The Invisible Infrastructure Powering Insurance Innovation with Rich Romano

[00:00:12] Doug Heikkinen: How do you see the role of technology evolving in the insurance industry, particularly with the increasing demand for customer-centric experiences and embedded insurance solutions?

[00:00:22] Rich Romano: Yeah, that's a mouthful, right? They generally don't go together. And I think it's a testament in terms of, the stuff we've done over the last eight years. I think we've always had that in mind, which was meet the advisor, the firm, and the client where they do their business. And, really get rid of all of the fragmentation, the frustration, the inefficiencies, in bringing insurance solutions to market. And, we're there, right? We started out out of the gate in '17 thinking that we were going to really focus on fee-based annuities, got feedback from distribution saying, Hey, this platform works for everything. Why wouldn't I have a single solution? So even as we look to embark in new business ventures, it really, I think is, based on the fact that the technology is finally there to create all of these connections in a way that they seamlessly work together so that it's no longer an away experience.

[00:01:11] Doug Heikkinen: What are the biggest challenges facing the insurance industry today, and how can companies like FIDx address those issues?

[00:01:18] Rich Romano: if you think about everything you see in the industry, Vanguard released their, in the press a while ago saying, Hey, let's cut 50% off the fees, right? Compression, compression, compression, around fees.

Everyone's facing it. And every client is now saying, what am I getting for my money? Every advisor, they math everything out and say, is this worth the a hundred basis points, the 70 basis points I may be paying on this investment product. And really, I think what's been important is the ability to drive efficiency and reduce costs, not just for the product, but all of the services required to deliver that product.

When you can do it in an efficient way where you have less need to contact third parties, work with outside technology, not have to go other places to get things, you start realizing not just real economies of scale from the technology perspective, but there's a lot of business that walks away in the industry today.

And what we've found is that we're able to help recoup that because when you get rid of the frustration, and, you know a lot of times I'll go to the food store, I wanna buy something. If I have to go to another store, I'll find something similar in the store I'm in because it's just too much hassle to go somewhere else.

We're really starting to see uptake. And I think when you think about it from the carriers and the manufacturer's perspective, they really have done a good job in the past four or five years, and I've been at this my whole life, of starting to work together, right? To say we should be looking to build industry solutions versus, my products better than your product.

[00:02:46] Doug Heikkinen: FIDx was founded with the goal of integrating annuities into wealth management ecosystems. How has the vision evolved and what milestones have you achieved?

[00:02:55] Rich Romano: So we'll start with the last part. We're getting mandates. So as I was just talking about earlier, firms are now running their entire book through platforms.

So they're commission-based annuities. They're fee-based annuities because they realize one single platform is what they want to do. We started out with the vision of let's just connect the dots and allow annuities to be done alongside of managed accounts. And along the way, getting a lot of feedback from distribution firms, it really became an adventure of satisfying that entire life cycle, right? So that everything was holistically looked at, that advisors had single portfolio, single clients. So, we've heard that loud and clear. And I think we've also learned that people love the benefits of annuities. So guaranteed income, legacy protection. How do you give that to them and not necessarily have to have them lose the money away to outside of the portfolio?

[00:03:48] Doug Heikkinen: Yeah. I'm laughing because annuities were a good thing then they were a bad thing, and now they're a good thing again.

[00:03:54] Rich Romano: Yeah. The last 10 days, right? if you think about it, I always tell people like, Armageddon is good for insurance, right? People getting yippy or getting very worried about what's going on, they want a blanket, right? They wanna rest their head on the pillow at night and say, I feel good because my income's been guaranteed. So yeah, I mean, more and more advisors though, are starting to realize the benefit, right? Of the, as we focus on retirement, we focus on solutions that people can live dignified retirements and not worry about their money, they're, quickly coming back into fad.

[00:04:26] Doug Heikkinen: Yeah. You emphasized that FIDx aims to be invisible within platforms like in Envestnet. Elaborate on how the seamless integration benefits advisors and end clients.

[00:04:36] Rich Romano: Yeah, it's really critical and we still say if nobody knows who we are in five years, then we've won, right?

Because, when you're on a platform, you've picked that platform. A broker dealer or a banker, an RIA, they pick in Envestnet or they pick Fidelity, or they pick Orion, or they pick whoever they want to pick because they believe that delivers the best service and the best class of products and what they need at a home office and an advisor perspective.

We believe that you've gotta fit into that so that the advisor has no idea that if you're on a screen, if it's a Envestnet widget or a FIDx widget, no one should care. Does it work? Does it meet what they need to do? And does it allow them to get the job done for their client at the end of the day? So we continue to live there and a lot of times we say one store, many doors. And I don't care what door you come through, as long as you get into the same store, then you know you've done the right job.

[00:05:28] Doug Heikkinen: It wouldn't be a podcast unless we mentioned AI. Are you leveraging AI in optimizing annuity offerings?

[00:05:34] Rich Romano: We, so it's, interesting and, I think there a lot of people very quickly say, use AI and reduce your head count, reduce your cost, and make things better. And there's a significant amount of complexity in a lot of what happens.

We've worked, started working with AI in terms of providing internal chatbots for our people that support advisors and clients. An advisor calls up and says, which one of these products offers the best guaranteed income for me and my spouse? And, what should I be looking at?

So, inside of our broker dealer, we have tools that they can ask and say, out of all the products on the shelf, which ones offer this? We're starting to look at ways to use that to create proactive insights for advisors. But we all know AI is not a calculation tool or a recommendation engine.

So it's very wary of trying to figure out how do you not cross into the recommendation space. Because we all know, people also say, AI likes to hallucinate. So I think it's only as good as you can educate it. So we're really focused on internal AI rollout and then figure out how can we use it around data scrubbing and process scrubbing, and then determine how do we potentially roll it out externally to clients.

[00:06:47] Doug Heikkinen: How does FIDx approach to data and how does that help advisors provide better outcomes for their clients?

[00:06:53] Rich Romano: It, again, so it's about having, it's no different than what Envestnet does or any other firm does with their brokerage account information, right? The information they get from Fidelity and from Schwab and from other custodians and from Morningstar and all these reference data providers has to be aggregated, it has to be correct, and it has to be simulated in a fashion that, at the end of the day, the advisor looks and they have a household. The advisor doesn't care how it gets there as long as it's there and it's correct. So we really have focused on taking a lot of the industry standard data feeds, and starting to work with the data providers to create consistency in the format.

There's a lot of consistent formats out there that say 10 fields, but there's a lot of great inconsistency in what everybody's stuff's in field number two, like account value. Is that today's account value? Is it the beginning of the year, the end of the year, before the transaction? So we're trying to really standardize the information that's being put into the fields.

[00:07:54] Doug Heikkinen: The industry has traditionally been dominated by commission-based annuities, but you focus heavily on fee-based products. What factors are driving the shift and how can it benefit advisors and their clients?

[00:08:05] Rich Romano: It's interesting. It goes back to that question you said, like, where are we on our journey?

We, we still continue, fee-based advisors. We believe fiduciaries wanna be fiduciaries and they wanna offer products that fit into them working in the best interest of their clients. But there's a lot of cases where things like commission-based MYGAs, right? A multi-year guaranteed annuity works for a client or a fixed indexed annuity.

And where we are on that journey is two things. One, firms are now saying, I want a single platform. So they're pushing all of their commission and fee-based annuities through our platform. So we're not solely focused on, fee based, we're focused on single experience for firms.

But from a fee based perspective, we are starting to see things move in terms of advisors getting more comfortable that by not actively managing, say an advisory account, they're using an annuity, that they're getting more comfortable with charging the advisory fee on the fee-based annuity, which is starting to take up. And then the last one on there is that, this fee from annuity is a big thing, right?

So for a lot of advisors that were doing commission-based annuities and they wanna start becoming fee-based advisors, they don't have a managed account to take a client fee from. So a lot of carriers have gotten the approval from the IRS that the advisor can take their advisory fee directly from the fee-based annuity.

So it allows an advisor now to use that as the tip of the spear offering with a client. So we are seeing uptake in that book of business.

[00:09:33] Doug Heikkinen: What role do you see annuities placing in addressing risks like longevity, market volatility, which we talked about earlier, tax efficiency in client portfolios?

[00:09:43] Rich Romano: Yeah, I think it's a yes to all, and one of the things that we're now working on is we've developed a new marketplace called the Insurance Overlay Marketplace. And it allows those benefit of annuities, because advisors like them to be wrapped around their managed account.

But if you think about longevity risk, there was an interesting article I think I just saw that came out that, obviously, they said if you had a client who was extremely heavily weighted in equities, upwards of greater than 80%. And they retired four years ago, they'd be outta money, right?

You look at the 60/40 portfolio and they still have some money. But as we look at what's happened lately, there's a lot of people that are heavily invested in equities. Having that longevity risk protection of guaranteed income or some sort of minimum or protection of assets, like in the fixed index products, really does play a significant part of protection and guarantee in the client outcome in the portfolio.

[00:10:39] Doug Heikkinen: FIDx collaborates with a number of platforms. How do these partnerships enhance your ability to deliver comprehensive solutions to advisors?

[00:10:47] Rich Romano: Yeah it's, what's nice is that if you think about from a persona perspective, you'll have even inside of a large institution, you'll have a financial planner.

If they're in MoneyGuide Pro, they can get access into FIDx. If they're an asset allocator and they are doing work around building an advisory account, they can get to FIDx through in Envestnet. If they're an RIA, they can get to FIDx through Tamarack. If they're using the iCapital platform, they can get to FIDx through iCapital.

Inside of a firm, you could have three people sitting next to each other, a planner, an asset allocator, and a home office person. After three clicks, regardless of where they came in, they're in the exact same experience. What we allow is for carriers to consolidate all of their information and get it out to everyone in one consistent fashion.

So regardless of what door you walk into, it's the exact same store.

[00:11:40] Doug Heikkinen: Last one for you. Looking ahead, what new partnerships or technological advancements do you believe will further transform the integration of insurance products into wealth management ecosystems.

[00:11:51] Rich Romano: I think it's the, what I just mentioned earlier, it's concepts like insurance overlays where, we're working closely with some of the largest asset managers in the industry.

And if you think about somebody who wants to wrap a BlackRock model or an Invesco model or a Franklin model, the ability that five days ago I had that advisory account, and let's say there's a 30% unrealized gain in there, and all of a sudden you go through the downturn and you say, I'd like to have income protection.

You can turn it on that portfolio without moving the assets. So I think the assets, staying with the advisor, with the firm versus going to a carrier and transferring is gonna be essential, right? And then if there's a life event in the client's life five years from now and they don't need it, you can turn it off.

And really that contract is sitting away. So the fact that carriers getting comfortable with the fact that they don't need to have the assets transferred in, that they're willing to underwrite the protection or the income guarantee for that client on their portfolio is really the next generation, I think, where you look at all the assets that are moving to models and moving to UMAs.

You've gotta find a way to have these solutions wrap around those accounts.

[00:12:59] Doug Heikkinen: Rich, you guys are doing great stuff. Thanks so much for being with us today.

[00:13:03] Rich Romano: Thanks for having me. Great to see you again.

[00:13:04] Doug Heikkinen: For more information about FIDx, please visit FIDx.io. Please follow us on X, LinkedIn and Facebook, all at Advisorpedia.

For everyone at Advisorpedia, our producer Tory Miller and The Power Your Advice podcast team. This is Doug Heikkinen.