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“It doesn’t matter whether you’re sitting with $5,000 or $100 million in assets, all of us have been conditioned to expect access to our services digitally.”

— Simon Roy, Jemstep, Inc.

Simon Roy is President and CEO of Jemstep and has responsibility for their overall business strategy and management. In his over nine years at Jemstep, Simon has had direct responsibility for functions including strategy, corporate and business development, sales, services, and investment systems.

Simon has more than 20 years of experience serving as an investor in, consultant to, and chief executive officer (CEO) of several technology companies. Prior to joining Jemstep, he served as CEO of a start-up, Accrue Software, which was subsequently listed on the Nasdaq. Prior to that, Simon served as a senior consultant with McKinsey & Company, serving the financial services industry.

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This episode of Wealth Management Today is brought to you by Ezra Group Consulting. If your firm is evaluating new technology or looking to improve your current wealth platform, you need to contact Ezra Group. Don’t spend another day using technology that doesn’t offer an elegant user experience. Your advisors and clients deserve better and you can deliver it to them with the help of Ezra Group.

Topics Covered in this Episode

  • Discussion around the use cases Simon is seeing in digital advice within the banking industry, and how they differ from what you might see at an all IAA or broker-dealer [03:19]
  • The difference in compliance and the lift required for a vendor at a bank versus a broker-dealer or an RIA in compliance [06:54]
  • How the AML and KYC processes change the flow of the digital account opening process [08:46]
  • How Simon sees digital advice integrating with core banking and mobile [10:50]
  • Does the data model change when you’re implementing a digital advice solution at a bank versus an advisory firm? [18:29]
  • Discussing how Jemstep deals with data privacy, in terms of integrating with the bank’s data privacy rules [20:41]
  • The acquisition of Jemstep by Invesco, and how that changed the way they’re working and their ability to sell into the banking industry [25:12]
  • How Jemstep implements the Omnichannel service model, and how that helps banks be more efficient in their operations [32:37]
  • Simon’s thoughts on the trend towards this consistent digital platform for mass affluence all the way through affluence segments [36:27]
  • Banking clients moving towards a “mix and match strategy,” moving clients through different groups as they gain assets, and moving them from pure robo to a more traditional full service [41:02]

Companies & People Mentioned:

Other Resources

If you are interested in more information about some of the topics Simon and I discussed, these blog posts would be useful:

wealth management consulting

Complete Episode Transcript:

Craig: Welcome to this episode of the Wealth Management Today podcast. Today I am pleased to be able to speak with Simon Roy, President and CEO of Jemstep. Hey Simon.

Simon: Hey Craig, thanks for having me on.

Craig: Thanks for being here, welcome. It was great seeing you, we just saw each other last week at the INSITE conference in blazingly hot Phoenix, I’m glad you made it back alright. Now we are here on my podcast, and we’re going to be talking about digital advice and banking. I’m interested in this topic, I’ve done a lot of writing and consulting with global advisors around digital advice. I think what a lot of the industry doesn’t realize is there is a big difference in doing digital advice for RIAs or broker-dealers as compared to banking. Can you talk about some of the use cases you’re seeing in digital advice within the banking industry, and how they differ from what you might see at an RIA or broker-dealer?

Simon: Absolutely, Craig. I think the primary use case we’re seeing with banks is the opportunity to make wealth management accessible to a broad swath of their existing core banking client base. And by that I mean, if you’re leading with a top 20 bank, they may have millions of credit card, savings, checking, and mortgage clients. And they have typically around a 5% penetration of wealth management services utilized by clients. So as opposed to an RIA or a typical IBD, they are initially not focused on new client acquisition or what they would call “new to bank, “they are very much focused on how do we increase access to wealth management to our existing client base. So their primary use case is quite different. And when you look at the service that we developed and the way we engage with banks, it is very much attuned to helping ensure that clients have easy access to the service, as well as feel well known by the service, as they go from the primary banking portal all the way through the wealth management flow, which converts them and provides an AUM-based, asset management relationship.

Craig: You mentioned 5% penetration of wealth management services; that seems very, very low. So I would guess that that’s a huge opportunity for a digital wealth channel, to help banks increase that?

Simon: Absolutely. I think the primary focus of the broker-dealers within the typical bank is on the traditional high-end net worth client, with $250,000 in investible assets and up. And many of the banks have private banking as well, which goes up to the ultra-high net worth. But given the cost to serve the typical client, currently there is not the ability to provide wealth management to typically the millions of clients who have assets below the $250,000 level. And the only way to do this effectively is to offer a digital solution that is embedded within the bank’s wealth management processes, within their infrastructure, within their systems, and third-party providers. So the digital capabilities allows the banks to now offer these wealth management services to a broader swath of clients than they previously could, and so the proposition for them is very much to access and deepen the relationship with a client base that previously could not be offered wealth management services cost-effectively, provide those clients with a great client experience, and doing it in a way which helps them reduce the cost to serve these clients as well as others, within a compliance-oriented environment.

Bank Compliance

Craig: So you mentioned compliance-oriented, that jumps to another question I was going to ask. The difference in compliance, the lift required for a vendor at a bank versus a broker-dealer or an RIA in compliance, how much different is that for you guys?

Simon: The phrase “night and day” springs to mind. Obviously it is not truly night and day, but the level of attention on compliance, the level of attention on an InfoSec privacy, is orders of magnitude greater. I think one of the prime drivers for the banks is that they have very strong brands and reputations, which they want to deeply protect. They similarly have a regulatory environment which is significantly more onerous and rigorous than the typical RIA, so the larger banks that we’re dealing with are regulated by the OCC, as well as other regulatory bodies. The requirements for them to select vendors and partners who can meet their InfoSec requirements are very tight, and the requirements to marry the capabilities with the existing bank compliance requirements are also similarly rigorous. And it stretches to, AML and KYC processes, which the banks have built up over many years with significant oversight from OCC and other regulatory bodies. So the level of scrutiny and compliance attention is significantly greater than the 2-4 person RIA shop, but even many of the IBDs that we have dealt with.

Craig: When it comes to the AML and KYC processes, how does that change the flow of the digital account opening process? That’s been one of the strengths of digital advice in my opinion, the electronic account opening, no paperwork, esignature. Does AML KYC put a crimp in that, or can it still be done in a nice, smooth workflow?

Simon: AML/KYC is one of the challenges in working with banks, in looking to protect the client experience. I think the banks have different processes in terms of how they will address AML KYC; some of them are looking to embed that in the flow, which is often quite onerous on the clients, and can be problematic in helping the client get through the flow in the timeframe that they’re looking for. The actual requirement for AML/KYC typically does not require confirmation real-time, so I think there are a number of weeks that are available for an institution to determine whether an individual is on the watch list, or whether they raise red flags for other reasons. We’ve had discussions with institutions about, do we want to embed it directly the flow and put the client through what can be a very onerous process? Or can we put that as an ex-post process, where the client is perhaps contacted, or goes through the process after they’ve gone through their goal-based, digital onboarding experience? That is a choice that banks have, and ultimately we work hard to support their compliance posture, but they have to make the decision as to how and what they want to embed as part of the digital flow.

Slap Your Logo on My Robo

Craig: And how well do you see the digital advice integrating with core banking and mobile? Will those be two separate areas, or are they going to merge and be one and the same?digital advice platforms

Simon: Digital advice has gone through a number of phases. Obviously the direct to consumers, the barbarians at the gate, essentially went out and said digital is the path to providing wealth management to the mass affluent, broad swath of the market. And they quickly discovered two things: one, the cost of acquisition is very expensive, establishing a brand. Secondly, that for most segments, clients want to know that they have access to an advisor and advice when needed. That permitted to what is called a B2B2C model, which is “slap your logo on my robo and I’ll take care of your clients.” That was appealing for a few firms that wanted to get out quickly, but not a sustainable model that truly added value to the banking institutions.

Simon: And what Jemstep is essentially focused on is a model where we provide a technology service to the banks to help bring their value propositions to life, to ensure that they control their clients, their client experience, data, models, and other elements such that we are helping them add value through a digital platform, in making wealth management accessible to a broad swath of their client base. With that as a goal, we can’t build an effective platform unless it integrates with a core banking portal, that integrates with the mobile apps that the banks have and have great success in penetration. And so the Jemstep solution with our primary bank clients will have single sign-on straight through to the banking portal. So a client logging in to see their checking account or credit card can access their wealth management accounts there, but more importantly can view and click on advertisements within the portal to go through goal-based flows, so they can access the bank’s wealth management service – so access to the bank portal.

Simon: Secondly, we want to make sure that when the client goes through the flow, it doesn’t feel like they are being handed off to a different institution; it needs to feel as if it is a straight hand off from the portal to the wealth management service. And so the branding look and feel is very similar and aligned with the branding of the bank. Secondly, we implement a mechanism where we will take the data from the bank and make sure that that data is pre-filled through the Jemstep flow, so the client coming through goes oh, they have my address, they know my name, they know my age – I just need to verify and then add information about my retirement goal or my risk tolerance. So it’s low friction to go from the portal to the wealth management flow, and sort of a natural view of the service in terms of branding. But more importantly, they feel as if they are known and the bank is building on the relationship, as opposed to handing them off to essentially a new relationship. So that eases the transition, increases conversion, and helps not just in the profiling but also in onboarding, because the onboarding is made all the simpler with information including address, including spouse, including partner, including social security, and other information that essentially makes it a quick and seamless experience to sign up for wealth management.

Simon: So that’s the bank portal side, the mobile app side we take a very similar approach; we offer choice to the bank institution as to how they want to implement mobile. And there are a few critical pieces. If they want to create a native Jemstep integration to their mobile app, we offer APIs which they can use to build a client experience, which is essentially the same as the client experience for the other bank apps. So through API they have access to the full Jemstep infrastructure, and they can do it in a way that the client experience and the flow on the mobile is consistent with the web flow. So a client can go from a mobile initiation to the web and back, or a web initiation of a relationship to a mobile experience, where they can perhaps confirm that their account is open or that a rebalance has occurred. So that’s part of our strategy of making sure that the Jemstep solution is embedded within the bank’s existing processes and infrastructure, as opposed to a bolt-on on the side of the business.

Mobile Integration

Craig: I think that ability to switch back and forth is critical; it doesn’t matter what context the client starts a process in, but that they can switch. Is that what you’re saying, that I can start an account opening process in the portal, then go to the mobile, then go back? Or is that only for checking the balance?digital advice platforms

Simon: It depends; in principle yes, you can go from one to the other. But it depends on what the bank implements in the mobile app. What we’re seeing is that mobile adoption of bank apps is extremely high; maybe the highest across any of the industries. So they are very keen to have a consistent experience across the apps. What we’re seeing them implement initially is more of the read capabilities, so mobile as a way to review, check status, and then over time they’ll be building out more of the primary elements, such as account opening and the read and write capabilities. At the end of the day, the banks and Jemstep wants to support the banks in meeting the clients where they want to be, whether it’s mobile, web, tablets, in the branch, or elsewhere. So having a consistent set of flows that you can move back and forth from is critical, and that implies having a data model and business logic that can be accessed on these various form factors.

Craig: That’s another good question, the data model. How does the data model change when you’re implementing a digital advice solution at a bank versus an advisory firm?

Simon: I don’t know that the data model per se changes. I think going back to your question about compliance and the requirements, there are a set of requirements that the banks will have relating to InfoSec, which are perhaps more rigorous and demanding than other institutions have asked for. Those include how long you can keep data for a prospect if they don’t sign up (what is the timeframe beyond which you have to essentially destroy that data), or what is the verification process to show that you’ve done that? Similarly with client records, if a client closes an account there are encryption standards, encryption and transit, and the level of rigor in terms of the InfoSec review and those requirements are probably the biggest difference. But the use case by use case data model is very similar. There are elements that do change. For example, we will work with the institutions to support data prefill, and the data prefill goes down a few levels. It’s not, here are seven data elements that come across in a SAML assertion when there’s single sign-on. It is, here are the data elements that you can display, here are the data elements that you need to obfuscate or essentially hide if the client clicks on it, perhaps social or account numbers, and it goes down to data elements that are display only (that the client can just view in your app, but can’t change.) So there are multiple layers of requirements that the banks have and capabilities we currently support, in line with their data privacy and their compliance posture.

Data Privacy

Craig: Data privacy is becoming a huge issue now, especially with all the social media platforms having problems and larger firms getting compromised and data being exposed. So how do you guys deal with that? Is that a big lift for you, in terms of integrating with the bank’s data privacy rules?

Simon: Yes, there’s a rigorous process that we go through in initiating a project with a bank. Part of that is contracting and the sales process, and part of that is an InfoSec review where we respond to a typically very robust set of requirements. We are fortunate that we have invested heavily in our InfoSec capabilities, and embedded within that is privacy and other capabilities. So I think right from the get-go when we engage with the bank, we will communicate what we have built, what are the configurations and capabilities, and then go through the process in the actual implementation phase of configuring to support the posture that the bank has. And they do have different postures.

Simon: I think of the client experience as an iceberg; 1/8 is above the water, that’s the part that the client and advisors may see: the pretty screens, the quality flows, that simplicity and quality experience that helps drive that client through, to end up getting feedback on their goals. That’s the 1/8, the 7/8’s is all of the ongoing investment that is being made in infrastructure, InfoSec, privacy, and redundancy. All of these elements ensure that you have a bank-grade platform, that can serve the bank’s needs and give them the confidence that they’re dealing with an enterprise firm that essentially can support them and their clients and advisors in the way that they need to be supported. Privacy is part of that and we are fortunate to have the backing of Invesco, a now 2 trillion dollar asset manager. With that we have capital and expertise within the firm, that reinforces our ability to maintain a quality InfoSec, privacy, reliability posture for our clients.

Craig: I want to take a little break from this episode to talk to you about one of my favorite sponsors, the Invest in Others Foundation. Invest in Others is a non-profit, you can find them at investinothers.org. They look to raise money and give out awards to charities that are sponsored by financial advisors, so it’s financial advisor’s favorite charities and charities that they spend a lot of time supporting. Invest in Others looks to get sponsorships from the industry and funnel that money to advisor’s favorite charities. I like this non-profit, I think you should take a look at it. Again, that’s investinothers.org. They have a couple of other programs: one is a Grants for Good program, delivering money to different needy organizations and needy groups. They’re also starting a corporate awards program, which is going to be a little bit different but still within the industry and another way for financial services and wealth management corporations to help donate money to people in need. I like Invest in Others, I think you should take a look at them at investinothers.org.

Craig: So regarding the acquisition of Jemstep by Invesco, that kind of put you guys on the map and moved you from a start-up digital advice player to basically part of a global asset management infrastructure. How did that change the way you’re working, and change your ability to sell into the banking industry?

Simon: Yeah, we were acquired and sold to Invesco about three and a half years ago. And the reason we responded to engagements from Invesco and a number of other institutions is that we were already deep down the path with some very large IBDs and other institutions, and they started asking the question, “Jemstep – we love the platform, the capabilities, the people, but how do we know you’re going to be there tomorrow?” And that was a question we either had to answer with ongoing fundraising, or we needed to engage and partner with a significant institution. So that kicked off the process. Long story short, we were engaged with a number of firms, and very quickly it became clear that Invesco was the right partner for us. Three reasons: firstly, they looked at it strategically. They weren’t looking at a quick hit or a product push, they were looking at adding digital advice and digital capabilities to their toolkits of services that they would provide to their advisors and their advisory firms and their advisory firm’s advisors. Secondly, the people and the culture was very compatible with Jemstep and very much that collaborative partnership approach, which has continued on and is resonating deeply in the banking sector. And the final reason is, on a personal and as a team reason for the Jemstep team, we looked at it not as an exit, but as a next chapter. We felt that within Invesco we could dig in and continue Monday morning, then Monday morning six months from now, and Monday morning over three years later. It helped build the business and serve our clients, so that that has played out very much to our expectations. And as you know, that is often not the case with acquisitions.

So given that the strategic approach that Invesco took, Jemstep is managed as a separate subsidiary. We’re based in Silicon Valley, we control the primary business functions, and that enables us to focus on building a world-class digital advice platform and serve our clients in the way that they need to be served. The second thing is Invesco and Jemstep have publicly committed to maintaining an open investment platform, meaning it is the bank or the credit union that decides the investment strategies, the models, and the funds that they want to implement on the digital platform. So that has served us and our bank clients very well, and it resonates. The backing that Invesco has provided us gives the banking institutions, whether they are top 5, top 20, top 40 banks, the confidence that we will be able to continue investing in that great client experience in all the integrations we’ve been talking about, but also that 7/8’s of the iceberg under the water that we spoke about previously; the compliance, InfoSec, reliability, etc. That puts to rest that question about, will you be there tomorrow and can you continue investing? The piece that has played out and has been quite interesting, and I think is the broad thesis behind the combination of Invesco and Jemstep, is when you look at wealth management, the digital platforms provide a portion of the required solution. But there are a number of other services that in combination can create an even more compelling client experience and outcomes, as well as help with the adoption of the platform by clients, as well as within the institution. And I’ll mention two or three of those.

The first and obvious one is in helping develop portfolios and investment solutions that fit the mass affluence target market that the banks are looking to expand wealth management services to. So thinking about how do you create portfolios that are understandable by clients, that are easily tradeable, that have low transaction costs, cash drag, and other elements, that is an important consideration. When you’re trading a $250,000 account, considerations and portfolios you can incorporate are different from a $5,000 or $10,000 account. So working with Invesco Solutions, we’ve developed portfolios that we can offer up as an option to the banks that can help with the client experience, arm advisors to articulate the value proposition of with marketing materials, as well as ensure efficiency in the trading and rebalancing of those portfolios. That’s one core element of the value add that we offer as optional services, the solutions.

The second one is that in many ways, Jemstep is in the change management business. We offer a technology service, but what the businesses are trying to achieve is to transform the way that they serve their clients, increase access to wealth, and do so in a changing regulatory and competitive environment. So one of the things that the institutions, spend a lot of time working with us on is how do we effectively communicate the value of digital in combination with advisors, whether they be in branches or whether they be in call centers. So Invesco Consulting is a group that’s very much focused on arming advisors and call center reps with the language that can help them articulate the benefits of the service, and quite frankly help them understand the value of digital as supplementary channel to them individually. So the consulting service helps with the adoption and the training around how do you roll out these digital platforms. Those are just two examples of how working with Invesco, we strengthen the value proposition and can wrap value-added services within the Jemstep proposition.

Craig: Let’s shift the conversation a bit to some of the key capabilities that banks should consider so they can be more effective in their operations, and how digital can help them. You guys talked a lot about the Omnichannel service model, how do you guys implement that and how does that help banks be more efficient in their operations?

Simon: If you think of the core banking platforms: checking, savings, CDs, credit cards, virtually all of the banks have a segmented offer down there. One mentioned specific institutions, but you’re segment one, two, or three. And depending on the segment, you’re going to get different levels of services potentially, access to different products, fees, etc. What the banks are looking to do is ideally provide an equivalent segmentation from the core banking to the wealth. So if you’re in segment one, you are going to be offered.. and that should be services that are consistent with that segment. So the initial focus in most of the institutions is on the mass affluent, which might be the middle segment. So what Jemstep has focused on implementing is initially two layers of service. The first is a self-service primarily digital experience, which is as we described, easy access from bank portal, mobile, web, and then transitioned through goal-based flow, goal feedback, planning, feedback, access to portfolios, and then digital onboarding, self-service, money movement, audible statements, etc., all within a clean branded bank flow, tightly integrated within the banking portal; that’s the first level.

The second level that we’re increasingly seeing is a call center model, which is essentially a bionic service model where individuals will go through, depending on the segment, go through the flow and depending on perhaps asset level or segment information, they might have access to a call center; guides who are going to support them as they go through the flow, that can help them both with how do I do something on the platform or through the platform, as well as helping them think through what it is that’s being provided from an investment perspective. Those are the two primary segment offers that we’re seeing implemented, and the way those are accessed, they can be pretty sophisticated. I’ll mention a capability that a number of institutions are utilizing; as mentioned, the banks often have these clients segmented through the core banking relationship. So as the client logs in to the banking portal, the bank will pass through to Jemstep information as to which segment they belong to, and that can then ensure that that client has the experience associated with that segment. We’re early days at creating tight integration and linkage with the core banking segments, but it very much points to bank strategy of not treating wealth as a separate product, but looking to ensure that there’s a consistent experience, whether you’re accessing core banking or wealth. And obviously, technology enables them to deliver against that.

Craig: Along the same lines you were discussing, you had mentioned before how the workflow is smooth and how you’re aligning with the bank’s branding. Do you see a trend towards this consistent digital platform for mass affluent all the way through affluent segments, is that something that banks are doing? Or are they segmenting and giving different experiences for different wealth levels?

Simon: They’re looking to give different experiences for different wealth levels. One way to look at it is, it doesn’t matter whether you’re sitting with $5,000 or $100 million – all of us have been trained and now expect access to our services digitally. So whether I’m ultra-high net worth or low net worth, I still want to be able to access things through my mobile, my iPad, or whichever device I’m using. I want to do a money transfer, I want to see my balance, and I don’t want to have to call. So all of them are looking to ensure that there is a quality digital experience, respective of the segment. That’s one. Secondly, there are some of the workflow areas where you want to be able to have that same experience and leverage the technology and the business logic, once again whether you are opening an IRA with a low balance, or a high balance or a high net worth client. The obvious one is account opening, and there are other capabilities you want to be able to support, like money movement or accessing statements. So we’re secondly seeing banks essentially say, we want a consistent digital platform that provides core services up and down, from mass affluence, high net worth, or ultra-high net worth. We are seeing a number of institutions (having seen the benefit of, for example what Jemstep provides) for the mass affluent and some of the high net worth essentially say, what will it take for us to provide that all the way up?

On top of that are segmented services, or differentiation in terms of the service. So you have the core services, you might at a high net level want to offer different models or access to different investments. Onboarding may be very similar, but the investment choices may differ. Similarly, you may offer a quarterly review with a named advisor at high net worth, where you may have a call center access in the mid-tier, or perhaps just online access for the low net worth clients. So we think of it as a common digital platform with consistency, which drives operational efficiency (which I should talk about), but then a level of differentiation that is consistent with the value prop for the segments and their ability to deliver services at scale to each of those segments. So what this ends up doing is they end up being able to differentiate the service, but get the benefit of quality onboarding, which to your earlier question drives efficiencies, reduces NIGOs (not in good orders), and ensures that both clients in a self-service model with a call center in a branch or with an advisor can have that great onboarding experience, enabling e-sign, data prefill, etc. Once this is being implemented, we will send all of the information into a CRM such as Salesforce, which many of our bank clients are using. They have that as a dashboard and as a resource, and similarly you on the custodian, through straight-through processing or through approval-based onboarding digitally to their custodian. That perhaps provides a little flavor on the segmentation and some of the benefits from the client, as well as from an operational efficiency perspective.

Craig: It does, thank you. You mentioned call centers and what would be called “hybrid advice.” Merrill Lynch just announced recently that they’re doing what they call a “mix and match strategy,” moving clients through different groups as they gain assets, moving them from pure robo to a more traditional full-service. Are you seeing that with your bank clients, they’re doing similar types of strategies?

Simon: Absolutely. Once you have segmented offers, you have to be able to support the transition from one segment to another. One of the big targets are the HENRYs, “high earners not rich yet.” So if you are starting off a relationship with them as they get their big bonus and build up wealth, you want to be able to offer them access to the next tier of service. And that is very much why Jemstep has designed our system to integrate within the bank processes, systems, custodians, and CRM, as opposed to being a separate bolt-on. Once you’re integrated within that, you are able to essentially more easily transition clients from one tier to the next tier. That is very much the goal of each of these institutions. As always, when you’re dealing with large institutions there is always complexity in building out the specifics and ensuring that it seamless, and I would say it is a journey, but one that we have architected our service and platform to support.

Craig: That is great. We covered a lot, thank you so much. I appreciate you making the time for me and for this conversations, and sharing so much of what you’ve learned with digitalizing banking.

Simon: Thank you Craig, I appreciate it and look forward to the ongoing conversation.