Minneapolis-based aggregator Wealth Enhancement Group has made two key hires that will focus on digital efforts at the firm. While the firms' representatives would not disclose details on those efforts, WEG will employ data and predictive analytics to help its advisors better understand the wants and needs of its clients.
Terri Kallsen has joined WEG as chief operating officer and previously led investor services at Charles Schwab. Kallsen has also held senior positions at First Command, USAA and Thrivent Financial. Her efforts will center on improving operational efficiency at the firm.
The other hire is Utkarsh Patel, who has taken on the combined role of chief marketing and digital officer. Patel most recently led First Abu Dhabi Bank’s digital strategy efforts.
In addition to the hires, WEG has appointed A. Charles Thomas, formerly the head of data science and growth analytics for Microsoft's Cloud + AI unit. According to the firm, he will help in efforts around predictive analytics and at least a partial focus on an area generally referred to in the wealth management industry as next best action and employing of artificial intelligence technologies—though again, the firm is not disclosing what those technologies are or might be.
WEG CEO Jeff Dekko said these moves and the new hires at his $19-billion-AUM aggregator are meant to help it stand out in an increasingly crowded field of acquirers seeking to bring economies of scale to the RIA industry through consolidation.
It is the latest iteration of a growth strategy that has boosted AUM by over $15 billion through the16 RIA acquisitions WEG has closed, 11 of them in the past 24 months.
Dekko said the current wave of consolidation in the RIA space is reminiscent of a similar wave that convulsed the IBD sector 20 years ago.
“Then as now, you see a highly fragmented yet fast-growing industry badly in need of establishing consistent, operating, management and service best practices,” he said.
Wealth Enhancement Group CEO Jeff Dekko
Over the past five years, WEG has centralized its technology around Salesforce CRM to not only have consistent workflows among its 16 firms but also better manage growth efforts like digital marketing campaigns, for which Salesforce has acquired other providers or built technology to accomplish.
Celent senior analyst Will Trout characterized the digitization movement among aggregators and larger players as a quest to provide a “consistent end-client experience at scale,” as margin pressure and commoditization increasingly render the “client experience and advice to the client the only real differentiator between competing wealth management propositions.”
To do this, the industry and aggregators need “systems that span the breadth of the client relationship, from account opening to portfolio analytics and compliance,” all integrated to eliminate the operational hiccups that could cause an advisor to lose a client.
According to a report published in December 2019 by another Celent analyst, Awaad Aamir, entitled “The Next Best Action: Using Machine Learning to Anticipate Client Needs,” with advances in predictive analytics and machine learning, wealth managers are slowly starting to precisely meet the needs of their clients.
“Next best action delivers prompts that let advisors act on time-critical client needs with highly personalized recommendations. Common applications for wealth managers include identifying high-value targets, predicting clients at risk of term, predicting clients at risk of churn, their life events, and providing portfolio recommendations,” Aamir said.
Firms, including Morgan Stanley and a number of banks, are looking into and investing in predictive analytics capabilities, according to Aamir.
“WEG is on the right path by focusing on AI and analytics, but there are numerous challenges in technology around next best actions and recommendations,” said Dennis Gallant, an analyst with Aite Group.
The first is pulling in accurate third-party data on client behavior that must next be matched and meshed in a consistent fashion with in-house data. Gallant said that firms are increasingly using CRM applications as the data repository for this function.
Morgan Stanley is ahead of the curve, Gallant said, and has poured time and resources into developing AI and next-best-action capabilities over the past few years, which involves constant refinement.
"A work in progress," Gallant said.
WEG's efforts in this area, if successful, would become an advantage and differentiator for sellers in the RIA M&A game, Gallant said, as RIAs will look more closely at the potential “in synergies connected with the aggregator’s capabilities.”
Competitors have little to say when it comes to providing more detail when it comes to AI or the use of combined external and internal data for predictive analytics.
Captrust Financial Advisors, which has $48.9 billion in AUM, is one of the leading players in RIA M&A. In the past few years, fueled by a spree of acquisitions, it has built itself into a nationwide wealth management powerhouse.
Jon Meyer, Captrust's CTO, said that his firm's own “big data” experiment is ongoing but declined to provide further detail, though he said that it spends $10 million a year on technology and boasts 30 technology associates. “Outside of marketing, we have experimented with big data analysis,” but “so far these are still under wraps,” he said.
While WEG declined to state how much it spends on technology, fintech research firm Crunchbase published data from Aberdeen estimating WEG’s tech spend for 2020 at $1.5 million.
Rajini Kodialam, Focus Financial Partners co-founder and COO, meanwhile, said that “AI is very much a part of our tech stack given its increasing importance to our partner firms in areas such as risk management, and in nimbly adapting their infrastructure and technology as the needs of their clients evolve," but declined to provide further details.
Hightower, Creative Planning, Sanctuary Wealth and Mercer Advisors all declined to comment on WEG’s plans or the use of AI and predictive analytics.