Asset managers have debated how much of an impact a Silicon Valley giant like Google could have if it were to enter the industry.

But among tech giants, Amazon's CEO Jeff Bezos should be the most closely watched, says Riskalyze CEO Aaron Klein, arguing that it has the retail infrastructure and distribution to disrupt financial services.

Amazon's multibillion acquisition of Whole Foods launched a wave of speculation about what other industries could become a target for Bezos.

"We think that automating client engagement and account opening isn't quite enough," says Riskalyze CEO Aaron Klein.
“Our target with the Autopilot platform is the 74% of the market that doesn't use a TAMP,” says Riskalyze CEO Aaron Klein.

Klein, whose Auburn, California-based firm is now competing with asset managers like BlackRock to provide advisers with risk and portfolio management software, sees regulation as a serious barrier for entry.

But eventually the cost of doing business will become attractive enough, Klein adds, that an Amazon could be tempted to enter.

An edited transcript of the conversation follows.

Do you think there's a fine line between automation and personalization?
If you look at the approaches advisers have been using to implement their investing decisions for their clients, historically they've had to choose. They've had to ask, 'Will I have automation, or will I trade each client's account individually and have personalization?'

We partner with a bunch of the great TAMPs that advisers will outsource their business to. That's a fine business model. Our target with the Autopilot platform is the 74% of the market that doesn't use a TAMP because they're committed to this personalization aspect and they feel like they can't get that if they give up control to outsourcing. We're giving them the technology tools to achieve that automation while still maintaining the personalization.

Your firm's platform features funds from a number of asset managers who are also offering the same sort of adviser tool that your firm offers.
Baked into our DNA is the ability to build amazing technology for advisers that takes a ton of complexity and hides it into a product that advisers love to use. We believe that the transition from do-it-yourself to the automated account era is really similar to the change from flip phones to the smart phone era.

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“Once Amazon has a working business in personal finance and banks, then maybe we start worrying about what they’re going to do in investing and in wealth management.”

The reason we have chosen to work with great asset management partners is because we believe that their DNA is in building great portfolios. And that's not our DNA. So we're going to focus on what we're really good at, we're going to work with great partners who are focused on what they're really good at.

I'm sure that some of these asset management partners are going to try to also do their own technology initiatives. But I'll put my money on companies like us where that's baked into our DNA in terms of building superior technology experiences that actually work.

I'll put my money on them when it comes to building great portfolios because, again, that's baked into their DNA and they've got a long track record of doing so. I view this as a long-term partnership, and mind you, we actually work with a lot of those partners to equip them with technology. Sometimes the offerings that you're hearing about and seeing from those partners are actually coming from a technology partner like us. It depends how it goes.

Is the future of this technology market going to come down to, the most simple, wins?
[As an industry] we have often allowed complexity to be the enemy of progress for our clients. The advisers we serve are all very focused on what makes their client successful and when we hear demands for complexity from those advisers, we try to turn that back and say, 'Can't we help you help your client achieve the end result you're looking for in a much simpler way?' And we hear a pretty strong response back that, yes, that's the right answer.

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Complicating things for no reason, it may look cool; maybe you try to use it to differentiate yourself on the technology side, maybe you try to do it to differentiate yourself on the advisory side. The reality is people choose advisers because they feel comfortable with them, they trust them and the adviser is telling them information they really can't hear somewhere else.

We just continually find that if you can make life simpler for the adviser, it really allows the adviser to showcase what's great about them. The unique benefits that their firm provides to the client, the behavioral coaching and what I like to call it being the financial consigliore that advisers love to be for their clients. We want to take time and focus away from the complexity of technology and let that stay for the background and let the adviser really shine.

Jeff Bezos calls, he says, 'I've got this idea about wealth management, Aaron, what do you think?'
(Laughs) There is always so much talk in our industry about, 'Oh, what happens if Google gets into finance, what happens if Facebook gets into finance?' I think it's an interesting hypothetical discussion. I think that it's always possible, but I would go back to the DNA question.

I love that you picked Jeff Bezos, because Amazon is the closest to maybe having the DNA to do something in the wealth management space. I don't see that with Google, I don't see that with Facebook. They're great at building services to organize information and do social. But I don't know anybody that wants to be social about their money. I've never seen the benefit of Snapchatting my investments.

So when that kind of call happens, the question you're asking is, Amazon could be an interesting customer for this technology, but it's going to be a very different world for Amazon. What's not in their DNA is working inside a regulated industry like this. The regulatory framework that advisers understand and work within is a big piece of the puzzle, but great businesses are built from having a great product to offer and having distribution to get there. Amazon has a very interesting level of distribution, they have relationships with customers. Any time you talk about a player that actually has distribution, that's interesting.

Now they'll have physical locations.
Would you go meet with your adviser inside of a Whole Foods? I'm not sure. Again, I think it's interesting to bring up Jeff Bezos because if there is one technology company you could envision actually having the credibility to maybe try to have an offering like that, I don't look at Google and Facebook and say I would trust them because who would you call if something got screwed up?

Amazon gets a little closer, but I still think the ace up the sleeve of every human adviser is when you get to a certain point in your financial life, number one, you really want somebody to tell you how to navigate your finances. Finances are complicated, not something you want to leave to chance, and not something you want to figure out yourself. And you really don't want it getting screwed up.

So as a result, this is really a trust question, just as how a client chooses an adviser. Could Amazon build that kind of trust? Is it interesting to them to build that kind of trust, to be in that business?

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“[As an industry] we have often allowed complexity to be the enemy of progress for our clients.”

One would argue that they've got a lot of other territory they could conquer in financial services before they get to investing. Like, why isn't Amazon my bank? So once Amazon has a working business in personal finance and banks, then maybe we start worrying about what they're going to do in investing, in wealth management.

You noticed that Facebook has now started its own payments service, though, and they're touting it as an alternative to PayPal.
It's sending money from one person to another. That's an interesting start. If they morph that into making it compelling for me to actually store money with them, that's another interesting step. But those are sort of the steps that you have to take before you can get to a place where you start thinking about whether or not that makes sense.

I look at all the different startups that are thinking about that, and to some extent I think they may simply turn out to be lead generation engines for real advisers. Do I want more of my money to go to our charity in Ethiopia or do I want more of my money to go to taxes, and how do I structure that to make sure that that happens that way? That's the kind of question that I'm not going to get a good answer to on Facebook Messenger. To really delve into that I'm going to need to sit down with a real adviser and that's going to be worth the fee that I'm going to pay to that adviser.

Do you see at some point the cost of doing business becoming cheap enough for outside firms to consider jumping into wealth management, despite the regulatory hurdles?
Potentially, but I will say that, if you are going to overcome the regulatory hurdles, again, I would look to when they actually become banks. It is wildly more profitable to be a bank than to do wealth management inside of that bank.

A bank will probably earn about 200 basis points on the money that you deposit with them and they'll earn about 30 basis points on the money that you invest with them. For many banks, the only reason they do investing is because they've already got the customer, the distribution is already built in.

So I would completely agree, the first step is the ability to send payments. The next step is to make it compelling for you to basically use me as your bank.
Square is in the middle of doing that. We've gone from an adapter where I can take credit cards on my phone to Square Cash where I can send money between phones electronically, to now I can get a credit card attached to my Square Cash account. I can keep my money in Square Cash. They're not paying me any interest on it yet, but give them time, that will become a bank. Once it's a bank and you've got money there, well then they would probably follow the same pattern, they want to provide that incremental service that drives another 30 basis points of revenue.

Lenders have done that. SoFi is now offering wealth advice and applied for a bank charter.
SoFi has figured out they can scale the business using lending and then take those customers and move them into investing, somewhat similar to what the banks are doing. SoFi may have found a good channel. What we have learned over the last five years is that it's incredibly difficult to have your starting point be investing. That's a bit of a moat that human advisers can be happy about that's around their business. The reason that they acquire clients is they go out into the community and build trust and get referrals, and that's something that an online brand finds very, very difficult to do.

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Suleman Din

Suleman Din

Suleman Din is technology editor of American Banker and Financial Planning. Follow him on Twitter at @sulemandn.