Keep It Simple, Score Everything, and Other Lessons From LifeYield with Mark Hoffma‪n‬‬‬

Jack Sharry: Hello, everyone. Welcome to WealthTech on Deck. This is the podcast where we talk with industry leaders as the future of digital and human advice moves forward at an accelerating pace. Today, I’m very pleased to be talking with my friend and colleague, Mark Hoffman. Mark and I have worked together for a number of years, has some interesting insights to share about LifeYield’s journey. He’ll talk some more about that. And just as background, Mark is the Chairman and CEO of LifeYield. In addition to leading our company, he’s responsible for bringing all of our colleagues, customers and resources together to construct the leading unified managed household platforms, UMH, in our industry. So, Mark, good to have you on WealthTech on Deck. Thanks for joining us today.

Mark Hoffman: Oh, thank you, Jack. Really terrific. I’m glad to be here.

Jack Sharry: That’s great. So today, what I thought we’d cover are the lessons learned over the past two decades of your career. You’ve worked with some of the biggest brands in our industry. And there’s a clear trend, which has been accelerating just recently over the past, call it, six months, toward coordinating the key elements of a comprehensive platform. And you and I can name at least 15 major firms, because we’re working with them, who are actively assembling the necessary elements of the UMH. So, why don’t you talk a little bit about that journey over the past couple of decades.

Mark Hoffman: Yes, absolutely, Jack. I feel very fortunate to have a career in financial services that has been an adventure focused on creating value for investors by helping make outcomes better. Lattice Trading was my first company and it saved investors money by executing trades at better prices, and at lower commissions. And Upstream Technologies, my second company, was a highly scalable UMA platform that allowed wealth managers to customize investment portfolios for their clients, over hundreds of thousands of accounts and it included money saving tax harvesting capabilities. Now with LifeYield, our present company, has really been the most fun of all of them. Because I’ve been able to use our technology to help friends and family save money from tax smart asset location of their investment accounts, optimize their social security payments, and also advise them on how much they can spend in retirement and from what sources each year depending on their individual situation. All of these better outcomes require a household perspective. And you mentioned all those firms, those 15 firms that we know, many are LifeYield clients, and many of their advisors work from the household perspective each and every day. And LifeYield supports advisors from all different types of firms in the wealth management industry. So we have wirehouse advisors from Merrill Lynch, Morgan Stanley, Ameriprise. We have asset managers like Franklin Templeton; we have banks like Truist; RIA firms; AdvisorPeak and Personal Capital. And we also have a number of insurance firms like Allianz, Jackson, New York Life, and Northwestern. The common theme that links all these very different clients together is that all of them have investor clients who represent households, multiple accounts, multiple income sources, and holistic needs. And in the process of building successful relationships with all of our client firms, we’ve learned many important lessons and have the marks to prove it.

Jack Sharry: Yes, I have a few… few to show as well. So why don’t you take us through that journey starting LifeYield 13 years ago, you got together with Paul Samuelson and Michael Benedek. And I know there have been many lessons learned, I’ve been fortunate enough to be at your side as we’ve experienced the Good, the Bad, and the Ugly. But basically, what what we’ve built is the ability to coordinate various software capabilities to help advisors and firms improve outcomes. So why don’t you talk a little bit about specific to the LifeYield journey and some of the lessons learned?

Mark Hoffman: Certainly, Jack, absolutely. I’ve been fortunate to have some really excellent partners, including you, over the years. Probably the, well, the oldest partner I’ve had, not in terms of age, but in terms of timing is Paul Samuelson. Paul and I worked at Colonial Management in the 80s. So, dare I say, and, you know, his father was the Nobel Laureate, but Paul was also… is also a formidable force in his own right. And we were the equity guys in a, you know, fixed income shop. So they gave us a small budget, several PhDs. I was the programmer/engineer, and they gave us a computer and we got to manage thirteen equity mutual funds in a small area at the company. But that experience really taught us how to automate, you know, financial processes. And Paul was also involved with Upstream Technologies, my second company, was a client of Lattice Trading, the first one. But when he had a communication with his father, when he was thinking about what next to do, he and his father talked about, well, what do people do when they get to the point where they need to create a retirement from all their savings and what if they need safe income, they’re not terribly good at budgeting their money, they might need it… an annuity. And his father, you know, made the suggestion of what Paul then analyzed in his research environment that became LifeYield. You know, combining things in a household. And, you know, trying to achieve the goals for that client, telling them how much they can spend, and maybe giving them advice on what to do along the way, which changes year to year. And, as I said earlier, it’s been terrific at LifeYield, it’s been a lot of fun. But we have learned a lot of lessons and I’d like to share three of the most important lessons that we’ve learned in LifeYield through the process of building this company, with brand name client partners. And the first lesson for success that we learned is that you must have features that ensure advisor adoption. The second lesson that we learned was that the execution of complex projects in complex organizations benefit by following a few simple rules. And finally, importantly, we learned the technology requirements, particularly for the enterprise channel that we serve most. But note, we also learned requirements from the direct to advisor channel, and they are quite different. So let’s start with the first lesson. To ensure advisor adoption, you must easily integrate into an advisor’s workflow. LifeYield does this in two ways for clients. First, we built a simple and easy to use user interface with minimal inputs. And it starts with optimizing Social Security and goes all the way to helping advisors show their client how they can benefit from income sourcing, using an investment product, an annuity, or life insurance, or all three. We also have a simple user interface that advisors use to show their clients how they can benefit from a rollover. These user interfaces are used today by over 75,000 advisors. Another way we fit into the advisor’s workflow is we have a sophisticated API, application programming interface, and that allows firms to control their own user experience without disrupting their tech stack. Another item to ensure advisor adoption is that the advice you produce must be simple to explain in layman’s terms, and we weren’t smart enough to figure this out of the block the first time…

Jack Sharry: Yep, I recall.

Mark Hoffman: But LifeYield makes the complex simple with its trademark tax efficient score that measures the tax efficiency of a portfolio on a scale of zero to 100. A score of 100 means giving up as little as possible in taxes on investment returns, leading to larger balances over time. And I think Jack would agree with me that the most important feature that you need to ensure advisor adoption is the ability to quantify the benefit of the advice being given to the customer, what is in it for them? And why? Our UI customers using Social Security and income layers or income sourcing capabilities add an average of $140,000 of additional lifetime income per household. So real money. LifeYield API customers using asset location, household rebalancing, and tax smart withdrawals can achieve up to a 33% increase in annual retirement income and a 45% increase in a bequest for their heirs. And don’t take my word for it. Ernst and Young did analysis for the… analysis of Paul Samuelson’s algorithms to validate those claims.

Jack Sharry: You just explained the holy grail. I think everyone in our industry has been looking for ways to pull it all together to maximize Social Security, to figure out how to draw retirement income, have a bigger nest egg by using tech smart asset location. And as we both agree, using the holy grail of quantification of benefit is vital because everything we’re talking about is fairly sophisticated and complicated and difficult to explain. So putting a number value to it in dollars and cents and a relative score have all been hallmarks of what we’ve done and and I think why we’ve had such great success. But I want to back up a little bit because you threw around a couple of times technical terms that some of our audience might not be familiar with. And can you distinguish between what an API does and UI does and, and who cares? So maybe explain the two.

Mark Hoffman: Yes, thank you, Jack. That’s a great idea. And I apologize for… there’s so many acronyms and technical terms in our fields that sometimes you buzz over them. But I’d like to share a fun description, I think, to help ease out some of the geekiness. I kind of like the description to call it a nice restaurant because we all like restaurants. A restaurant’s ambience and decor and comfort along with the waitstaff, an attentive waitstaff, help define its user experience. The menu of a restaurant represents the documentation that can explain what can be asked of the API, or application programming interface, which is a projection of what the customer wants to eat. And then the waiter or waitress represent the API call that takes the customer’s menu choices to the kitchen. And the chef and the cooking staff represent the capabilities of what the kitchen can deliver. The algorithms, say that Paul Samuelson wrote, so to speak, that combine the ingredients, the knowledge and the skill to produce and deliver the menu request back to the customer in the form of a meal. If well designed, a menu is independent of the dining, or user experience, but it plays a key role behind the scenes in making that experience successful. So a good way to look at it, and to answer your question, is that UIs, or user interfaces, are how people, you and I, interact with computers. And an API, or application programming interface, is how computers use computers.

Jack Sharry: Gotcha, gotcha. That’s not bad for an engineer. That’s pretty good. So thanks for that story. I appreciate that distinction. And that’s, as you and I have talked about often, one of the big challenges in our industry is we’re talking about this very sophisticated, very complex set of processes. What goes on back in the kitchen is, you know, computers working on computers working on computers. And as we know, because we are in the largest platforms in our industry, we’ve, you in particular, and all the colleagues on the product and development side have worked intimately with understanding how to connect to all those various dots behind the scenes. So you mentioned the second lesson had some rules of the road. So if you could expand on that for us, that would be great.

Mark Hoffman: Yes. The second lesson we learned at LifeYield is that the execution of complex projects in complex organization really benefit by following some simple rules. So rule number one is that it is important to know what not to do as it is to know what to do. We all have limited time and limited resources. So you have to make decisions. The second rule that we learned was, don’t start and then stop projects. It’s context switching that kills timing. It decreases your probability of success. It does increase your costs. And it really decreases the morale of your team. The third rule we learned is that big projects are multi year, big strategies are multi year. And you need to accept that, and budget for it, and staff accordingly. And finally, you need to communicate clear milestones, and then celebrate when they’re reached. So those are really the four rules that we learned that help us with working with these big firms.

Jack Sharry: And as an example, just to echo or amplify what what Mark has just shared, we’ve worked with a number of the big brands Mark mentioned earlier for literally years. And we got year to go, because what they’re building is a whole new way of operating in terms of managing client portfolios. Because when you manage it account by account, or product by product, or security by security, that’s one thing. But when you need to coordinate all of that, where you’re trying to maximize or optimize for asset location, and household rebalancing, and withdrawal, or income sourcing, it gets really complex when you’ve got taxable/tax deferred/tax free accounts, you’ve got annuity products, you get a lot of different things in the mix. It gets really complicated quickly when your real desire, and especially if you want to quantify the benefit as we do. So to do all that, as, as we like to say here in Boston it’s “wicked hard.” So, you might want to expand on that a little bit?

Mark Hoffman: Yes, it actually falls right into the other lesson that people are probably waiting to hear is that we did learn what the requirements are, the technology requirements from Enterprise Wealth Management. And they’re not simple to do, as you’ve said, but they can be listed in a simple way. So the first thing that you need to be able to do as a technology vendor is make your platform, your offering, very scalable for tens of thousands of advisors and support team members to conform to, you know, the service level agreements that the likes of Morgan Stanley and Merrill Lynch will have. You also have to build your technology to be highly secure, because of the confidential nature of investor financial data. And enterprise clients require tremendous flexibility from their technology vendors, they really need an overlay technology in many cases to be able to integrate with their legacy systems so they can buy time to sunset older in house systems to fit budget and priority constraints that they may have, again, multi year. And finally, many want the ability to control their investor experience and use their own brand.

Jack Sharry: So one of the things that you have a great analogy about the Briggs & Stratton engine as a way to sort of explain what we do via… by API and the role that we play. So maybe sort of talk about real life, how… use the analogy or metaphor of Briggs & Stratton engines, but then how they might apply to the world where we operate with some of the biggest brands in our in our industry.

Mark Hoffman: Sure, Jack. That’s, that’s… that’s great. So… so a little parochial, little metaphor, but it will… the Briggs & Stratton metaphor comes from the fact that I was raised on a farm in Wisconsin, and of course, we had all kinds of machines. We had small tractors, we had lawn mowers, electric generators, power washers, all that kind of stuff. And they were powered by Briggs & Stratton engines. And I thought that metaphor was good because, you know, one of our larger clients who really I feel has gotten to where, very close to where the future’s going, the rest of the world so to speak. You know, instead of lawn mowers and electric generators, Morgan Stanley’s Investment Proposal system calls LifeYield’s Engine API for tax efficient asset location and household rebalancing. Instead of lawn mowers or electric generators, Morgan Stanley’s advisor monitoring calls LifeYield’s Engine API to produce investor benefits for a household and next best action analysis. Morgan Stanley’s financial planning system calls LifeYield Engine’s API to show tax smart retirement income, and sourcing, and Social Security optimization. And finally, Morgan Stanley’s trading system calls LifeYield Engine API for intelligent withdrawals and multi account tax harvesting from all the investment accounts that a client might have in their own household, including those in a UMA program, a portfolio manager program, retirement brokerage, all together as a household. So the LifeYield API is really the glue that ties the wealth management firm’s front office applications to their downstream systems for monitoring, analysis, and trading, all at the household level.

Jack Sharry: So I’m going to summarize a little bit before we move toward the close of our discussion here. I know I see the world going and I think you agree and I’d like to have you amplify if you would. So what you’ve talked about is you take all of the elements of a household platform management system, a UMH, you take the data, you take the planning, you take the proposal, you funnel it all through, you determine not only asset allocation or any kind of risk measurement a firm might do, but then you determine the asset location. And we need to understand both of those before we can do the asset location. And that helps you grow your assets more quickly by paying less in taxes as you go by figuring out how to optimize around the various accounts and tax treatments of the accounts that you own. So that’s sort of the, on the front end, that’s in the accumulation phase. And then ongoing portfolio management, household level rebalancing, making sure everything is lined up, maintaining the asset allocation or risk parameters, maximizing that asset location or optimizing that asset location, and rebalancing in a way to harvest gains and losses, consider all the different tax elements. And then when it comes time to make a withdrawal, whether it’s an ad hoc withdrawal, or an ongoing system withdrawal in retirement, what you’ve described is basically an ability to factor in Social Security, factor in asset location as you go, asset allocation as you go. Because, of course, a drawdown takes place over years. All the more important now that more and more people are retiring due to COVID as we’ve seen in the in the research, so then you draw down over time. And ultimately, if this is all done, well, you’re gonna get more income longer. And then frankly, we haven’t talked about it today. But we also, for those that may not be aware, we also can optimize the bequest going forward with other tax treatment. So while we focus on tax, we also consider risk and cost as part of our analysis and we find ourselves increasingly suggesting or acting almost like a consultant to the firms we work with to help them put the whole thing together. So I summarize that because it’s a lot for our audience to grasp. But frankly, there’s no one that knows it better than you and, and the team here at LifeYield. One of the things that we’ve touched on and we’d like to have you expand on because this is where I see the world going, and I think you agree, and that is the importance of scoring to determine the next best action. So if you’re going to determine next best thing to do, that suggests, that indicates you need to quantify the benefit of all the possible actions so you can prioritize them, and hence, determine what’s the next best thing to do. I think that’s the holy grail for our industry. So that’s my view of the future of our our industry around quanitification of benefits, scoring, prioritization. So you can determine and make it easier to make better choices at the advisor and client level. So that’s my two cents. What say you about all that?

Mark Hoffman: Well, back to the, you know, advisor adoption premise being very key and important. Scoring has become, that was one of the things that we did and learned through our experience that really helped make an advisor understand what some of the actions we were suggesting they do to give the benefit to the client, were worth it or not. And putting it on a simple scoring basis has kind of like, allowed the advisor to communicate… tell their client what time it was, instead of explaining what the inside of the watch was doing, and it made it easier for them. And we did it in terms of the tax efficiency, the tax efficiency of the portfolio. But my colleague, Paul Samuelson, our colleague, Paul Samuelson, has done additional work to show that scoring can be implemented on more than just the tax part of it, the taxes are nice in the sense that they really show a benefit in basis points, and in dollars, that actually could cover an advisor’s fees for working with that client. But the client can have other things that should be scored. For example, you know, are they in debt, but do they have some savings in their investment account that would be better placed to pay off some of that debt, when they’re in accumulation? So the younger client, when you get to a transitional period, and you need to start thinking about how much can my assets support? You might want to have a more sophisticated financial plan so you can score and rank different actions if they’re performed, on… to see whether your client is in retirement readiness or not. And some of those next best actions might be this client should buy an annuity, because they want more safe income than Social Security can support in this year at this time. And a client can express how much they think they’re going to spend safely, how much they need to pay their bills, they can express money that they want to use in discretion above that, and have they achieved those goals. All those things can be scored into a simple score, to show you the financial health, the financial well being of that particular household. And as you’re indicating, as you’re saying, you can prioritize, then, the things that produce the next most benefit, because clients don’t want their portfolio just upended every year. I mean, that costs a lot, both in fees and in taxes for that matter. So you really want to do things incrementally. And the advisor then has a very tangible reason to talk to his client, and show them what they’re doing for them to merit the fees and to keep their financial health going strong.

Jack Sharry: Yeah. So one of the things I know that we’ve benefited from after twelve years of focused on the whole concept of a UMH and all that’s involved. Certainly there have been lessons learned at, frankly, every step of the way. It’s interesting now that we’ve been talking about this for so long, to find the industry, frankly, beating a path to our door, where they’re recognizing that you really have to consider all of it. And as people become familiar with all that needs to be considered, they’re a bit overwhelmed. Fortunately, we’re there to lend a hand and we’re finding that the the world is really moving on to UMH, so it’s been… been an exciting time. And Mark has been a great leader of LifeYield. And frankly, from an industry standpoint, while he may not be as omnipresent as I attempt to be, he is the brains of the outfit with many other significant brains around LifeYield that… that’s making this real So one last question before we close for today’s discussion. First of all, thank you for for this conversation, but also maybe as a way to let people know what matters to Mark Hoffman besides APIs and UIs and quantification of benefit and all that other stuff we just talked about, what’s… what’s important, or what are you passionate about or interested in then… when you’re not figuring out algorithmic content?

Mark Hoffman: I’ll answer the question in two parts. One with something I’m very passionate about and I’m, you know, obviously pretty fortunate to have a wonderful wife and three kids And now, our first granddaughter, so very excited about that. Obviously passionate about that, for sure, but I do have some hobbies. Outside of all the work we’ve done at LifeYield. I’m not sure it’s the interesting part, but people might not realize that I do enjoy boating. As I said, I had grew up on a farm in Wisconsin. And remember the rule, it’s good to know what you don’t want to do. I knew that I didn’t want to be on a dairy farm the rest of my life so I got a summer job and before college and started at a boat tour company and the Wisconsin Dells and worked my way up from maintenance and selling tickets for the tours to actually getting a Coast Guard license and being able to pilot the boat. So I’ve been boating ever since including here in New England. And a couple years ago, I bought a bass boat I know it’s a lake boat, but I got a bass boat to… to get sea bass and I realized fishing that I’m not patient enough to sit there and try to catch fish. So I took the trolling engine, trolling motor that you use when you’re sitting in a chair with your pole and you troll around, I took that off the boat and re-engineered it and put a pot hauler on it so I could drop lobster pots. And on one outing, a commercial lobstermen came by where I was pulling a trap, and said as I… and said that I turned his profession into a hobby. So we laughed a bit. And then I took the opportunity to ask him where a better place might be to put my trap.

Jack Sharry: Which was his message, right?

Mark Hoffman: Well, at this point, the lobsterman bid me a good day and motored off. So sharing a laugh is free, but rewarding… a rewarding lobster pot spot is proprietary information.

Jack Sharry: Gotta be careful where you tread. Right?

Mark Hoffman: Yeah.

Jack Sharry: So, well, thanks, Mark. This has been a great conversation, I think illuminating for those of you who are looking at building comprehensive ecosystems, as they’re often being called or unified managed households, or a few different names that were… have been kicking around. But I’m sure you got a sense that well, it’s a sophisticated undertaking and a complex undertaking. The rules of the road are to keep it simple, to make it something that advisors willingly adopt. One of things we didn’t touch on as much, but I would add in, the more it can be embedded and integrated and baked into the system where the optimal isn’t optional you get it whether you want it or not. And we’re finding that increasingly important with the firms that we work with is to make the optimal outcome embedded in the whole process. But Mark has been a true leader in that regard, not only here at LifeYield, but really across the industry in the many companies that are putting these sophisticated and important ecosystems together. So, Mark, thanks very much for your time today and your perspective and I look forward to the next conversation.

Mark Hoffman: Thank you, Jack.