Exclusive: Digital shift of wealth management services to transform the industry

More wealth managers and financial advisors are offering their firm’s services in a digital space.

That’s because the uptick in remote and virtual communications since the onset of the pandemic has
driven demand for this, and more companies have invested in the technology because they see the value in making their investment services more accessible.

With the increasing popularity of online wealth services, more questions have come up regarding
regulations for companies handling billions of dollars in assets digitally.

There are some gray areas when it comes to whether the technology being used could have an intrinsic bias mechanism that would sway investor or client behaviors in the market.

Bao Nguyen, a principal and practice leader of the Broker-Dealer & Investment Adviser practice within the Risk Advisory Services department at Kaufman Rossin in Miami, said some of the regulatory challenges come from a concept identified by the U.S. Securities and Exchange Commission as gamification – or enticing people to actively trade.

Bao Nguyen, Kaufman Rossin principal and practice leader of the Broker-Dealer & Investment Adviser practice within the Risk Advisory Services “This has become a hot topic because the notion that these online platforms are self-directing platforms – meaning an investor or client goes online to trade with their own knowledge – isn’t always the case,” he said. “The amount of information that comes from the wealth management platform may nudge someone to trade, and that nudging could be considered a recommendation through an online algorithm or other sort.”

In a traditional wealth management office, managers consult with clients on investments as a registered investment advisory with the U.S. Financial Industry Regulatory Authority. Brokerage offices register as broker-dealers, and manage the assets based on their clients’ direction for a fee with no advisory component. The online wealth management platform works similarly to a broker-dealer in the sense that the consultative relationship you get from an RIA is absent. Instead, they can offer risk-based funds composed of various securities that offer different yields of return.

One South Florida firm launched a digital wealth management platform earlier this year that is doing just that.

Entrepreneur Glenn Orgin, founder and CEO of Miami-based Richr, created Richr Money, a wealth
management platform for clients of his title company, Richr Title, to invest home sale proceeds in three risk-based-yield funds that comprise stocks, bonds and exchange-traded funds. The combination of Richr’s real estate and title services, Richr Homes and Richr Title, with Richr Money is what allows a customer to sell their home, close the transaction and invest the proceeds all in one place.

“Once someone understands how much equity they are walking away with from a home sale, they work
with our title company and we introduce them to our wealth management platform, Richr Money,” he
said. “Everything on the wealth side is digitized, so it’s not like you’re walking into a wealth office and sitting down with a wealth advisor. It’s akin to a robo-advisor, Since we’re online, we don’t physically talk to clients.”

As a startup with less than $100 million in annual revenue, the company qualified to register with the SEC as a small reporting company. Aside from registering with the state for titling, there’s virtually no regulation being imposed on Orgin’s business.

Home sellers receive the proceeds in one lump, and Richr Money allows them to invest that capital
directly out of escrow into a variety of investments without involving a third party, Origin said. Clients fill out a questionnaire based on their investment goals and are matched with a fund based on the yields and risk they are seeking.

“The most liquidity anyone ever comes into in their life is from the sale of their home,” Orgin said. “And right now, there are no integrated digital wealth management platforms that would allow you to sell the most expensive asset that you own, and then close and invest the proceeds. And so we have learned to scale trust using the brokerage to facilitate the digital interaction with Richr Money.”

And when it comes to scalability, Nguyen highlighted how a wealth management firm’s ability to grow its client base can be exponential in a digital space, given the accessibility. “Online, you have a younger demographic, and the last thing they want to do is pick up the phone and talk to somebody,” he said. “The online platform may be expensive for a company at the beginning to get started, but they’re scalable – with infrastructure made to scale up from 100 clients to 1,000 clients.”

So what else are some of the technical components that go into setting up an online wealth
management platform?

Fort Lauderdale attorney Greg Bader, chairman of Gunster’s Banking and Financial Services practice, said the onboarding paperwork for clients is similar in a digital space, which would provide all necessary disclosures on top of technology for required electronic signatures and additional authentication for clients to prove who they are.

“RIAs can use some of the platforms that are already out there for online account administration from a number of major providers for this.,” he said. “Right now, there’s more of a push in the direction for the use of AI to provide these company services for their accounts like authentication.”

Having the proper authentication tech is a critical feature in order for customers to securely access their accounts.

One of the most important disclosures Bader said these financial firms must include is the “unfair or deceptive acts or practices” policy of the Federal Trade Commission’s Bureau of Consumer Protection. He also said many states can impose this disclosure, so it’s important to be aware of the ones that do if a firm intends to conduct business with clients there.

“They will look at things like how the products are rolled out to consumers and the fees that they are charged,” Bader said.

All in all, he said, the process of setting up an account for clients can be easier done online, which be an appealing factor for firms to make the digital shift.

The technology for this is already here and gaining more traction among firms in financial cores like South Florida, a region that has billions of dollars of wealth flowing through it daily.

Read the full article on the South Florida Business Journal. 

Bao Nguyen, CAMS, CFE, CRCP, is a Risk Advisory Services Broker-Dealer and Investment Adviser Services at Kaufman Rossin, one of the Top 100 CPA and advisory firms in the U.S.