United Capital's acquisition of fintech software FlexScore isn't your typical robo advice deal.
The criticism of similar deals is that advice offered through the newly acquired digital platforms isn’t advice at all. Instead, many advisors say, the guidance is just a portfolio recommendation based on numbers, crunched by a program.
That's not what FlexScore was built to do, explains its CEO, Jason Gordo.
"We're in the advice business," says Gordo, a former Citigroup advisor. “We seek to help clients gain an understanding of why different financial decisions have an impact on them in the long-term."
Using a patented algorithm, FlexScore's software provides clients with a financial rating, seen through the lens of their daily lives. It then gamifies the advice process, just as modern fitness trackers do, with points recorded toward financial activities and providing wealth goals to attain. Asset allocations are just one of 14 factors analyzed, Gordo says.
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By focusing on what is going on in a client's life, rather than investment income and strategy, Gordo says it's the "hand on your shoulder — talking about what you're doing right, what you're doing wrong, and what behaviors should change relative to your goal," reinvented and automated for a digital age.
United Capital CEO Joe Duran says FlexScore's client-focused profile, patented technology and proven traction — it has 50,000 users — is why they decided to buy the two-year-old firm and add it to its financial life management platform for an undisclosed sum.
"This was completely overlooked," Duran says. "The industry has been looking at robo investing rather than robo planning. The investment part of the equation is not what clients care about. It's about connecting their money to their life. That's what this tool does."
CHANGING LIVES
At TD Ameritrade Institutional’s most recent annual conference, Duran gave a rousing speech about serving a client’s financial life, claiming the approach offers advisors a way to fend off disruptive digital technology and its inevitable squeezing of traditional advisors' profits by commoditizing advice and lowering prices.
Duran says his firm's acquisition of San Francisco-based FlexScore ties directly to that theme. "What matters is how people make choices outside of their investments, and how you can be a part of that. That's how you change their lives," he says.
The software's functionality can address the modern use of devices to quantify and measure progress, he says, keeping the advice interactive, collaborative and simple to communicate.
"Millennials are always measuring themselves,” Duran says. “They like to see how they are doing, how they are progressing. How many likes on Instagram they are getting. We know they are going to be sharing their FlexScores with friends, and will go to their parents and ask how they don't know what their score on their financial life is."
Advice providers trying to upgrade their client outreach haven't figured this out, Duran says.
"It's how consumers now expect to consume financial products," he says. "If they don't understand it, they're just renting it from you. And when it doesn't work, they will fire you."
"This is where the industry is going," he adds. "You have to understand your client's entire personal life, their personal identity, their biases, and apply behavioral economic decision making tools to make it a personalized experience. It has to be digitized to do it in scale, and you have to do it immediately."
NORMAL JOE PUBLIC
FlexScore will become another layer in UC's financial life management experience, Gordo says, adding there are possibilities for the tool to be used inside 401(k) plans.
Before United Capital, FlexScore had discussions with other financial firms looking to acquire technology. During a meeting with one bank, Gordo recalls, the room full of executives couldn’t even agree on what time to bring lunch in. "Big institutions can't get out of their own lane," he says.
Gordo says he supports the robo advice trend, as it reaches as segment of the population that had been without financial advice. FlexScore was built with a similar philosophy in mind, he says, after watching a number of investors fall into despair during the 2008 financial crisis.
"It's a tool for normal Joe Public — get great financial advice, and through your score, custom-delivered action steps that you can follow and improve your financial health over time," he says.
The industry's next challenge, Gordo says, is to understand that the definition of retirement is changing. Gen X'ers and millennials aren't working with the premise that they will reach a certain point to retire, he notes, but will expect to keep working even into their later years.
"Our industry needs to make a significant shift toward helping people live their one best financial life," Gordo says. "I tell clients never put a retirement date or age in mind. Financial ability is much more important than an age."
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