Michael Kitces’ main beef with fintechs and banks

ST. LOUIS — It sounds good at first. The catchphrase “democratizing advice for millions” is thrown around by fintech upstarts and industry incumbents alike to promote their digital-first services and apps, particularly to younger investors.

Except, says one of the financial planning industry’s most tech-savvy advisors, what’s being offered up is not really advice. It’s something else entirely.

“They’re trying to make apps that expand the reach of their products,” says Michael Kitces, a Financial Planning contributing writer and a partner and director of wealth management at Pinnacle Advisory Group in Columbia, Maryland. “They’re all product distribution strategies. Why did JPMorgan Chase launch You Invest? Because they want to get new investors to buy their other products.”

During a roundtable at the annual XY Planning Network conference, Kitces and XYPN co-founder Alan Moore raised concerns about how banks, fintechs and insurance companies fund and roll-out digital-first services. Namely: what is their true intent?

Alan Moore-Michael Kitces-XY Planning Network XYPN
Alan Moore and Michael Kitces are co-founders of XY Planning Network.

"[Such digital services] are all predicated around product sales and distribution and expanding wallet share of products,” Kitces says. The biggest blocking point is the advisors as salespersons themselves since “people are expensive." As a result, Kitces added, firms are asking themselves, "'Wouldn’t it be great if we had technology that could sell our products?’”

Some firms, such as JPMorgan Chase, have launched automated investing services for mass-affluent clients, while others are preparing to do so. Some sweeten the pot by dangling incentives to attract novice investors, such as free trading. A number of microinvesting apps now tout their services as advice, too.

The influx of services that claim to be adding advice to their offerings will in fact complicate the public’s understanding of financial planning even more, Moore says.

“These banks and these platforms can say they’re giving advice when all they are doing is selling a product,” Moore says. “The fact that they can dress up sales as advice does backfire on us. Everything negative that they say about our industry is true.”

There is a role for technology to play in product sales because it can make the process of buying a fund more efficient, says Kitces. But the lines must be clear, he added. That’s why XYPN has advocated for title reform.

“It’s not about forcing products into a fiduciary environment,” Kitces says. “It’s about not calling product sales, advice.”

“The fact that they can dress up sales as advice does backfire on us. Everything negative that they say about our industry is true.”

Adding to that criticism, Kitces heaped scorn on private equity investment in advisor technology. “They have zero interest in investing in financial planning,” Kitces says. “They want to fund tech to replace us, not grow us.”

Given that the trend is here to stay, is there a risk XYPN could be replaced or undermined?

Private equity firms have approached XYPN to offer funding, Kitces said, and added the advisor support network had turned down acquisition offers as well. “We obviously are a business, but we’re not interested in third parties whose primary metric is return on capital,” he says.

The network, which now counts 750 advisors, is still off the radar of the larger industry, Moore adds. "Most incumbents don't know we exist," he says, acknowledging while there could be another such network for niche practices, the XYPN business is stable and aims to become a 10,000-strong advisor network.

Nor do Kitces and Moore consider investing and trading apps or the digital-first offerings of brokerages and asset managers as direct competition, since the average client for XYPN is larger and have more complex needs than those now with digital wealth management platforms.

“We consider platforms like LearnVest as level one planning,” Moore says. “Even the biggest brands like Vanguard. They’re … pointing people in the right direction.”

Kitces added that advisors in the XYPN network have several years of experience, and thus are well-differentiated.

“This advisor base is a step above the call center base,” he says. “Vanguard Personal Advisor Services is not a threat to us. In fact it’s a great source of new advisors.”

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