HAPPENS (NOW WHAT?) PORTFOLIO MANAGEMENT 20+ RIVALS IN SMACKDOWN. ANNUAL TECH SURVEY: SEE THE BIGGEST TRENDS p.60 TECH MATTERS

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1 December 2014 Financial Planning Vol. 44/No. 12 INVESTED IN ADVISORS / DEC PLANNING SOFTWARE GETS ITS SEXY BACK BIG PLAYERS LEARN: TECH MATTERS INSURANCE TIP: BUY THE MONEY LOSERS p.73 ANNUAL TECH SURVEY: SEE THE BIGGEST TRENDS p.60 HAPPENS 20+ RIVALS IN PORTFOLIO MANAGEMENT SMACKDOWN (NOW WHAT?) DESIGN CATCHES UP WITH TABLET & SMARTPHONE APPS ROBO ADVISOR DEBATE: RIVALS OR PLATFORM PROVIDERS? CRM tools pack ROI punch FINANCIAL-PLANNING.COM

2 HIGH VELOCITY As the rate of change accelerates, advisors face big shifts in automated tools, portfolio management and rebalancing. Our annual Tech Survey shows where the action is. JIMMY TURRELL BY JOEL BRUCKENSTEIN

3 In the advisor technology sphere, it used to be enough to look for evidence of change. What s different now is the velocity of the action. This profession has historically been slow to embrace new technologies; firms could take a wait-and-see attitude toward new technologies without paying a price. That is no longer the case. From robo advisor technology to real-world tools that build on mobile platforms, and from risk assessment to financial planning software, changes are taking place that will shape the industry for years to come. Who s Happy? These days, when shopping for a B-D or a custodian, advisors invariably ask about the firm s technology prowess. Great technology can help advisors increase efficiency and lower costs; inferior technology has the opposite result. It has never been more important for advisors to have top-notch tech support from their B-Ds and custodians. Among custodians, TD Ameritrade Institutional still ranks No. 1 in overall technology satisfaction. Even more impressive, the number of very satisfied advisors increased a bit to 49.4% from 47.6% last year. One likely reason is the success of TDAI s VEO Open Access platform; advisors clearly appreciate the range of partners that TD supports. All of the major custodians have great technology teams, but TD Ameritrade seems to have a knack for pleasing more of their advisors more of the time. As was the case last year, Schwab Advisor Services ranked second in technology satisfaction among custodians, but the number of very satisfied advisors fell to 39.8% from 44%. Shareholders Service Group and Scottrade both showed dramatic improvement in the number of very satisfied advisors, with SSG which deployed some new technologies this year jumping to 36.4% from 24.6%, and Scottrade up to 34.3% from 19.6%. At Fidelity, whose platform has not received a major upgrade in some time, the percentage of very satisfied advisors fell to 30.2% from 36.2%. But the news wasn t all bad: The share of respondents who said they were very unsatisfied plunged to just 1.6% from 6.3% last year. A number of other firms also deserve praise for lowering their number of very unsatisfied advisors including LPL, National Advisors Trust, Pershing, Scottrade and Trust Company of America. Among broker-dealers, MetLife Securities had the most very satisfied advisors at 45.5% but also had a very unsatisfied ranking that was higher than the norm. Commonwealth Financial, which continued to invest heavily in technology this past year, came in a close second to MetLife in the very satisfied category at 43.8% up significantly from last year s 32.7%. Although the number of very satisfied LPL advisors declined slightly, the number of very unsatisfied advisors dropped dramatically, to 3% from 10.1%. LPL is in the process of totally remodeling its technology platform, so it may be a year or two before the real benefits of their endeavors become fully apparent to their advisors. WHICH SINGLE TECHNOLOGY HAS HAD THE GREATEST IMPACT ON YOUR FIRM S BUSINESS IN THE PAST YEAR? 7.3% 3.3% 3.7% 4.2% 4.7% 6.3% 6.8% 12.9% 19.4% 17.3% Robo Technology The so-called robo advisor debate has shifted, with advisors looking now at some of the key players as technology platforms as well as possible rivals. During the last weeks of October, there was a flurry of activity in the space, with several custodians announcing plans for Although the survey was conducted too early for some of these announcements to have an impact, we did try to gauge readers attitudes toward the new digital players. A few patterns emerged. The firms most likely to view robo advisor technology as an opportunity were those with between $100 million to $500 million in assets. The smallest firms were the least likely to view robo advisors as a threat, and more likely than average to view them as an opportunity. This makes sense. The smallest firms are looking to grow, and many are looking to technology for leverage. Firms in the $100 million to $500 million range also already know they need to alter workflows and leverage technology to get to the next level, so it makes sense for them to consider using robo technologies if appropriate. Risk Appetite There s been renewed interest in risk assessment software possibly because of the failure of inadequate products that dominated during and leading up to the Great Recession. 14.1% Financial planning software CRM Smartphone Tablet (ipad, Android, etc.) Portfolio management software Mobility solutions Rebalancing software Outsourcing portfolio management Web conferencing solutions Document management software

4 RISK ASSESSMENT SOFTWARE PORTFOLIO MANAGEMENT SOFTWARE Morningstar Office Albridge Schwab PortfolioCenter Envestnet Orion Advent Axys Advent Black Diamond Advent APX Advisors Assistant Tamarac Advisor AssetBook Investigo Portfolio Director Portfolio Pathway BridgePortfolio Croesus IAS Trust Company of America 56.0% 17.0% 13.8% 13.3% 6.0% Tool supplied by B-D or custodian FinaMetrica Riskalyze Pocket Risk 7.3% 5.7% 5.1% 12.4% 9.9% 4.5% 4.5% 4.5% 3.5% 2.5% 1.6% 1.3% 1.0% 1.0% 1.0% 1.0% 18.9% 18.5% 29.9% So for the first time this year, we asked readers about the category s various vendors. Until recently, FinaMetrica was the only independent firm that had made a name for itself in the field; it had a 15-year track record of providing results not only in the U.S., but also in Australia, Canada and Great Britain, as well as a number of other countries. Yet it never achieved a broad level of acceptance in the U.S., which left the door open for a couple of new competitors: Riskalyze and PocketRisk. And that new competition has brought increased interest in the category as a whole a healthy development that could, over time, benefit all three firms, as well as advisors and their clients. For now, however, the risk assessment category has plenty of room to grow. Only 51% of readers now say they use such a tool. Of those that do, FinaMetrica edged out Riskalyze overall by half a percentage point, 13.8% to 13.3% statistically, that s a dead heat. The newest entrant, PocketRisk, scored a respectable 6%. The rest of the market share was occupied by tools provided by various B-Ds and custodians. As one might expect, the three providers as a group fared best in the independent RIA space, achieving an aggregated 57.3% share among those using any kind of risk assessment tool. FinaMetrica did best among dually registered RIAs; it also led among independent RIAs. Riskalyze scored best with advisors affiliated with an independent B-D and with B-D employee reps. PocketRisk led among CPA advisors. Planning Software When we asked readers this year what single technology had the biggest impact on their business in the past year, the winner was... financial planning software. Bank affiliated advisors and independent RIAs were more likely than others to cite the software, but with the exception of CPAs, it scored well across the board. 4 TRENDS TO WATCH IN 2015 By their very nature, surveys tend to look backward at the action so far. But the field of advisor technology changes so fast that we expect a few more shifts to affect the landscape in the coming months. Here are four trends that should have a significant impact on the industry in Robo Technology To date, most conversations about robo advisors have failed to draw a distinction between the business model and the technology. Whether you believe that the business model being pursued by many of the consumer-facing digital players is sustainable, their technology appears to be superior to the software now deployed by most traditional firms. Now the custodians are starting to offer such tools to advisors. Schwab says it will roll out its own online platform, Schwab Intelligent Portfolios, to advisors in Fidelity has a new referral arrangement with Betterment. Jemstep, NestEgg, Trizic, Upside Advisor and other firms will be offering advisor tools via TD Ameritrade s VEO platform. And Folio Institutional s Advisor Connexion platform allows advisors to create their own robotechnology experience. 2. Cybersecurity Advisors can no longer remain sanguine about cybersecurity. The cyber-attack targeting JP Morgan, along with attempted hacks of Fidelity and others, made it clear that the financial services industry will continue to be targeted by hackers in The SEC has also made it clear that it will be tightening its securityrelated supervision of RIAs and B-Ds, identifying a number of areas that it expects registrants to address. Expect heightened scrutiny and more

5 Financial planning software was also cited as the technology that provided the greatest ROI among independent RIAs. When we looked for patterns across AUM groupings, financial planning software scored well with all but the smallest firms. Comprehensive planning seems to be having a moment. This year, 82% of respondents said their firms offers comprehensive financial planning, up from approximately 77% last year. Worth noting, though, is that 76.8% of advisors use comprehensive financial planning software. That suggests that about 5% of advisors are performing comprehensive financial planning software with spreadsheets still higher than it should be, but lower than it has been in the past. MoneyGuidePro continues to dominate the category. Of those advisors using financial planning software, 36% use MoneyGuidePro and the product is dominant across firms of all sizes. Its one area of weakness is among insurance advisors, where emoney dominates with a 53.8% share. MoneyTree is a surprisingly strong runner-up among insurance advisors at 38.5%. We believe that financial planning software is entering a longer-term boom, for several reasons. As noted in the sidebar on page 62, online competition is commoditizing asset allocation, but planning is an area where advisors can demonstrate value. Across all demographics, advisors have an opportunity to help retiring baby boomers optimize Social Security benefits and create retirement income strategies. Also, planning software continues to improve, with better user experience, improved reporting and some automated inputs. Interactive planning with clients is now the norm, not the exception. All of this means that the time and costs of plan preparation have declined, while the output has improved. FINANCIAL PLANNING SOFTWARE MoneyGuidePro 36.0% emoney 18.6% MoneyTree 11.3% NaviPro Planning Suite 9.8% SunGuard 7.6% FinanceLogix 3.4% WealthTec 2.7% ASI GoalGamiPro 1.2% 19.8% CRM SOFTWARE Microsoft Outlook 20.1% Redtail 13.1% SalesForce 13.1% ACT! 5.2% Junxure/Junxure Cloud 4.9% Microsoft Dynamics CRM 3.0% Ebix SmartOffice (E-Z Data) 2.6% Tamarac Advisor CRM 2.1% Advisor Assistant 1.9% Zoho CRM 1.6% ProTracker 1.2% Wealth Advisor CRM 1.2% Crm s Big Impact Our readers tell us that customer relationship management software provides the best ROI of any technology they use, although opinions vary by the advisor s channel and role. None 10.3% 19.7% enforcement action as well as an uptick in development of and spending on cybersecurity technology. 3. Planning Rebound Another ancillary impact of the robo advisor platforms: As they commoditize asset allocation and investment advice, clients may start balking at paying 100 basis points or more for portfolio advice. Active managers will need to demonstrate alpha after taxes and expenses to justify their fees, while passive managers will need to differentiate themselves a difficult challenge. A better strategy may be for advisors to redefine their value proposition in areas that have not yet been commoditized; financial planning is perhaps the most promising one. With many baby boomers entering or nearing retirement, demand for comprehensive planning should be strong in the years ahead. And planning software vendors have done a great job of streamlining the process and making it more interactive and more affordable. 4. Maturation Of Mobile When custodians and B-Ds began rolling out mobile apps a few years ago, adoption was OK, but overall usage numbers were mediocre. One problem was the lack of utility; early apps had limited functionality and were not always optimized for a device. But mobile design has improved and providers are now offering functionality that adds value for advisors. One prime example is mobile check deposit, which has proved extremely popular at virtually every institution that has made it available. Mobile money movements (such as wire transfer authorizations) have proved extremely popular, as well. Joel Bruckenstein

6 HOW SATISFIED ARE YOU WITH YOUR CUSTODIAN S TECHNOLOGY OFFERINGS? Very Somewhat Somewhat Very Unsatisfied Unsatisfied Satisfied Satisfied Fidelity 1.6% 7.1% 61.1% 30.2% Folio Institutional 0.0% 13.6% 50.0% 36.4% LPL Financial 5.9% 8.8% 55.9% 29.4% National Advisors Trust 4.2% 20.8% 45.8% 29.2% Pershing 6.4% 15.6% 42.2% 35.8% Raymond James 3.7% 3.7% 70.4% 22.2% Schwab 4.6% 3.7% 51.9% 39.8% Scottrade 2.9% 11.4% 51.4% 34.3% Shareholder Service Group 0.0% 9.1% 54.5% 36.4% TD Ameritrade 1.1% 2.3% 47.1% 49.4% Trade PMR 5.3% 5.3% 57.9% 31.6% Trust Company of America 3.3% 13.3% 60.0% 23.3% HOW SATISFIED ARE YOU WITH YOUR BROKER-DEALER S TECHNOLOGY OFFERINGS? Very Somewhat Somewhat Very Unsatisfied Unsatisfied Satisfied Satisfied Ameriprise 5.4% 18.9% 48.6% 27.0% AXA 3.3% 6.7% 60.0% 30.0% Cambridge Investment Research 3.6% 3.6% 57.1% 35.7% Cetera Advisor Networks 3.3% 6.7% 60.0% 30.0% Commonwealth Financial 3.1% 9.4% 43.8% 43.8% LPL Financial 3.0% 15.2% 57.6% 24.2% MetLife Securities 9.1% 6.1% 39.4% 45.5% NFP Advisor Services Group 4.3% 0.0% 65.2% 30.4% Raymond James 0.0% 14.3% 48.6% 37.1% Securities America 5.9% 8.8% 58.8% 26.5% Wells Fargo Advisors 0.0% 7.3% 63.4% 29.3% Bank-affiliated advisors and advisors affiliated with an independent B-D were the most likely to cite CRM as the overall ROI winner. Two firms dominate our CRM rankings this year: Redtail and Salesforce, each with a 13.1% share. Redtail dominates among dually registered RIAs and independents affiliated with a B-D; it also scores well among independent RIAs, although Salesforce now leads that category. For many, the Redtail combination of price and functionality the package includes , archiving and a document management system along with CRM combined with their many third-party integrations, makes them an attractive option. Along with leading Redtail in the independent space, Salesforce also dominates among advisors employed by a B-D, as well as for advisors whose firms have $500 million or more under management. This makes sense: For Salesforce to be of use to advisors, it requires customization. Larger B-Ds can customize it and roll it out to their employees, and the major custodians have their own customized versions that they offer. Orion offers a version to its clients, too. And there are other options: Orchestrate, for instance, offers a product called ProcessComposer that allows financial services firms to create complex workflow processes in Salesforce. Among the other providers, Junxure is a standout in the independent RIA space; if you combine numbers for its original version and the new Junxure Cloud product, the company actually edges out Redtail among independent RIAs. Now that the cloud product is fully rolled out, we expect Junxure to compete more aggressively for B-D and enterprise business in The picture is quite different among insurance advisors and CPAs. Insurance advisors prefer Advisors Assistant, with Ebix SmartOffice a strong second. And 43% of CPAs say they don t use CRM at all; in fact, not a single CPA advisor cites CRM as a top ROI choice. (To put things in perspective: Only 6% of independent RIAs say they do not use CRM software.) And of those CPAs who do use CRM tools, the most popular choice by far was Microsoft Outlook which, of course, is not actually CRM software. Portfolio Management The portfolio management software category remains highly competitive and relatively disaggregated. About 74% of readers say they use portfolio management software of some kind and, as was the case last year, we tracked 20 or more competing products. Across the board, the clear winner is Morningstar Office (29.9%) followed by Albridge (18.5%) and Advent s three products (a combined 15.3%). Morningstar Office led several categories, and finished a hair behind Albridge among advisors affiliated with an IBD. But the results were quite different in the RIA category, where Schwab s PortfolioCenter led, followed closely by Advent s products. Morningstar came in third. In fourth place was Orion, which seems to be gaining popularity rapidly. The tool had a 1.9% share last year; this year, its share almost tripled to 5.4%, with key support from two groups: B-D employees and independent RIAs. The market for portfolio management software remains fluid. Schwab is already beta testing its next-gen portfolio management solution, Schwab Advisor Portfolio Connect; we expect a full release in late Built right into the Schwab custodial platform, the product could be a big hit with advisors

7 who custody exclusively at Schwab if the price is right because it will alleviate the need for advisors to do downloads and reconciliations for those assets. And at that point, other custodians may feel the need to develop similar offerings to stay competitive. Longer term, it s possible that the technology developed by the robo advisors could alter demand for traditional portfolio management software. If some advisors develop a business model based on the robo providers platforms, odds are they will no longer require portfolio management software. Some advisors may develop hybrid models that require fewer licenses. Os Shifts Support for Windows XP expired back in April, and yet 12.4% of respondents confess they still use a Windows XP computer. That s better than last year s 20%, but still a bit scary. The security risk is not worth taking. CPAs are clearly the worst offenders, with about a third still using XP. At the other end of the spectrum, bankaffiliated advisors are the best, with only approximately 6% still on an XP machine. Dually registered advisors (7.8%) have done a pretty good job of eliminating Windows XP from their offices as they should. Independent RIAs (9.0%) and independent B-D advisors (9.2%) were somewhere in the middle. Windows 7 remains the dominant operating system among readers, although its share dropped to 56% from 61.4% last year; Windows 8 now has just under 30%. Many advisors continue to avoid Windows 8 due to the lack of a Start menu and other design quirks. With Windows 10 on the horizon that s right, no version 9 we will soon see if Microsoft can convince advisors to become earlier adopters of their next major OS upgrade. For the first time in memory, Apple s share of the operating system market among our readers declined a bit, to 11% from 14.6%. Apple usage remains highest among independent RIAs at 18.7%, but even here, there was about a two-point drop-off from last year. Tablets & Smartphones Cloud technologies are becoming the norm now, and better, responsive design is improving user experience on mobile devices. That creates new possibilities for advisors using tablets and smartphones. Overall tablet usage continues to grow. This year, 66% of advisors said they use a tablet for business purposes, up from 58.8% in 2013 (and 50% in 2012). Of those using a tablet, the ipad still leads with 77.7%. In the second tier, however, the Surface (13.5%, up from 11.5% last year) is gaining ground 66.8% 33.2% 5.1% iphone WHAT SMARTPHONE DO YOU USE FOR WORK?* Android *Participants could select more than one answer BlackBerry 2.4% Windows Mobile 1.1% on Android (14.5%, down from 18.6% last year). We suspect that the Surface Pro 3, a major improvement over earlier versions, is largely responsible. The vast majority of advisors (88%) now use a smartphone for work-related tasks. Frankly, we are surprised that there are still any holdouts at all. The iphone still dominates, with Android a respectable runner-up; BlackBerry s share continues to shrink, and Windows phones remain a nonfactor. The only BlackBerry holdouts are bank-affiliated advisors and B-D employees, whose work phone decisions are likely dictated by their employers. Windows phones will have one more chance to shine when Windows 10 releases in 2015 but if that doesn t move the needle, it may be time to write them off as well. We were also interested to learn how advisors are using their smartphones. The dominant use, at over 70% of respondents: contacting clients by text and . And 66% used them to monitor news, as well. The largest and the smallest firms were most likely than their peers to use smartphones for social media. And although trading overall was limited at 8%, bank-affiliated advisors and independent RIAs were somewhat more likely than their peers to trade using a smartphone. Willingness to do a client presentation with a smartphone varied greatly from 20% for bank-affiliated advisors to zero for insurance advisors. Growth Stories The rebalancing segment remains a growth story. This year, for the first time, reported usage of the software among our readers crossed the 50% threshold. That s up sharply from 39.4% in 2013 and 31% in As some of the lowcost digital players include rebalancing on their platforms, we expect usage among all advisors to increase in The rebalancing market is highly segmented, but a few names stand out. Morningstar Office leads the pack overall, with Envestnet the second most popular option. But different channels show varying preferences. The single most popular solution among independents who may prefer a more robust solution was irebal, with a 27.5% share if you include irebal Cloud, which was just being

8 WHICH SOCIAL MEDIA PLATFORMS DO YOU CURRENTLY USE FOR WORK/BUSINESS? 91.7% 40.2% 24.7% 13.4% 13.1% 3.0% 2.4% 2.4% 1.2% 0.9%? LinkedIn Facebook Twitter Google+ YouTube Pinterest Instagram SlideShare FourSquare (please specify) rolled out as we fielded the survey. The next most popular product among independents was Tamarac, with Orion posting a surprising third-place finish. The use of cloud storage providers also continues to grow, if more slowly than we expected. About 62% of readers said that they used at least one cloud storage provider, up from 50.6% last year. Of those that use a cloud storage/file-sharing solution, the most popular choice by far was DropBox, with a 51% share; Google Drive edged out icloud as the second most popular. What Next? One concern: Advisors do not yet seem to comprehend how rapidly technology is evolving nor have they fully thought through the implications. We believe the new robo technologies will become more prevalent over the next few years, presenting both challenges and opportunities. The survey, however, suggests that too few advisors are positioned to fully take advantage. On a more positive note, the great results that advisors are getting from financial planning and CRM software suggest that the industry as a whole is moving in the right direction technologically, albeit more slowly than is ideal. We are also generally optimistic about the technology satisfaction scores of custodians and broker-dealers. Although there is always room for improvement, the industry as a whole is moving in the right direction. As technology advances rapidly, scale will become an issue, and many advisors will rely heavily on their custodian or B-D for help. This year s results suggest that these firms have been up to the challenge in 2014, and there is every indication that they will continue to be in the year ahead. FP Joel Bruckenstein, a Financial Planning columnist, is co-creator of the Technology Tools for Today conference series and technology guides for advisors, including Technology Tools for Today s High-Margin Practice. Visit JoelBruckenstein.com for more information. Follow him on Twitter Joel Bruckenstein, SourceMedia Inc., and Financial Planning, are separate from and not affiliated with TD Ameritrade, which is not responsible for their services, policies, commentary, or other content. Reprinted with permission. TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. Used with permission SourceMedia Inc. and Financial Planning. All rights reserved. SourceMedia, One State Street Plaza, New York, N.Y (800)