Episode 100 with Michael Kitces | E100

The Past, Present, and Future of Fintech.

Summary:

In this 100th episode of Fintech Impact, Jason Pereira, award-winning financial planner, university lecturer, writer, and host welcomes Michael Kitces of the Nerd’s Eye View blog, XYPN, and AdvicePay, to talk about product iteration, specialization within the field of financial planning and more. 

Episode Highlights: 

● 01:40: – Michael ended up in financial services by accident after majoring in Psychology and minoring in Theatre in undergrad. 

● 02:55: – Michael had a job selling life insurance policies, and he hated it and was bad at it, but luckily ended up finding mentorship from the one certified financial planner in the company. 

● 06:25: – Michael sees the evolution of the fintech space as having several small epochs. 

● 08:35: – Developers tried making a holy grail all-in-one software which resulted in every area of the program being mediocre. 

● 09:02: – The rise of APIs have turned the industry upside down, allowing financial planners to create their own perfect all-in-one solution. 

● 12:55: – Small companies that specialize can evolve so much faster than any enterprise software ever could. 

● 16:22: – Michael observes that most fintech software companies in the US are homegrown, with developers trying to solve problems, rather than big venture-funded startups. 

● 18:00: – Scaling your product to enterprise solutions means pivoting to a lot of enterprise features and iterations instead of iterating on your core product for end users. 

● 19:45: – Because enterprise companies evolve more slowly, when they approach smaller companies for solutions they’re often asking them to move backwards to match where their advisors are in their mindsets. 

● 22:20: – Michael believes that financial planning software has the most room for disruption of any software category. 

● 25:30: – It is still useful to know old, antiquated programming languages because companies that have evolved slowly and are still written in old code need people who understand that architecture in order to modernize it. 

● 27:45: – Michael sees a lot of companies trying to solve culture and training problems with technology instead of addressing the real issues. 

● 29:20: – Companies trying to pivot to financial planning advice without certified financial planners means the employees are selling the plan as a product rather than providing advice as added value. 

● 31:10: – In order to reduce liability that comes up with offering advice, companies centralize their planning departments and put excessive compliance procedures in place. 

● 33:24: – A lot of specialized programs are cropping up to streamline processes for things like planning for your money management in the event that you are cognitively impaired with dementia, for parents and children managing student loans, etc. 

● 37:50: – If Michael could make one change to the industry it would be to increase the requirements to be called a financial advisor. 

● 39:00: – The biggest challenge Michael has faced is figuring out how to get out of his own way. 

● 40:53: – What excites Michael and gets him out of bed in the morning is, surprisingly, checking his email. 

3 Key Points 

1. The development of APIs has allowed for much faster iteration and development. 

2. You can’t solve company culture problems with tech. 

3. The fintech space has so much room for disruption and specialization. 

Tweetable Quotes: 

● “You’re still going to get out-expertised, out-devved, out-scaled, out-manned, because the independent companies have been able to get so large. I think it’s a thing that could not have happened until the internet showed up and API connectivity became possible.” – Michael Kitces 

Resources Mentioned: 

● Facebook – Jason Pereira’s Facebook 

● LinkedIn – Jason Pereira’s LinkedIn 

● FintechImpact.co – Website for Fintech Impact 

● https://www.kitces.com/ 

● https://www.kitces.com/blog/category/21-financial-advisor-success-podcast/ 

● https://www.xyplanningnetwork.com/ 

● https://advicepay.com/ 

● https://twitter.com/MichaelKitces 

● https://www.pinnacleadvisory.com/ 

Full Transcript

Jason Pereira: Hello, and welcome to FinTech Impact. I'm your host Jason Pereira. Today on the show it's a very special episode on two fronts. First off, this is episode 100 of FinTech Impact, so I'd like to thank you all who've listened in the just under two years that I've been doing this, and hope that you've enjoyed the ride because I most certainly have. Made lots of friends, learned lots of things and continue to be energetic about continuing on with this. Second reason this is a special episode is because Michael Kitces himself was gracious enough to lend a time to be interviewed for this podcast. For those of you who aren't familiar with Michael, Michael is the publisher of the Nerd's Eye View blog at kitces.com, a partner and director of wealth management and pinnacle advisory and co founder of XYPN and AdvicePay. And beyond that, Michael is probably the most, if not one of the most, respected names in financial planning in the world. And with that, here's my interview with Michael. Hello Michael.

Michael Kitces: Hello Jason. How are you?

Jason Pereira: I'm fantastic. I'm even better that you made the time to do this for me. Thank

you very much.

Michael Kitces: Oh, absolutely. Congratulations on a 100 episodes. We've run a podcast for a

long time as well. I know what just a slog, a little bit of a beast of burden it can be carrying a podcast through for that long. So congratulations for powering through and building a connection to listeners and growing a following for the work that you're doing.

Jason Pereira: Thank you. And then before you start, let me just plug that podcast. It's the

Financial Advisor Success podcast and any advisor not listening to it needs to subscribe immediately. I say to others because Michael is on there, but I constantly refer to it as the gold standard in learning practice management in this industry.

Michael Kitces: Oh, thank you I appreciate that.

Jason Pereira: So well done. It has been life altering to many people I've spoken, so thank you.

Michael Kitces: It's awesome.

Jason Pereira: So let's get started. So you already told me about who you are, what you do. So tell me about your personal journey into this industry before we get into FinTech. So what got you to where you are today?

Michael Kitces: Yeah. My landing in the industry was really quite random, frankly. I was a liberal arts education student. So, they teach you to think but prepare you for nothing in particular. I was a psychology major, a theater minor, pre-med student. And the only thing I really figured out by the time I was graduating was that I did not want to do psychology, theater, or medicine. So I was graduating, needed a job and kind of fell for a good pitch from a sales manager at a life insurance company. ‘Come be a financial advisor. We want young, hard workers. There's great income potential. You control your own destiny.’ All these things that certainly in retrospect like sounded great to a 22 year old testosterone driven male is like, I can conquer the world and do anything. So I just came plowing into the industry head first. No financial background or economics background, no context of the industry. It went horribly badly because I did not understand that I was not taking a financial advisor job in air quotes, I was taking a life insurance sales job. I'm not a good salesperson.

Michael Kitces: So that didn't last very long but I was just fascinated enough with the industry out of frankly just sheer dumb luck. I ended up mentoring under the one person in that office of about 30 insurance agents who was a CFP, who was a certified financial planner and so there's like 29 people in the office that are just out there trying to sell variable universal life insurance because that was the hot thing 20 years ago when I was coming in at the peak of the '90s boom, the tech bubble. And then here's this one guy who did this completely different thing where he would just go out to people and ask them about all of their different financial problems and challenges and then help them with whatever thing they said they had a problem with. Because we had a decently wide product shelf and there was almost always a solution you could implement them. And honestly for mine, it was like, this just seems easier.

Michael Kitces: Instead of trying to sell your one thing to everybody, just going to them and asking what their problems are and giving them what they need, it just seems easier. And so that's how I actually started morphing down this road of financial planning. Made a couple of firm changes early in my career just trying to find the right landing place and fit. Ended up landing out of sheer dumb luck at a good early stage independent advisory firm that was growing really well in the early 2000s, joined them in late 2002, early 2003 when they had just under $200 million under management as an independent advisory firm, which actually, it was a pretty sizable firm back then as their director of financial planning where I wouldn't have to go prospect because that was the thing I knew I was terrible at from life insurance days and I could just focus on building financial plans and delivering financial plans to clients.

Michael Kitces: And 17 plus years later, I'm still there. The firm went from under 200 million to over $2 billion from their management and over time I kind of branched out to do wider industry stuff as well as, the firm had capacity and I could start doing some other things on the side.

Jason Pereira: Excellent. It's interesting, it's not an uncommon story that you basically stumbled into this industry. You typically get sucked into the insurance world first because they seem to be always recruiting for people.

Michael Kitces: Yep.

Jason Pereira: You were lucky enough to have the serendipity of someone who showed you

the light for lack of a better term and often-

Michael Kitces: And the sheer like stubbornness to not be willing to give up after horribly failing at prospecting in my first year.

Jason Pereira: Persistence pays off. So, and I often say one of my greatest gripes about this

industry and it seems to be universal around the world. There's a number of bright, intelligent people that get brought into this industry and then spit out because guess what? You didn't sell enough.

Michael Kitces: If I didn't have the luck of one person who showed me there was a little bit of a different way of doing this. Like, I just would have moved on. I would say, I don't get it and I would have moved on. Now the irony to me actually looking back, like I am actually the child of two computer programmers and so had I been chewed up by the financial services industry, I probably would have ended up in the tech industry. And for all I know I might've actually still managed to full circle this back to FinTech given where like technology world has gone. But like I'd probably be a computer programmer doing backend Dev work on a payment system, not out on the front-end advisor side technology.

Jason Pereira: So that explains you're on a spreadsheet. So it's funny how all roads lead to

Rome in this instance.

Michael Kitces: Yes. Yes. Yes. So I kind of want to retrospect like maybe I actually just ended up exactly where I was going to be in that world no matter what, I just took a different path.

Jason Pereira: Free will is a myth. Okay. So let's jump into the FinTech side of this. So, I want to take some time to explain that not only the U.S. but the global audience how FinTech's kind of evolved over time where we see it going and I'm sure you and I have both seen different interesting things going on, but the U.S. is probably, if not absolutely certain, the leader in the world in FinTech in terms of the technologies advisors are using. Let's just talk about what you've seen in the last 10 to 20 years and how you've seen that evolution play out.

Michael Kitces: I kind of view this in, I don't know, like stages, little mini epochs because I think a lot of what's happened in the technology world, in the Advisor Technology world really has morphed because of the environments in which you can build tech. So, right. You take tech back to early days of computers in the '80s and '90s, right? We're hard coding software. We're debugging as best we can because once we're ready to send it out, we're going to put it on a disc, we're going to mail it to people. You're not allowed to do another update for nine to 18 months. You better darn well make sure it's right. Your every stage releases huge buildup, huge release stage. Very painful overhead costs for building and developing, getting that out very high stage and barrier to entry. And so just not a lot of innovation, not a lot of innovation in advisor space.

Michael Kitces: Then the internet showed up and so to me like stage one of how the internet started changing this was, "Hey now I can just make the software online. I can do more of a continuous release schedule. This makes production a little easier. It makes deployments a little easier. It brings down costs and makes my software faster and more agile." And then of course we literally made agile software development processes and I think just our ability and pace to iterate on Advisor Tech software got a whole lot better in a way that made the software much more responsive to the needs of the marketplace and started really materially improving the quality of software that we had. The second stage was when APIs really showed up and I guess like mid to late 2000s, decades that like they really started to get it a little bit of traction in the U.S. like TD Ameritrade launched their VO platform. It's sort of the first big open architecture API driven ecosystem for advisor tech.

Michael Kitces: And when the API showed up, that to me is really when the world of Advisor Tech changed and what's turned upside down over the past 10 years of Advisor Techs. And it's like really the rise and traction of APIs is historically, like the Holy Grail of Advisor Tech was the ultimate all-in-one plan. Right? And it was like, it was the Holy Grail because you were always in search of it and no one ever found it. Everybody would try to make these all in ones. And in practice if you tried to make everything all in one, you ended up with like mediocrity in every category because we're was so stinking complex to build everything all in one that most people ended up going back to sort of the best of breed categories. But it was excruciating because the best breeds didn't talk to each other because there were no integrations. Because these-

Jason Pereira: With double entry and no coordination, there're only-

Michael Kitces: Yeah

Jason Pereira: Yeah, exactly.

Michael Kitces:Because these were all independent software companies.

Jason Pereira: Absolutely.

Michael Kitces: And so the rise of APIs to me has sort of turned this ecosystem upside down in a whole bunch of different ways. So number one, now you can actually have integrated platforms with independent software companies. We can take a whole bunch of best of breeds, mash them together, flow data through APIs and I as the advisor can get my integrated experience of software across all by different platforms. But I don't have to buy an all-in-one and hope that company can be awesome and everything at once. I can buy my best breeds and link them together. Now that's still has been a little bit of a painful 10 years. Like, "Okay, can we get these things to integrate a little bit better?" Like I'll admit from the advisor end, that data flow has not come as quickly as you want. Right? There

were challenges to API based, particularly in an ecosystem as large as the U.S. and we publish a FinTech map of all the different players in the U.S. alone and-

Jason Pereira: Which you do anyways.

Michael Kitces: Yeah, I mean, I produced that originally just literally I call like the map. Like

here's how you navigate the landscape was sort of the idea. Like you can find your solutions except now like a lot of people use it as the punchline to a joke. Here's how insanely complex the U.S. Advisor Tech spaces. There's a bajillion companies like because there's so many logos on it. I didn't set out to do that. But as any entrepreneur knows, sometimes you just make a product and then you see what the marketplace is going to do with it. So apparently it's sort of the joke of the complexity of the tech and like as someone who has a company on that map, like we've lived the pain of that, that there's so many different companies to integrate to, and API integrations are generally all point to point integrations. So, if I want to go out and work with dozens of different companies, like I literally got to build dozens of pipe ways, one at a time. And then we get into the like, well are we going to build to your API? Are you going to build to mine?

Jason Pereira: It's funny because you have like Zapier who's decided to sit in the middle.

Michael Kitces: Right.

Jason Pereira: He’s that kind of exchange network for so many of these things because

somebody can't focus on them all.

Michael Kitces: Right. And so then like advisors try to show up and make their own connection points off of our APIs using Zapier. But then that gets a little messy and you don't always push the richness of the information that you need. So I think we're working through that. It is getting better. There are kind of these constellations of software they're starting to form because they have deeper integrations and so they get more deeply tied together and they strategically choose who they're going to work with. And then you get groupings of software that really do up the depth of integrations. But it fascinates me that, even when I started my career 20 years ago, it was sort of known, the good tech was all in the large firms for the relatively simple reason that they're just, they had the largest advisor base over which to amortize development costs to make it economical to bid software.

Michael Kitces: And independence had terrible software because there were only a small

number of us. We were scattered all over the place. The sales are all like one seat at a time. It was very hard to scale a software company and so they sort of sat off to the side. And now we come full circle 20 years later in this environment of online continuous development with APIs to weave everything together, including integrating to large old school legacy systems and big enterprises. And now in the U.S. independent software companies like MoneyGuidePro and eMoney Advisor have 50 plus thousand users seats and the largest firms only have 10 to 20000 which I realize even that's a larger market space than some countries for their advisor base. We're huge with 300000 in total in the U.S., but you see these independent software companies that have tens and tens and tens of thousands of users, way more than what any individual company could have.

Michael Kitces: And so now we've completely turned this upside down where the independent

software companies actually have a larger base of users to amortize development costs over the large enterprises. And those software companies usually just focus all of their development on their particular thing because that's their best in breed area. And I feel like the, while the all-in-one has been sort of the Holy Grail that we've held off for 20 years, the shift in the technology environment because of the internet and APIs, is leading to a world where, I'm not sure we're ever actually going to get there because the best in breed now are so much better at what they do. So much more focused on it, iterate on it so much faster and can amortize their development costs over a much, much larger advisor base.

Michael Kitces: I don't know whether any large enterprise that's home growing software can

catch up now, at best, you might build your advisor dashboard, you might build your proprietary layer and we're certainly seeing that evolve here in the U.S. that, enterprises want to build their proprietary layer and then plug everything else in, but they're actually sometimes building a relatively thin layer. I mean, it may be invaluable, and I'm not trying to knock what they're building, but they're not even trying to build the whole stack. They're just trying to build their layer, their control piece, their input piece, and then plug everything else in the back- end because the independent companies have more resources, faster development in place, better subject matter expertise in the software category and just continue to outpace anybody that tries to build all in one.

Jason Pereira: Yeah, but it doesn't make sense for them to try anyway now, the economics

have moved so far beyond that, whereas, are you really going to, let's just say you pick on a couple of aspects, client portals, aggregation, reporting, asset tracking and financial planning. Right?

Michael Kitces: Yep.

Jason Pereira: You're never going to get anything other than mediocrity, having your one Dev

team work on all of that? Like it's-

Michael Kitces: Yeah, I mean just you... And are you really going to spin up a pod or multiple

pods for each of the software categories that you're working in? Like if you're a large enough company, maybe you can do that, but still like, okay, congratulations, your company's so large, you can put like a 100 Devs on this and you've got 5 to 10 in each of these different product areas. Well, okay, but like eMoney's got 200 Devs just on the planning software and Redtail's got a couple of dozen just on the CRM and you start breaking all these categories back apart again and you're still going to get out expertise, out Deved, out scaled, out maned because the independent companies have been able to get so large and just, I think it's a thing that could not have happened until the internet showed up and API connectivity became possible. To me that that was the enabler that started this change in the landscape. And I agree with you, I don't know that we're coming back from it at this point.

Michael Kitces: If anything, certainly when I look in the U.S., I feel like it's accelerated the pace of technology startups because now independent advisors that want to make software can actually see a pathway to make a very sizable, very successful financial technology firm that just wasn't feasible in the past. If you were just going to sell the small independence you never had a migration path to the enterprise market.

Jason Pereira: Agreed. And it's interesting too. I think one other kind of paradigm I would put

on there is just the entire AWS vacation of everything. So the ability to use Amazon web services or Azure reducing your overall cost of startup, but just the speed at which I'm able to see these companies iterate now is just astonishing compared to before. And in addition to that, further to your point, about the like having these large independents basically sell to everybody, the feedback mechanism that they get from all of these different parts of the industry, giving them feedback and making the product better for everybody. If you're just one company working your one thing, it's your people's problem or how they see it. You're not benefiting from the giant, the wealth of knowledge out there in the industry.

Michael Kitces: I will add one caveat though actually to that point that I have watched in our

space at least down here in the U.S. I see it over the past, I don't know like 5 to 10 years that to me it's becoming very noticeable. So most Advisor Tech, at least on the U.S. side, fall in the category that I call the homegrowns. So the homegrown is an advisor has a problem, can't find solution, gets aggravated, makes solution, friends hear about it and want to buy solution, sell solution to friends, now own software company on site.

Jason Pereira: I'm experiencing that myself, you have to say yes.

Michael Kitces: And like, I mean that was certainly our story for building AdvicePay and just

when you look in the U.S. space, like that's the story for Orion, Tamarac, Redtail, TRX. [IRebow 00:16:53], just our list goes on and on, most of the software companies in the U.S. space. We're homegrowns, we've had almost no just independent venture funded startups that came in and said, "Hey, I think the advisor space is cool, I'm going to make a software in this vertical." Like it's almost all homegrowns. And the cool thing to be about homegrowns as like being wireless and independent advisor myself is like, the homegrowns get built for us first because it's usually made by us. It's made by someone on the independent side who then grows and scales the software. You get traction in the independent space, you valid your product, you do your early iterations, you prove out the concept and then you pivot into enterprise.

Michael Kitces: Because that's still ultimately where the seat count is and you can pull in

contracts and revenue growth a lot faster and enterprises then still plucking away at one independent firm after, after another, once you get through your initial traction. But the challenge when that pivot happens is sort of twofold. The first, and we've even felt this on AdvicePay as we've now scaled up and gone through pivot from starting with the independence and now selling in enterprises. Enterprises have all of their own unique needs around integrations, depth of compliance, oversight and permissioning protocols. There's a bunch of stuff that doesn't exist in the independent world, which means a whole bunch of your Dev cycles for quite awhile just get gobbled up with enterprise stuff that you need to do to build and scale your company.

Michael Kitces: But it's sort of in the purest sense, like it's not really iterating on the core

product any more. So like your core product iteration slows down. We had to be very deliberate in our realm to balance out, like we're going to do a pure product feature that's relevant to the independence to the end users and then we'll do an enterprise thing and then we'll do another thing for the end users and then we'll do another enterprise thing, we're just trying to balance that out, so it didn't feel like our product stopped iterating because all the Devs are working behind the scenes on enterprise features.

Michael Kitces: The second challenge that I've found that's even a little bit more pernicious. We haven't felt this pain at AdvicePay just because of the nature of the product and what we do, but I see it for others particularly like financial planning software in our space is there's sort of the old saw, independence are small and nimble. Enterprises are big ships that turn more slowly so they tend to lag a little bit, but when they come in and they come in full force because they're big firms, but what I've watched started to happen is because a lot of the enterprises in our space are lagging the independence in our world on the U.S. side, like RIS had been doing this assets under management model and building bases that way for 20 years. Broker-dealers are only now just kind of figured out like, "Oh, maybe this fee based thing actually is going to have traction and we should probably be pivoting that way."

Jason Pereira: Like they've lost a ton of assets on the go.

Michael Kitces: Right after they've lost market share every year for 20 straight years to it and so like thrilled to see it. They're winding up commissions, they're winding up fees, they're more client centric models. Like I like all of that shift, but their advisor base is often still stuck kind of five to 10 years behind in business model evolution, which means like technology needs and servicing needs, the more the independents are and so when the enterprises show up and make enterprise demands for a lot of these companies, like they're pulling the software backwards, they're like, "Hey, our advisors are in 2010 and we'd like to get them to 2015." And all the current independent advisors are like, "I'm glad 2020 trying to get ready for 2025."

Jason Pereira: Yeah.

Michael Kitces: And the software starts getting built backwards for where we were five to 10 years ago instead of where we're going five to 10 years from now. And I can't entirely blame some of the Advisor Tech companies to do this. It's like the sheer seat count, the sheer user count revenue opportunity in large enterprises. Is a really big number, like you can't in good faith to your company, just walk away from that business. But ironically, as enterprises have shifted over the past 5 years into Advisor Tech, moving away from build philosophies and into buy philosophies or lease philosophies because they realize they can't keep up with the pace for all the reasons that we talked about, the actual iterating pace of software in Advisor Tech, I feel like has actually slowed down in a lot of categories.

Michael Kitces: I don't see a lot of companies building for where the industry is going to be in 2025. I see a lot of companies to build for getting enterprises who are still in the 2010s and 2015s up to 2015 to 2020 in today. And so that'll pass at some point, but it's been striking to me that I can see that shift. Some software categories more than others. I think financial planning software in our space has been particularly notable that like all the biggest planning software companies are building, downscale simplified planning software. We've taken 20 years of awesome cumulative development to make our software less capable because we're trying to catch up some enterprises that are still on the old commission- based sales world and not really getting paid for advice and pulling them forward. And so like I'd love to see them get pulled forward, but I don't see anybody building planning software for 2025, I see everybody building planning software, trying to get folks that are five to 10 years behind the curve back up to today.

Jason Pereira: We can talk about that off air. I've seen some interesting stuff, but yeah, I definitely agree with you. And so, as a business owner, it's a challenge, right? You have to go where the money is for the growth of your business, but again, I think you see that same model everywhere to different degrees of demand on both sides. The independent versus not independent. And yeah, you can't ignore that, but you also can't focus on that because then you're going to let someone else come in ahead of you and create problems or you're going to alienate your client base who is looking for the 2025 solution. Right?

Michael Kitces: Yeah.

Jason Pereira: It's a challenge and-

Michael Kitces: Or just you open yourself up for the next disruption.

Jason Pereira: Absolutely.

Michael Kitces: I mean, I think that's ultimately what it comes down to. Like the companies or

the categories that are suffering with that. I think get more prone to disruption. Like when I look in the U.S. based right now, not with staying the dominance of some of the big players. I actually think financial planning software is the most disreputable category of software in the U.S. right now. CRM has a little bit of room for disruption, I'll give them credit, like some big firms like Salesforce are actually iterating pretty quickly. The independence in our space like Wealthbox and Redtail are iterating pretty quickly. The performance reporting software is just like we all account for the numbers. It's really important to account for them. But like you can only be so innovative and counting for the numbers because the whole point is not to be creative in accounting for the numbers. They're supposed to be accurate presentations of the numbers.

Michael Kitces: So it's striking to me that I actually think some of our software categories have never been more prone to disruption right now of the new entrant that comes in and says, "I'm going to set the vision for where I think this business is going in the next five to 10 years. Because a lot are trying to help enterprises catch up to today?

Jason Pereira: I agree with you. I mean, especially the planning software. I totally... The

frustration I see is that those companies built their systems on the back of people who believed in planning and wanted to do more comprehensive things and more iterative things and basically be able to map the entire client's life. And now they're trying to sell down markets to people who are just like, "Look, I need to do something, but I don't want to do that. And it used to be simpler and easier."

Michael Kitces: Yeah.

Jason Pereira: I totally get that there's a market for both of those, but I have to feel like, yeah,

you're going to set yourself up for future disruption. Plus, in fairness, I look at the U.S. market and please disagree if I'm wrong here. I look at the major players there and I look at the architecture they have and I think man, you're getting the legacy now. Like you guys are looking a little bit long in the tooth and your underlying software and I can't imagine you could be able to meet the next paradigm when it comes.

Michael Kitces: Yeah, I mean, I know some firms particularly like the portfolio reporting and

accounting space, they're tying into like the really old infrastructure guts of like how custody works and how assets get tracked and how clearing works and how transfers work. And there was a company in our space and deference them, I'll leave them nameless. They were hiring a COBOL developer. They were trying to find someone who knew COBOL and I think they hired someone who was in his 60s who did this in his 20s when COBOL was dominance in the '70s because that's what the back-end was still written in and they needed someone that understood the architecture for it. So, yeah, when you get into the guts for some large firms, I mean to its credit, like 40 years of iteration that software runs smooth. Like that has been well tuned and optimized-

Jason Pereira: Oh, yeah but-

Michael Kitces: But like kind of hard to build modern integrations to it.

Jason Pereira: I have that exact experience by the way. And trying to get data from a custodian and have it spit on COBOL. So I know what that's like. And a funny side story, I once knew a guy who basically was a developer in the telecom space forever. So he had all these old computers laying around, and his kid taught himself every language coming up. So when this kid graduated from university at 22, he was like the only one who knew how to code program in COBOL and essentially it was like, okay-

Michael Kitces: What a job opportunity.

Jason Pereira: Oh my God. Right? And it's funny because I've told this story a couple of times on a couple of panels and every time I tell it guaranteed, one of the panelists turns around and says, "Can I get an introduction to that kid?"

Michael Kitces: Yeah. Yeah. They're like, "Oh, funny you mentioned that. I'm actually struggling with that right now."

Jason Pereira: I keep telling people, don't teach your kids, Python, like teach them COBOL. There's a long tail of businesses that are going to need that service.

Michael Kitces: Particularly I think in FinTech because so much of what we have to do still plugs into some very old pipes at the end of the day.

Jason Pereira: Ever mind that those people who know that language are going to be dying off [inaudible 00:25:45]. It's a challenge. Yeah.

Michael Kitces: The other challenge, I'll admit that I'm seeing this as well that frustrates me a lot, just watching the landscape is, there's a very weird dynamic to me that's going on right now with particularly some enterprise firms that have what at the end of the day are people problems, culture problems, hey, we want to get more planning centric. But historically we were a commissioned based sales organization and sales culture still permeates strong. So it's hard to get people to care about planning when they've been rewarded their entire careers for being good at sales instead. And they're not necessarily that terribly well trained at the end of the day. Here in the U.S. our entry level bar is extremely low. Like it's a series exam from FINRA, it takes you a couple of hours to do it, you can study for it often with my colleges.

Jason Pereira: Oh, Michael you have another candidate you add for this.

Michael Kitces: And so we have this painfully low bar and a bunch of enterprises I find them

come in and say, "Well we need to get more planning and advice centric because that's the future. So we want all our people to go out and start getting paid for advice and delivering financial plans. And the problem is you just literally don't actually know that much about planning stuff. Like they just, I'm not trying knock them, they just, they've never been trained in it. They never got CFP certification. They didn't necessarily come from a finance background. The only thing they ever got trained in was their company's products, because that was what you were trained to sell. And the fundamental concern that's cropping up for me, and I'll pick on planning software a little just because this is where I see it the most is, company tries to get more planning and advice centric goes to their reps say, "Hey, we got to do more planning advice." And the reps say like, "I don't want to use that planning software. It takes too long."

Jason Pereira: Yeah.

Michael Kitces: And so, then the enterprises go back to the software companies and say, "Our

people say the software takes too long, you gotta make it simpler." So they make it simpler and then they try to redeploy it to them. But the fundamental problem is you can make that software take three seconds. It's still three seconds too long for a culture that celebrates sales over advice and an environment where they've never been trained to add value on top of whatever the software is. I see a lot of companies taking what essentially are culture problems and talent development problems and they're trying to solve it with technology and it's not going to solve the problem.

Michael Kitces: Like if you want to really get your advisors going, don't buy them simpler

planning software, run CFP classes in every branch across the country and then in a year or two come back when they have all this additional knowledge that they could really get paid for because they got things between their two ears that they could sell as value and the software supports, and then see how willing they are to actually adopt the planning software and start shifting their business models and do all the other stuff that you may be trying to accomplish strategic [inaudible 00:28:16].

Jason Pereira: And I would add change the compensation model to reflect that they should be

doing those actions. I mean, I live in a quote unquote, bank owned broker- dealer hell in Canada or the vast majority of advisors work under a bank owned brokerage. And this is a change I've seen happen. Every now and then they do a title change. They went from an investment executive to wealth manager as if that was going to change anything saying they're more planning centric and advice centric and you know, they basically take these guys who are still incentivized based on assets under management and commissions and then they basically say, "Oh, we put together this financial planning team so you don't have to worry about producing it. They'll do it all for you." But then the financial planning team has to sell the advisor on, "Hey, let us do this for you." And they're like, "Well this takes too long." Wait a minute. You're recommending something that takes away from my AUM. Cut that out. It's a model dozen-

Michael Kitces: And I would frame it at an even more basic level. Like you're literally not actually teaching your advisors to add value with advice, when you take planning and centralize it into a central planning department, and we've had a lot of large firms do the same thing here in the U.S., functionally what you're doing is you're just turning the plan into a product and you're teaching your end reps to sell the plan as a product right alongside the quiver of all the other things they can sell, they're like, "I can sell you investments in your retirement account, I can sell you this other investment opportunity or I can sell you a plan." The home office makes all three of those. And we don't actually teach them to add value with advice, we teach somebody to sell The Plan, capital T, capital P.

Michael Kitces: And then of course what they quickly out is the selling The Plan, makes people ask more questions, good questions for finding your financial future and figuring out what you want to do, but time consuming questions for what usually is not a high dollar value sales and it's like, Oh my God, I make more money by not selling the plan. That takes a whole bunch of time and ask for questions for not a huge payout because when I can sell other products instead that still pay me more and are more time efficient because it's still a sales based world of what pay off can you get for what time you put into the sales process instead of trying to make it an actual advice process where you don't train central staff to produce plans to be sold. You actually train the end advisors to be advisors.

Jason Pereira: I would say produced plans to be ignored in most cases unfortunately.

Michael Kitces: I find it's just, like it's just this mentality that like if there's one thing I find that's

a fundamental difference in the U.S. space between the RIAs that are sort of the advice centric ones that are growing and the broker-dealer enterprises is that RIAs view advice as an asset. Best thing I can do is to attract talent. Really smart advisor talent who gives really awesome advice because they command better fees in the marketplace and they attract clients and they grow. And bank and brokerage firms generally view advice not as an asset but as a liability. It's a legal exposure to be controlled-

Jason Pereira: [inaudible 00:30:58]. Yeah.

Michael Kitces: Because heaven forbid you teach all of the advisors and all of your brokerage

branches to give advice. Now you're just on the hook to be sued by what any of them say. So what do we do? Like we tamped down on compliance, we centralize the planning because if it's centralized I can more easily compliance review a centralized department then a dis-aggregated bunch of advisors. But there's just this fundamental mentality shift that advisory firms view advice as an asset and brokerage firms historically have viewed advice as a liability. And when you compound that out, again you've get a culture difference, you get a systems difference and then eventually you get just differences in quality of what you put out in the marketplace.

Jason Pereira: Agreed. Agreed. It's pretty similar here in that regard. So moving on, let's talk

about overseeing coming down the pipe. So I'm sure you get privileged exposure to any number of fascinating new technologies.

Michael Kitces: Yes.

Jason Pereira: What's exciting you-

Michael Kitces: We consult with a lot of startups about like cool stuff that they're working on.

Jason Pereira: Yeah. So what's the most exciting ones you're seeing or what's giving you hope for the future and making all this stuff better and better delivery of advice and lives of advisors better.

Michael Kitces: So there were a few trends that I'm seeing and watching that I'm really

interested in. One, kind of getting back to just the theme of planning software is I haven't seen sort of the next category killer and financial planning software, someone may be out there building it. I haven't seen it yet, although I think it's going to be coming, but I am watching a whole bunch of more specialized planning software tools start to crop up in the marketplace. So in the U.S. this is tax planning software specifically to go deep on tax planning. We had a FinTech competition expert planning network a couple of months ago and the winner was a company called Holistic Plan. It takes a 500 page PDF of a tax return and in seven seconds OCR scans the whole thing, finds the planning opportunities using their algorithms and shows the advisor like two pages of, here's where your client's sits in tax brackets, here's marginal tax rates, here's all the tax deductions are eligible for, here's the ones that can't do because their income is too high. Here's a whole bunch of observations of planning conversations you can happen.

Michael Kitces: And just take like what might normally be an hour process for one of our player planners turning through all those pages and trying to spot the planning opportunities, seven seconds of software. Now the advisors still have the conversation, make recommendations, apply their knowledge to it, like I don't think it replaces the advisor, but holy cow, it makes that tax planning process a whole lot faster and easier and I'm watching this crop up in a whole bunch of specialized areas. Now there's a company called Whealth Care. Whealth Care with an H, like W, health care.

Jason Pereira: Yeah.

Michael Kitces: Whealth care that's doing this with like elder care planning, crafting plans for

clients around how are you going to manage your finances if you go through dot cognitive decline. It's a really tough conversation but it's a whole lot better to plan for it in advance than do actually have to deal with your client when dementia or Alzheimer's begins and you're trying to figure out what the legal rules are. We're seeing stuff crop up in the category of college planning, not just, "Hey, save into college account." Which is what we always did in the past because that's an accumulation strategy, but like your kid's about to go to college, how do you navigate the financial aid planning? Your kid now has a whole bunch of student loans, how do you optimize the student loan planning? Which is a super complex area in our space because there's a bunch of government programs and government regulations that overlay with it.

Michael Kitces: So we're seeing all these like specialized planning modules start showing up for advisors that want to go deeper into advice specialties than what the generalist planning software could permit or facilitate in the past. I'm fascinated by some of that showing up. We're finally starting to get a little bit of just good financial portals for clients. I still think of it as the PFM category, personal financial management category. To me, one of the biggest misses in the advisor space for the past six years is that basically no one built mint.com for advisors.

Jason Pereira: My personal frustration.

Michael Kitces: We just missed it and we have client portals, but the client portals are very investment centric because most of us are still in the asset gathering investment management business. And the problem is A, there's just only so much that you see when you log into your investment portal and find out if you're still on track for retirement. Because when I go from 29.7 years to retirement to 29.5 years to retirement, not much about my retirement plan actually changes, there ain't very much to see, log in and see my plan update. There's not necessarily much to see if I log in and see my investment update. And if anything, we all tell our clients, don't pay attention so much to the markets, the volatility of the markets. So I don't know why on earth we then give them a portal so they can look at it and obsess out about it all the time. I had to be fair, I think they should always have access, but you don't need to flog them to log into a portal that's just going to make them notice how volatile their investments are.

Jason Pereira: Yeah. You don't smack them with that in the first thing when they opened up.

Michael Kitces: But then when you look at personal financial management tools, people that use mint login multiple times a week, your personal capital that built their proprietary version of this for their own business. I mean I've seen stats out there that like their average user logs into their portal I think like 15 to 25 times a month and in advisor world, most firms I know at the end of the day are like, "Hey, what's the adoption been on your client portal?" It's like, "Well, 30% of our clients have logged in at least once in the past year." Like in the past year, it's only a third of them. You make the center of your portal cashflow and spending instead of assets and investments-

Jason Pereira: That's another day.

Michael Kitces: You go from 30% in the past year to 15 to 25 times a month per client.

Jason Pereira: Yeah.

Michael Kitces: So I think we just largely missed this. Some companies have it to some extent a eMoney Advisor in the U.S. here is planning software that has that and that's why eMoney has charged three times MoneyGuidePro for what's not actually very different planning software at the end of the day. I mean a little bit different but the math is the math, but eMoney had this portal, they have the PFM portal and they commanded three times the price and still amazes me more companies haven't cropped up to build that. But I now see a few that are starting to work on some versions of products around PFM solutions for advisors and I think we're still in the early stages of what ultimately will be some kind of robotic process of automation, equivalence and our advisor world, like just business automation software that spans platforms that span systems.

Michael Kitces: I don't know whether it's going to be standalone software or live within a CRM

system, but the depth of our workflows and our ability to have workflows trigger other workflows and tasks that get sent out to people is still ultimately I think a little bit lightweight for where it needs to be. But we're starting to build that direction just from a sheer productivity end like as a firm owner. Because I'm a part of action independent advisory firm like, I'm excited about that stuff. Like it won't necessarily replace my advisors, but it will drastically cut back on my administrative staff, and let me train them to do other higher value things, because a whole bunch of that paperwork, not even just e-signatures, but just starts automating through an entire pipeline with just logic chains that poke me when I need to actually do something.

Jason Pereira: Absolutely. No, I agree. And I very much look forward to that as well. So before

we wrap up, there's three questions I typically ask people to basically kind of poke your thinking, see where you share some personal insights into your life and your viewpoint. So the first one is, if you had one wish that you could use to change anything you wanted on something you're working on, the companies you're involved with, or the industry as a whole, what would it be?

Michael Kitces: So ironic in the context of a FinTech discussion.

Jason Pereira: Anything you want.

Michael Kitces: If there was one thing that I could change, it would be lifting the standards for

the industry around what it takes to be called a financial advisor. That you actually have to have training and experience finances. It's not rocket science, but that you would actually have to have training in it and because what that ultimately does is, that to me is the biggest thing that starts to shift the culture and the value proposition of the whole industry and gets us out of this world of trying to use technology to solve people's problems and instead lifts up the people and then we can make awesome technology for more trained people.

Jason Pereira: So I would've been shocked if he had said anything else. I was expecting

[crosstalk 00:38:38].

Michael Kitces: I'm racking my brain. I'm like, what's it like? What's a cool FinTech thing to talk

about?

Jason Pereira: No, it's [crosstalk 00:38:44].

Michael Kitces: I'm like, "Oh." I'm like, you gotta bring up the people for it. Like bring up the

people and then we can make awesome software to make them even better bionic superpower people.

Jason Pereira: For the record, that is my exact answer is professionalization and bringing up

the capacity competency. All of it. So the second question, what's been the biggest challenge you've faced in getting to where you are today?

Michael Kitces: Oh man. I think the biggest challenge, like I got to own that at a personal level. Like it's figuring out how to get out of my own way sometimes. I'm both a vision person. I just see the world in trends and waves and patterns like it just sort of how my brain works. All I can do when I look at the world to see the gaps of what people aren't doing, which is why I like founded seven companies in the past 10 years, like all these different areas and gaps where I'm like, I see something there to solve, I see these things there to solve and I've got 10 more in my head. I just have to find the right partners to work with, to build those things. But it's a challenge to me because there's so much stuff in my head around ideas and vision of where we can go that I want to be involved with it all.

Michael Kitces: I'm incredibly energized by it. I love this business. I love what we do. I love how we help people. I think there's so much opportunity to help the advisor world and accepting own God-given constraints that we all get the same 168 hours in the week and you need to use some of them for sleep and some of them for family, there's only so much left I can cram in to do work stuff. Just, it's been really hard for me and so figuring out how do I let go of more? How do I hire even more team around me? How do I let go of things that I swore like this is the thing I'll never let go of as a founder? And it's like, "Nope, got to let go of that." And just getting comfortable with that, getting used to that, learning to do that. I've gotten a whole lot better about it over the past two or three years in part because I had to because some of our business growing very rapidly. So lots of hiring kind of forces you to make some changes or you're going to break your own company.

Michael Kitces: But, just figuring out how to sometimes get out of my own way because there's so much stuff bouncing around my head and I'm like so excited to build and work on and do and forcing myself to get a little bit more focused to say like you can't lift all this stuff at once. You gotta figure out like where you're really going to focus your energies and then trying to do that and stick with it.

Jason Pereira: Fantastic. I can relate. What excites you the most about what you're doing and what gets you up in the morning eager to press forward.

Michael Kitces: What gets me up in the morning, you're truly saying like what gets me up first thing in the morning so I can look at my email. Genoa is what like everybody tells you not to do from a [crosstalk 00:41:07] perspective. First thing I want to do is get up and look at my email and just see all the stuff that's come in. Since I wrapped up yesterday, like there's usually some questions from listeners or readers of like, here's the thing I've been working on, wondering what your thoughts are. We always get a couple that come in every day like this article you wrote really impacted my life. This thing that you, this podcast you did just put me on another trajectory. I just want to let you know like I just passed my CFP exam, right? I just launched my own firm or I just switched firms to an environment that's so much better and I just wanted to thank you for helping me get down that new track.

Michael Kitces: That just, I'm excited to wake up in the morning and get the feedback that all the stuff we're doing across all the businesses is having real impact to the advisor community. And I kind of view it as helping advisors, help the clients like, I'm excited at the end of the day for the end impact of what financial planning done well does to help consumers. But my passion for it is helping the advisors, is helping the real advisors who are serious about their craft and want to get better, but we all need a little help. We can all develop further, we all want better technology tools to do it. We all want ways to build and create the businesses that fulfill us personally in addition to being able to serve clients the way we want.

Michael Kitces: And as I kind of look in the aggregate, all the businesses I built are around that in some way, shape or form. Like it's either making advisors better, more successful or some combination of the two, like the technical knowledge and the career success and what gets me up in the morning, a chance to look at my email and see who we impacted in the past day with that mission.

Jason Pereira: Fantastic. Well having personally emailed you on some of those points. I'd like to say please keep doing what you're doing because it has been impactful and more often, I kid you not, I get a lot of young advisors coming to me for career guidance and I'd say disproportionate more than 50% of them say that your podcast is one of the things that they found that changed the direction of their career. So you shouldn't be immensely proud of that.

Michael Kitces: Oh, fantastic. I'm so thrilled.

Jason Pereira: And I [crosstalk 00:42:56] few years ago.

Michael Kitces: Thank you.

Jason Pereira: So Michael, thank you so much for your time on us.

Michael Kitces: Awesome. Thank you Jason. I appreciate you having me out. And again, congratulations on 100 episodes. Thank you very much, sir.

Jason Pereira: So that was my interview with Michael kitces. I hope you enjoyed that as much as I did. And as you can tell by the interview, I'm clearly a very big fan of everything that he's doing. And quite frankly, I hope he continues doing it for a long time to come. And for those of you who have not taken the time to discover him, please sign up for his blog at kitces.com and if you haven't started listening to his podcast, please do it will do nothing short of inspire you in your practice. And with that, as always, I am Jason Pereira. This is episode 100, thank you so much for sticking it out with me this long. I plan to continue this on for quite awhile and in the meantime, if you enjoyed this podcast, please leave a review on iTunes, Stitcher, or wherever it is you get your podcasts. Until next time, take care.

Speaker 3: This podcast was brought to you by Woodgate Financial, an award-winning financial planning firm catering to high net worth individuals and their families. To learn more, go to woodgate.com. You can subscribe to this podcast on iTunes, Stitcher, and Google play, or find more episodes at fintechimpact.co.