Technology offerings are closing the gap for RIAs seeking solutions previously only found at the industry’s largest firms.
An accounting optimization tool from Orion and new client-facing technology from the Carson Group are examples of tools opening up abilities for independent advisors to compete at a greater scale.
“The notion that wirehouse technology from an investment-ticking standpoint is superior to your typical mom-and-pop retail advisor is changing,” says Davis Janowski, senior analyst for Forrester Research. “It’s taken about a decade to get to this point — and Ron Carson is a perfect example of this — of firms being on par in terms of their reputation surrounding technology.”
Carson Group rolled out their newest client-facing portal called Digital Client Experience that eliminates duplicate data entry and could save advisors time and money, according to the firm. The tool helps advisors aggregate client balance sheets and streamlines onboarding.
“Having a consolidated balance sheet is a commodity now — that’s not new and exciting,” says Teri Shepherd, chief operating officer with Carson Group. “Clients are demanding higher value from advisors now.”
Since introducing the platform, the firm has almost $1.2 billion in new client assets that is at least partially attributed to the new portal, she says. Carson has invested $52 million in technology over the past five years, according to the firm.
Likewise, accounting service platform Orion’s newest offering uses direct indexing to create the level of tax efficiency formerly only found at the wires. The Advisor Strategy and Tax Return Optimization tool suggests a set of stocks that mimic a certain index and can automatically harvest more tax losses than with the single fund, says Orion CEO Eric Clarke.
“With an ETF, the tax situation depends on one ticker,” Clarke says. “But if you own select sets of securities within that ETF, then sell your losses and replace them with similar stocks that don’t change the overall makeup, you’re creating significant losses to offset those gains.”
The advanced tax harvesting technique known as direct indexing has been utilized by the wires for years. “It’s really allowing advisors to scale up their abilities to a level that is getting closer and closer to the multi-million-dollar investments that the wirehouse made in technology,” Janowski says. “There is closer parity.”
While this technology is nothing new for the big brokers, RIAs, especially breakaways, are reaping the benefits of the new technology.
“There’s no shortage of breakaway brokers who are opening up firms and aspire to continue to work with the level of clientele they did at wirehouses,” Janowski says. “Now, they get to pick their own toolset and can fill in what’s missing.”
Orion’s ASTRO also gives RIAs another new ability — portfolio suggestions that can incorporate legacy holdings. Normally, an advisor would have to create a customized portfolio to balance out the low-cost basis holdings, something that requires heavy lifting from advisors, says Alex Murguia, managing principal and COO at McLean Asset Management.
The optimization tool takes those holdings into account when suggesting portfolios so the client can keep their legacy positions and dodge the long term capital gains tax.
“If a client has legacy positions, it’s par for the course to blow up that portfolio regardless of the capital gains [tax],” Murguia says. “Advisors think, ‘So, be it. This model is better overall.’ ” ASTRO can help mitigate potential risks from legacy holdings without making a sale.
“Now, you’re able to keep those legacy positions and construct a portfolio that still follows your overall tracking for a particular index.” Murguia says. “It’s almost like a personalized index fund, but you are not spending the expense ratios. It basically removes the middle man.”
While the tech could help RIAs get on par with their larger rivals, it won’t come cheap, Janowski says.
“Let’s be honest, Orion is not an inexpensive offering,” Janowski says. “But for the right firm that can make the most use of it, it’s good value.” The ASTRO tool is priced as an annual fee of $50 per account, according to the firm. Currently in beta, the tool is expected to go live March 1.
“In order to do the heavy lifting on an individual account basis, advisors need a powerful engine that is typically only available in the institutional setting at a much higher price point,” says Joe Smith, Orion senior market strategist. “We see this direct indexing technology as leveling the playing field between advisors and the large asset managers.”
“Tech scales in a way that humans don’t,” Janowski says. “For years, the wirehouses didn’t have any competition in terms of tech. The advisor facing tech was not up to par and not as good — not as well integrated. We’re seeing tech finally catch up and eliminate the manual processing and allow firms to grow up and into billion-dollar firms.”
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