WealthTech Insights #78 with Douglas Fritz. Defining an Authentic and Scalable Model That Balances Sales and Service

Here’s an interview with an expert in the Fintech and wealth management industry who helps financial institutions maintain the right digitization strategies and obtain more clients.

Doug Fritz, founder and CEO of F2 Strategy, is the former wealth management executive who decided to break the model for strategy consulting and created a partner firm he lacked in his role. His company, F2 Strategy, is a technology and marketing consulting firm in the wealth management industry. It provides boutique consulting services globally to support existing technology teams and marketing departments within the wealth management, family office, RIA, and wealth manager space to help companies align their technology platforms and distribution channels with the wealth management experience that their clients expect.

Recently, F2 Strategy partnered with MyVest to collaborate on research on discretionary portfolio management programs. In this report, “Customization vs. Control in Wealth Management: Advisor Discretion Doesn’t Have to be a Zero-Sum Game,” they unveil how broker-dealers, banks, and wirehouses should respond to the tension between advisor customization and firm-level portfolio control.

In this interview, Doug shares how to define an authentic and scalable model that has refined excellence in equal parts sales and service.

Q: How have the client and advisor’s roles changed during the digital transformation?

Doug: Surprisingly little so far. People still need people to help them out, and robotics, direct to tech, and chatbots have not made any material dent into the expectations of clients. What has changed is the expectations for reduced friction—and even what constitutes friction has changed.

Q: What is the main criterion that shows whether a company would be successful when implementing technology or not? How can you know whether or not the company can succeed in their tech transformation?

Doug: We spend nearly all of our time at F2 Strategy helping clients make great decisions about the tools they need and teaching them how to implement them successfully. By far, the most important factor in success has been how closely does the tool or capability align with the core of what that firm does and what clients/advisors expect the firm to be great at. When firms select technology, which amplifies the already established and inculcated value proposition: Advisors and Clients rally toward it. When firms try to change culture, behavior, or value propositions with technology, they almost always face steep challenges.

Q: The success of a digitally transformed company is based on the ability to find and grow the right clients. How has digital transformation changed the ideal client profile of wealth management companies?

Doug: Not a lot. Even with fast-growing companies, the majority of the focus has been on serving the clients they already have. Despite the rancor, none of our clients have materially seen a shift in client profile from the great impending wealth transfer. However, we have seen clients who have had significant success in refining their marketing and experience around specific client profiles and needs. It’s one of the most daunting challenges that our clients face: How to say “no” to the wrong client. Much respect for those who really take this on and follow through on it!

Q: Advisory firm growth is also defined by its ability to scale. From your experience, can you describe a model that won’t scale well? What should be done to fix it?

Doug: Eesh. I think all advisory models can scale but would need to do so differently. For example, planful advisory firms can scale themselves with the help of client-plan-interaction. Tools such as eMoney that allow the client and advisor to partner on the plan can be configured to keep the plan “central” but also allow advisors to take on more clients.

Q: What is more important for a wealth management company that wants to grow, sales or service? How can one find a balance between the two?

Doug: Sadly: Sales. I would love to say “service” is the most important, but the numbers behind “happy clients are the best drivers of growth” don’t paint a great picture. Clients (happy or not) generally don’t talk about their wealth advisor or experience. It’s probably down on the list with proctologists and undertakers for “professional relationships I’m most likely to talk about at a cocktail party.” That doesn’t mean you can ignore your clients: Much growth can be made from what we call “wallet share accretion” and using tech/aggregation to achieve that (we have a number of clients who have been successful doing this). But Sales is still a huge driver of organic growth.

Q: Is there a Fintech talent shortage in the United States? According to our study, Fintech will need more than 200K IT talents in 2020. There will be three vacancies per Software Developer. Do you agree that filling positions is hard? What experience should your talents have to be able to implement complex digitization solutions? Why?

Doug: I’m skeptical about the gap. While it exists, I think we’re also in an economic and funding cycle where many Fintech firms are going to be forced to be profitable or find an alternative way forward (M&A or closing down). In my 23 years in the industry, I’ve seen two “mass Fintech extinctions” where great firms were unable to maintain their growth and had to significantly down-size, sell, or close their doors. The same thing is almost certain to happen again as the market contracts.

Q: Which companies/technologies/features have the greatest potential to disrupt the WealthTech market nowadays? Why?

Douglas: If we’ve seen anything over the last 10 years, it’s that technologies’ ability to “disrupt” is almost always over-blown. That said, there is one change in the marketplace I believe will drive significant differences in how advisors and clients experience their wealth: Direct Indexing. It has the potential for certain firms (those that have invested in their data and modern portfolio construction/execution/management tools) to drive significant cost savings and deploy more comprehensive/complex portfolios down market. It’s still a long way off, but if I were an asset manager with fund or ETF distribution as a critical part of my revenue . . . I’d be worried.

Q: In five years, what success criteria are the most likely to change? Is there a tendency that is overlooked or simply underrated by the media, in your opinion?

Doug: I think five-year success factors will come from firms that are able to translate their value and connect their clients to their wealth in a more impactful, personal way. This concept wraps together great digital access and insight, wealth SRI/ESG, goals-based reporting, and great investor content and “research.” The buzz word is probably “experience,” but it’s really what we should be doing as an industry: Facilitate a relationship between clients and their wealth.

Q: As we know, you have worked with so many companies from our WealthTech Club members’ list, for example with Capitect, MyVest, and FutureAdvisor. What was your contribution to their digital transformation success?

Doug: Good question. Our work with the Fintech community has always been in helping them align their products with the needs of our wealth clients. In that way, we’ve helped both sides: Better selectable products correlate to happier and more successful wealth clients! In some cases, we helped them transform their sales/messaging. In some other cases, we helped them understand where they fit in their competitive landscape so they can tailor the message to fit the need.

Q: In what way can you help other wealth management companies following the club to grow? Can you give them a bit of advice about how to become more successful at digitization?

Doug: For Fintech firms, we help align product and road map with the ongoing decisions that are being made or the needs that are emerging and un-met in the wealth manager space. For wealth management firms, we’re a unique mix of industry insider/influencer and former executives (I was CTO at First Republic Wealth Mgmt, and my team are all former wealth execs at top firms). We can thus provide great strategic advice.

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