#ItzOnWealthTech Ep 33: 3 Tips to Create a Thriving Tech Ecosystem with Mike Zebrowski, AI Labs

[TD Ameritrade] built an ecosystem that nurtures and thrives on innovation, and I think that was probably one of the most compelling reasons that Schwab stepped in to pick them up today. Whereas these larger platforms are much slower to see change until it’s too late. I think Schwab recognized that they weren’t able to innovate quickly enough, so by acquiring TD, it provides them with that pivot to become an ecosystem.”

–Mike Zebrowski, CEO, Advisor Innovation Labs

On this episode of Wealth Management Today we sit down with Mike Zebrowski, CEO of Advisor Innovation Labs. AI Labs creates intuitive and innovative systems for institutional financial services firms, bank wealth management organizations, independent advisor networks, and broker-dealers.

Complete Episode Transcript:

Craig: I’d like to welcome my guest on this episode of Wealth Management Today, Mike Zebrowski, the founder and CEO of Advisor Innovation Labs. Hey Mike, welcome.

Mike: Thanks Craig, I appreciate it. Thank you for having me.

Craig: It is a pleasure to have you here and there’s so much talking about, so much in the news, so much going on. But before we get some of the news, can you give me the 30 second elevator pitch on Advisor Innovation Labs?

Mike: So we are an ecosystem for clients and advisors, and we are trying to narrow the gap between those relationships by taking advantage of technology.

Craig: That wasn’t even 30 seconds.

Mike: I’ve had a lot of practice!

Craig: That was 15 seconds. You can get that elevator pitch done in like one floor!

Mike: That’s the idea.

The Impact of Innovation

Craig: That’s impressive. So, you’re working with a lot of RIAs and broker dealers, and you’re getting a lot of traction, which I think is great for a startup company. And so what are some of the things you’re seeing? Are you seeing a lot of innovation out there? And if you are, how do you see it impacting the industry?

Mike: You know, I’ll go back to the tech, fintech roadmap item that we see out there on a regular basis. I think Michael Kitces provides it. A year ago, it was half of what it was. Next year, I’m not sure he’s going to be able to fit all the new startups and all the new technologies onto that one slide that he’s put together.

Craig: You mean his wealthtech map that he has?

Mike: Right, his wealthtech map. The velocity has just picked up year after year and I’ve never seen the speed of new fintech companies happen as fast as they are right now. So it’s amazing. It’s a great thing for the industry.

Craig: Indeed. And I’ve made comments and talked about how we weren’t innovating fast enough and we’re sort of catching up a little bit. But other areas have always been faster. Especially in the banking, fintech, payment, those types of areas have always been faster. Why do you think that is?

Mike: Yeah, that’s a great question. I think you just follow the money and money was flowing in from a lot of the VCs, the private equity firms, even some of the strategics were focused on competing within the bank channels. That’s where they saw the immediate value that could come out of innovation. And now I think we’re seeing a huge pivot a little bit away from the banks and more to the financial advisor technology. Whether that’s in tech or whether we’re starting to see more private equity money flow into RIA consolidation or investments. We’re just seeing a lot more money within our space.

Craig: Yeah. I would agree there’s definitely more venture capital money in the fintech and in the flashy consumer-focused spaces.

Mike: Yeah.

Craig: And while there have been bigger wins, you know, more unicorns there, there’s way more failures. So I think the VCs that are focusing on our industry are probably making out better than the ones in the other areas.

Mike: And it’s really because to your point earlier, we’ve kind of neglected it for so many years, we just took what was given to us by some of the larger utility companies within our space.

Creating Platforms

Craig: These utility companies, firms like custodians and others, the largest tech vendors, have become like utilities. And one thing we were talking about before was how these firms in the beginning created platforms, and that worked for awhile, but they’re morphing into ecosystems. Can you talk a little bit about what you’re seeing there?

Mike: You know, we’ve seen that trend outside of our industry. So if you look at some of the biggest brands in the industry from 10 years ago, Coca-Cola, Microsoft, IBM to the bigger brands now, whether it’s Apple, Google, Amazon, or even Netflix. The big differences in ecosystem is thriving, it depends upon the network effect. So when we start to leverage the network effect of all these cottage industry tech companies evolving, it allows us to move faster. Apple just recently started developing their own content, but the apps that really made the iPhone take off were all these third party apps. Amazon, for the most part, their success has been tied to the Amazon marketplace. All these third party vendors who are participating in the network. And Netflix as we know, really doesn’t create a lot of their own content. Most of their success has come from the curated content around that. And it’s been a very short amount of time that they’ve taken off. So when you look at the top five brands now from the top five brands, ten years ago, it’s all ecosystems versus platforms. Platforms are static. They’re a little bit slower to pivot. And, they purposely were built that way in order to scale, but that’s not the way that the things are anymore. It’s the difference between waterfall and agile. You know, we at AI Labs, we’re completely cloud native. We are completely agile. So we’re doing around 1000 to 1200 releases a month as opposed to some of the platforms that are probably only doing two or three a year.

Craig: Now wait a minute, those numbers are hard to understand. 1,000 releases a month, there’s only 30 days in a month – that’s 30 releases a day?

Mike: Pretty much. They’re not large releases, they’re minor. We do a lot of AB testing. We may change one thing, but we’re pushing it out through the test environments out to production on a regular basis. So, at the end of the day, you’re not looking through a hundred page document of what was released. We’re doing it in such a soft and subtle way that we’ve learned from some of the fangs, Hey, change that button, move that pointer here. Because of the AB testing that we’re doing, we can quickly adjust. So we’ll put something out, if we see it failing and not meeting the needs of the end consumer, because we’re all container based, we can just kill that container and drop in a new one and move that button or change that color subtly help people react to it.

Craig: Is that more like, me coming from a computer science background, is that more like everyone just makes their changes live? How can you test a thousand releases a month?

Mike: Well, a lot of it is automated. We do a lot of automated testing.

Craig: That makes sense.

Mike: Yeah.

Craig: And there you go, because then that sounds like you’ve got much more flexibility than even doing quarterly releases like some of the big firms do.

Mike: It also causes us to fail much quicker. So if we put something out that we think we know, then we actually get it in users’ hands, we find out pretty quickly that we were wrong. Which then has us go back and quickly adjust. So you hear that a lot in the tech community fail fast, fail often. And failing doesn’t have to be on a large scale, we fail constantly on a smaller scale in order to make the experience more appropriate for the end consumer.

Your Favorite Failure

Craig: One of the questions I ask sometimes is of people that I’m interviewing is what’s your favorite failure? Because we do learn more from our failures that most successes. So what’s the failure you guys had that you learned the most from?

Mike: One of them was, we integrated with a third party calendar app that allowed the end consumer to actually go in and just schedule meetings, without having to have an interaction with the advisor. And what we found pretty quickly was one, advisors don’t spend enough time managing a calendar to set certain times aside and two was, they’re going to move heaven and earth if an A client wants to come in and schedule a meeting versus a B or C client. So we ended up taking that feedback after we did this third party integration, stuck it out there, and then we found advisors weren’t really using it. It sounded great because it could do so many things and we simplified the whole process and built it on our own.

Craig: Nice. Yeah, that makes a lot of sense. I’ve actually heard that before. That’s an excellent best practice in the industry that we hear a lot of advisors say, I want to make it easier for our clients to schedule. I want to be able to click an app, but then they really don’t want that for all clients. They want it bifurcated or they want a tiered system.

Mike: Yeah. And they want to be able to accept it or decline it or make another suggestion. So as much as you know, the tech companies developed some third party apps that work great, we missed that one.

Craig: Indeed. Yeah. So let’s shift gears to something that’s in the news. We’re talking about custodians and how they created platforms that worked really well. And now they’re morphing in ecosystems. But some custodians haven’t had success morphing, for example the latest announcement that Schwab is buying TDA. What are your thoughts there?

Mike: First of all, I think it’s fantastic for the industry. As long as we don’t see the fees come back on some of the trades. But you know, TD has done such a good job developing an ecosystem, I was surprised that the other competitors of TD didn’t pick up on it and move as fast as Schwab did. They’ve truly built an ecosystem that nurtures and thrives on innovation, and I think that was probably one of the most compelling reasons that Schwab stepped in to pick them up today. Whereas these larger platforms, these utility companies, they’re much slower to ignore change until it’s a little bit too late. I think Schwab recognized that they weren’t able to innovate quickly enough. I’m sure this is not the only reason, but part of the reason. And so by acquiring TD, it really provides them that pivot to become more of an ecosystem. It’ll be interesting to see how that plays out.

Craig: So look at the moves that Schwab made, they say sold off their core technology, their portfolio center, which is old entire technology, sold that off to Envestnet. And then they go out and buy basically a whole new platform.

Mike: Yeah. One that’s, I think, it’s more than a platform. I think it’s an ecosystem and that’s the difference. People aren’t necessarily looking for low cost products or services. They’re really looking for high value products and services.

Craig: Yeah. I mean, that’s what we recommend a lot of our technology clients. You don’t want to be the lowest cost provider because someone can always keep dropping the price. You want to be a premium product at a premium price. Regarding the RIA technology ecosystems that TDA has built and other firms are trying to build, do you see any trends along those lines? What are you seeing in terms of how they’re being built and what are the tools that have come along that enable these RIA ecosystems to be built?

Mike: A lot of the firms out there today have the resources to build this framework of an ecosystem like TD Ameritrade did. I think Advisor Group has done a great job in starting to build out an ecosystem, they are really partnering up to get that network effect. And I think RIAs are looking for the same experience. They want something to be theirs that they can put their fingerprints on the customer experience, if you will, to match the physical experience that they offer. We used to see a lot of this customization, within the family offices and the technology that the family offices used to provide. It’s being commoditized a little bit, and the expectation is that these RIAs should offer the same thing if they’re going to offer something unique and individualized, so to speak. So whether it’s an account opening, client onboarding, maintenance money movement, it should all have the look and feel of the brand that you’re trying to represent. Whether that’s coming from a plan that’s being developed, to account opening, to even servicing. Servicing in the past, for advisors allowing clients to do servicing was a bad thing. They all wanted that servicing to happen within the advisor channel. Now advisors are starting to realize and these distributions are starting to realize self-service is a good thing. Clients are more educated, they want to do things on their own. Whether that’s opening up an account after a recommendation has been made or moving money, things like that, or looking at balance.

Craig: Yeah. And it did take a while for advisors to realize that self-service is a good thing, and that it can can take away a lot of your customer service issues while keeping your clients happy and having them come to you only for the really important stuff.

Mike: Only the important stuff, yeah. For us, it’s about trying to get the advisors to spend more time as a coach or a mentor, or a true advisor of the end client that they’re servicing. And if they’re stuck on technology and pivoting from one app to the other, that’s less time they’re spending with the client or tracking down a service issue. So for us, it’s really about removing the slack within the advisor’s day so that we can free them up to spend more time face to face. That’s where we talk about closing the gap between the advisor and the client. And that’s one way that we anticipate doing that through technology, freeing them up by creating these ecosystems that allow for self service or it allows the advisor to get back a month of their time where they’re pivoting from a CRM and the data now is moving into their financial planning tool or the rebalancing tool and they’re spending all this time pivoting back and forth on the glass. If we could eliminate that pivoting and give them back a month of their time, that’s a month that they could spend face to face with their end client, which is more valuable.

Appification

Craig: There was a trend that once everyone had a platform, all advisors basically used the platform. That was it. But then we saw a trend of what I’m calling “appification” where all these apps started coming out saying, We just do this, we just do that. Well I want an app for this and for that, and advisors were asking for it and IBDs were giving it to them until the point where their desktop turned into their iPhone or smartphone screens where they have all these dozens of icons to switch back and forth. Is that what you mean by pivoting on the glass?

Mike: I do. Yup. That’s exactly what I mean. No one wants to flip through their iPhone to find the app that they need, because now you have a hundred apps on there. What consumers, what advisors are looking for is one unified experience, harmonize the entire ecosystem. And that’s the value that we get out of having an ecosystem versus a platform with all these different apps on it. I like, by the way that you’ve coined that phrase, appification.

Craig: That’s mine. I own it. Appification. Or maybe I should call it “appify”.

Mike: I think there’s a company out there called Appify.

Craig: Damn. Alright then, appification it is. I own that, I’m going to trademark it. Appification. All the screen switching, task switching. Advisors don’t know where to go to get things done. Or all the advisors of the firm are doing things in such a different fashion, it’s not adding value, it’s just creating hundreds of different workflows that can’t be scaled.

Mike: Well Craig, I think we’ve even seen it with the end consumer. There’s a lot of advisor sites where you go on and it says, look, if you’re a client of Schwab, click here. If you’re a client of TD Ameritrade or Fidelity or Pershing, click here to get your accounts, or one of these other third party apps. So the end consumer of the client, on these websites still have to figure out what the relationship is. Shouldn’t they just go to your site, log in and have all their information? They shouldn’t have to self identify, you need to know more about me than pointing me in a direction where my custody or clearing relationship is, because I don’t really care. My relationship is with the advisor. I think Ron Carson has moved in this direction recently, I like what Ron has done with his ecosystem. Client logs in, they get to see their whole life in one well organized screen without having to figure out what my relationship is with Carson Wealth.

Craig: Yeah, and firms that we used to call RIA aggregators like Dynasty and HighTower, they’re really more like RIA ecosystems, RIA networks, or RIA communities, where they’re bringing like-minded advisory teams in and giving them platforms, giving them technology, giving them unique workflows like United Capital does with their MoneyMind tools for onboarding and client communication and how Carson Group has built their own interface. They built an entirely unique UI that sits on top of Orion, MoneyGuidePro, and Salesforce. So the advisor never sees those assets unless they want to. He or she can click a button and drill down into them, but most of the time they can just spend in the Carson Group ecosystem.

Mike: That’s exactly right. They don’t realize that they’ve just gone through four or five different apps. And that’s the elegant beauty of how things get put together. We’re seeing a lot of that movement, even within the TAMP community where the TAMPs have realized that they need to provide that same type of ecosystem and extend their services out to those other ecosystems so they can get that network effect. It’s interesting, right? So we’re starting to see the pace is picking up quicker and it ever has in the past.

Craig: Yes, the pace of change is increasing.

Mike: It’s monumental how fast it’s changing.

The Race to Zero

Craig: Another kind of change we’re seeing is the race to zero, which I’m almost getting tired of that term, but we all see the race to zero in prices of other trading commissions, which I think is really not that important. What I think is more important is something you mentioned earlier, was the race to zero in technology. So how are we seeing that manifest itself?

Mike: So business models that used to work in the past, charging for an API for example, and making a lot of money off an API is no longer going to be a viable business model. If you want to participate in the network, in the ecosystem, you’re going to have to eat the cost of participating on that playing field, if you will. So those firms that had platforms and tried to build big moats around their platforms and charge for access to any of that are under attack now where if they don’t realize that in order to thrive that they’re going to have to remove those moats and extend out the value proposition of those technologies to the ecosystems that are out there today. I can tell you that we still see some large fees being charged for API’s even for some of the older technologies, and I think it’s, it’s a matter of time before that starts to get equalized across the board.

Craig: So what does that mean when you say they’re charging for APIs? For people who don’t know, how does a firm charge you for APIs? And why would they do that?

Mike: So let’s say a firm, one of the large utility companies, you want to get access to some of the data that flows through their system, your data that flows through their platform. They’ll build an API to extend out the value of that. And let’s say that costs $100,000 to build the API in order for you to get access to your data on the terms that you want. The utility companies will continue to charge and meter access well beyond the sunk costs of $100,000 in order to access your own personal data that you’ve created using their platform and they’ll charge that a million times over. I don’t believe that that’s a sustainable model. So ATMs used to charge you to access your money in the past, that’s come down to zero and I think that’s good.

Mike: To access your own money, it’s the same thing, right? That that’s your data. Why are you paying to access it?

Craig: No, I don’t know. It’s getting to the point where, why are we paying for anything? But still firms have to make money somehow they have to charge somehow. Well they’re still making money off the assets.

Craig: Hmm. True. I was at a family office conference and there was a firm that had come out with a bifurcated business model where they charge a much lower fee on assets than most other firms do. But then they had separate subscription fees or one off-fees for all of the other services that they provide. Whereas in the past, the higher asset based fee would subsidize the other services. They broke them apart so they could lower the asset fee and charge you for what you’re doing, what you’re using of the other fees or other services.

Mike: I listened in on the Envestnet earnings call a few weeks ago and Bill Crager talked about the pivot away from some of the asset based fees to becoming more of a service based fee company so that people are willing to pay for those services. They’re getting squeezed very hard on basis points without seeing the value. So they’ve started to pivot a little bit, something that was mentioned on a call that I think is at play across the industry.

Craig: And that could be very negative for them because they make a lot of money off their asset based fees.

Mike: I think it’s the same on the zero base trading fees that we’ve seen in industry. Right? Those have gone away because that’s such a commodity that no one sees the value in paying a fee for that. But if you start to offer things like an ecosystem, so really interesting that Schwab picked up TD because they’re offering this new ecosystem technology and people are willing to pay for that because there’s value in it.

Craig: Money will chase value wherever it happens to go. So before we leave this topic, when we talk about the race to zero, are you seeing more firms being able to offer higher scale technology or go to different markets such as upper scale client segments because the technology is cheaper than it was before?

Mike: What we’re seeing is things that were exclusive to family office type of businesses being offered now down to the average net worth through those various different distribution channels, whether it’s an RIA or some other type of broker dealer or TAMP. And people are expecting those type of services to be offered. So the cost of that technology is coming down because we’re seeing more money from the VCs and the private equity firms and strategics flowing into what I’ll consider our space, which is financial services through financial advisors. So a lot more money is being invested and we’re seeing a lot quicker innovation and it’s starting to commoditize what used to be only offered at the exclusive levels.

Craig: Indeed. Yeah, it’s giving every advisor the ability to sell to almost anyone.

Mike: Yeah. For those that want to participate right there, there’s still the male, pale, and stale model of some advisors who see their practice as lifestyle as they get ready to retire versus those that really want to grow a business.

Craig: Can you explain the male, pale, and stale?

Mike: So the industry in general, and this is a big challenge for our industry, most financial advisors are getting close to retirement age and most of them are white males. We really need to make it more attractive to younger financial advisors across a more diverse space if you will, into the industry. I think in general it hasn’t been as attractive as we’ve started to see tech companies take off, with the emergence of a lot of the investments we’re starting to make it a lot more exciting. We’re seeing a much more diversified advisor type enter the marketplace, but there’s still major problems within our industry with regards to the shrinking number of advisors entering it as a career. So where we used to have maybe half a million what I’ll call advisors in the industry, we’re probably down to about 300,000 and the trend seems to continue unfortunately. So there’s a lot fewer financial advisors today that are offering services to a lot more people who are in need of it. And so 10,000 or 20,000 baby boomers retiring day, yet we have fewer advisors within the marketplace offering advice. The only way to match those two trends together is to make those advisors that we do have more efficient so they can move from only managing on average about a hundred of their client base to managing 300 and removing the slack in the system in order to do that through the use of technology.

Craig: Yup. So we’ve been talking about things you’re seeing in the market. Let’s talk about things you’re not seeing, what’s something you’re not seeing a lot of?

Mike: We’re not seeing a lot of artificial intelligence, or machine learning being front and center, outside of our industry. We’re seeing that take place with the Googles and the Amazons, especially for your shopping experience, but we haven’t seen our space catch up. And I think you made a good point earlier, it’s not going to be as prominent as what we’re expecting. No one’s going to smack us in the face and say, here’s this new platform that’s artificially intelligent, if it’s done right, it’s going to be seamless. We’re not going to know that it’s occurring.

Craig: Yes, it’s going to be behind the scenes like we’re seeing now, a lot of tools that advisors are using are being enhanced with AI, but they don’t necessarily know that AI is doing it, which is the way it should be when technology becomes pervasive. You just don’t know it’s there.

Mike: Yeah. There was an interesting stat I saw the other day that said, we’ve produced more data in the last 12 months than we have in an entire life span of being on this earth and in order for us to, to really leverage machine learning and artificial intelligence, we need massive amounts of data in order to synthesize it. And it’s something that we’re starting to see because of the fact that we’re able to take advantage of some of the cloud computing, we can process these massive amounts of data and centralize it whereas in the past, it was fragmented. Your clearing firm had some data, your direct business was separated from some of the clearing data, the broker dealer had separate data, the consumer wallet didn’t necessarily mix in with all this data. But through the ecosystem, we can centralize all that data and then start to take advantage of some of the artificial intelligence that we’re hearing about.

Craig: Yeah. It’s where everything is moving towards and the innovation in AI that people are trying to come out with is impressive, it’s just going to take a little longer than people thought.

Mike: Yup.

Craig: And one thing, you also mentioned that there’s a lot of slack in the system. What do you mean by that?

Mike: When you look at an advisor’s data, we only have so much time in slack. In the system means they’re spending time on things that aren’t valuable. So whether that’s looking at logging into a CRM and then pivoting then from the CRM, to what my day looks like, to getting ready to do a financial plan, to then moving into product recommendations, and modeling and rebalancing. There’s these things that are inherently inefficient within the various different silos of an advisor’s day that we can automate and remove some of those inefficiencies. And that to me is the slack in the system. We did a study this past year of how much time an advisor spends going from one app into the other. And even though the data may move, they still have to stop and think, okay, now I’m moving into this other third party app. How do I think about this? And what we timed was that on average, advisors spend about a month out of their entire year jumping from one app to the other, even though it’s on one piece of the glass, so to speak.

Craig: That’s crazy, that’s a lot of time a month.

Mike: That’s a lot of time. Can you imagine if the advisor could spend more time with their prospect or with a client, coaching them, and providing true value?

Craig: If only! And we’re out of time. Mike, thank you so much for being here and sharing your insights, I thought it was really valuable.

Mike: Craig, thank you so much for having me. I really appreciate it, I really enjoy spending time with you. Thank you.

Craig: How can people listening find you online?

Mike: AdvisorInnovationLabs.com.

Craig: There you go.