Behavioral Psychology and Supporting Proactive Advisors with Eric Clarke

Jack Sharry: Welcome to WealthTech on Deck. Our podcast conversations are focused on wealth tech strategy where I talk with industry leaders about their views on the future of digital and human advice. Thanks for joining us. Much like I do every day, I’m going to have a discussion with a wealth tech leader. And we’re going to talk about enabling advisors and their clients and firms to enjoy improved financial outcomes. Today, we’re here with Eric Clarke, CEO of Orion Advisor Tech. Eric, thanks for joining us today.

Eric Clarke: Thank you very much, Jack. It’s an honor to spend some time with you and really look forward to doing what I can here to, to be of value to your listeners and to the viewers of your podcast. So thank you.

Jack Sharry: Thank you, Eric, it’s great to be able to chat with you as we have… I’ve been fortunate enough to do from time to time. So what I’d like to do to kick it off is if you would share your journey around wealth tech. You’ve worn a few hats along the way. How’d to get your start. We’d love to hear some of the highlights of your career and then we’ll get into what you’re working on today. But give us a little background.

Eric Clarke: Yeah. So you know, Jack, after I finished grad school at the University of Utah, I was an asset manager wholesaler out in Northern California. I absolutely loved working with advisors in the Northern California Bay Area. The business that we were running at that time was a family business, CLS investments. We were a third party asset manager. And we were having some operational challenges. I think I complained too much about those operational challenges and was, was asked to move back to Omaha to fix those. We had an incredible staff, people trying to do the right thing. But I realized that part of the problem and the challenge that we were facing was that we needed better technology to run our fiduciary RIA business. And in the mid to late 90s, you know, all of the technology that was available at that time was, was built around supporting brokerage business or commission business. And we were doing business on an advisory fee basis. So it created an opportunity born out of necessity, if you will, to come up with a business plan. And, you know, start the company that today is Orion. So in December of 1999, we split the companies apart. And at that point, we were off and running, building the technology foundations that, that are the underpinnings of Orion today. And we had baked in our first customer so to speak, that was anxiously awaiting all of our new releases so that they can get those implemented within their business and make their offering better. When I founded the business, Jack, one of the things that I thought was really important is that, you know, we, we offered the technology out to other advisory firms, you know, so that we’d have the ongoing resources that we needed to, you know, improve the technology frame. Because, you know, one thing about running a tech business is that what is current today is incredibly dated tomorrow. So, you know, we’re constantly evolving, changing the offering, making it better, you know, putting it on the latest and greatest tech platforms, leveraging the latest and greatest tech tools. And so it’s certainly evolved over the years. Today, we support just over a trillion and a half dollars of assets on the tech platform across 2500 independent fiduciary RIA firms and enterprises that are doing fiduciary business today. So it’s, it’s evolved. It’s a segment of the market that in the mid to late 90s was a segment that was incredibly underserved. And today, there are so many great tech choices for independent fiduciary advisors to choose from that it’s really changed the whole dynamics of how financial services are offered, how financial advisors are able to operate and extend their, their knowledge and expertise out to clients. And that’s something that’s been incredibly exciting to be a part of.

Jack Sharry: And that’s great. Of course, we share something in common. I started in this business as a wholesaler myself and one of the great training grounds, because you learn very quickly between advisors and their clients, all the things you can do better. And I know I’ve used it in my career and clearly you’ve, you’ve done the same as you’ve built out Orion. We’ll, we’ll get in… into it in a moment about what you’re working on currently. But it sounds like you’ve had a similar experience of being well trained by your, by your clients.

Eric Clarke: Absolutely. And some of those advisors, you know, I still keep in touch with today. I think they’ve been some of the most impactful mentors in my life. You know, looking back, the patience that they extended to me, you know, when I was first getting started, again out of grad school was pretty impressive and very generous on their part. Certainly.

Jack Sharry: Yeah, yeah. Well, you listened, that’s, that’s the most important thing. So that brings us to today, you’ve had a series of acquisitions. So you continue to build out your capabilities. Orion is really an impressive organization in its… both its depth and breadth, as you serve both advisors and their clients. So take us through some of the acquisitions of late, why’d you do them? What do you hope to achieve? Where’s it all, all headed? But more importantly, what are you working on now?

Eric Clarke: Yes. And, you know, as we look at the acquisitions that we’ve done over the past, oh, say three years, you know, they’ve all been founded on the underpinnings of an advisor’s value proposition. So when we look at ways that we can help drive value back to our advisors, we think of that in terms of four strategic pillars. So areas around helping advisors prospect, plan, invest, and achieve better outcomes for their investors, right. So as we look strategically at what we can be doing to help enhance the advisors that we serve, help enhance their value propositions out to the investors, we take a hard look at, say, for example, the prospect area. What can we be doing to extend the reach that we have out to help our advisors win more than their fair share in the marketplace? You know, win, win more investors than, than they would otherwise. And that is why we bought the Advizr financial planning business, not just because they had financial planning technology, which, which we found incredibly compelling. But because they had an online client portal experience that was then right in line with that the likes of Personal Capital. So it allowed us to take a marketable client experience to the 2500 advisory firms that we serve. And that that got us pretty excited about what we could do to help enhance the value proposition around, you know, the prospect area of our strategic pillars. The second is in planning, obviously…

Jack Sharry: Before you move on, if I could just pull you back a second, because I know how important is, but maybe expand on this a little bit just about that user experience, it sounds like arguably, planning can be considered a commodity…

Eric Clarke: Sure.

Jack Sharry: Because it has a lot to do with the user experience, both at the advisor and investor level. If you would, just expand on that, because I know that’s an important part of… seems to be an important part of your strategy.

Eric Clarke: Absolutely. You know, when, when advisors look at buying technology, I always like to think of it in solving one of two problems. One, it’s got to either create a better client experience or two, it has to drive internal operational efficiency for the firm. So it’s got to be one of those, it’s got to drive either a better client experience, or it’s got to drive, you know, better margin, better operational efficiencies, you know, reduce risks, reduce errors, those types of things. So when you when you think of terms of, you know, that planning experience and being able to extend an engaging planning experience, it’s a game changer, because, you know, historically plans have been these, these, you know, 100 page printouts, they have been akin to getting a root canal type experience to get everything pulled together. And then they sit on the shelf and collect dust for five years. And then they’re pulled off and looked at and, “Oh, everything’s out of date, we got to redo it.” Well, what Advizr had done was created an engaging planning experience that involved the investor every time they log into the portal. So that plan became a living and breathing experience, as opposed to something that was, you know, printed out and put on the shelf. And that, we felt, was a big game changer in the area of not only user experience, but quite frankly, the advisor’s value proposition again.

Jack Sharry: Talk a little bit about the recent merger acquisition with Brinker, that’s pretty exciting and seems like new turf that you’re, you’re taking on?

Eric Clarke: Absolutely. So we do have an open architecture, you know, model marketplace that we call Communities. We make that model marketplace available to all of our advisors that are leveraging our technology and advisors that then want to outsource, you know, the running of that technology and want an additional services layer to the tech. We offer that through Orion Portfolio Solutions. We were hearing feedback from our advisors that they wanted to have better capabilities around proprietary asset management within the offering that we had, so that we could come in and actually make discretionary choices for their portfolios and picking subadvisors, that sort of thing. And so when we had the opportunity to merge our business together with Brinker, it was something that we were instantly excited about, because it matched right up with the feedback that we were hearing in the marketplace from firms that not only wanted to outsource the running of the tech to us, but they also wanted to outsource the portfolio construction. So again, you know, outside of this industry, you know, you would think of it as a tech business with an additional software as a service layer on top of that. You know, inside of the industry, we call that services layer, a TAMP business, but it was a big, big enhancement in our TAMP capabilities to be able to merge our TAMP business with the Brinker Capital business.

Jack Sharry: So one of the observations I’ve made, I’ve known Chuck and Noreen and the team at Brinker for a very long time, I think since near the beginning, that’s been… we go back that far. And they’ve always had a very strong and similar orientation, it strikes me, as you’ve had it Orion around really knowing the advisor and knowing how to serve them well. And they’ve really done what I call value added wholesaling, or value added tech, or value added services and programs. And I know that Orion is built on that. Talk a little bit about how that comes together. Because there’s a lot going on there and you already have plenty of capabilities, as do they. How does that all… I’m quite sure it has to do with it, and I’d love to hear about this, has to do with how to better serve the advisor. But, why don’t you talk about that, how that all comes together?

Eric Clarke: Absolutely. So whenever we combine our business with, with another one, have that type of opportunity, we truly take a step back and look at the best way that we can integrate our businesses together, integrate our offerings together, you know, so that, so that we’re not operating siloed businesses with sometimes, in certain cases, you can even see competing interests come about as a result of that. So, so first and foremost, we integrate our offerings, so we can have a unified experience, a unified voice out in the marketplace and, you know, a really… a unified service offering with the advisors that we’re working with. So, you know, we, we look at ways we can integrate it. But as we do that we always want to learn from, from these other companies. We want to bring the best experiences forward. And to your point, what Brinker was doing in the service area specifically was best in class. And so we’re implementing so many of the incredible things that they were doing to serve advisors, you know, right back into our core business here at Orion. And we’re pretty excited about some of those, those improvements that we’re making. The probably… I would say, the hidden gem in what Brinker was doing was in the area of behavioral finance. And we’re pretty excited about being able to bring some of those capabilities forward as well.

Jack Sharry: Could you expand on that a little bit, one of the things I’m observing as, frankly, the complexity of our business grows, as people look to manage, at the household level with multiple accounts and products, and, frankly, custodians, and just money all over the place. And increasingly, it’s, it seems to me, and I know in working with many firms, that bringing it together is paramount. And it’s a challenge as you well know, it’s complicated stuff. So there’s that technical operational side that has to be considered. But then there’s the behavioral, which, frankly, given the complexity, it seems to me that what has to happen is, we need to set it up so that the next best action that an investor or advisor… or an advisor might suggest and an investor might employ, behavioral becomes really important to understanding the mindset. So what’s the next appropriate thing to do given their, their age, their life circumstance, that kind of stuff, expand on that, because I know Brinker, Daniel Crosby, has a great capability. How are you bringing that together? Where do you see that going? Curious about that.

Eric Clarke: Yeah, you know, look, we’re in an industry that the value proposition is evolving all the time, right, from being centered and focused on investments to being focused now more recently on planning, having a planning-centered value proposition. But in the future, you know, because of the incredible technologies that have made, you know, tax optimization, you know, available right at, right at your fingertips, like all the great things that you and your company are doing, Jack, you know. All of those, then free up a whole new skill set to come about that I think ultimately lead toward solving the investor problem as opposed to solving the investment problem. You know, going back decades ago, when, when I started in the business, you know, DALBAR, you know, would show the average investment return versus the investor returns and there’s always this big gap, right? That’s, that’s led by bad investor behavior, selling low and buying high. And those darn two emotions of greed and fear get in our way over and over again. And so being able to take the work that that Dr. Crosby is doing, and infuse that into everything that we’re doing here at Orion, we think is going to be a game changer for our advisors’ ability to truly understand the investor, truly connect that advisor-client journey in a very meaningful way that will ultimately drive better investor outcomes through better investor behaviors. So it’s going to start with things that we’re doing, as we reach out and engage prospects. It’s going to follow through to the way that we engage that prospect and investor through the planning process, what types of investments we connect them to, how we evaluate and look at risk in the portfolio? And ultimately, how are we reporting back out to that investor in a meaningful way that will help reinforce and drive better investor behavior? What’s fascinating to me, is that our industry is dominated by finance and accounting degrees. Right, myself included. And, you know, as we look forward, I think that we’re going to see a lot more emphasis inside of the industry, on having, you know, degrees that are, you know, potentially dominated around behavioral psychology. And hopefully, we get to a point where we’re really understanding the investors that we’re serving in ways that we can drive and create value back in and in very meaningful ways.

Jack Sharry: Well, I couldn’t agree with you more. And my next question is around where this all leads? So I’ll give you my two cents on the matter. Sounds like we’re of a similar mind. But I’d love to have you expand on it. I did a paper with the Money Management Institute a number of years ago, along with Ernst and, Young and we looked at… what we… I think the title of the paper was “Modern Wealth.” Not I think, that was the name of it. In other words, what does the future look like? And really, what we described was a unified managed household. But important aspect of that is not only the technology and all the bits and bytes, and all that, the investments and the accounts and all the stuff that we tend to spend a lot of time on in our industry. But it was really about how do you pull it all together? And how do you set it up so that the investor and advisor, really led by the advisor providing counsel as we go, setting up that next best action, that next best thing to do and it might be setting up a Roth, it might be putting more money into a 401k, it might, you know, it could be rebalancing the accounts, it could be asset allocation/location, and the four areas we identified as levers to improve outcome were: cost, risk, tax, and Social Security. So the cost is, if you lower the cost, you have more money at the end of the day. Risk can be managed in such a way that it not only meets your objectives and comfort level, but it can help you sleep at night. And that can be quantified, actually, a client of ours is working on that with BlackRock, Morgan Stanley. Tax, obviously, single biggest cost. And then one of the ones that frankly, we didn’t think much of, we, we have a Social Security tool used by 90,000 advisors, but we thought it was… that was… that… well, that’s kind of an easy one, you just tell them when to take it, it’s usually a delay, and they have more money and everybody wins. But what we found is it really is part of the whole, that you need to tie it all together. That determining when to take it indicates a delay and that… so what do you do in the meantime, and so on. So everything I just described, frankly, in my view, comes down to a behavioral mindset, in terms of how do you organize all that? But then also, how do you make sure you’re doing it consistent with what the comfort level is of the clients? Especially as we’re seeing this glut of folks retire? The numbers, I don’t know if you’ve been paying close enough, I’m sure you have. The Pew just reported that in 2020, four times as many people retired in 2020 versus 2019. And the ALI just did a study that said that the 10,000 baby boomers that were promised to occur sometime in the future, well, it’s happening right now. And that’s going to 13 or 14,000. So we have this retirement crisis and my view and all the stuff I just mentioned and all the stuff you’re working on as a company, as an organization is how do we pull it together to help the advisor help the client do the right thing? And I think a lot of it has to do with the behavioral aspect, but I went on a bit too long there. Take it away. Does that make sense? Does that, does that fit into where you see things going?

Eric Clarke: It certainly does. And, and, you know, what a wonderful time to be in this industry, right? There’s, there are four times as many people to help in 2020, relative to 2019. I think that just in general, people’s anxiety levels were certainly higher as well, which drives additional demand. And not just to help them solve those four problems. But, you know, leveraging technology is, is the good news side of, of that additional demand that’s out there, right? So, you know, there are technologies like yours, that LifeYield, that, that will help, you know, make those four areas that you mentioned, you know, much, much easier. You know, looking at cost today is, is an easy exercise, right? You can, you can leverage, you know, all kinds of different data tools to, to look at costs and costs are coming down in this industry in big and dramatic ways. You can look at risk in insightful ways. I think that knowing the overall, you know, composure of an investor is really important right now, and something that the industry has, has not put a premium on. Historically, we’ve done a good job at looking at risk tolerance and risk capacity. But there’s more that we need to be doing there to understand the investors we’re working with. On the tax side, you know, wonderful… tax and Social Security side, wonderful automation tools and capabilities. And, you know, I encourage advisors to even look beyond tax alpha from an overall tax efficiency perspective. You know, obviously, asset location, optimization, direct indexing, all those things are important, but don’t forget about those estate taxes. And I think estate taxes as we go forward, are going to become even more and more important. But again, the good news is, is that advisors like Steve Lockshin have invested in technologies that are really helping to make that process a lot easier, a lot more executable for the advisors that we serve, and hopefully bump up the number of households that advisors are able to serve so that they can take on this additional demand with open arms, so to speak.

Jack Sharry: So one of the things I congratulate you and the Orion organization on, and we haven’t even talked about HiddenLevers, but there’s a perfect example of a great company that manages risk or helps, as part of an ecosystem address matters of risk. The interesting opportunity, the challenge, frankly, I think the fun is trying to figure out how you bring this together to make it easier for the advisor to advise, because as you’re thinking about what we’re talking about, this stuff’s complicated. This stuff is not easy in and of themselves. But then when you put it all together, the complexity is really exponential. So what’s your view on… where’s this all lead? Is this about coming… bringing it all together? It looks like what you’re building at Orion is that. So talk a little bit about that, if you would.

Eric Clarke: Yeah. So with the HiddenLevers acquisition, we felt like what they were doing was going to allow our advisors to be in a very unique position to proactively drive better investor behavior. So you know, quite frankly, somebody gets done with a risk score, the portfolio’s built and designed, now they can, the advisors can have a very involved conversation with that investor or with that prospect and say, “Hey, what are your top of mind concerns?” Well, hey, maybe they’re worried about the resurgence of the pandemic. Maybe they’re worried about the mortgage, another mortgage crisis, as they see, you know, property values being inflated. Maybe they’re worried about some type of a bubble, a specific bubble in an area of the market. But what we can do is allow that advisor to then be in the driver’s seat to stress test that portfolio that they’ve designed for that investor and show them, you know, “Hey, these are likely or probable outcomes and here are outcomes that are less likely, but things that we need to be aware of, how do you feel about that?” And then proactively adjust those items in the portfolio to get the investor to a comfortable point? You know, I think all too often, we provide what’s expected in this industry, you know, we provide an asset allocation, we provide diversification, here’s your tax results, here’s how we can help you. But if that investor leaves the appointment with having their specific top of mind concerns addressed in a very serious way, then we felt like, hey, this will ultimately drive better investor behavior and something that we got really excited about, because HiddenLevers was, was well beyond solving an investment problem. And they were looking to solve the investor problem by, by driving better investor behavior with their stress test scenarios. And that’s what we loved about that technology. And we got pretty excited when we, when we had the opportunity to acquire that business.

Jack Sharry: That’s great. Well, it’s been really fun to watch what you’ve been putting together. I’m sure there’s much more to come. I look forward to that. And we’re going to need to wrap up here as we try to stay within our 30 minute time frame. Eric, if you could just share with our audience three key takeaways. What things you’d like to make sure everyone knows as they look at their business?

Eric Clarke: Well, I always think it’s great when we look at our businesses to constantly be looking for ways to disrupt ourselves, as opposed to allowing another business to disrupt us. And so it’s always good to challenge our own value propositions. And we feel like strategically, there are four key areas advisors should be looking at around prospect, plan, invest, and ultimately achieving outcomes for investors. Beyond the value proposition, I would really encourage advisors to get up to speed on all things behavioral finance. There’s so much more that we can be doing as an industry there. And then lastly, Jack, since you asked for three things, I like to challenge myself every week, “Hey, what’s something I could be doing this week to become a better person than I was last week?” You know, how do I become, evolve myself, challenge myself, maybe eliminate a favorite habit of mine or something that I need to be doing that can be just allowing me to be a better human being. And so I love that. That’s become a habit of mine over the years and something that I love to do at the beginning of every week is give myself a challenge. And so if advisors are looking for a challenge, if nothing else, let’s, let’s become better together, so to speak.

Jack Sharry: Well, I’m gonna steal that idea. I love that. I’ve observed you as a very kind, thoughtful, and effective leader. So I’m, I’m gonna borrow that if I may. So.

Eric Clarke: Absolutely.

Jack Sharry: As we go to close, one final question we ask our guests each week when we have our podcasts, what’s one thing about you that’s not necessarily work related, but that you do for fun or something you’re passionate about that’s outside the workaday world that you might be willing to share with our, with our audience?

Eric Clarke: Yeah, I am a TeamMates mentor. So coach and Dr. Tom Osborne founded the TeamMates Mentoring organization. I was on the board of our local school chapter, the public school chapter here in Omaha for oh eight, or nine years of the TeamMates organization. I’ve been a teammates mentor for right at nine years now. And I’ve been paired with a, an at risk school age youth that… we have a lunch together once a week and spend an hour together. And I, like so many things in life, when you give them yourself, you get so much more back. And I love being a TeamMates mentor. But if you live in an area where TeamMates exists, great. I’d encourage you to volunteer to be a TeamMates mentor. If not, just challenge yourself to be a mentor to someone. I look back at my life, Jack, and the mentors that I’ve had, I mentioned some of those advisors, you know, when I was starting out in Northern California as a wholesaler, they made all the difference for me. And so if we can, you know, pay it forward, so to speak, and be a mentor towards others, what a wonderful opportunity to make a difference in somebody’s life. Probably not too many people know that, that I’ve done that for the past nine years. But I absolutely love doing it and would encourage everybody to do something similar.

Jack Sharry: Very good. Well, thank you. And congratulations. I have my own version of that. And it’s among the most rewarding things I do. So I share that with you. So I want to thank Eric for joining us today on our podcast. This has been not only a lot of fun, but very, very informative. So we’ve just scratched the surface I could, I can feel it. So maybe we’ll have to do this again at some point down the road. For our listening audience, if you have enjoyed our podcast, please rate, review, and share what we’re doing here at WealthTech on Deck. We are available wherever you get your podcasts. So once again, Eric, thanks so much. It was a real pleasure and look forward to the next time.

Eric Clarke: Great. Thank you so much, Jack.