I’ve thought a lot about which firm might emerge as the first Amazon in financial services—a company willing to break from the past, make a big bet on the future, invest billions in transforming outdated infrastructure, and put historic levels of digital and human capital behind elevating the customer experience and financial outcomes.
Amazon belongs to an elite group of companies that have blazed new paths in conventional categories: Netflix, Uber, Wayfair, Airbnb, and Tesla. They’re among the best-known brands today.
My wondering informs the questions I pose to industry leaders—nearly 100 over the past two years—on my weekly WealthTech on Deck podcast. I’ve concluded that Morgan Stanley, Empower, Edward Jones, and Franklin Templeton are top contenders for the mantle of disruptor in chief.
Each has a carefully constructed strategy—I’ll fill you in and how you can hear our conversations in a moment—and are preparing to lead the imminent transformation of our business from being too often characterized by “product of the month” to delivering comprehensive financial advice addressing investors' genuine concerns.
Tiburon founder Chip Roame laid it out to the audience at his recent CEO Summit. “If you’re not maximizing retirement income and addressing taxes, Social Security, and healthcare, what are you doing? That’s what investors want.”
These next-gen leaders are focused on what investors want and aren’t getting. They have made acquisitions and mergers to stitch together traditionally separate industries—wealth and asset management, workplace retirement, insurance and annuities, and financial technology—so they all pull together to benefit consumers.
They are remaking their service, digital and guidance experience to be ready for a future with fewer financial advisors to serve even more investors who know they could be “retired” for 30 years or more.
These four companies understand the remarkable potential and power of 21st-century tech—sophisticated and coordinated algorithms, APIs, and AI—to improve investor outcomes, increase advisor productivity, and enhance their own profitability. They are also addressing taxes, which have the biggest effect on investor returns and income, as explained in a Vanguard study on “advisor alpha.”
We saw what happened when the pandemic generated a rush to the retirement door. Advisors were caught using what amounted to an abacus—spreadsheets, the 4% rule, or their best guesses. When clients needed us most—to know how to convert from working person to retiree—our industry failed them.
Morgan Stanley, Edward Jones, Franklin Templeton, and Empower are on the way to coordinating all the points of a financial compass, optimizing cost, risk, Social Security, and taxes. The new disruptors are relentlessly driving toward giving consumers what they want and need.
Morgan Stanley: Widen The Funnel
Morgan Stanley, the clear leader, has been building its comprehensive advice platform since their 2009 Smith Barney merger. They invested heavily, executed deliberately, rounded out their vision and expanded their reach with E*TRADE, Morgan Stanley at Work, and Eaton Vance/Parametric—all on top of coordinating multiple capabilities on their industry-leading wealth management platform.
The payoff has been significant. According to Tiburon Research, Morgan Stanley joined Schwab and Fidelity in the top three firms in net new asset gains over the past three years. Merrill is far behind at #4.
“We always thought the future of wealth management was going to be the combination of best-in-class advice and best-in-class technology,” Jed Finn, Morgan Stanley Wealth Management COO, told the 2022 Next Chapter: Rockin’ Retirement conference (Finn explains more in this podcast).
Finn doesn’t buy the assumption that clients either want to manage everything independently or hand it over to an advisor. Instead, investors change behavior over time. Morgan Stanley plans to be there when they do.
“We think of it as a big asset acquisition funnel that starts in the workplace or the self-directed investor on the E*TRADE platform, but ultimately is designed to end up in a full-service advice relationship,” Finn said.
Morgan Stanley is executing its multi-year technology plan with tax management at the core. They want to deliver the sizeable net gains Vanguard referenced—“up to 3%” per year”—using a variety of risk and tax-smart strategies, including LifeYield’s multi-account optimization methodology to provide comprehensive tax alpha. And they have gone further with Intelligent Withdrawals—an industry first—that maximizes income across multiple accounts.
Empower/Personal Capital Bets On The Workplace And Fintech
Workplace retirement company Empower has made some bold moves by acquiring Personal Capital and recordkeepers like MassMutual, Prudential, and many others to become the second-largest retirement plan provider behind Fidelity.
It’s a powerful example of how strategy, acquisitions, and execution create results:
- Retirement plan participants benefit from using Personal Capital and Empower’s suite of digital tools.
- Their advisors, plus many non-affiliated retirement plan advisors, are enabled to help participants with rollovers, taxable assets, and long-term financial concerns.
Ed Murphy, the CEO, is rightly proud of Empower’s strong value proposition and performance. He said surveys show their “user experience is viewed as simple, elegant, intuitive, outcome-oriented—all things customers want.”
“During our due diligence, we learned Personal Capital customers engaged 17 times a month with their advisor, on the web, or the app,” Murphy said. “Imagine if we could drive real transformational change around engagement as an industry, what the results could be. Wow.”
This is excerpted from an interview with Ed for my WealthTech on Deck podcast. Click here to be alerted when it’s available on Spotify and Apple Podcasts.
Edward Jones: Where EQ Meets Financial IQ
Edward Jones is noted for its commitment to clients, and training advisors, who are in 68% of the nation’s counties. They have invested heavily in research and tech, spending $1 billion in 2022 and shaping how advisors can work more effectively with clients.
Ken Cella leads the branch system and calls this “human-centered, complete wealth management.” It’s based on work with The Harris Poll and gerontologist and Age Wave founder and CEO Ken Dychtwald, Ph.D. (for more Age Wave insights, go to edwardjones.com/newretirement.)
The research shows longevity combined with experience and recent events created four pillars of the new retirement: family, health, purpose, and finances. All are essential to well-being in retirement. All belong in conversations their advisors are encouraged to have with clients.
In a joint podcast interview with Cella, Dychtwald said the research found: “What mattered most to respondents was their health, the people they love and having some sense of purpose in one's life. Many boomers view this as a new chapter in life. That’s a different discussion than the average advisor is accustomed to having with clients.”
Edward Jones is working with Envestnet|MoneyGuide and other tech companies to arm its nearly 19,000 advisors with tools to help clients achieve their goals by maximizing retirement. Advisors are being trained in emotional intelligence (EQ) and tools that coordinate financial planning, tax-smart and risk-smart accumulation and retirement income.
“We are really skilling up our organization to respond, to get to a deeper level of empathy, where we’re truly connecting with clients because their needs are being met,” Cella said.
To be alerted when the Cella/Dychtwald podcast series is available, click here.
Franklin Templeton/Advisorengine Walks The Talk
Franklin Templeton’s award-winning Goals Optimization EngineÒ is available on the AdvisorEngine platform and soon for Vestwell’s retirement plan users. It’s an intriguing case of a traditional asset manager forging digital capabilities that enhance advisor productivity and investor/advisor outcomes.
AdvisorEngine, with GOE as a critical piece, is one of the most advanced advice platforms today, and further enhancements are imminent. Advisors can create personalized implementation plans across multiple accounts that:
- Coordinate asset-allocated portfolios with tax alpha—through tax-smart asset location, transitions, harvesting and rebalancing—to maximize returns
- Are primed to suggest the optimal withdrawal sequence, including Social Security
- And is adaptable as clients’ goals and needs change
Deep Srivastav, digital investment solutions head at Franklin Templeton, told me that many talk about aligning advice to goals. Still, few can do the walk in a dynamic way that responds to personal circumstances, changing markets, and tax considerations.
“With GOE’s massive computing capability, you can tease out information on clients’ goals at any point, arm advisors to have meaningful conversations to help clients make smart, personal decisions,” Srivastav said. Click here to be alerted when this podcast interview is available.
What’s Ahead?
Table stakes for the future will be the ability to automatically and repeatedly:
- Generate tax alpha for investors across multiple qualified and non-qualified accounts accumulated over 40 years or more.
- Help investors along their accumulation and decumulation journeys, addressing their most pressing needs: retirement, taxes, Social Security, and healthcare.
- Answer investors’ point-in-time questions about their next-best moves with required minimum distributions (RMDs), Roth conversions, life insurance and annuities, and how to tax-efficiently transition assets as they consolidate.
The disruptors who do all this will attract more investors who are predisposed to consolidate accounts, and they will join the leaders in net new asset gains. Think of how Amazon brought Borders and Barnes & Noble to their knees. Netflix made Blockbuster a meme. eBay created a model often imitated by sites like Poshmark, Etsy, and Bonanza.
With up to 12,000 people reaching age 65 each day, the marketplace eagerly awaits financial advisory services that match the expectations Amazon and others have created for speed, ease of use, accuracy, selection, personalization, and improved financial outcomes.