AI Is Coming for Wealth Management—Will Advisors Be Ready? with Karl Roessner

[00:00:30] Karl Roessner: Thank you for having me.

[00:00:31] Doug Heikkinen: Let's get right to it. When you look at how AI is being deployed today, where are you seeing the biggest real-world impact in helping advisors shift time away from operations and towards client relationships?

[00:00:44] Karl Roessner: So I think there's a couple of things around AI and advisors, and the first one is really about AI adoption by the advisor. How quickly are they ready or are they willing to interact with AI as it comes to their clients?

So there's some simple things like note taker apps or the apps that allow you to look through your portfolios and prepare for a client meeting. So that can save some meaningful time. But I think as we progress and as AI moves very quickly, especially with the advent of the agentic loop technology that's now available, I can see a day where an advisor can wake up in the morning and have both their prep notes ready for a client meeting and also have a dashboard of actions that they could take based on events that have occurred in a time while they were asleep.

So that's really where this is all heading. But I think you mentioned in your beginning, about trust. And that's both client trusting the advisor with their money, but also the advisor getting to a place of trust with AI.

[00:01:49] Doug Heikkinen: Yeah. Further, how is AI changing the way advisors approach proposal generation, reporting, personalization, and can personalization at scale actually work in their practice?

[00:02:04] Karl Roessner: So I think when you think about proposal generation, and reporting tools, the way that you can now empower an advisor by, if you're the service provider, you're the technology provider, by including agents within those functions, right? So within your reporting tool or within your, the tools that you make available to the advisor. You can allow them to interact both by voice, and also advise the agent, say, "Agent Joe, can you please go and run proposals for each one of these scenarios for the Smith family?"

And then they can turn away from the computer and go and do their daily work. Again, I think it comes down to whether the advisor is actually willing to take that step, because it's very different than what they've done in the past in terms of hands-on, or associates or, others running those proposals for them.

So I think it's an interesting conundrum, if you will, right? How quickly the advisor is willing to embrace AI is how quickly they'll be able to really advance themselves and get to do more in a day. Spend more time with that real client-facing interaction rather than doing the work yourselves.

So I think the agents and the availability and now proliferation of agentic technology is really going to be huge for, the advisor as they look in their workflows. So I think the second part of your question was really around providing, personalization at scale.

That's a much broader topic, right? But I think what we look at is how can you allow that advisor to serve their clients on a mass sort of scale, so have a few thousand customers, who can all get that personalized attention or that feel of, yes, this is being done for me. I think AI will advance that greatly. But right now, even on the marketplace, there are some amazing tools that have come to bear, both in terms of tax overlay, but really it's the advent of the custom models that have come through and then the ability to tax overlay that and put it into a broader distribution for those advisors.

So I think that, that's one of the great tools that, that's come out allowing that, personalization at scale.

[00:04:23] Doug Heikkinen: Speaking about custom models, those and tailored portfolios are becoming a bigger differentiator. What's driving that shift and how should advisors rethink their investment approach to keep up?

[00:04:35] Karl Roessner: Yeah, so I think it's actually helpful on both sides of the equation. So the asset managers who provide those custom models, normally they'll do it through an OCIO type service, where it's an outsourced chief investment officer function that they run for the advisor. But they can take the advice from the advisor, right? The advisor can help them shape the custom models that they prepare, and it gives the asset manager the ability to have a broader distribution of its product set. But it also allows that advisor to keep their flavor of advice in the custom model, right? So it's a conversation between the advisor and, the model provider.

Say, "These are the types of things that I use with my clients. I'd like to have exposure here. I'd like to have fixed income included." And it gives the asset manager the ability to, to somewhat tailor those custom models. So I believe it's a much more efficient way for the advisor to run their practice having received those custom models, most of which will then have a tax overlay or a model overlay management function that allows them to provide tax efficient portfolios for their customers as well.

And it's just been an amazing relationship to watch develop over time as custom models have really come in broad brush. And I really believe it's because it lets the advisor maintain a semblance of control and also the ability to have influence over what's being done, with that outsourced service provider really providing the model for them, and choosing from such a broader spectrum of products.

So you can get allocations into various different asset classes or types of securities, and you can also limit the types of securities that you want exposure to. So I do believe that it's one of the great tools that's been offered now to the advisor community, and those who are taking advantage of it are seeing the benefits.

[00:06:35] Doug Heikkinen: I imagine you're seeing a clear link between customization capabilities and an advisor's ability to attract and retain higher net worth clients.

[00:06:43] Karl Roessner: High net worth clients, even from my prior life at E-Trade, high-net-worth clients demand, and quite frankly, expect a level of service and also a level of custom tailored products that allow them to really participate in the markets in a meaningful way.

So exposure to those different asset classes that I talked about a little bit, that are provided by model providers or others. But that advisor has a special job in that respect, right? It's making sure that they're listening to the needs of their client. And, look, in my opinion, when you think about the client and the client is a client as a client, and they all deserve that same level, but it is interesting when you're dealing in the high net worth space. You can definitely satisfy that, as an advisor, by using the tools that are available. But it's using your experience to really help tailor that to the client, so the client understands that they're just not getting an off the shelf allocation that you might use in an ordinary situation. But I think it's important to deliver that level of customization.

But I think that one of the bigger things or one of the biggest things is just that personal touch that the advisor has and that relationship of trust that they've built up over time. That client really wants to know that the advisor always has their best interest at heart.

[00:08:17] Doug Heikkinen: Are you seeing tax aware strategies and multi-asset portfolio construction becoming more important in winning that business?

[00:08:26] Karl Roessner: We've definitely seen a heavy influx of that multi-asset class strategy. So we do it all within one unified managed account. And then you can make that entire UMA tax aware. And that can include sleeves for equities, mutual funds, ETFs, fixed income, as well as alternative asset classes.

And that's definitely something that a lot of advisors are looking for, a lot of the aggregators are looking to provide, and a lot of our broker-dealer clients are also looking to employ those strategies. So I think that level of diversification and the ability to have those different asset classes included in working for you is extremely important.

In terms of the model overlay services or the tax overlay services, that's almost becoming table stakes, right? Everyone expects that you're being extremely mindful of capital gains budgets and you want to make sure that each client is treated in a way that is most tax-efficient for their specific situation.

And that, again, is when you get into the personalization at scale, right? That's when you're really providing personalization, when you're looking at the asset classes that fit that client's both risk tolerance, and their desire for exposure to those different classes, and then having that whole structure be tax aware on a daily basis, to make sure that you're taking advantage of market movements to benefit the client.

[00:09:57] Doug Heikkinen: Private markets are becoming more and more accessible. How should advisors rethink client conversations as alternatives move from niche to mainstream allocations?

[00:10:08] Karl Roessner: Yeah, when I think about private markets or alternatives, I know everybody likes to talk about it in terms of private markets now, but when I grew up, it was always alts.

So it's been an interesting thing to watch. I think the most important thing when it comes to private markets is having that conversation with the client so that they are completely aware of the difference between playing in the private markets and playing in public markets.

And that goes to risk tolerance, it goes to liquidity, goes to the timing horizon of the investment. Because I think private markets are a wonderful tool, but they're not for everyone. And I think that's really the advisor's sweet spot, is when they can understand their customer, what they have in terms of exposure to the markets, what their time horizon is on their investments, their risk tolerance, right?

It's a very different animal than most of the things that are out there, and I think they can be great when they're employed properly, or deployed properly. But I think the most important thing is having that really heart-to-heart conversation with your customer to let them know what they're getting into, because the upside can be great, but you can wait a very long time for that return.

[00:11:29] Doug Heikkinen: With more FinTech consolidation happening, how are advisory firms deciding between simplifying their tech stack versus continuing to layer in best of breed point solutions? I think this is really hard for a lot of firms.

[00:11:43] Karl Roessner: Yeah, I agree. We talk to quite a few of those advisor firms and our clients who have advisors on their platforms. And it's really providing them the best tools that are the most user-friendly interface that you can give to the advisor so that you're not bogging them down with multiple screens and the inability to access and move quickly through their portfolios so that they can really get done what they need to get done in a day.

When I think about consolidation, I think AI is just going to drive that a lot further, with the advent of agentic AI and the ease with which you can build a lot of that front-end functionality, and how quickly you can make that accessible. I think advisors right now, they have a difficult decision when looking at the way that they're going to service their clients. Because the whole world is going to change, right?

And we're seeing that already. Three, six, nine months, we're going to be talking about very different things than we're talking about today in terms of what you can put in front of an advisor. So I think consolidation will definitely continue in the point solutions in particular, which I think are sort of most exposed to the market changes and also to AI coming in and really competing in their space.

But I do think the advisor has a difficult path right now in terms of choosing that perfect solution. I think they need to base it on usability of the system, on trust, on the scalability of that system. How long have we been around? How embedded are you with other clients? How long have your other clients been with you? Are you going to grow with them? Are you going to be the AI adopter and make sure that they're getting the most recent and most current functionality that'll allow them to continue to advance their practices?

There's real value that can be provided by continuing to chew up that time that the advisor can have with their clients, right? So, continuing to provide them with enough time to spend with their clients, understand their situation. I think there's a lot of interesting things ahead in this space, and at Vestmark, we really look forward to participating in it.

[00:14:05] Doug Heikkinen: Yeah. Continuing on with that a little bit, many firms are dealing with tool overload. You go to FutureProof and there's a whole conference on these tools. What are the biggest risks of having too many disconnected systems and how are leading firms like Vestmark solving for that?

[00:14:21] Karl Roessner: Yeah, look, I think that the point solutions that are out there, some of them are absolutely wonderful, right?

And some of the things that they allow the advisor to do. But the data sharing, the connectivity, the difference of systems and architecture, and putting those all together in one tech stack can be extremely cumbersome for the advisor to have to deal with, right?

And that's just something that you don't ever want to do, is have them spending more time worrying about whether or not their technology is working together. At Vestmark, we've been around for 25 years now. It's actually our 25th anniversary. And we're proud to serve some of the largest investment managers and broker dealers out there, as well as some of the largest aggregators and RIAs in the marketplace.

And we constantly strive to make sure that we are continuing to build out the advisor experience. How can you continue to use, employ AI, employ new technology, to make the advisor's screen and the ability of the advisor to interact with your system as simple as possible. And I think that's the key to me, and that's the one thing that I think people sometimes lose sight of when they're building all of these wonderful new tools and toys that they can present in front of an advisor. You really have to look at it from the advisor's perspective, right?

When they look at that screen, what are they seeing? How are they using it? How do those things need to be interoperable, right? You don't want them to have to jump between three, four, five systems before they can place a trade or move a book of their of their clients back to the model.

So trade back to model drift or otherwise. You want to make that as simple as humanly possible and give them a solution that they can rely on day-to-day that's fully scalable to grow with their practice.

[00:16:14] Doug Heikkinen: This is really hard for a lot of advisors because they didn't get into this business to be technologists. They got in this to solve the financial needs of their clients. So in your opinion, how do they balance the push for innovation and the need for platform stability and reliability?

[00:16:30] Karl Roessner: You're right, the advisor does not have an easy job right now. I think the one thing that comes of this though is, in a very short period of time, that advisor's life, if they're willing to embrace agentec technology, the agentic loop solutions that are available, and they're willing to build and deploy or have agents deployed for them within their client workspaces, I think they will be saving an enormous amount of time.

They need to partner with a firm who is forward-looking and who has already embraced AI, both in their own workflows internally to make their functions more efficient, but also externally facing, right? How quickly can we get you what you need as an advisor. What do you need? What is it that's causing you delay during your day, or what are you struggling to get done? And it's out of that conversation that immediate results need to be provided. And that's the beauty of what AI and some of the coding tools and some of the other functionality that's come out provides us, right?

it's the ability to respond to that changing landscape. But as an advisor, it's not an easy decision. There's a lot of firms out there and a lot of folks who would like to break into this space who will offer you the sun, the moon, and the stars, right? End of the day, it has to be you looking at that screen saying, "Yeah, this works for me."

And I think the technology innovation, if you're partnered with the right firm, will continue to come to you. It shouldn't be something the advisor needs to worry about. The firm should be assuring that advisor and its partners, we're doing this for you. Help us understand what it is you need. What would make your life easier when you're interacting with our system?

I think that's the best way to go about it. In my life, the customer, the end user, our partners, they're always right. And they're the ones using the system. So it can be as pretty as you like. If it doesn't work for them, it doesn't work, period.

[00:18:38] Doug Heikkinen: So last one for you, you said everything's going to be different three, six, nine months from now.

If I'm sitting in an advisor's seat, how do I position myself for the next wave of wealthtech evolution?

[00:18:50] Karl Roessner: Yeah. I, think you need to be ready for it. Historically, and I think, even looking right now at the landscape, financial services and the whole sort of ecosystem at large has always been a little bit of a slow mover when it comes to adopting new technology.

A lot of that has to do with the fact that when you're dealing with financial services, you're dealing with people's money, right? And people care very deeply about their money and about their personal wealth, and also their personal information. And that trust bond has to be there for you to be able to do any of this.

So I think that's, we have been a little bit slow moving as an industry, but I think the advisor, it's important that they start to embrace AI in their daily lives. Getting used to it, getting to understand what it is to have agents that you can use to help you in your practice.

Some of the solutions that are out there are wonderful. They're becoming easier to use. But I do think it's leaning in to what's coming in terms of AI. Because if you want to talk about personalization at scale, this is the technology that will allow you to excel in your practice and give you a lot more time to be dealing front facing with your own clients.

[00:20:14] Doug Heikkinen: Karl, that was really interesting. I love your perspective and thank you so much for being with us today.

[00:20:20] Karl Roessner: Thank you for the time. I appreciate it.

[00:20:22] Doug Heikkinen: To learn more about Vestmark, please visit vestmark.com. For our producer Tory Miller, we thank you so much for listening.