Sometimes events overtake us. As we deliberated over this year’s list of candidates for our annual “Ten to Watch” list, we admit that John Michel, president of the former BloombergBlack, was close to making the cut. The reason: While there are dozens of potentially disruptive, online financial planning tools that seek to give individuals the power to aggregate their accounts, create a proper asset allocation model and implement their own long-term financial plans (Personal Capital, WealthFront, Betterment Capital, etc…) and are attempting to re-invent the wealth management business, Bloomberg, thanks to its resources, had the best chance to pull it off.

Michel ultimately did not make the list, but we were close. When the service was quickly shut down late last month, it was a shock.

We dodged a bullet, but in retrospect, the writing was on the wall. Advisor Scott Bell got an invite to use a beta version of the service and was dramatically underwhelmed. Writing on his I Heart Wall Street blog, Bell said the service was an adequate account aggregator, if a bit slow, but failed overall. He pointed out that the service seemed designed by a committee, and was too complex for someone who didn’t know what they were doing, yet too simple for someone who did.

You can almost hear the gloating. Plenty of advisors and others in the industry are skeptical that any of these new-fangled, computer-based financial planning services will ever succeed, and the closing of BloombergBlack will certainly bolster that view.

Being complacent is a mistake. It’s early days, and the technology and functionality will only improve. Clayton M. Christensen, the Harvard Business School professor who popularized the concept of “innovative disruption” in his book The Innovator’s Dilemma, points out that most firms won’t invest in innovation, not because they don’t understand it, but because the business model they operate under won’t allow it. Innovation is more likely to come from non-established players and is usually seen at first as an inferior solution to the thing it will ultimately replace.

Consider Joe Lonsdale and the gang of engineers at Addepar, who did make our list this year. Lonsdale, a computer engineer by training, an entrepreneur by inclination and a wealthy individual from early success with other Silicon Valley firms, says that Addepar was born simply because he and his co-founder saw, from the outside, how inefficient most wealth management firms and family offices were run.

His solution is basically a souped-up database-querying machine that can sniff out irregularities and patterns in financial holdings, and turns that into useful intelligence to build better financial strategies. While it won’t replace the financial advisor, if it lives up to it’s promise, it could make the job of dispensing financial advice very different.

BloombergBlack may not be the disruptor many predicted, but it doesn’t mean the industry is immune. As Christensen points out, it’s established, well-managed, customer-centric companies that are most vulnerable. For the financial advice industry, it’s only a matter of time.

 

 

David Armstrong

Editor-In-Chief