliver on the promises that the pundits have identified. Embracing DLT, it comes with a lot of technology debt in the legacy application base if you throw that out and convert to a ledger. The reality is that there’s a customer value proposition there that someday is going to percolate to the top and will ultimately carry the day. It’s more a ‘when’ than an ‘if’”

Jeff is certain that most of the major banks are experimenting with blockchain. For example, many are testing it for conducting internal settlements, between business units, because they can control the environment. We’ll see some practical applications soon from some of the bigger enterprises.

Knowledge Gap in WealthTech

Our experience working in the industry has revealed a gap of understanding between financial experts and software people. Jeff agrees that such a knowledge gap exists.

“Financial advisors have been one of the most poorly listened to and poorly understood user groups in the market. And that is primarily because the solutions that were offered to them were monolithic for a long time. They were supplied by big, enterprises that had very big monolithic technology solutions. Therefore, in many cases there was an attempt to fit a new solution to the existing product, instead of fit it to the problems of the advisor.”

Jeff doubts whether financial advisors need to have a deep understanding of technology. “Great technology should not require the user to understand it; it should be easy to use, focused on the problem, with very low interaction cost to the User to start solving the problem or achieving the outcome they want. And they should be immune to needing to understand it. What we need to do is do a better job as a technology industry of understanding and listening to what advisors’ problems are.”

As more and more technology companies try to communicate more closely with financial experts, engage with them, get into their business, and understand what their real problems are, the opportunity to close the gap becomes possible.

“Today, we have the opportunity of hanging different technologies together through deep integration, and we can create much more compelling solutions for advisors’ problems in their business without having to solve everything. We can solve a small thing and connect it to the rest of their world, and again and again. While this has been a challenge for a long period of time, I have a much more positive outlook future for wealth technology really empowering advisors to be more successful in their business.”

Some Details on Xtiva

Xtiva Financial Systems provides Sales Performance Management systems exclusively for the financial services industry. Jeff joined Xtiva in 2016 as chief product & strategy officer to help the company create something completely new, powerful, and remarkably usable, that would enable the firms and users to achieve more.


Jeff outlined: “What we have created at Xtiva is the first sales performance management platform exclusively focused on financial services. Sales performance management is not something we can claim to have invented, there are many firms fighting it out in consumer packaged goods and auto and hotels and other sectors. But we believe, informed by the experience of the Principles at Xtiva and over 20 years working with hundreds of financial service firms and tens of thousands of financial advisors, that financial services benefits from its own unique sales performance management solution. We’ve built that, and we’re in the process of continuing to build that suite.”

Their platform, called XtivaCloud, is an ultra-modern solution that allows Xtiva to deliver incredible speed, manage virtually unlimited data volumes, and connect with virtually any other application. “Our platform is chock-full of APIs to ensure it is a dynamic part of the technology ecosystem.” Jeff added,

“We wanted to create a platform that enabled our clients to make a decision around Xtiva, which was more or less future-proof, and enabled them to extend the use our XtivaCloud platform in conjunction with our SPM suite. Our financial services focused sales performance management suite was designed deliver a much more powerful front-office solution for their business. In essence, what we give them is the tool to connect their strategy objective to their field execution and increase their confidence in success.”

The product suite includes the following major components:

  • Incentive compensation management.
  • Performance management, such as dashboards and insights into the performance of the business, all of which are very tailored to the User.

Business intelligence capability, which answers the “what’s next” question. Jeff prefers to think of this as an enablement capability—what’s the best next action to give every human, whether that’s an executive user, an operations user, or a front-office user. The focus is on offering them a path to a better decision and better action today. Included in that opportunity is the talent aspect, which is aimed to help leverage the skills and expertise of the Users and shore-up weaknesses.

Innovation in WealthTech

The previous few years in the WealthTech market have seen a lot of interesting ideas appear. Jeff talked about the following innovators across a broad spectrum of the Financial Services and Financial Technology industries. Four that he highlighted are having clear user benefit are:

  • HATDeX, London/Cambridge, UK. “They’re doing some pretty interesting stuff with private data stores, not chain-based but a different approach to private data stores. It could be very impactful on financial services and certainly other industries.”
  • NexJ, Toronto, Canada. “There’s some really good thinking around data management and how to make data more reliably available in CRM and other front-office or desktop deployments. Many of the senior folks there are ex-Janna Systems, which was one of the very slick CRM tools from 1999/2000, and eventually got bought for a healthy premium by Siebel (now part of Oracle). NexJ understand financial services.”
  • Bricknode, Skövde, Sweden. “I love the disruption potential being fostered by this team. They have taken the approach of merging a custodial platform with an API-enabled marketplace to help wealth-management firms be more nimble and move faster. I don’t believe Bricknode has got a blockchain solution right now. I think they could be a real pain in the side of some of the bigger custodians if they can get some traction with this platform they’re building.”

Bristol Gate Capital Partners, Toronto, Canada. “Beyond pure WealthTech, there’s really interesting stuff being done by a few money managers using new data approaches, big data, new analytic disciplines, less human intuition based, scientific analysis. I’m not talking about quant, but really a different approach to building financial models and testing those. Just like if you were developing a drug or building tech product and relentlessly testing and evolving it with a scientific methodology. This is scientifically chasing alpha. There’s some really interesting, incrementally reliable, investment strategies that are emerging from the firms that are doing this. Bristol Gate Capital Partners in Toronto is leader in this regard and showing some great success.”

Expectations and Prospects

At the end of the conversation, we discussed prospects for further evolution in wealth management. Jeff talked about his expectations from a historical perspective: “We go through cycles of consolidation and either fragmentation or emergence of competitors. If you Canada as a case study, and you looked at the Canadian wealth-management marketplace, it has gone through these cycles a couple of times in the past few decades. Once all independently owned shops. The largest of these were bought by the banks in a first wave in the late eighties, early nineties. Then a second wave a little after that. That triggered a cycle of renewed independence that emerged in response. We had advisors and customers fragmented from that. Then another wave of consolidation. Now its fragmentation driven by emergent business models. He believes we will continue to see a proliferation of the fragmentation.”

Today, technology allows us to do many thing that were not possible in the past.

“We may see some things like what I call an overlay advisor, an overlay dealer. A robo is an interesting example of that. An advisor could contract to get robo-advisor services for their practice, the robo technology notionally becomes an overlay for a collection of advisors, but those advisors belong to some other regulatory framework.”

Another advantage that technology brings is clustering and scaling. “Another promise of technology today is that we can deliver scale independent of the size of the user by sharing it across many organizations. The scale promise would be delivered by Cloud-based technology.”

Jeff indicated that the focus in Wealth Management, indeed Financial Services is shift to how to leverage the front office more. In many firms it now accounts for 50 to 80% of the expense base. “Finding ways to get more scale out of that spend is going to become the obsession of the wealth-management distributors. The challenge for all of us in the wealth technology or the financial technology space is to look for ways to deliver that kind of front-office scale while ensuring that the customer value proposition is not diluted, but, in fact, enhanced.”

Interviewed by Vasyl Soloshchuk, CEO and co-owner at INSART, FinTech & Java engineering company. Vasyl is also author of the WealthTech Club, which conducts research into Fortune and Startup Robo-advisor and Wealth Management companies in terms of the technology ecosystem.

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