What advisors really use fintech for, and why ease of use matters most: Wealthtech Weekly

July 7, 2023 5:44 PM

Financial advisors are increasingly dependent on technology to do their jobs, and the current environment offers plenty of third-party tools to choose from.

But when it comes to the tasks they turn to their tech to the most often, they tend to stick with suppliers that are close to home.

On Monday, ISS Market Intelligence released the findings of its ISS MI Market Metrics Fintech Study. The industry analysis conducted in May as part of an ongoing research effort polled 814 U.S.-based financial advisors on their interest in fintech provided by asset managers, home offices and third-party sources.

According to the study, more than 95% of respondents said they used technology to handle trading and clearing, portfolio rebalancing and/or investment analytics. ISS Market Intelligence found trading and clearing to be the most popular use of fintech among the surveyed advisors with just 3.8% saying they are not using the technology for these purposes.

But third-party vendors are having trouble breaking into that category. The study finds that three-quarters of advisors reported using software provided by a home office for trading and clearing.

However, the investment analytics category sees things get a bit more competitive with 26% of advisors using asset manager software, and 41% using third-party software for this purpose.

BlackRock led the way as the most popular provider of asset manager-provided investment analytics software and was used by 26% of survey participants. JPMorgan came in second place, but trailed by nearly 10 percentage points.

Direct indexing and portfolio construction was another strong category for asset managers with 24% and 29% of advisors, respectively, using their software for these functions. Vanguard proved to be the most popular manager for direct indexing software, with 1 in 5 surveyed advisors reporting its platform as the best, though other managers found success within specific channels.

Wirehouse advisors, noted in the study as being the most enthusiastic adopters of direct indexing relative to other distribution channels, reported Morgan Stanley as their preferred platform.

The RIA channel, which had the lowest reported use of direct indexing solutions, saw Schwab tie with Vanguard. Both entities took the top spot among 21% of surveyed RIAs.

The survey also found Blackrock, which offers portfolio construction services through its Aladdin software suite, to be the most popular manager among all three channel segments for the task, with 1 in 4 advisors reporting it as their preferred provider of portfolio construction software.

The study also allowed advisors to share preferences and concerns relevant to asset managers and third-party providers in crafting fintech solutions. Ease of use was top of mind for the vast majority of advisors surveyed, with 80% reporting it as a top three factor in selecting fintech tools.

Survey participants similarly rated best-in-class features (43%) and level of integration (44%) as key factors.

But word of mouth and a long track record don't seem to move the needle. The study noted the "relative unimportance" of peer recommendations, existing reputation and longevity in advisors' decision-making.

"With only 5% of advisors considering market longevity and 2% considering peer recommendations as their number one factor, newcomers to the fintech market can be optimistic that managers will seek out the highest quality product, not the most entrenched," Greg Bawin, head of U.S. research at ISS Market Intelligence, said in a statement.

Scroll down to get caught up on other recent fintech news you might have missed in our Wealthtech Weekly recap. And check out the previous edition here.

Financial advisor background check site AdvisorCheck wraps $1.8M funding round

AdvisorCheck, a platform that provides investors background data on financial advisors, has announced a seed round of funding that generated $1.8 million.

AIMR Analytics' AdvisorCheck.com displays regulatory disclosures and company profiles for registered advisors through data compiled from FINRA's BrokerCheck, the Securities and Exchange Commission's Investment Adviser Public Disclosure website and the records maintained by six industry certification organizations.

The website, which is free with user registration and draws roughly 50,000 visitors per month, launched on Jan. 2. AIMR Analytics has been developing AdvisorCheck for the past three years, officials previously told Financial Planning.

In addition to the data from BrokerCheck and the SEC database, the site contains details from the organizations respectively overseeing certified financial planners, certified private wealth advisors, chartered life underwriters, certified investment management analysts, chartered financial consultants and accredited investment fiduciaries.

Users can search by an advisor's name or go through lists of professionals in any ZIP code by industry designations and years of experience.

The company also recently launched AdvisorCheck+, a tool that allows investors to perform comparison background checks of advisors they are vetting as well as continuous monitoring of the advisor they select for the life of their relationship.

"Trust, transparency, and the transactional nature of the financial services industry are the challenges that AdvisorCheck was built to solve," Dan Hattori, chief operating officer at AdvisorCheck, said in a statement. "The creation of AdvisorCheck+ allows us to provide additional clarity and create an industry first, the ability to monitor your advisor through the life of your relationship."

A new website called AdvisorCheck.com helps investors see the regulatory history of financial advisors.

Seeds Investor capital grows to $4.7 million as platform eyes additional growth

Zach Conway, founder and CEO of Seeds Investor

New York-based fintech startup Seeds has closed an additional $2 million of seed funding to further its mission of helping advisors deliver "investing as an experience."

Founded in 2019 by Zach and Michael Conway, Seeds focuses on the creation of custom investment solutions that tap into investors' risk targets, behavioral mindsets and values.

To do it, Seeds relies on proprietary digital assessment tools to help uncover what matters most to investors, according to Zach Conway. The latest round of funding, which pushed the startup's total capital to $4.7 million, was led by Blank Ventures.

Participation also included existing investors Social Leverage as well as The Compound Capital Fund, the affiliated venture capital fund of Ritholtz Wealth Management.

"We're extremely grateful to our new and existing investors who deeply understand the wealth management space and continue to support our vision," company leaders said in a recent blog post. "Advisors know that experience matters, yet most are managing an investing process that consists of one-dimensional investor assessments, cookie-cutter portfolios, and meaningless portfolio insights. Investing shouldn't feel like a transactional process."