Wealth as a Service: The Future of Wealth Management with Justin Singer

Jack Sharry: Hello everyone, thanks for joining us for this week’s edition of WealthTech on Deck. As our listeners know, I spent a lot of time observing, thinking about, and trying to understand and get ahead of trends as the WealthTech industry moves forward at breakneck speed. In fact, each week we speak with our WealthTech on Deck guests about where they see the WealthTech world headed and what they’re doing about it. Not long ago, I put together a presentation for one of our clients with the title, SEI LifeYield as a Service. As a business where we are headed is to provide front to back turnkey services for the wealth and asset management, insurance, and retirement industries, all of which are converging. We emphasize the importance of not just coming up with great tech solutions on their own, but how to operationalize the process around stitching it all together, especially around multi-account management. So as I’m finalizing my presentation, I came across an announcement from EY about a white paper they had put together entitled Wealth as a Service. I thought, hey, that’s what I just said. Intrigued, I learned EY’s definition is as follows: Wealth as a Service, WAAS, offers an integrated, cost-effective, scalable solution for financial institutions to deliver wealth management in a more turnkey way. Yes, please, we agree. That is the future that I have in mind. So, I reached out to our friends at EY to learn more. I found that Justin Singer and a team of his colleagues wrote the paper about entering the wealth as a service era. And I invited Justin to join us for a discussion on all of this on our WealthTech on Deck podcast. Justin leads EY’s US Wealth and Asset Management Business Consulting Service, in addition to EY’s US Retirement Campaign. He provides strategy and consulting services to wealth and asset management, retirement, and insurance firms, to drive growth and retention strategies, improvements to their offerings and stronger operating margins through strategic and tactical projects. I’m very pleased to have Justin join us today. We’re gonna talk about wealth as a service. Justin, welcome to WealthTech on Deck.

Justin Singer: Glad to be here, Jack. Very big fan of the podcast.

Jack Sharry: Good, good, good to have you on board and good to hear that as well. So Justin, let’s start with you describing wealth as a service. What is it? Why does it matter? What is EY doing about it? So fill us in.

Justin Singer: Yeah, so I think Jack, you described wealth as a service accurately. It’s an integrated, cost effective and scalable solutions for financial institutions to deliver wealth management in a more turnkey way. When we started our research a year ago, we looked at the banking and insurance industry and saw the rise of banking as a service and insurance as a service. The ability for any institution, both financial and non-financial, to offer banking and lending products and insurance products at scale. When you look at the wealth management industry, there isn’t a scalable solutions that exists. If a firm wants to offer wealth management, they have to set up a broker dealer, an RIA, a trust company. They have to bring on technology and operations. And it’s not a profitable business if they’re not at scale. And so what we’ve noticed is that several service providers are investing significantly in their platform to be able to offer not just the technology, but also the operations and the regulatory framework to offer wealth in a scalable way. So we recently conducted a survey of financial institutions and service providers to look at supply and demand, right? What are the service providers doing? Are they becoming more all encompassing, more integrated solutions, but also look at the financial institutions. Are they interested in consolidating down to one or two providers? And what are their challenges, right? That they may be looking for these service providers to solve. In terms of the why, why is this happening? Right, 96% of firms that we, financial institutions that we interviewed prioritize wealth at the board level. And these are insurance firms and banks and asset managers. Wealth is the future. It stitches everything together. And so we’re seeing a lot of firms looking at how do we optimize capital allocation within these businesses that aren’t core to what we do? If they’re a bank as an example and wealth isn’t core to what they do, how do we optimize the capital? And one way to do that is to look at consolidating vendors and getting onto one technology and operations stack to support your scale. In terms of what is EY doing, we wrote this paper to kind of drive change in the industry. We are a sector-based kind of consulting advisor in the industry. We have a dedicated team of wealth and asset management professionals that just focus on this space. And we’ve also been investing in AI-based assets to be able to support our clients as they think about moving from one or many providers to a different or a more consolidated provider. And we feel that the assets we’ve built are really kind of positioning our clients, these financial institutions, to be able to kind of drive towards the outcomes that many of them are looking to achieve, which is growth, improved operating efficiency, and scale.

Jack Sharry: Gotcha. So if you would define the sort of the different constituent groups, the different players, who they are, not by name necessarily, but by type. When you say service provider, what does that mean? And so on, so the landscape, if you will, around what’s out there. And then how’s that coming together? How are they operating? Who are they operating with? Where do see this going in terms of how this will play out, depending on where you sit?

Justin Singer: Yeah, we really categorize the service providers into three groups. There’s the clearing and custody providers, which started as, that as their core business, but have been evolving the capabilities that they offer to offer financial planning, investment management, enhanced performance reporting, augmenting their broker dealer capabilities to offer advisory solutions and trust solutions. So that’s one bucket of providers. The second bucket is the white-labeled, independent kind of broker-dealers. And they offer similar sets of services, but they also allow financial institutions to outsource the broker-dealer, the RIA, and the trust company responsibilities, allowing those firms to reduce some regulatory burden and risk. And then I would say the third bucket is really the fintech providers. And if you look at many of the wealth management blogs that exist out there, there are thousands and thousands of fintechs in the wealth management sector, many of which cover specific point solutions in the wealth management lifecycle. But as financial institutions employ those fintechs, it’s really hard to integrate those solutions into their existing ecosystem. So those are the three buckets, the clearing custody providers, the white labeled outsourced kind of independent broker dealers, and the fintechs. And what we’re seeing is sort of this convergence across those three to about four or five players that are really trying to build an all encompassing wealth management platform, not just inclusive of the technology, but of the operations to allow any financial institution to offer wealth in a very seamless way. The outcomes of this as firms have reduced the number of vendors they have, consolidated with one vendor has really been improvements to operating margin. We’ve seen 10 to 12 basis points of operating margin uplift. We’ve seen financial institutions be able to focus on growth and being able to hire more advisors from different recruiting channels than they have in the past. We’ve seen them be able to drive differentiated product offerings on their platform, which they didn’t have with the legacy technology that they had. So it really is a win-win. And I think because if we end up in a world where there’s less broker dealers, less RIAs, less trust companies, a few providers that are supporting those entities that are left, I truly believe it’s going to drive down costs and allow many firms to be able to go more down market to the mass and mass affluent segment with a more scalable offering.

Jack Sharry: Gotcha, this is fascinating. Frankly, as I read through the material, I was thinking, well, this is just a fancy word for what already is being done, but I’m hearing something quite different. So why don’t you talk about the way it’s been done and where you’re going. A lot of what I’m hearing is that there going to be some incumbents, there are going to be some winners in this. Obviously, that means there will be some losers. There will be fewer firms and scale will become important and price will be one of the results of that scale. So I’m starting to steal your thunder. So why don’t you talk a little bit about how you’re seeing that all play out. That’s my read of it, I’m not sure I’m far off, but I’d love to hear more.

Justin Singer: Yeah, so our view is that I think there’s close to 3000 broker dealers that exist in the US and 15,000 RIAs. We have seen the RIA counts rise and we’ve seen the broker dealer counts decrease. I actually think overall we’ll see both categories decrease as firms realize what it really takes to be competitive and offer wealth management services. As it relates to the providers, you’re already seeing a few providers undergo M&A and bolt on purchase fintechs or other firms of similar sizes to try to create that integrated experience. There’s a few international platforms…

Jack Sharry: At scale too, right?

Justin Singer: At scale. And there are a few international platforms that have had a lot of success in the India, Asia PAC, Australia, and Canada markets that are looking to enter the US. So our vision is that there is probably going to be two or three major providers in the US that offer wealth management services to institutions to support them in either supporting independent advisors or supporting captive distribution. And so we’ll see the likes of lot of insurers and asset managers and banks that have wealth divisions want to outsource more to these more all-encompassing wealth as a service solutions.

Jack Sharry: Interesting, So I know that you, just like us at SEI LifeYield, we can’t say certain of our clients or prospects or firms we might work with. I know you fall into the same guideline at your firm, but I suppose I can say this sounds an awful lot like what we’re doing at SEI LifeYield. So you probably can’t comment if we’re on that list, but certainly that what you’ve described is what we’re working at. And I’m also noticing, I’d love to have you comment on this, at least generically. I’m noticing having more and more conversations with people that are in that direction or moving in that direction or trying to, are doing just what you’ve described, which is going for scale, going for, to take on certain of the capabilities. Cause another aspect, which I’d love to have you chat about, another aspect of this is that tech stacks are hard, RIAs weren’t… didn’t get into business to become CTOs, but that’s what they’ve been asked to do. So talk about that whole phenomenon of what we’re talking about.

Justin Singer: Yeah, it’s hard to operate a wealth business. I mean, when we surveyed financial institutions, they all prioritize wealth. 96% of them say wealth management is a priority for them to grow. And the financial institutions we surveyed were not just pure wealth managers. They were banks, insurers, and asset managers, where wealth isn’t core to what they do. But it’s really hard to operate. The cost to comply is high. You have multiple regulatory bodies, SEC, FINRA, OCC, in the case of offering trust. The ongoing CAPEX and OPEX costs to compete are high as well. Based on a recent survey we did, 5.7% of revenue is really required on the OPEX side of the business to support technology. And around 2% of revenue is required on the CAPEX side to really stay with and compete with your peers. And many firms just aren’t allocated that capital from the primary financial institution that they’re under in order to compete. It’s really hard for these smaller firms to attract top talent. Many of them are trying to convert, like let’s say if they’re an insurance firm, convert insurance agents over to financial advisors. It’s hard for an insurance-based wealth manager or bank-based wealth manager to recruit an advisor from a wire house. The move of broadly financial advisors to be more independent, right? It’s hard for these financial institutions to track the talent to win. And so you compound all these things together and we’re seeing 42% of financial institutions that we surveyed say, we are going to move to a new provider in the next 12 to 24 months and 71% said that they are interested in a more integrated-led provider. So wealth as a service type provider that is not able to just offer technology, but able to support with operations and able to potentially support the outsourcing of the broker dealer, the RIA or the trust company. All of this will end up freeing up these financial institutions with excess capital to then go hire advisors and actually focus on growth and differentiation in the business, which in many cases is the advisor. The advisor and the relationship that they have with the end client is at the end of the day, truly the differentiation in this business. The investment management components, the financial planning components, all those components over time are getting more and more commoditized as technology is enabling them.

Jack Sharry: So, fascinating with all this. Thank you for this. This is really, really interesting. So I agree, there’s a lot of different elements, a lot of different pieces to the ecosystem of what is being put together. Often they’re done to borrow from another similar kind of situation, they’re siloed, they’re not done in concert or they’re not done to collaborate as well as they might, but that’s changing. Things are moving in that direction. The data needs to flow front to back, beginning to end. And I know you’ve looked at this sort of issue. So talk a little bit about how that comes together, how the data does flow, where does that stand? Seems to me there’s a lot more to go on that topic, but also critically important that we collectively as an industry pursue that. So talk a little bit about that phenomenon or that set of information.

Justin Singer: Yeah. Well, institutions today, like I mentioned before, have at least five vendors in their ecosystem. And the data models that support each of those vendors, in many cases, may be different. And so it is very hard for financial institutions to either build their own interface that sits on top of these vendor solutions or leverage a container-based solution to sort of drive workflow across these different point solutions that exist. And so what we’re seeing firms focus on is taking more control over their data, having a data entity model clearly defined, having governance over that data. It’s an area that many of our clients have asked for our help with, regardless of what vendor they move to. We’ve developed some AI-based solutions we call EY Nexus that supports clients in defining their data model and thinking about the integration across multiple different vendors that they may choose to deliver wealth to the end client.

Jack Sharry: So, I find this whole conversation fascinating. There’s nothing I disagree with that the data flow is paramount. If you don’t have the data flowing from end to end, then what do you got? All that. This may sound self-serving and it is, but it’s also true that the ultimate objective of all this is to, at least in my estimation, is to improve the outcome for the client, for the advisor. In other words, help the advisor be more efficient and effective, produce better after-tax returns and income. For the client, certainly that’s why they’re doing all this. They’re not doing it, so they can be proud of their data flow. I’m being only slightly facetious, they want an outcome. And so talk about that aspect, as you well know. We happen to work in a lot of the same places. They’re trying to figure out how to do that. So talk about that. What role does that play, that improved outcome that, it’s sometimes called UMH, the household level multi-account management. Where does that fit into all this?

Justin Singer: Yeah, I think as firms consolidate onto a more integrated platform, they’re going to be able to connect the disparate pieces that they offer to the client today in a more seamless way. So many times as advisors develop a financial plan, right, that financial plan has a recommendation around an asset allocation. That asset allocation may only be aligned to a few accounts in the plan that maybe the advisor has ownership over, and it doesn’t consider accounts outside. So as that financial plan data gets transitioned into the investment management system and into the performance reporting system, undoubtedly, right, there will be pieces that drop off that each of those systems isn’t aware of. And so what service providers are doing is really trying to think about a data model that supports the flow of information from both planning to investment management to performance reporting so that everything’s seamless and that the client sees all their assets and all their performance and where they’re tracking towards all their goals. And advisors aren’t behind the scenes having to append things to performance reports or append things to investment proposals to be able to share the full picture with the client. All that being said, the more that you’re able to help a client more holistically, the more we believe they’re going to have faith in the advisor to take on a bigger role in managing more accounts. And so we’ve seen firms that have moved on to a more consolidated service provider increase the percentage of accounts that are in advisory versus commission-based business.

Jack Sharry: I love this, by the way, you’re describing, while it may be dry for some who are not as tuned into all this as you and I might be. What’s interesting is that we’re making progress as an industry. So I’m heartened to see and applaud you. I’ve always been a fan and we’ve worked with you on projects and what have you. But it’s a… We seem to be making progress as an industry. We’re moving toward a more seamless kind of way of operating. Lots more to go, certainly as an industry. But I applaud you for doing this research. You’ve really gotten a big rise in the marketplace on this. Why don’t you talk a little bit about that, as we’re going to start to wind down here. Why don’t you talk a little bit about the stir that you’ve caused. I hear it now everywhere that WaaS is the way, so fill us in.

Justin Singer: Yeah, it’s exciting. mean, banking as a service, insurance as a service are here. When we first started this research a year ago, when you searched for wealth as a service, it didn’t show up that readily. But as a result of us writing this paper, we’ve had several providers reach out to us, both in the States and out of the States, really interested in the concept and what it could help the industry achieve. We’ve had several financial institutions reach out to us, insurers, asset managers, banks, but also non-financial institutions that are looking to get into wealth management. And that was the big leap for the banking and insurance industry. Non-banks, non-financial institutions were able to offer banking and lending product. An example that we call out in the paper, as you’re purchasing something at a store that’s of high value, right. You can buy insurance at point of sale, right. That exists as a result of insurance as a service enabling that experience. We can envision a lot of companies that could offer wealth management, but to set up a broker dealer, to set up an RIA, to set up a trust company, to bring on all various technology components and operations components is costly, it’s risky, and it takes scale to really gain profit. So it’s been interesting to see some of the non-financial institutions that have reached out to us and are interested in entering the wealth management market. So it’s been exciting. And then on the provider side, right, like we call out in our paper, there’s three or four providers we mentioned that we feel like are making considerable headway. And I know you called this out earlier, Jack, but we do reference SEI in the paper. And they’re making significant headway. And I think what they’re going to have to think about too is not just the evolution of the technology, but what are they thinking about doing in terms of scaling operations to support the technology? How are they embedding AI into their solution? How are they helping firms think about setting up the right data model and data governance to enable the platform within each financial services institution’s ecosystem? So the paper kind of calls out both what the financial institutions are thinking and what they really want and what the service providers are thinking, where they’re really making investments. And like we called out earlier, we’re hoping to see a lot of change in the industry for the good.

Jack Sharry: Yeah. So for those curious about some of the references just made, you’ll have to tune into a future podcast where we’ll be talking about the detail of what Justin just shared. So, and I was not aware that we were highlighted, glad we are, but lots of work being done in line with what you just said. So we’ll say that for another day. So as we look to wrap up, two questions before we get to my favorite about what you do outside of work for fun, anything we haven’t covered that you want to make sure we do and any key takeaways you want to share with our audience?

Justin Singer: Yeah, I think we’ve hit on all the key points in our research. Please visit EY.com and reach out to us if you have any questions. In terms of a recap, I’ll just say holistic financial advice is the future, right? And investors are really looking for help, not just across investing, but banking and lending and retirement and life and tax. And so it’s becoming complicated for any institution to offer wealth across all those aspects of what customers are looking for. They’re struggling to keep up with modern technology. They’re struggling to comply with laws, rules, and regs across multiple regulatory bodies. Margins are squeezed and they’re having a hard time allocating the appropriate amount of capital to keep up. And therefore the rise of wealth as a service providers who we believe are making the relevant investments to be able to support financial institutions in a more turnkey way. We’re seeing at least 10 basis points of operating margin improvement as firms look to consolidate from multiple vendors down to one or two. We’re seeing firms be able to recruit from institutions that they haven’t been able to recruit from before because they have a more modern tech stack, a more modern offering, more holistic offering. And we’re also seeing firms be able to sell up market and down market through advisors to the end clients where they haven’t been able to do that before. Again, going back to the fact that they have an improved suite of services and products to offer.

Jack Sharry: So now my favorite question, which is, and Justin, this has been great. I really have enjoyed the conversation and very excited for our industry and where we’re headed, I think it’s good for all. So, like that. But as we go to the fun part of the conversation, what do you do outside of work that you people might find interesting or surprising that you’re especially passionate or excited about?

Justin Singer: Yeah, I used to be an avid golfer, received some scholarships out of high school, but decided to take a different path. But these days I have three kids, twin boys that are eight and a little girl who’s three. And so I spend all my time with them and they’re involved in a lot of sports, soccer, baseball, basketball, and pulled out some of the old board games that I used to play as a kid.

Jack Sharry: That’s great.

Justin Singer: Like Clue and Monopoly. So, they take up most of my time when I have some free time.

Jack Sharry: That’s a good way to have time taken up for sure. So, Justin, thanks. Really have enjoyed our conversation here on the WealthTech on Deck podcast. I appreciate that you’ve been a listener and of course we’ve had a number of your colleagues on over time. You guys do smart stuff there. So thanks for that. For our audience, thanks for tuning in today. If you’ve enjoyed our podcast, please rate, review, subscribe, and share what we’re doing here at WealthTech on Deck. We’re available wherever you get your podcasts. You should also check us out on our dedicated website, wealthtechondeck.com. All of our episodes are there along with blogs and curated content from many folks around the industry. Justin, thanks again. This has been a lot of fun.

Justin Singer: Appreciate it. Had a fun time.

Jack Sharry: Yeah, we’ll do it again.