Integrations between WealthTech companies are not something out of the ordinary. However, every integration has its own goal and thus is unique. To analyze the proposition offered to advisors by LifeYield and AdvisorPeak, which announced an integration in February, we talked to Harry Bartle, Executive Vice President at LifeYield, and Damon Deru, CEO at AdvisorPeak.
Integration aimed to streamline advisors’ work
Michael Kitces in his Advisor’s Guide to Choosing the Best Portfolio Rebalancing Software says rebalancing software impacts clients’ portfolios more than any other type of WealthTech software and does this on a regular basis over time.
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| Harry Bartle, Executive Vice President at LifeYield |
Bartle points out most household-level rebalancing software does not consider each individual client’s household situation but gives the advisor just the ability to “set preferences” for what investment should be held in what account type.
The new platform being built by the partnership of the two companies, and available in May, will incorporate both AdvisorPeak’s portfolio rebalancing tools and LifeYield’s recommendations on tax-smart management of a household portfolio.
“Because we know the income tax and capital gains rates for each client, we will dynamically locate the preferences for each household in an automated process. We will also quantify the benefit of each rebalance both in dollars and using our Taxficient Score®.”—Bartle
LifeYield was originally built for enterprise customers such as Morgan Stanley. The LifeYield platform is backed by a powerful API that can work agnostically with any other platform.
“We then built a user interface (UI) for the direct-to-advisor channel. That UI calls our APIs like any of our enterprise customers.”— Bartle
LifeYield regularly updates and develops enhancements to both API and UI. The new platform will use LifeYield’s API and will have a cloud-native Platform-as-a-Service (PaaS) architecture.
Advisors and their clients will benefit in the following ways:
- Advisors will be able to look at each client’s household and dynamically rebalance the household portfolio to minimize taxes through tax-smart asset location and maximize after-tax returns. The new platform will ease this laborious task.
- The platform will provide advisors with trade recommendations to improve client portfolio outcomes. Since this is a single platform, users will not need to move between platforms to execute trades.
- After each rebalance, the financial benefit will be quantified using the Taxficient Score and in dollars and cents.
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| Damon Deru, CEO at AdvisorPeak |
According to Deru, the integration of the two systems represents a significant streamlining of an otherwise time-consuming set of tasks.
“Both platforms enjoy the truest test—the test of time. Each system’s core technology has existed for at least a decade and is advisor and industry-proven. Each platform has the benefit of seasoned systems that are noted for their ease of use and well-designed user experience. The partnership represents a real 1+1=5 value to each advisor and, most importantly, their clients.”—Deru
Before rebalancing clients’ portfolios, advisors will have the opportunity to test LifeYield’s recommendations and show these scenarios to their clients. This will differentiate and promote advisors’ value to their clients as proactive in providing comprehensive portfolio advice.
Considering taxes while building the future
Deru points out AdvisorPeak has always approached the problem of rebalancing and trading from the buy-side perspective. Unlike traders, who are typically concerned with shorter-term individual equity performance, advisors focus on long-term performance. And they need to consider tax consequences of any and all trading.
“In bull and bear markets, you want to ensure your accounts are coordinated. Ideally, you have your highest taxed assets coordinated in the correct account type so taxes don’t have to be paid. Traditionally, the industry has managed assets at the account level, which wouldn’t allow for this. When managing at the household-level, you can save tremendously on taxes by making sure the right investments go in the correct account.”—Bartle
Tax strategies are used to maximize wealth and wealth retention. Damon Deru is sure that this is even more important, considering the share of older Americans is growing significantly.
“Increasing wealth requires greater scrutiny of tax advantages to protect and preserve that wealth. This is especially true as tax legislation changes with significant economic events.”—Deru
Bartle sees smart-household management has become one of the top trends in the wealth management space. Among dozens of FinTechs building household platforms, the new LifeYield/AdvisorPeak PaaS platform solves for minimizing taxes and maximizing after-tax return.
According to Deru, being PaaS is a considerable step forward, and many Fintech and WealthTech firms are reengineering their platforms to make them PaaS.
In this sense, startups have the advantage of building PaaS architecture from scratch and gaining market share over time. To stay competitive, both LifeYield and AdvisorPeak are going to extend their integration.
“AdvisorPeak is in front of other household-rebalancing systems, and we will be deepening our integration with LifeYield throughout the next 12 months, including multi-account withdrawal functionality.”—Bartle
AdvisorPeak’s CEO says they try to build the tightest integration possible using advanced API and vendor-specific APIs.
“We will be introducing many new features, including the ability to harvest free alpha in the form of: proactive short-term tax location optimization, AI-driven decision support, long-term rebalance and trade analysis, advanced portfolio monitoring, end-to-end transaction monitoring and auditing, all FIX protocol version support, SWIFT, and more.”—Deru
What is the situation with tech talent in the US?
Considering our latest research into the US workforce market showing many Fintech companies face problems hiring IT experts, we asked Bartle and Deru whether they experience a talent shortage.
According to Bartle, it’s a challenge for LifeYield. But, given the unique software and the company’s leading position in the marketplace it is something they are on top of.
However, Deru admits that AdvisorPeak really observes the problem.
“There is a general lack of technology talent globally. For example, there are 1 million open positions just in SecOps as of January 2020.”— Deru
The company prefers to use direct hiring because it brings a much higher return in quality respondents. AdvisorPeak looks for employees via direct listings, various job posting sites, and so on. Deru says this approach helps the company find the best talent, even though “the process seems at times painfully slow.” LifeYield has had success working with interns from local universities in Boston and hiring them when they graduate.
Bottom line
The integration of LifeYield and AdvisorPeak allows both companies to offer advisors an efficient way to rebalance their clients’ household-level portfolios. The new platform, which the companies built together, more than just maximizes after-tax returns—it saves advisors significant time streamlining their tasks. Saving advisors time was one of the trends discussed at T3 conference this year.
