Max Lane: Tech and the Future of Wealth Management
27:47 Share

Discover Capital Group's distinctive approach to investing with the Capital Ideas podcast series, where we go behind the scenes with portfolio managers, analysts, and economists as they navigate today's markets. Available wherever you get your podcasts. Published by Capital Client Group, Inc.

Welcome to Barron's The Way Forward. I'm Greg Bartalus, and my special guest is Max Lane, the CEO of Flourish. Today, we're going to be discussing wealth tech and the future of wealth management. Welcome to the podcast, Max. Great. Thanks for having me. Happy to be here. Tell us about your story, your background, how you got to Flourish, what you're doing nowadays, and then let's look to the future. Okay. So past, present, and future all in one answer. All of them. Yeah. Boom. Cover everything. Jumping right in. Yeah.

um yeah so my background um started my career so my whole career in wealth management and and wealth tech fintech broadly uh started my career in wealth management on the wire house side um in ubs out in california where i'm from really kind of started from the bottom and learned the business there so i started in operations and a broker dealer working in the cage for any folks who've ever worked in the broker dealer

After that, transitioned over to an advisory team that was sort of half trading desk, half private wealth group. Learned more about managing folks' money, dealing with clients, the good and the bad there. Mm-hmm.

Did that for a number of years and then decided I wanted to make a change and made the jump over to the FinTech startup side. Joined a firm called Openfolio, which was a direct-to-consumer FinTech, trying to help people understand their portfolios better by aggregating some benchmark data. Did that for a few more years in New York, and then we were fortunate enough to get acquired by a firm called Stone Ridge out of New York, an asset manager, to start what is today Flourish. And so Flourish

Flourish, this is back in 2017, Flourish is a wealth tech platform today really trying to help advisors move from holistic advice into holistic implementation. And really what we try to do is deliver new innovative solutions to advisors so that they can help their clients execute more pieces of the financial plan. Right now specifically focused on banking and insurance categories. So we'll talk more about that over this conversation.

but we were started out of Stone Ridge in 2017. Back then I was a co-head of product at that time

where we launched Flourish Cash, which is what we're best known for. And then in 2021, we were fortunate enough to be acquired by MassMutual. That's where we are today. We're a wholly owned subsidiary of MassMutual, but operate independently, operate autonomously from MassMutual. Shortly after that acquisition, a string of good luck and just things kind of falling into place, I was asked to take the CEO position in summer of 2022, which is where I sit today.

and that's how we got here it's a pretty rapid ascent it's a pretty rapid ascent um you know i like to think i i worked hard and and i'm relatively smart but a lot of it was good timing and good luck and i am very fortunate as a young leader to be surrounded by such a strong team that makes me look a lot better than i probably deserve well that's kind of you to say that to all them that's very nice um

Let's talk about Wealth 3.0, something you talk about. And before you do that, let's go through Wealth 1.0 and 2.0 just to lay this out. Sure. So I'll admit I don't know who the first person in our industry who was who kind of came up with this trend, but it's been talked about at least for a number of years. Some people use different terms, but I call it Wealth 1.0, 2.0, 3.0.

And so if you look at Wealth 1.0, we go back decades, you know, 50s, 60s, 70s, maybe even into the 80s, financial advisors back then were really sellers of financial products. So they were mainly trying to solve specific use cases via transactions. Either they were selling mutual funds, they were selling a piece of insurance, but it was very transactional in nature.

Then we get into the 90s and certainly into the 2000s, things started to evolve and there's regulatory forces for that, there's market forces as to why that is, but advisors moved from selling financial products into holistic financial planning and managing entire portfolios. So rather than selling a specific mutual fund, advisors started leaning into, hey, I will build a holistic, comprehensive financial plan that covers your goals, covers your entire financial life,

And I will then work to create and curate an entire portfolio that I will manage for you. I will be a little bit less, I'll be more financial product agnostic as to how we get there. I'm going to do what's best for you. And now you are paying me for my advice. You are not paying me for a specific financial product that I am selling to you. Let's call that wealth 2.0. And that is largely where most RAs find themselves today. They're doing holistic financial planning and

and they're managing entire portfolios on the investment management sleeve. Wealth 3.0, which is we think we're in that transition right now and this is really going to carry through the next decade, is really forcing advisors to go beyond the portfolio. And advisors are going to become more holistic

financial wellness and pseudo life coaches in some way. I'll admit maybe not all of them want to do that, but I think that's what they're going to be pushed to do. And so you're going to see advisor, you see clients be more demanding from their advisors. We already see that, right? The advisors of today do far more for their clients than the advisors did 20, 30 years ago. When they think about services and the touch points with their clients, I think that is going to continue to play out. And that's really driven by

a more demanding client and the market forces around fee pressure. And so I think as an aside, which is important here,

fee pressure for advisors does not mean the fee has come down. It's really more margin pressure and margin compression. And so advisors have still been able to largely hang on to that 1% AUM fee, but now they add far more services, have to offer more products to their clients, which of course costs money, right? You have to hire specialists or get platforms, whatever. So we see that playing out into Wealth 3.0, moving beyond the portfolio. And in addition to creating a

holistic plans and managing the investment sleeve, advisors are they going to offer more products and services for every line item in that financial plan? And that's really where we see what wealth 3.0 is. And so advisors, instead of referring you away to a banker to get a great loan or a great savings account, or referring you to an insurance broker to help

get a piece of life insurance or help with an annuity, they're going to have the tools and technology and the skillset to handle all of that for you and really, really be elevated as the client's sole trusted financial relationship in their lives. We think while that's going to require some adaptation is ultimately going to be a win-win for advisors and clients. And we can kind of talk through why we see it that way. I'd imagine there are

some advisors who are in the wealth 2.0 space, which you said is quite common. I'm just wondering about those who might be not maybe skeptical of wealth 0.3.0, but kind of feeling like this is the end evolution. Like, hey, I'm doing holistic planning. I'm doing this and this, and maybe not taking this premise seriously. But to your point, the bar keeps rising. The services that are being requested keep getting more specific and higher. And I'm

presumably for those who are, let's say, not believers and just embracing the status quo, presumably eventually the market will force their hand or maybe render a verdict, if you will, and say, no, you didn't adapt and now you're losing business. I mean, can you speak to that dynamic a little? Sure. So I'd say a couple of things.

forces at play that I think will drive that even if advisors like many of us are a little bit reluctant to change right changes always requires work in the short term but hopefully leads to better outcomes in the future I think number one is the client demand and I think about you know I'm I'm a relatively a young person right especially when we walk around certain advisor conferences right I get a lot of jokes about being 20 or 19 and so I think I can speak for the millennial generation and I'm confident in saying that I think the

millennials in particular are a more demanding client set of their advisors than Gen X or boomers. I think many of folks in my generation are not satisfied to just be put into a 60-40 portfolio, which by the way is great for holistic financial planners, right? We're looking for more information. I want a holistic view, including I want a holistic menu of products and services that you can help me to go implement this financial plan.

I don't see those client preferences changing as millennials become 40, 50, 60, 70. Um,

And so I think expectations are going to rise from advisors of, "No, I pay you for your advice, but I also pay you because I don't have the time to go do the homework, right? I want you to go take care of this on my behalf." Right. And I think that that baseline, if you will, let's just say for the millennials, it's, yeah, if anything, it's not going to go down because it's going to go probably only higher. And for the more experienced advisor, maybe let's say who's been working for decades,

they may think, oh, we're offering so much more than in the wealth 1.0 days. Like, they don't know how good they have it. But all of what they remember from previous decades really doesn't apply. It's abstract because for the millennials, like, they've never experienced that. They don't know what that is. But again, someone of a certain age will see how things have, the value proposition has gotten progressively better over decades. But again, it's immaterial to a younger cohort. Right. And I think it's

embedded in that is also how the products and services are delivered, right? And you think about the technology expectations of younger generations. Like similarly, when millennials are 40, 50, 60 years old, they're not going to wake up one day and say, I want worse technology. I want worse interfaces. That just is not going to happen. So let's just underscore the entire conversation of good digital tools are going to be

the cost of doing business, right? Those are going to be table stakes. They really are now, right? Yeah, I mean, and I think I always, I'm a big believer that it's underappreciated how important that is to user experience. I mean...

It's just, it's crucial. I mean, you could have a great reputation and a hundred year history of doing A, B and C, but if you have a crappy app, you can't help but respond to that. So it's incredibly important. - Experience is a reflection of your brand. It's a reflection of trust, right? And I think that's why the experience is so important. We all, when we have great experiences broadly, not just digital, we trust those companies and those services more, right? And by the way, we're talking about clients.

Millennial advisors are gonna want the same thing you think about advisor tool sets are gonna want modern modern technology So one let's just call it client preferences client demand. I think as you said the bar is only gonna get raised It's not gonna be lowered so that's call it force number one as to why advice would be drifting driven to make this shift and

Second, I'd say is we look at our industry and there has just been, you know, a tsunami of capital that has flowed into this industry through roll-ups and aggregators. And it's because the REA business model is so attractive. Valuations have just continued to go up as more and more capital has come in.

I don't think anybody really knows exactly how this story ends, but I think part of those assumptions from the folks who are investing the capital into these firms is that one, you're going to get expense consolidation, you're going to get efficiency internally, but two, you're going to be able to drive organic growth so that over time, that's going to be a great investment. And I think the dirty secret in our industry is that the market has made a lot of firms maybe look better than they

they're healthier than they are from a business perspective. Absolutely. I mean, M&A is papered over. Papered over a lot. Yeah. As has a ongoing bull market, which we'll see how long that lasts, right? That's right. But this bull market is papering over that maybe actually the organic growth is,

isn't great. And you are seeing RAs, right, who they don't really want to have kind of a sales-minded culture, right? So I think they're a little bit adverse to organic growth sometimes. And so I think if you see more pressure on organic growth to justify the returns and you see PE firms applying more pressure

on the firms that they've invested in, they're gonna look for ways to drive organic growth. One of course is attracting new clients organically, but two, which is a big one when we talk about it, Flourish, is gathering assets from the clients you already have, which by the way is an easier thing to achieve. The client already trusts you, you already have a relationship with them,

by having the right tools and products and services, you can now capture more dollars, capture more of their wealth. And that is another form of organic growth that we don't think is being talked about enough. But I think you're going to see if the bull market doesn't keep going up into the right for forever, I think you're going to see more pressure from these capital allocators that these firms need to be more sales oriented. They need to find ways to drive organic growth. One way is through Wealth 3.0 and WealthTech 3.0, which I know we're going to get into.

Tell me a little bit more about trends that are going to drive the next phase of wealth. I mean, we talk about dynamic financial planning, et cetera. Yeah. So what we just outlined is what we call wealth 3.0. This is what's happening in the overall industry. And advisors will be, I believe, driven to adapt to this new world.

Well, as advisors adapt, the tools that they use will need to evolve along with them to be effective and help advisors succeed in a Wealth 3.0 world. And so this is something we call internally Wealth Tech 3.0, right? Which is just the technology paired to Wealth 3.0, right? And so there's three big trends we see playing out in Wealth Tech 3.0, which is all the technology and services that advisors use today to serve their clients and run their practices.

So the three we see playing out over the next decade, number one is the shift from holistic advice to holistic implementation, which as I mentioned, advisors create comprehensive financial plans today, but they don't actually go implement every line item in that financial plan. We see that shifting. We see it happening in real time when you think about Flourish and other solutions that are out there to do more beyond the portfolio for their clients. So holistic advice to holistic implementation is trend number one of WealthTech 3.0. Mm-hmm.

The second trend we see is what I'll call, it's a little bit technical, but point solution consolidation. And so biggest way I can describe this is if you, we're all familiar with the Michael Kitsis technology map. And I still remember when Flourish got on there for the first time, it was a very exhilarating day in the office, right? But it's kind of the gold standard of what the technology universe is in the RA ecosystem.

That map has ballooned in size in only a couple of years, right? I don't even know how Kittis and his team get it kind of in one visual. They're going to have to break it up at a certain point. That has ballooned in size. And what we are seeing in market, advisors, while that innovation is fantastic, advisors are struggling to manage all of these vendors. And the only way to really maximize value from these vendors is to have them fully integrated and talking to each other.

Especially for small and medium-sized firms that don't have the resources, it's very difficult to piece together dozens and dozens of vendors to provide a holistic platform to serve your clients. We think we're going to see a wave of consolidation there such that in the future, I think the end state is going to be you're going to have a custodian like a Schwab or Fidelity.

And then you're going to have a holistic platform like Flourish for everything else. And the combination of the two is going to give you every financial product you need all in a great digital solution, right? I think that's where we're headed. And you're going to see Flourish and others consolidate some of these solutions. So you're not just solving one part of the financial plan. You're solving many aspects of the financial plan because that's going to be easier for advisors to adapt.

to adopt, it's going to be more integrated. Those things are going to talk to each other as opposed to piecing together a patchwork of dozens and dozens of vendors. Right. Because I mean, there is obviously more choices are good, but up to a point. Up to a point. Right. And if you can't implement, then the value goes down. Right. So that's piece number two is point solution consolidation. Trend number three, which I think is maybe most exciting, is what we call dynamic financial planning. And so

As this plays out, what will happen is advisors will have data and access to basically everything that represents their client's financial life, right? They'll have banking solutions. They'll have the lending data. They will have insurance, annuities, of course, investments, alternatives, privates, tax and trust and estate. They'll have all of the information.

And that what will happen is when you layer on top of that data, things like generative AI that can then monitor for signal and identify changes in a client's financial picture, rather than relying on quarterly or annual meetings and self-reported data from clients of, "Hey, I got a raise," or, "Hey, I changed jobs," or, "Hey, I'm thinking about buying a second home," you'll see more of that information in the data. It'll be monitored sort of in real time.

And then generative AI tools and other tools will then identify and bubble up to advisors. Hey, I think something changed in Greg's plan, right? This might be an opportunity to re-examine their insurance coverage or re-examine their savings rate. Or maybe we need to look at that Roth conversion now because the tax code has changed, right? And their income has changed. It'll create these planning conversation opportunities.

for then advisors to reach out to their client. That is then going to lead to a couple of things that are a little bit counterintuitive, which is one, advisor scalability. So even though I'm saying you're going to be doing more for your clients, you're going to do it with less time from you because the technology is going to allow you to scale. The technology is going to be doing the grunt work of monitoring and analyzing and rely on you to be the relationship trusted party to deliver that message and have the conversation.

And second, that's going to lead to the organic growth story that I've been talking about of you're going to be gathering more assets. You're going to be holding on to more assets. You're really going to be the sole trusted financial relationship in your client's life. And you're really going to have every dollar, right? They're not going to need a bank. They're not going to need an insurance guy. They're going to have their RA that is giving them everything. And that is going to lead to deeper wallet penetration per client, which is a form of organic growth. Yeah.

Yeah, and I would imagine that in addition to better outcomes, and you mentioned the scalability, a byproduct of this likely would be higher client retention too. Because contrast that with the, you know, let's say quarterly meeting, it might feel kind of perfunctory, like, okay, here we go. This is, you know, boom, hey, unexpected call. And it just seems more tailor-made and unique, which it is. So I'd imagine that would be a net-net situation.

positive for them, yeah. - Right, I think, look, they're gonna, I think it's gonna lead to better outcomes, more satisfied clients, right? I think they're gonna feel, if I just kind of gave you the many options of you could pay 1% for a 60/40 portfolio and a financial plan, or you could pay 1% for a 60/40 portfolio, alts, financial plan, insurance,

banking and you still get that same trusted advisor you love which one are you gonna pick you're gonna pick the one with more services right and i think so for advisors retention is going to increase but also satisfaction is going to increase right and i think we shouldn't lose sight of

Why we're all in this business, right, is to help people be more confident and secure with their money so that they can focus on the other things in their lives, right? So if we truly do believe in the mission of this industry, this is going to lead to more satisfied clients. And of course, with that comes great business outcomes, higher satisfaction, more assets, et cetera. Yeah. And speak a little more about AI and the digital transformation of data and how that all plays here. Sure. Sure.

So we've seen, I think, especially over the past 15, 20 years, right, just the proliferation of data and digitization of the wealth management and just broader financial services industry, right? There's data going everywhere and you've had the rise of more and more platforms that can try to consolidate the data, InvestNet, Orion, Adapar, et cetera. That's all great. The challenge has been, you know, pre-generative AI, right?

who has the time or the resources to go analyze and piece through what is, what is signal and what is noise and all of this data. I think with generative AI, right, who's going to be able to work on big data, uh, analyze these things on your behalf, but then not go around you, Mr. Advisor, right? Bubble these things up to you so that you can then layer in the human element, the expertise, the intuition on top of it, I think is really the

perfect solution, right? Because end clients, I think really do want people that they can kind of trust and break bread with for, I think the trust is such an important piece in the advisory relationship. So I think one is just managing all that data and

A second one I'd highlight is that you just think about how much of our financial services exists on paper and PDFs, right? And historically, the only way to get data from a PDF into, you know, structured data, a lot of that has been you build something very custom or you have a human who is reading that policy document or reading that trust in a state and then getting it into structured data.

We see a rise of platforms now, whether they be in the trust and estate space or the insurance space, et cetera. We're going to be able to modernize that and make something that was a human workflow element into something that the technology can do that frees up resources within the firm, whether that's your operations team or the advisors themselves, to do more client satisfaction-oriented tasks or growth-oriented tasks. That's going to be better for the firm.

for an advisor listening who's kind of on board with this what are some steps they could do to begin implementing these strategies any you know first steps just to get their feet in the water right so i think i think first would be um i i would start with just the financial plan and kind of survey the the the office or the firm of

where do we see the most value? Where's the highest ROI today, right? Where are we, what are we hearing from clients that they want more of? Or where do we see opportunity to add more value from their clients, right? Because again, I go back to the financial plan is kind of the starting point. And

And the comprehensive financial planning is pretty good in the sense that it's exhaustive and it's broad. And then I would map to what in the plan are we actually going and executing, right? And I would kind of highlight where you're not executing. And I bet there's going to be a lot of circles around banking services, insurance services, maybe tax, right? That's not ubiquitous yet. And see where do we think we can add value? Who are the players out there that can help?

I know Flourish is one of them, right? But there's other platforms out there as well. But I think that's how I would start if I were running a firm and I really heard this podcast and believed Wealth 3.0 was coming, I'd start there. Maybe number two as a bonus one is just,

everything around your data, which is, we've been talking about this for 10, 15 years at this point, but is your data in good order? That's going to be really important to then build on top of where that's Gen AI or just making sure all the systems are talking to one another. The data has got to be clean. It's got to be centralized. It's got to be,

That's how you're going to get the most value. Strong data hygiene, right? Data hygiene is super important. Yeah. Yeah. Okay. And one final question about organic growth, which is such an obviously important topic here. Can you share a specific yet surprising idea that you have found can often result in increased organic growth? Sure. How about I give you two? I'll take two. Okay. So one is...

on the lending side. And we recently made an acquisition of a great company called Sora Finance to help accelerate our lending capabilities within Flourish.

On the lending side, what is happening today at banks and wire houses is they are using lending as a wedge to gather assets. And they'll often say to many times your clients, right? If you give us $100,000 of assets, we'll take 25 basis points off the mortgage or whatever it may be, right?

That can be very attractive to your clients. And so maybe you didn't lose the clients, but you might have lost $100,000, right? You might have lost a piece of that client's assets to a bank or another provider. If you're able to provide those lending capabilities yourselves that can compete with the private bank's

wire houses, you can either gather those assets if you didn't already have them or retain them, right? And I think number one with growth is, right, you got to hang on to what you have, right? So retention is super big. So I'd say lending is sort of a sneaky way to drive asset growth. Number two would be annuities. And even for advisors who may be listening who are hesitant to talk about annuities or implement annuities, there's an important use case they should understand, which is that

If we look at the annuities market, there was over $400 billion in sales last year. There was almost $400 billion the year before that. And when you add it all up, there are trillions of in-force annuities in the US out there. Many of them are owned by your clients. Even if you don't do annuities, it doesn't mean your clients didn't buy an annuity at some point either before you or didn't tell you about it, right?

And what we are finding is many of those annuities were commissioned and no longer fit for purpose. And they tend to be very big. I think average annuity size $150,000 or $200,000. As an advisor, you want to at least know that your client has something out there. And if it's no longer meeting their needs, this is a great opportunity to do better for them

and grow assets at the same time. Because if you've got a commission annuity that is complex, doesn't meet their investment goals, high fees, that's bad for the client. You want to go fix that as a fiduciary. And then number two, in doing so and transitioning it into a better annuity for them,

we can transition that into a fee-based annuity. And so we just had an example the other day of a client moved, an advisor moved a $250,000 commissioned VA that was paying a fixed rate of 3% and paying annual fees of 3%. So netting zero.

They moved it into a fee-based fixed annuity earning 5.85%. And the advisor just grew their AUM by a quarter million dollars. So I'd say both of those, I think, in my mind, fit your specific and surprising ways to drive organic growth as an advisor. Yeah, they definitely do. Great, great recommendations. Well, thank you again for joining. It's been a pleasure chatting. Great. Thanks for having me and giving us an opportunity to talk about what we're seeing in the market.

Certainly. Certainly. Thank you. My guest has been Max Lane. For more podcasts and the latest wealth management news, visit barons.com slash advisor. And be sure to check out The Way Forward Next Generation, a new podcast that puts the spotlight on the emerging leaders who are shaping the future of financial advice. For The Way Forward, I'm Greg Bartalus.

What can decades of investment experience teach you? The Capital Ideas podcast series taps into the minds of portfolio managers, analysts, and senior leaders, revealing our distinctive approach to investing in today's markets. Available wherever you get your podcasts. Published by Capital Client Group, Inc.