This content is from: Wealth Management

The Next Schwab?

Altruist – a new digital, commission-free custodian for RIAs – will save advisors up to 90% on technology and custody costs, says founder Jason Wenk. “Our goal is for everyone to really pay almost nothing.”

Jason Wenk seldom gives interviews but he was eager to tell RIA Intel all about Altruist, his new, entirely digital custodian for RIAs that promises to be free of commissions and the headaches that come with cobbling together software services needed to run a wealth management business.

On Monday, at the inaugural Wealth/Stack conference, a three-day event by Inside ETFs and Ritholtz Wealth Management focused on technology for advisors, Wenk is delivering Altruist’s first public presentation.

It’s the beginning of a necessary roadshow to get the word out about a new entrant to an industry in which scale matters.

For years, Charles Schwab and other behemoth custodians that care for trillions of dollars in assets have battled for advisors’ and investors' money, going tit for tat on price reductions and expanding their service offerings. Altruist intends to beat them at their own game.

“Our goal is for everyone to really pay almost nothing,” Wenk tells RIA Intel.

Like many new business ideas, Altruist was born out of a founder’s own frustrations. Wenk, 39, already has two successful RIAs; Retirement Wealth Advisors, and Formula Folios, which grew 13,927% over three years and now manages over $3.2 billion. For those efforts, he was named an EY Entrepreneur of the Year in 2018.

Still, the somewhat obscure founder is disappointed. Bolted-on electronic signature software, robo-advisors and some commission-free ETFs, albeit a growing list of them, don’t impress Wenk.

“There’s been very little innovation in terms of tools for financial advisors. How much has really changed over the last 10 years? The change is way overdue. It’s not like this is some epiphany for us,” Wenk said.

More options are available than a decade ago. It feels like every other month there is a new CRM or reporting system. And existing service providers continue to consolidate and develop new tools. The choices are ever expanding and, supposedly, integrating with everything else. 

“So how are we different? I think we’re different in every single way,” Wenk tells RIA Intel.

In October, Altruist will launch a public beta version of its advisor portal. It takes RIAs only minutes to integrate the portal with the major custodians and it will replace much of their existing software needed to run an advisory business.

The portal includes flexible fee billing, client performance reporting and helps advisors track key business metrics. Soon, it will include outside account aggregation and other features.

Participants in the public beta only need to be willing to help the company work through any kinks and have at least 50 accounts. The first 100 accounts are free and each account costs $1 per month after that. When the portal is officially released, those RIAs will be grandfathered in at that price. The final cost of the portal has not been determined yet, Wenk said.

Since high school, Russell Kroeger wanted to be a financial planner. The partner at Upstart Wealth Management in San Francisco achieved that but he didn’t anticipate how laborious starting and running an RIA would be, largely due to the technology available.

He leapt at the chance to improve the onboarding experience for himself and new clients, as well as test out what Altruist has to offer.

“The tech doesn’t make the client experience but it can hurt the client experience,” said Kroeger, whose clientele of young professionals in the Bay Area take quick notice of poor software design.

But it seems all the best firms and consultants are preaching the digital client experience as a differentiator, if not a necessity, and Kroeger said there is a sense of need to keep up with the pack, at a cost to the RIA. “It’s death by a thousand cuts with these subscription payments.”

Now, Kroeger is a beta tester for the Altruist portal and said his firm will consider custodying with the company. 

Altruist plans to register as a broker-dealer and qualified custodian as soon as November and will be able to support most account types and securities at the start of next year. It won’t charge advisors for trades and, once they set the parameters, Altruist will automatically rebalance accounts. Advisors will also be able to buy and sell fractional shares, enabling them to service smaller accounts.

The necessary technology has already been built to facilitate account opening and trading as fast and easy as the commission-free retail brokerage Robinhood. Altruist just needs regulatory approval, according to Wenk.

RIAs who use the portal and custody with Altruist are going to save roughly 70% to 90% on those services, Wenk said. 

Donald Windle, the founder of Oklahoma City-based Windle Wealth, was the first of 10 beta users of Altruist’s portal and anticipates making the firm his custodian next year. He estimates he’s going to save $46,000 per year on software alone.

He recently cancelled his $2,000-per-month subscription to SS&C’s Black Diamond Wealth Platform, software that includes relationship management, portfolio management and reporting, trading and rebalancing, and more. When Black Diamond’s service discontinues, Windle said he will use Altruist exclusively.

“They couldn’t believe that there was something that could be cheaper and more efficient. They were sort of laughing on the phone,” Windle said about a follow-up call he received from Black Diamond shortly after. 

Previously as an advisor at Edward Jones, Windle underestimated the convenience of a platform. When he started his own RIA, cobbling together software programs to get them to play nice with one another was strenuous.

Setting up billing through Altruist was astonishing to Windle, who said it took less than 30 minutes to integrate his entire book of business with his current custodian, TD Ameritrade.

“Here’s the crazy part. I pushed the billing onto one of my staff members. I just gave her a login and I didn’t even tell her how to do it. And she had it done it 30 minutes. There was no training, there was nothing, if that speaks to the simplicity of it.”

The only negative Windle shared was that his clients had to create new logins and passwords to view their accounts through Altruist, a small inconvenience in his mind. He tells every new client that he annually reviews his custodial relationship and if it is in the interest of the client to make a change, the firm will act. 

Without knowing what the exact fees will be for the portal and custody service, Windle said the cost and time savings were already so apparent that it shouldn’t matter. Even if the portal cost him $1,000 per month, he would still sign up. The only software he’ll keep is eMoney, to build financial plans, Kwanti, or some other service to build and manage model portfolios, and QuickBooks.

“As a fiduciary, especially, how could you leave your money anywhere else? If I can buy a stock at $0 for the client, why would I do that for $6?” Windle said.

Altruist will make money the same way other custodians do, absent revenue from commissions. It will earn interest on clients’ cash, although there should be much less of that sitting in accounts since Altruist will trade fractional shares. It will also receive payment for order flow and engage in securities lending.

The newfangled custodian is capable of charging less and growing into a profitable business as it is free from constraints of legacy systems, and relies on automated tasks that make it “very lean,” according to Wenk.

“Our competitors can’t compete with us. It’s going to be hard for them to ever really catch up,” Wenk said.

Venrock, a Palo Alto venture capital firm that has previously invested in Personal Capital, recently led a seed round of $8.5 million in funding for Altruist. The money will be able to fund the company through next year but it will have to eventually raise more, Wenk said.

“I came from very little and I root for the underdog,” Wenk said. “Does that mean we’re going to be the next Schwab? Who knows? We have a lot of things to do and we want to build.”