Joot CEO Bo Howell recently teamed up with the Institute for Innovation Development (IID) to discuss how financial advisers should approach FinTech. The article was published on Nasdaq.com and other sites on August 5, 2019. You can read the complete article here.
(Do us a favor, if you like the article, please share it on social media. If you don’t like it, please pretend like you do and share it on social media!)
Offline, Bill Hortz of the IID asked us a few questions about how we help our clients utilize technology and trends that we are seeing in the RIA space; we even talked about specific partnerships that we’ve had with our clients. Below is a summary of our discussion. Next week, we’ll discuss why more advisers don’t partner with FinTech in the compliance space. Enjoy!
Sometimes the biggest challenge is to determine what the main problem really is. How does Joot work with clients to isolate what the real problem is and what to focus on?
You are absolutely correct! Often advisers want help, but they don’t have a good idea of where to start or how much it’s going to cost them. Before we even offer a technology product, we will sit down with our clients and review their business, compliance program and resources (both internal and external). By analyzing their program and resources, we can identify the best path using their current infrastructure. We often use this initial analysis to identify gaps. In this sense, we act more as a consultant than a technology vendor, but unlike many consultants, we don’t charge for the assessment for a few reasons. First, the analysis helps to establish that collaborative partnership that you talked about earlier. We look at this analysis as an investment in the relationship that we’re trying to establish with the adviser. Second, regardless of whether the adviser moves forward with us, the analysis gives us an opportunity to learn. The more advisers we work with and the better we understand their various business models, the better products we can build. Many FinTech firms won’t take this approach because the initial analysis is limited in its scalability and requires deep subject matter expertise of regulatory compliance, which is something they don’t have in-house. Again, because we are compliance officers and CCOs first, not technologists, we can offer this type of analysis and take a more holistic and longer-term view of our partnership with advisers.
What trends are you seeing from your clients on the regulatory compliance front?
Clients are getting overwhelmed with regulatory changes and other compliance activity. The DOL fiduciary rule was on, then off, and it's now dead. But advisers still needed to consider it and some even did work to prepare for it. Now you have the SEC liquidity rule for advisers to mutual funds and Regulation Best Interest, each of which requires the time and attention of many advisers. We’re also seeing increased activity from the SEC’s Office of Compliance Inspections and Examinations that are focused on areas of share class selection and disclosure, cybersecurity, and advertisements. All this activity puts increased pressure on advisers and their CCOs, many of whom wear multiple hats. As a result, many CCOs are busier than ever and that makes it hard for them to find time to evaluate their current systems and potential vendors. In other words, the demand of daily activities makes it hard for many advisers and CCOs to think about a FinTech partnership.
Obviously, this creates a challenge for FinTech vendors. How do you get the attention of advisers in this busy environment? Our answer: Help them get everything under control. Again, we look to deliver immediate value through our initial analysis, through our investment in the partnership. Once we give the adviser some breathing room, they can step back and take a more collaborative approach to technology development and implementation.
Can you share a few examples that highlight the great working partnership between an adviser firm and FinTech company?
I can give some examples of what we’ve seen and done with advisers. One of our clients is a private fund manager with less than 10 employees. Their CCO was also the CFO, a scenario that we often see. The firm was having a lot of success and growing fast, but the growth was challenging the time and internal resource of the adviser, particularly for the CCO/CFO. The adviser was looking for technology to help. After reviewing their program, we identified solutions that could work for them. Some of the solutions were technology and included products that the adviser was currently using. We also recommended some new products, some which we offered and others were offered by our partners. But here’s where the partnership really kicked in, we managed all the vendors for the client so they could have one point of contact for the regulatory compliance program. The adviser also decided to have us manage some of the compliance tasks for them, including doing a review of their current policies and procedures and a cybersecurity analysis of their current systems. The result was a more robust program that was easier for the adviser to manage, and all without spending a ton of money. After a few months, the adviser had its first SEC exam and they were 100% ready for it. We worked with them through the exam, which, because of all the work we had done together, turned out to be a much easier process then the adviser expected. How many FinTech companies would have both prepared the adviser for an SEC exam and stayed with them through the entire process. Oh, and we didn’t charge extra for assisting with the SEC exam because our reputation and performance were on the line; we stood behind all the recommendation and work that we had been doing for months.
In another case, we had an adviser that manages SMAs for individuals and institutions. They were using some technology provided by their primary custodian that was primarily developed for broker-dealers. But the technology was limited in scope and the custodian didn’t provide any additional compliance support. At first, the adviser didn’t think they needed any help, but a few months later they had a change in their business operations. It had been years since the adviser was examined and their business had changed and grown over time. The adviser didn’t want to outsource any part of its compliance program and wasn’t looking for new technology, they just needed someone to review their current program and help them update their policies and procedures and investment advisory agreements. They also wanted a partner that would help them stay updated on regulatory developments. Since we had already invested in the relationship, they came to us and asked if we could help. Normally, a FinTech company would have turned their back on this client, but we didn’t. Instead, we did our initial analysis and helped them to update their policies and agreements. We used our technology to make this process work smoother. Now, we continue to answer questions and assist them with various tasks on an as needed basis, and we use our technology to deliver that support. We were exactly what the adviser needed, a partner that could help them as needed, not a vendor trying to sell a product.