Lori started her career at an investment banking company and then moved to Nuveen Asset Management, where she founded the RIA division. In 2000, Lori joined Jud Bergman and Bill Crager to start Envestnet. In early 2016, Lori moved to Pershing and mid-2017– together with Mike Zebrowski, ex-COO of eMoney – started Advisor Innovation Labs (AI Labs).
We discussed trends, problems, and opportunities in the industry with Lori, and she also shared her tips on being a successful entrepreneur and industry leader.
Industry trends that feed the idea of AI Labs
It was early on in her career when she was a wholesaler for Nuveen when Lori realized that she enjoyed helping advisors. Today, she observes an increased demand for financial advice; and shows concern that the advisor market is shrinking:
“Over the last five years, about 500 broker-dealers have just vanished. These have not been acquired firms, these just went out of business. That equates to about 49,000 advisors total that have left the industry. If you fast-forward five years, over 100,000 advisors in the US will either be at, or nearing, retirement.”
This trend brings the opportunity for technology companies (like AI Labs) to come into play, enabling advisors to improve their productivity, increase their scale, and help them to have more meaningful communications with their clients. According to Lori, AI Labs is building “an interactive layer from a digital lens between advisors and clients.”
Another trend that Lori mentions is skepticism about financial advisors and the entire industry caused by the crisis of 2008–2009. To overcome this skepticism, Lori believes the industry should offer more transparency to investors:
“In my mind, if we can get more transparency to investors about their portfolios, financial plan, spending and financial budgets and provide clients a holistic view, via an elegant and unified digital experience [that puts their advisor as the centerpiece of that engagement] that will only help to build trust between the advisor and client.”
At AI Labs, they aim to build, what they call, a “system of engagement” that will improve advisor–client relationships.
Open API’s is another trend in the industry and many technology companies are using these to bring more data and tools to their platforms. Lori warns that many advisory firms should be cautious of using API’s as it can quickly create a situation for which a firm becomes too tightly anchored to a particular custodian or a tool. She notes that many advisors are linking their clients to other brands to their accounts (e.g., Fidelity, Schwab, or Pershing) instead of reinforcing their own advisor brand.
Recognizing this, AI Labs has created a platform that enables advisors to switch from one data provider to another easily and at any time, while keeping the same exceptional experience within one chassis that brings all the various data points together.
“By bringing all the data into one central portal, it allows a firm to pivot into another vendor without changing the whole look and feel of the advisor and end-client portal. It is all about emphasizing the advisor’s voice and the advisor’s brand.”
Risk assessment based on continued acknowledgement
Earlier this year, Lori joined the board of directors for Riskalyze. The company has received several industry awards for the risk-scoring tool they have developed. Lori agrees that it is very important for investors to know where the risk is, and their risk score. As technologies evolve, the approaches to risk assessment will definitely change:
“Certainly there’s new technology out there focused on evaluating one’s risk tolerance. Some new technologies monitor the way your facial expression changes when you’re asking questions to gauge one’s risk. I think that more technology is probably out there but it’s in its early stages. It’ll be interesting to see how clients really tend to think about this and how they would prefer to communicate their risk tolerance to their advisor.”
However, Lori also highlights another aspect of risk assessment that is often ignored:
“We tend to evaluate risks on a household level. We don’t look at the partners within the household and where the risk lies independent of each other, and that has been a huge problem throughout our industry.”
Some advisors are only starting to look at individual risk levels; they add these to the household risk level and then calculate a blended rate or invest differently for each person in the family. However, this still only shows attitude to risk at a particular point of time.
This is why Lori believes that investors should be able to interact with the system to change the way they feel about the risk, and this may have an effect on their portfolio and financial plan:
“From my perspective, it’s less about how you determine risk, whether it’s a questionnaire or the facial expression technology or by some other means. My focus is around allowing clients to have the information front and center every day so clients can easily update it based on current events. Goal planning and risk measures shouldn’t be static, clients should be able to update those any time they’d like, digitally, via an advisor’s client portal, so the advisors can be notified and manage their clients’ assets accordingly.”
Retirement environment and opportunity
The retirement asset-management space is worth billions of dollars. However, Lori mentions that there are not many turnkey solutions to allow advisors to manage retirement plans in a scalable way. As a result, they are either fully engaged in retirement or they outsource this service:
“Retirement portfolios are typically an enormous part of the client’s net worth. So I would say the opportunity in retirement for advisors is huge. And to not be able to see those assets, as part of an aggregate household view, is a huge miss on the advisors’ side.”
The first thing that has to be done by advisors, according to Lori, is to take data aggregated by companies such as Quovo, Yodlee, Envestnet, and Black Diamond and check it in terms of what a client has in the retirement account. Lori pointed out that should an advisor want to get into retirement planning, it’s imperitive that they know all the rules regulating the environment:
“…firms like Vestwell certainly have the necessary turnkey tools to help advisors acclimate to what they have to do [to manage retirement assets], and to keep the guardrails in place so they can adhere to the rules associated with retirement plans.”
Lori says that AI Labs have plans to integrate with Vestwell on their roadmap, in order to offer advisors this tool as part of the entire integrated platform.
Tips on building relationships
In autumn 2017, together with other industry experts, Lori Hardwick was appointed to the advisory board of Vestwell. Although she used to compete against Aaron Schumm (CEO of Vestwell) when he was at FolioDynamix and Lori was at Envestnet, they have developed a strong friendship and mutual respect for each other.
“My advisory role [at Vestwell] is really to help them with their sales and growth and to help them identify firms that would be interested in Vestwell’s services.”
Having a strong network is important for entrepreneurs in any business:
“It’s definitely helpful for a startup entrepreneur to have an established network where people know and trust you and invite you in to talk about your new solution. Unfortunately, I think that a lot of the new startups have a hard time getting access to IBD and Bank decision makers because they don’t have a network within financial services.”
Lori shared some tips on how to be a successful entrepreneur and grow a network of people in the industry:
- Listen to your clients and build your product based on what they need.
“What I found to be the absolute best way to sell is to just listen to what your prospective clients want and then go build it. Then, you can go back to them and say, ‘Hey, we built it based on your recommendation.’ They are usually astounded that you actually listened, and responded, in a thoughtful way.”
- It is important to meet new people and new companies and build relationships with them, and keep up with those relationships over time.
“At Envestnet, we were continually building in new features and functionality we thought would be helpful for financial services companies. Because we grew so fast, I was able to meet a lot of new companies [and] decision makers across the industry, and continue to build a relationship with them.”
- Build a strong reputation – people should know that they can trust you, the company, and the product.
“I have worked so hard to make sure I have delivered on my promises. When I can’t deliver on promises, because the world changes and things might just not come together perfectly, I’m upfront about that. Be honest and upfront and have integrity; don’t shy away from delivering hard news if there’s a problem.”
- Help others if you have the opportunity.
“I probably spend five to seven hours a week helping other people find jobs and using my network on their behalf. It’s a small world in the financial services industry and I would never want anyone to ever feel that I didn’t help them when I had an opportunity to. That’s why I think my network’s so strong. People that know me, know that I go above and beyond to help people.”
- Don’t be afraid to take a chance.
“Don’t shy away from the spotlight [and] be okay with taking a chance. Maybe even going a little out on a limb to help your clients in a way that you know is right, regardless of what else is going on around you. Putting the client’s interests ahead of your own is always the right answer.”
There is no one-size-fits-all in the future
Talking about her expectations of the future of the wealth-management industry, Lori is confident that today’s tendency for custodians and other financial institutions to position their financial platforms as a “one-size-fits-all” will eventually fade away:
“I think both at the client level, and at the advisor level, we are going to see a lot of new technology that allows you to have [the] freedom to choose what pieces you want and what pieces you don’t. Beyond that, if there is a tool you want, like financial planning, which of these five do you want to see as part of your application? Or maybe you want two or three of the five so that you can have the best options available for your various subsets of clients. Unfortunately, that flexibility didn’t exist in a unified platform before today. That optionality is one of the many things we are solving for at AI Labs.”
Thus, broker-dealers need to consider how to build a configurable product that would be comfortable for advisors, and companies like AI Labs are able to help them:
“I think a lot of the IT departments at some of the largest firms have tried very hard to protect their core and stay captive to their proprietary solutions. They do this partly to keep everything under their control, because it’s taken years and years to build and they feel uncomfortable working with an extended team to help them build new and more modern technology. But in order for financial services firms to really continue to grow and thrive, they are going to need to outsource some of these technologies to help them bring all the disparate app stacks all together. This will allow them to really stay focused on the regulatory requirements and system controls of their proprietary tools.”
Lori explains that her words do not mean that these firms should throw away their legacy solutions, but they should accept the need to outsource to firm’s like AI Labs to help them continually modernize their technologies so that it complies with contemporary requirements for an improved experience.
Interviewed by Vasyl Soloshchuk, CEO and co-owner at INSART, FinTech & Java engineering company. Vasyl is also the author of WealthTech Club, which conducts research into Fortune and Startup Robo-advisor and Wealth Management companies in terms of the technology ecosystem.