Two weeks ago we unveiled evisor.com, a free, direct-to-consumer financial planning and investment management platform. The release was reported by Investment News and WealthManagement.com, and reporters from both publications had the same question: “Why did you do it?” Embedded in this question, of course, is a host of other questions, stated or implied: why not use a commercial tool, instead of building your own? Why is it better than the myriad of other tools that are already available? And the big one: if it’s worth anything, why is it free? These are all legitimate questions that deserve an answer, so I wanted to give my personal view, since the ideas, technology, and experiences underpinning evisor have been taking shape over the past ten years.
Why did we create evisor?
The cornerstone of evisor is our belief that all individual investors deserve the same high quality financial planning and advisory services as institutional investors. The compensation model for investment advice is based on asset-based fees and commissions, so individual investors with limited resources are often ignored. All else equal, it pays for advisors to focus on individuals with more assets, which generate more fees. Unfortunately for smaller investors, it is they who often need advice and counsel the most, and the time when financial planning can be most impactful is when someone is just starting to save. Not only are smaller investors ignored by many advisors, they often are targeted by second and third-tier firms pedaling fee-laden, low quality products under the guise of “financial planning.” Because there is no fiduciary rule in the United States, conflicts of interest are rampant, and firms often do a poor job of self-regulating. By offering a robust, easy-to-use financial planning tool and delivering it inexpensively using technology, without the need for extensive advisor involvement, evisor represents a better alternative to the status quo of no or poor advice.
A significant part of financial planning involves quantitative modeling and analysis, based on a finite set of variables, which are ideally suited to an automated planning tool. Calculating how much savings a person will need for retirement, when it makes sense to pay off debt rather than saving and investing, estimating the tax benefit of ROTH conversion, determining how much life insurance to buy, or how much to contribute to a 529 Plan, are all examples of questions that can be directly answered through quantitative analysis. In our traditional advisory practice, we have spent years fielding such questions and developing models and approaches to address them in a systematic way. The evisor financial planning tool does not contemplate every possible scenario that someone might face, but it captures a majority of recurring planning issues that we have faced over the years. Our ongoing challenge is to work within the constraints of a software-based interview process to gather sufficient information to deliver clear, actionable recommendations on a broad array of planning issues.
How does evisor differ from other online financial planning tools?
Software-based financial planning tools have been around for two decades or longer. These tools were traditionally designed for use by the advisor alone, and only recently have some been adapted for an advisor and client working together. About eight years ago, we began to develop our own advisor models because of the criticism we often heard from clients regarding third party tools: that the financial planning systems were opaque, difficult to follow, and not particularly useful beyond the initial “snapshot” report. Today there are better third party products for advisors; some of our principals use Emoney and AdvisorEngine in their traditional advisory work, in addition to our in-house models, and clients are much happier with the ongoing engagement and reporting that these systems offer. But direct-to-consumer financial planning tools seem purpose-built to ascertain risk tolerance as quickly as possible, so that the user can be slotted into an ETF portfolio on the “conservative” to “aggressive” continuum. I’m not knocking providers who take this approach. Betterment and others have introduced low-cost investment management to a generation of young consumers. But completing a risk questionnaire is not financial planning, and we believe that most direct-to-consumer planning tools are too simple and unsophisticated. Our experience has shown that consumers want to be able to ask both general and specific questions about a broad range of financial planning topics. And in most cases, the answers to their questions will affect the investment strategy they should implement.
If it’s worth anything, why is it free?
The foundation of evisor— using technology to massively expand access to basic, objective, high quality financial planning, as embodied in our recent release — took us about a year to develop, after nearly a decade of imagining, designing, and revising our strategy (including a missed acquisition and several botched attempts). How complex should the initial version of the platform be? Should we be worried about exposing too many variables to the user? How should we charge for it? If we offered the platform for free, would people assume that it had no value, or worse, that it was a trick or a gimmick? What if nobody decided to use the evisor platform for investment management?
We ultimately answered these questions in much the same way that we had in our traditional advisory practice, by deciding to err on the side of being generous with advice and recommendations that are educational in nature, do not require a lot of advisor attention, and can be answered objectively without much nuance. In the case of evisor, being generous means offering basic financial planning for free. We reasoned that if we could demonstrate our expertise on basic financial planning questions and issues, clients would be more likely to trust us with their complex needs. Or they might decide that they want a higher level of attention for even their basic financial planning. This approach has served us well in our traditional business over the past decade, allowing us to grow to nine advisors with over 250 clients, 800 accounts, and AUM of nearly $250 million.
We are confident that some consumers will choose to use evisor to implement their investment plans. Our institutional approach to portfolio construction, adopted over a decade ago, is grounded in academic research and has been time-tested in different market environments over the past forty years. We implemented risk-factor-based investment models, using Dimensional Funds, Vanguard Funds, and other low cost, factor-based funds, when we launched the firm in 2008. In 2011 we added an “income strategies” model to meet the needs of retired investors who were not comfortable limiting their asset allocation to equities and plain vanilla fixed income investments. In 2015 we added socially responsible portfolios, based on requests from a number of current and prospective advisory clients. Versions of these models are available through evisor. In short, our risk-based models and the institutional fund managers we utilize compare favorably with the all-ETF models favored by robo advisors. As we continue to search for new sources of return and diversification for our investors, and to regularly test the assumptions underpinning our investment approach, new discoveries and minor adjustments will be incorporated throughout our practice to traditional “offline” relationships and to evisor online advisory clients.
Do offerings like evisor, which uses artificial intelligence to produce recommendations in response to information provided by the user in a self-guided interview process, represent an evolution of financial planning or a fundamental disruption of the status quo? I hope that the answer is “a bit of both.” In the near term, we don’t expect any online platform to develop insights or make recommendations that a trained advisor would not come up with in a traditional setting. So evolutionary, not revolutionary. However, if by reducing the need to interact with a human advisor for each aspect of financial planning, millions of people are newly able to access financial planning, then evisor would be both transformational and disruptive.
I like to evaluate the evisor platform in light of my own early experience as a finance professional; while I was well-trained and eager to learn, I needed guidance and support from my more experienced colleagues. And with experience, I improved. In the same vein, while critics will be quick to point out limitations and shortcomings of evisor, I am tremendously excited about the scope of the platform and the foundation we have put in place. Our team is fanatical about making improvements, so evisor will only get better over time. I hope you are curious enough to take a look, try it out, and send us your feedback.