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Sachin Shah
Where is advisor technology helping create new opportunities?
SACHIN SHAH: As the world is shifting toward model portfolios, the majority of advisors still try to build their own investment models and a very small percentage will truly outsource them.

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However, advisors are still trying to figure out how to use them while maintaining their practice and owning the investment piece of the practice. Advisors can buy a model off the shelf and try to pass that through to clients but the trouble becomes customization. How do you justify your own advisory fees while acting through these models? Building their own investment vehicles or tweak something off the shelf just takes a lot more time.
How difficult is it for advisors to choose the right tech?
In the RIA ecosystem, there are a number of growing fintech or wealthtech firms that are all trying to build technologies to make existing processes more efficient or to bring new investment processes to market. Many fintechs are integrating with each other to capture the full advisor workflow, which again is very difficult for the advisor. We talk to advisors everyday and in many cases their heads are spinning. It’s difficult to put together a useful set of services that’s going to provide the best client experience. A handful of firms are trying to be that all-in-one solution or some version of a TAMP either through acquisitions or organically. The trend is going to continue.
How is the role of the advisor changing?
Advisors are beginning to see themselves more as asset managers. They have more tools available to them and more capabilities in order to build their own models or tweak things off the shelf. They can deliver those models to clients in a meaningful way. Technology has created operational efficiencies. That’s great for RIAs, but it’s also becoming a danger. Firms need to evolve or they will die.
No-fee ETFs are gaining popularity. Are they good for clients?
Zero-fee ETFs are attractive to the end client. However, advisors need to truly understand the cost. The sticker says zero, but the underlying costs are still material. There is a road to zero, but it’s not happening as fast as it may seem. There are different aspects of the ecosystem: Customers, traders, investment providers. The fees are going to continue to shift and adapt. Ultimately, people need to get paid.

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How has passive investing changed strategy?
ETFs are cost effective. And by implementing tax management on top of those index strategies, they can give clients index exposure based on a benchmark of your choice that can also deliver tax alpha. There haven’t been many opportunities to harvest losses in the past few years with a crazy bull market. Now, we’re starting to see opportunities to create tax-loss harvesting.

There are things you can ultimately control in any market, the underlying fund fees and taxes. You can focus on creating outperformance by focusing on fees and taxes instead of trying to beat a benchmark.
How are new technologies benefitting the end client?
One trend, which is a true value add to clients, is active tax management. It’s been particularly important with this big push to direct indexing. Obviously, direct indexing has gained a lot of attention in the news recently. There are index-based asset allocation portfolios that are creating better after-tax returns and doing it in a dynamic way across the entire year. It’s really taking advantage of those tax opportunities. It’s a key way advisors are providing value and generating revenue.
What trends do you see in the advisory space?
One trend people are trying to address through automation and customization is the lack of equal services provided to customers. The advisory business as it stands today still needs a lot of work so that all clients are treated equally. There is no reason why the $10 million account should have more services than the $1 million account. There are core services that need to be provided no matter the asset level. The advisor needs to be a fiduciary in the same manner whether it’s in the large account or the smaller accounts.
Why are there different levels of service?
The reason there are different levels is because of the time it takes to service accounts. Many advisors focus on the large accounts that need tools, like tax loss harvesting, tools on asset allocation to deliver a justified portfolio that makes sense for the risk profile. This level of service needs to be available to all and be implemented in a timely manner. Technology is allowing advisors to service more clients. The democratization of that client service model will happen across the industry.
Why is client data so important?
The biggest challenge people talk about is capturing data to help support a better client experience. RIAs are going to need to invest in a big way in the client data model. They’re going to need to understand their client needs across the book of business. Once they understand and capture that data through technology, then they can really create a personal experience. They need to digitize the various processes but not dehumanize the process. It’s a digital experience coupled with human interaction.
What’s driving new growth?
The industry needs to get to a point where we are collecting client data to really personalize the experience. It’s beyond CRM. It’s how your clients are behaving every day, whether that's through brick and mortar or online behavior. That’s the big data challenge. That’s why you see firms like Amazon and Google moving into financial services. They have all that data. If they chose to enter wealth management specifically, they will have a massive advantage. Ultimately, a much more robust set of data is going to drive how financial plans are built and how investment models are selected.