EP 75 | Tech, AI, and Compliance for Financial Advisors with Bo Howell

David DeCelle  10:22

So how can an advisor be a little bit more, I guess, proactive? When it comes to really building a relationship with, you know, one of their point people at the SEC? And like, how would you suggest that they go about that? And also, why do you think that that's an important thing to even focus on?

Bo Howell  10:43

Yeah, it's tough, because a lot of the advisors are small businesses, right? I mean, 80% of the 13,000 Plus registered SEC advisors are small businesses. So it's, it's hard, you're already stretched resource wise, I think the way you start off, right is to try and keep your house in order. One of the biggest issues we see is the small businesses are good people, and they're focused on their business, and compliance keeps getting pushed off and it gets pushed off. And then all of a sudden, the SEC comes knocking on the door, and you go back and realize I didn't do 80% of what I was supposed to do, right? I didn't do some really warm things. And now I'm in hot water. So how do you fix that? Right? So one, try and keep your house in good order. So you don't get there. If there are regional roundtables being held, you know, send somebody to attend. They do small business, regional roundtables, they do DCO regional roundtables, I would definitely send someone you know, to attend to listen to ask questions of the SEC and to kind of pay attention. And if something comes up, and you have questions on a product or potential rulemaking or things like that, submit a letter, you know, the SEC will ask if you have comments, if you have questions, submit them to this email address, right. And so get your either write a letter yourself, get your legal counsel or somebody to write a letter for you maybe band together with a handful of advisors that share your position and write a joint letter, let your voice be heard.

David DeCelle  12:05

Cool, awesome, thank you for that, let's kind of take a step back and talk about kind of an overarching theme in the industry where I feel like in some instances, it's very well received. In other instances, it can be perceived as a threat to a degree, but help me understand, you know, from your point of view, how is tech in general, you know, impacting the adviser business, you know, for good or bad.

Bo Howell  12:32

So I think it's a good thing, right? But technology advancements always scary and it always disrupt certain jobs. So there are certain positions that will be disrupted within any business, but it also create new positions. So you know, what I see happening is the role of the advisor, kind of changing from being less of a money manager, because technology out there is very good at building models, you know, building investment plans, things like that, and be the advisor becoming more of a relationship manager. So focusing on the human element, right. So to me, technology kind of augments the advisor doesn't replace them, but it supports them, it expands them, and it changes their role a little bit. So the you know, I see advisors needing to focus more on financial planning, relationship development, understanding the bigger picture with the client, because what technology can do is look at a person and understand their life, right, and what their goals are, and all that, but an advisor can and then an advisor can take that information and leverage technology to come up with the best plan the best models, and help the client make the best decisions.

David DeCelle  13:36

Now, do you think that with the rise of tech, in our industry, the typical, you know, call it investment manager who's really just focused on your portfolio and not really holistic financial planning? Do you think that over time, they'll be diminished to a capacity and kind of be forced to really focus on planning to justify the fees that they're charging? Do you picture that happening?

Bo Howell  14:01

I do. And if you look at the types of products that are coming in the marketplace, whether they're investment companies, ETFs, things like that, I mean, they're driving the cost of portfolio management so low and becoming so effective that diversification and creating various asset classes, and you know, technology is going to be able to build a portfolio as good as a portfolio manager. In most cases, you know, there are a few areas where I think a portfolio manager will still kind of remain supreme, right? If you want a higher risk, highly concentrated portfolio, or if you have a very niche, say, like a long short strategy or something like that a very niche product that you're managing, I think you're still going to need, the more that human element, but for your typical asset allocation, and things like that, I mean, the machines are going to do as good or better job for less money. And so if you're a pm doing that type of work, you should be thinking those are the people who are going to be somewhat displace, right but there are a great opportunity now to pivot and work more with to clients and become more of that relationship manager, so they don't have to be displaced, they just need to pivot a little bit along with the industry.

David DeCelle  15:06

Yeah, be curious to see kind of how those folks, quite frankly, get the training necessary to do planning in an appropriate way. Because the the saying of can't teach an old dog new tricks, you know, to a degree, I can imagine that they'll be some resistance to an extent. So I kind of see it phasing, you know, from pure investment management to you know, there's a lot of folks out there in that space that, you know, say that they do planning, but when you compare their level of planning to an actual, you know, financial planner, they're not even scratching the surface, you know, as it relates to planning. So I'd be curious to see how long it takes to go from just kind of like word vomit of saying that they do certain things, but not actually doing it to then actually doing it. So not really a question per se, but just kind of a thought of, you know, I'm curious to see how that transition happens. And, you know, over how long that ultimately does.

Bo Howell  16:06

Yeah, I mean, I think it's gonna accelerate, I think the other thing you see too, is, you know, older generations that are used to the older model, right, move on and transfer their wealth to younger generations. I mean, statistically, we're seeing that the millennials and below want to engage more through technology and less kind of person to person. And so you've got to manage that process.

David DeCelle  16:28

Now. So I had a guest on my show earlier this year, a niche, you know, pretty good industry friend of ours, really good guy. And he had talked about, you know, the idea of once a firm reaches a certain level, probably, you know, close to a billion dollars or more is when, in theory, depending on how they're running their business, of course, they should have enough free cash flow to be able to invest in their own tech, as opposed to just taking something off the shelf that's already out there and already created, I guess, you know, I want to get your perspective, you know, having a tech company, you know, yourself. And, you know, being involved in that space in general, would you agree with that, that it makes sense, at some point in the business to be able to create your own tech tool, whether it be a CRM or what have you, but you know, would it make sense to go in that direction? Or would you suggest that, you know, they just lean into the folks who have already built something that could fill their needs,

Bo Howell  17:32

I recognize I've got a little bit of bias here. But when I've found in launching not being a software engineer, and not being a software developer, it's harder and takes longer and cost more than you expect, right? I talked with an advisor a few months ago that, you know, they felt like they had all these tech tools, but nobody who really understood them well, and they wanted this kind of like you were saying, to bring somebody in house to start developing tech? Well, when I looked at their job description, they were really trying to hire three different people, they were trying to hire a software developer, they were trying to hire a business analyst, and they were trying to hire a product manager, and they were trying to do one on one sound, I mean, they weren't going to find that person. So the and I told them that I said, Look, if you need all of these things, you're gonna have to hire three different people. And it's gonna take time, it's going to take six to 12 months for them to really start to gain some traction and stuff like that. The other thing to attack is Tech's all about scalability. So unless your firm unless your plans are to become a very large firm, where it would make, you can basically create internal scale, you either need to have a plan to distribute that tech product to third parties for it's not going to work, because what will happen is, you know, if you have a two or three person team, it'll take them a while to build the product, and they've got to maintain it, they're not going to get a lot of user feedback, because a lot of people aren't using it. And so over time, somebody else is probably going to come out with the same or similar product, but it's being used by you know, 1000s of users, and they have a, you know, a team that's 10 times bigger, and the quality of that product is going to grow much faster than your internal product, you're going to end up just seeing it and probably hiring the industry standard anyway. So I would only advise people to build their own tech. If they plan to distributed

Patrick Brewer  19:12

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David DeCelle  20:03

Another gentleman they had on the podcast really good dude Braun Bullis, he actually comes from my alma mater of Northwestern Mutual. So he's in the independent space right now. And he's noticed a big challenge as it relates to onboarding a client, it tends to be a little bit of a clunky process. Whereas if you look at, you know, a betterment, or, you know, a Robin Hood, like it's all digital on the app, it's very easy to set up an account in just a few minutes. So he's created a tool, and I'm pretty sure it's finished now. But he's created a tool that creates that same onboarding experience. But for you know, your clients where you have an advisor, you're not just doing it on your own, right. So he's focused a lot on, you know, the UX, you know, that tool, but the way he's further monetizing it is not just for his current employees, per se, but as additional advisors join the firm, or as he recruits additional advisors, it's an additional arrow in his quiver to be able to differentiate himself from other folks. So he's looking to add a lot of folks to his platform and utilizing that tool is, you know, some of his main leverage of, you know, convincing someone to, you know, see the fact that, hey, we're very, very tech forward. But that kind of leads me into my next question. So a lot of the tech that's out there currently, it still needs human to operate to a degree. And then the world that we live in now, where a bunch of industries are, you know, being supported by artificial intelligence, or machine learning and things like that. Do you see that, you know, coming into our industry? And if so, what sort of capacity? are you envisioning?

Bo Howell  21:44

I do see AI and machine learning coming into the industry in a number of ways, right? So you mentioned a CRM earlier, imagine a machine learning model that could layer onto your CRM, and recognize information about current and prospective clients kind of real time monitor it so that if there's a change to a certain data point that it would alert you that, hey, maybe it's good time to reach out to that client, and have a conversation about something, right. So again, augmenting the advisor not replacing them. Same thing with the onboarding process, you know, when you talk about onboarding a client, or part of that includes portfolio selection, right? Well, imagine a AI or machine learning model that sat on your client intake technology, that as information is being populated, it's already pre building the model for them, right. So by the time they get to the end of the onboarding piece, now they've got their data models, and there's actually companies out there already doing that type of work right now. So I could see that, you know, things around client agreements, client contracts, fee and billing, I could see AI and machine learning, helping a lot in those spaces, we think it can help a lot in the compliance space, particularly with trade analytics, with portfolio management, and also advertising review to as natural language processing progresses, we think AI can accelerate that process. And we actually explored a little bit, the new marketing role, and how big of an impact it would have with advisors. And what we found is advisors are so used to not marketing, but they're still not quite there yet. But as we think the pace of marketing accelerates, technology's gonna help drive that. So

David DeCelle  23:21

yeah, I think too, and this is my, you know, Northwestern insurance brain, you know, coming out and having worked with a lot of independent advisors, so, you know, main folks who we serve, I've noticed that not everyone, but a lot of them don't have a super heavy focus on insurance. And if they do, I know this, that a lot of the times it's sort of a check the box item. So one thing that we've talked about that we envision is, you know, once you gather in your database, once you gather, you know, all their assets and liabilities, you know, the income things along those lines, it captures it, what we're envisioning is something that captures all those data points, and basically triggers a prompt like you had alluded to, of, you know, Hey, your clients are now under insured based on what we know, you know, their current insurance level is or, you know, because they're, you know, got a new job or a higher bonus than expected, it's, Hey, now there's a gap in their disability insurance or even, you know, not insurance related, but hey, you know, the client now has, you know, X amount over what they need to have in cash, you know, reach out to them so that you can invest those dollars or see if they're allocated, you know, for something already. So I think it will help to your point augmente advisors, they can focus more on the human components of the business without necessarily having to track themselves all the little details and things that are involved in that regard. So I can see that being very helpful for proactive service, you know, points as opposed to just waiting until an annual review pops up to meet with them and see what you can dig up in, you know, your 60 minute conversations No. Instead, you go there prepared with, hey, based on what's going on, here's the different things I think we should be focusing on. I think that will totally change the experience for the client in a positive way.

Bo Howell  25:17

Yeah, I mean, you can even imagine scenarios where you know, if your CRM list Hey, Bo's got two sons, Ryan, and one's about to go to college. Okay, what does that mean for Bo as my client, but what does that mean for a son to right, maybe this is an opportunity for me to now start connecting with the next generation, and helping to advise them, you know, as you kind of get out of your parents umbrella here, the things you should be doing to set up financial future and stuff. So

David DeCelle  25:42

now, then this is sort of a T ball question for you, since you're in this space, but how should advisors be thinking about compliance like how, because I would say, nine times out of 10, when I'm working with an advisor, and they're, you know, they don't necessarily have, you know, a CCO that can run all this stuff. They're not really at that scale, yet. I just hear them complain all the time, about complying with compliance. And nobody likes compliance. I mean, even one of my clients who, you know, is running a $2 million business, and he's the main rainmaker of the firm, he's still bogged down, you know, 10 hours or so a week, you know, with doing compliance related activities, and just thinking about the fact that if those 10 hours, you know, essentially one day a week was freed up, think about how much more revenue could in theory be driven to the firm? So how, whether it's, you know, through juice, or in general, like, how can advisors make their compliance experience of this as possible, but like, more enjoyable and easier, so that doesn't take away from revenue generating activities that are actually going to move the needle, because compliance and from my perspective, and correct me if I'm wrong, is more of like, you know, playing defense to a degree and not scoring goals, you know, along the way. So, I guess, help us unpack that a little bit. Yeah, you

Bo Howell  27:04

know, it's funny, I always tell people compliance is like any other industry, right, there's some level of quality control. And that's kind of what compliance is, right? It's like, if you're manufacturing a product, you're gonna pull so many widgets off the assembly line and test them, right. And compliance is the same way, right, you have an all this activity around investors, and compliance is going to go in and pull out samples and test to make sure people are following the processes, things are getting done correctly, there's no gaps documentation for two reasons, one, so when the SEC shows up, you can have the quickest fastest exam possible and get them out of there, but to so that you can have confidence that your business is kind of running smoothly. And now you can go focus on some of the growth related activities when people think about compliance, because the SEC only comes around generally, every five to seven years. If people underestimate the amount of time that compliance gonna take, they overestimate how good of a job they're doing, and five or seven years goes by, and then the SEC comes in, and they realize they've got some some pretty big gaps, right, and their documentation or processes not being followed. And it's too late to fix it. So you know, when I've always told people is if, especially if you're under a billion in AUM, and you're under 20 employees, if you don't have somebody in house, who has true compliance experience, right. And I'm not talking about somebody who was I was a named CCO on my former employer, but it was I was really a financial advisor. And I just did that because somebody told me I had to be somebody who's a compliance professional, if you don't have that in house, you should supplement with a third party, whether it's Jud or somebody else, right. And if nothing else, have that party come in annually, and kind of kick the tires run you through kind of a light mock audit, even if it's just a desk audit, so that they could start to point out some of the issues because what we find is, when we do that, we actually show the clients where they're having issues and they didn't even know, you know, they were just blind to it. And again, they want it to be compliant, but they weren't aware. So that's kind of what we would recommend. And you mentioned this early on the technology, any technology is a tool, but it still needs somebody to run it. So either somebody in your business used to run it, or your third party consultant needs to run it for you, but somebody still has to use the tool.

David DeCelle  29:18

It's interesting how there's similar things that I share that you just mentioned, but more so on the business development side, which is kind of, you know, visioning out how a particular meeting is going to go or role playing your language so that you have it all buttoned up, just figure in that, you know, the first time you use a new piece of language, you got to work the kinks out and to do that live, you know, for the first time may not be a great experience, you know, on the receiving end be at the client and what I'm hearing you say is that roleplay or that practice, so to speak for potential audit should be done in advance. So that you know, you know, not just what is required, but what gaps are filled. so that you can fill them in, you know, through the fake head as opposed to through the real audit. And not just that, but just even making sure that everything is located in the place to where in theory, you just share a folder with them, you know, in advance, and it's all buttoned up, it's all saved properly, so easy to navigate through, it's similar how different business development and compliance is, while also, you know, being very similar and how to prepare for that.

Bo Howell  30:27

Yeah, it's true. I mean, it's, you know, you want to come up with a plan. And so first you got to understand the lay of the land, and then you got to execute. And at the end of the day, it comes down to people process documentation. And if you're not hitting those three things, you're going to trip up somewhere,

David DeCelle  30:41

for sure. Well, that was quite frankly, super helpful for me, because I don't know a ton about, you know, tech and AI and compliance and things like that. So, you know, at the very least, it was helpful to me selfishly, but I'm sure a lot of the folks who are listening, hopefully, they get the sentiment, you know, my main takeaways are making sure that you're leveraging some sort of strategic partner to make sure that your compliance process is not only streamlined, but also done appropriately. Number two, practice audits in advance. So it doesn't seem like a daunting task when you get that leather, right, while also acknowledging the fact that the SEC, in name can seem scary, but realizing that I mean, from what I can gather, you're a nice guy, and you work there. So there's humans on the other side. So as long as you're doing what is necessary to be prepared for when that inevitable day comes, you know, it's probably not as scary of a process as people sometimes make it out to be. So those are some of my main takeaways, I guess, to transition slightly. And for those of you who have listened to more than just this episode, you know that I asked all the guests what one of their favorite books is, that way, you know, we can promote learning outside of our industry, whether it be some takeaways from fiction books, or nonfiction books, you know, marketing books, business related books, personal development books, you know, and understanding that you can have all the leathers and whatnot designations after your name. But if you don't know how to get out of your own way, and actually converse with people or have more things to talk about outside of financial planning, you're probably going to grow slower, because you're not going to be able to work through challenges or, you know, connect with the other human being across the table. That's the whole purpose of this portion of the podcast. So I'm going to avoid pronouncing it and just give her your suggestion, but one of the books that you've really enjoyed is Les Ms. So tell me a little bit about why you've enjoyed that, and what sort of impact or perspective it's given you,

Bo Howell  32:44

I used to read a lot when I was a teenager, mostly because I would get grounded quite a bit. And I'd like all access to, you know, computers and TV. And so I had to read, but when I went to the Navy, I kind of lost that love of reading, right? I have enough going on in my early 20s. And I decided to go back and try and read some classics that I had never read before. And Leibniz is a classic book. And I just recall, you know, here I am, you know, 2122 Year Old Navy guy, and I read this book, and it had an emotional impact on me. I mean, it pulled emotions out of me in a way of book had pulled emotions out before. And so I remember that that's what I remember the most about the book was that emotional reaction to it. And so I finished the book really loved it ended up being in London shortly after I finished the book and saw the play in London. And that just kind of solidified it for me. So it rekindled that love of reading and to this day, you know, I've read almost every night before I go to bed.

David DeCelle  33:39

It's funny, because a lot of people will share books and sort of main takeaways of those books where I learned about this, or I learned about that. So it's interesting. And certainly there may be some of those examples for you. But you took a different approach, which is this book and my experience in reading it and the emotions that were taken out of me, you know, through reading that book motivated me to then in turn, you know, start reading again, right and consuming a lot, which has probably given you the opportunity to learn way more over the time period that you've fallen back in love with reading. So it's cool how some of those books or some books out there can be the catalyst to get you to then go and read more because I know, you know, back in, you know, in high school or college, I would never read books, I would always find someone in class who I was friendly with that could summarize it enough to where I could raise my hand at the beginning of class, share my top point and then be good for the rest of the class. Yeah, exactly. So and it was all because, you know, I just wasn't looking back. I just wasn't interested in those types of books that were being assigned. And I put reading in a particular you know, side of me where I was like, No, I don't read write, or even now I don't really read I listen to books. So in full disclosure, but it's interesting how, you know, similar to you, it was probably my mid 20s, where I started reading again. And they came from a business book recommendation called Delivering Happiness. Okay, the first books that I kind of got me back into reading, and it's all about how do you create an unbelievable, you know, client or customer experience. And I started going down that path. And now I, you know, listened to over 100 books a year, which is crazy to think about when back in high school in college, you know, there were no creases in, you know, the spines of my books, it was so well, cool. Well, I appreciate you sharing that I appreciate, you know, the answers to the questions, you know, around compliance, and tech and all that type of stuff. So for folks who still after this podcast, think that, you know, compliance is super daunting, obviously, jute may be a good fit for them to be able to help. So if they're interested in either, you know, connecting with you connecting with jute, how do they find you guys?

Bo Howell  35:55

Yes, they can visit our website, which is jute.io. They can also email me at boat on how do.io You know, we're always happy to answer questions for people. Sometimes we get asked questions and the answers, not us, it's go down a different path. And you know, we're happy to provide that advice. And if we can be one of, you know, a couple potential vendors or partners you look at, we're happy to, you know, go down that path with you. So

David DeCelle  36:20

awesome. And for those of you who would like to connect with model FA, or connect with me personally, as well, it's just simply model fa.com. You know, whether we work together formally or not, obviously, you're listening to a podcast. So you know, you know, you do podcasts. So there's a lot of value in there, and writing blogs all the time. So feel free to read those, whether we work together or not on a formal basis, there's a ton of value in those resources. So it guide you to that. And if you want to connect with me, all my social platforms are pretty much you know, a variation of David de sel, but if you just go into Google and type in David de sel, you'll see all the links there. I'd say I'm most active on Instagram. So if you want to get to know me on a personal level, feel free to connect with me on that front. But Bo, I appreciate you and your time, I appreciate your team's time as well. Without your team reaching out to me several months ago, we wouldn't be having this conversation right now. So kudos to them and I know that we're going to be working on some stuff together moving forward. So excited for that and appreciate you joining the show. Thanks, David. Awesome. Take care