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wealthtech on deck podcast - Charles Smith

WealthTech in the Weeds with Charles Smith

WealthTech in the Weeds is a new series covering the broad yet critical path to financial services. The goal is to get together with industry experts and get into the details of building an effective, productive, coordinated, and comprehensive advice system.

Jack is joined by Charles Smith, a partner in EY’s Wealth and Asset Management Consulting, and Mark Hoffman, CEO and Co-Founder of LifeYield. Charles has extensive experience in strategy, product management, client experience, business process redesign, and senior client management. He incorporates the latest product, digital, and tech solutions to drive growth, productivity, and profitability. Mark and his team at Lifeyield have helped build comprehensive platforms for firms in the industry. They specialize in coordinating data, financial planning proposals, portfolio management, rebalancing, transitions, income generation, and more.

Charles and Mark discuss the challenges and benefits of building comprehensive advice platforms. They explore the importance of coordinating data, financial planning, portfolio management, and tax optimization to improve financial outcomes for clients. The conversation highlights the need for firms to provide holistic advice considering all aspects of a client’s financial situation. Charles and Mark also discuss the operational challenges of implementing comprehensive platforms and the role of technology in streamlining processes.

What Charles has to say

“Tax is an important part of wealth, and a lot of the advisors don’t know enough about it.”

– Charles Smith, Partner, Wealth & Asset Management Consulting, EY

Read the full transcript

Jack Sharry: Hello, everyone. Thanks for joining us on this week’s very special edition of WealthTech on Deck. Wherever you look, firms across the industry are building comprehensive advice platforms. So let’s define what we mean when we say that. So over the course of the history of financial services, firms have built systems to manage single investor accounts, a brokerage account, an IRA, a 401k. All have been managed independently and not in any kind of coordinated way. But investors’ wealth and their ability to transform that into retirement income is a sum of the, all those parts. So comprehensive advice platforms are capable of incorporating the entire scope of an investor’s or household’s accounts and then identify and implement strategies to minimize tax drag and produce better outcomes. We’ve embarked on a special series of our WealthTech on Deck podcast to cover the broad yet critical path in financial services that so many are pursuing. This new series is called WealthTech in the Weeds. Our plan over the coming months is to get together with folks that are experts in the industry, get into the details around what it takes to build an effective, productive, coordinated, and comprehensive advice system. And I’m excited to have a longtime friend and colleague, Charles Smith, join us for today’s podcast. So, Charles, welcome. Good to have you on board. Charles is a partner in EY’s wealth and asset management practice. He’s focused on incorporating the latest product, digital, and tech solutions to drive growth, productivity, and profitability. He also has extensive industry experience. On a day to day basis, Charles works with many firms on the build or buy decision as he advises these various firms on how to develop a comprehensive ecosystem. We also will ask Charles for his observations on trends in the industry among firms as they make their choices for system enhancements to be more comprehensive, and ask about EY research that they may have in the offing. So, so Mark will join our conversation. Mark is the co founder and CEO of LifeYield. Mark and the team at LifeYield have more experience at more different firms in building comprehensive platforms than anyone in the industry. For today’s discussion, we’re going to focus on connecting the dots within the firm’s ecosystem. That includes coordinating data, financial planning, proposals, portfolio management, rebalancing, transitions, income generation, and more. Both Charles and Mark have extensive experience in advising firms in the build out of comprehensive advice platforms. So, Charles and Mark, welcome to WealthTech in the Weeds.

Mark Hoffman: Great to be here.

Charles Smith: Thanks, Jack. It’s great to be here. And, Mark, good to see you.

Mark Hoffman: You as well, Charles.

Jack Sharry: So, Charles, let’s kick it off with you. And then I’ll ask Mark probably the same question. You work with firms every day on building the advice system of tomorrow. So can you describe at a high level of some of the needs that firms are addressing with some of the comprehensive advice platforms that are being built?

Charles Smith: Sure, yeah. So, definitely, it’s a big area, we’re seeing a lot of firms focus on advice. I think it’s a great way. You know, advice is definitely the long term strategy for wealth firms to kind of bring clients in, give them what they need, right. There are a lot of clients that will tell you, usually it’s the, for years, it’s been the boomers and the Gen X, but now we’re seeing a lot more millennials, looking for more advice. They’re getting to that stage in life where it’s getting more complex. We’ve heard for years that millennials will always be self directed, do things themselves, but that’s changing, right? A lot of millennials are now coming into advisors saying, no, I need help. I need advice. It’s getting too complex. There’s too many different asset classes, crypto, alternative investments, I need some support. So we work with firms on building that advice platform out. The first place we start, really, with them is on the data side, you need to be able to have a comprehensive data strategy, be able to see and view all the aspects of a client, what their preferences are, their transactions, their demographics, things about them that you really… to provide that full picture of advice. So the really first stage where we start them is build that data, comprehensive data layer, where you have all the data available to you to use as part of your, your platform. The second piece is building out the operations, right and the platforms that sit on top, consolidating what you have today, most firms we work with have multiple platforms. They’ve started, as you know, Jack, years ago, in advice and managed accounts with multiple platforms, one for reference manager, one for SMA, but now further trying to consolidate that into one platform to give advisors more opportunity to spend more time with clients. Because what you want them to do is spend time understanding them… the month planing and giving that full holistic plan and give that you know, they’re really given the opportunity to work across the entire household. You want to be able to have the full picture so you can provide advice at the right time, the right product, the right service, and ultimately, you know, manage that household optimally, right. So when you get to stages of retirement, drawdown and college, you want to be able to optimally draw down those assets and work with them in a, in a household manner. So there’s lots of different aspects to providing advice, but I think there’s a lot of building blocks but ultimately, it’s going to be about that full, that full plan, right, not just on investment products and services, but on the full assets and liabilities of the client, everybody in that full household view. So when we work with firms, we really start them at the bottom, work their way up. But ultimately it’s about giving that household perspective.

Jack Sharry: That’s great. So, Mark, you and Charles have worked together in a variety of different ways over the years. So, what say you about this? I know you deal with this every single day.

Mark Hoffman: Well, what Charles is saying is that the role of advisors has, has changed over time. They’re no longer just being asked about investments and performance. And we’ve seen, you know, it’s taken quite a while, but over the last many years, advisors are required by their clients to provide advice. And that advice really is on how that client might achieve their goals using all of their assets to Charles’ point on sort of a household. And, you know, there’s new asset types, there’s new constituents that may be coming in, but the end client really needs to understand how all their assets are going to be working together. And there are a number of systems out there that have evolved that help an advisor provide a solution to their clients and give them advice. One of them is a financial, is financial planning, which is very important. Other advisors use investment proposals, and the proposals and planning, in some ways, they’re coming together. But those particular tools that are being used by advisors to help their clients and give them advice are holistic in nature, you know, they really look at all the different assets and all the different accounts a client may have. And one of the goals that those tools has, and they do fairly well at providing, is a risk assessment for the client. So both financial planning and investment proposal, come up with a risk assessment, which is expressed normally as an asset allocation for that client. Unfortunately, however, most of those tools in the industry now, financial planning and investment proposal, don’t have tax awareness, they’re tax unaware. And when you’re operating and trying to put all the different pieces together, that can cost the client between 30 and 100 basis points in after tax return.

Jack Sharry: Yeah. So, Charles, our industry has been very focused on individual products, accounts, tools, and solutions for a very long time, we’re starting to see that change. We certainly haven’t distinguished ourselves for coordinating it all, and to improve the investor experience and enhance their financial outcomes. And that’s changing, and I know you’re working on it, certainly we’re working on it. So what are you seeing? I know you see the same, but is, what are you seeing as the challenge in coordinating all these elements and tools? In fact, financial planning tools inventory, all of the client’s or a couple’s assets and accounts, but they don’t suggest how to implement the plan across multiple accounts and products in a typical household in order to improve outcomes. So we’re seeing a shift at this point, toward a more, a more coordinated effort. It’s hard, it’s complex. Also, with legacy systems, a whole ‘nother matter we’ll get into, I’m sure. SO really what we’re seeing is there’s a promise of financial planning and advice, but it’s hard to fulfill. So what do you see happening? How is this growing? How is this emerging? Where are we going with all this?

Charles Smith: Yeah, great question. I mean, you’re spot on. The planning process is important, right, the goals based planning process is important to a full financial plan. Setting expectations, understanding the client’s needs, and giving that full picture where they’re gonna be 10, 20, 30 years down the road, but that’s only a point in time, right. So you need to have the tools in place to help you manage that and implement that, right. So a lot of an investor’s assets in a taxable account, per se, you can get them set up initially. But then managing tax and allocation is a long term process and implementing that does take time, you don’t want to just open an account and sell everything you need right away and have that client get hit with a huge tax bill. But so managing that whole process of transitioning that account, that client does take time. And there’s a whole state of managing that, and tracking that as you’re working with the client to do that. So taxes, as Mark said, are an extremely big piece of this, you don’t want to have to have a client have their return then take 30% or 40% away from them right away, because you’re getting hit with a long term gain, or a short term gain. So firms are putting a lot of emphasis on the experience of the tools they’re going to use to manage that process from beginning to end. LifeYield 55ip, there are a bunch of tools out there that allow the… they can be integrated into your existing stack. And I know there’s lots of different platforms out there and firms are trying to consolidate. But there are tools out there that can help you to pull that off together. As I mentioned before, having a clear view of all the data around a client is important. Having tools that give you that full view is needed really to do this and manage the whole state of going from opening an account for the entire lifecycle of managing that client’s allocation and tax risk.

Jack Sharry: Mark, I know you deal with this tax issue every day with all the clients we work with. What are you finding, how is that working? It’s hard, frankly, just because systems weren’t built for this sort of stuff. But fill us in on some of the things that you’re, you find and how you’re helping clients deal with these issues around the coordination and thinking around taxes?

Mark Hoffman: Well, I’d echo what Charles was saying in that there’s a big gap often between what a client thinks they’re getting when they get advice from a financial plan from their advisor and then what they’re actually getting operationally. And their feeling is that, “I’m not getting what we talked about.” And in the case of financial planning systems, ultimately, they’re not connected to trading systems or the managed programs necessary to implement their advice. So the way I kind of like to look at it is, the plan is, you’re flying from Boston to Miami, and you’re 35,000 feet up. But once you’ve agreed upon that plan with your advisor, and you want to apply some of that advice, you’re landing the plane. You’ve got to make some trades, you’ve got to organize your accounts in such a way that you don’t pay as much taxes and you accumulate as much as you can, while you are saving to get the highest after tax return. Basically, trading or moving into a model aren’t actionable, they’re not actionable unless taxes are, are considered. And advisors know this, because it’s one of the reasons they get fired. As Charles said, if you agree upon your client on their plan, and you suddenly hand them a 30% haircut because of a short term gain, you’re not likely to stay employed as an advisor.

Jack Sharry: So, Charles, as you know, the key benefit of building a comprehensive advice platform is tax savings, that you can help achieve better financial outcomes, that really has the biggest impact. And many are looking for just a way to secure their retirement. That’s a lot of where, where folks are going. The more a firm and its advisors can coordinate the management of the different accounts, the better the after tax return to the client. So there’s also a greater likelihood that when clients consider consolidating their assets with a single firm, as most will do as they approach retirement, just for administrative reasons, if for no other reason, that’s, they’re more likely to find out that they can improve outcomes if they do so in a coordinated, tech smart way. So and then, of course, the payoff for all this, firms that we all know well, that are doing well on this front are collecting more in net new assets than others. So that’s really the driver. That’s what’s paying for this. And also, that’s what’s driving all this so. So why don’t you explain the dynamics, because when you talk about tax optimization. There, you mentioned 55ip, which does a nice job with tax loss harvesting, that’s an important factor. Others lay claim to asset location, we haven’t seen a lot that do it as comprehensively as some, namely LifeYield. But talk about the dynamics of, of taxes, because there’s lots of different ways. And so how do you advise clients on how to deal with this? Because it’s not just one or the other. Again, we have that single mindset of whether it’s an account or a product or a solution, how do you coordinate those? I know that’s, I’m sure, where you’re spending a lot of your time these days is helping people figure out how to build platforms that coordinate all the above.

Charles Smith: It’s hard. Yeah, it’s definitely difficult. As you know, Jack, taxes aren’t just a transactional aspect of a magic recipe, it’s about location as well, right? I think you don’t want to start a client off in the wrong spot, right. So having the ability to set the accounts up and bring it all together and align the assets properly, to both tax deferred, tax free accounts is critical, because you want to make sure down the road 10-20 years that they were located properly.

Jack Sharry: Charles, if you could, pardon me for interrupting… Why don’t you explain asset location? I think a lot of people hear the words and kind of get it. But, we’ll go back to the basics. Because my experience, frankly, when I explain it, they go, “Oh, is that what you mean?”

Charles Smith: Yeah, I’ll do the best I can. You and Mark probably would do a better job than me. But asset location is locating the asset in the optimal tax account, right. So if you have a long term equity, that’s going to be a lower tax, when you sell it, then let’s say a fixed income security. You want to put that lower tax asset into a taxable account, and the one that with the higher tax impact into a tax deferred or tax free account, you want to try and align your assets appropriately so that when you do go and sell, right, you’re minimizing the tax impact on that client. So it’s not even about optimizing or finding the right tax lots, making sure you set the account up properly. In the beginning, where, you know, based on the asset class, the asset type, what the tax input is going to be and putting that asset in the proper account, make sure it’s aligned properly. Because you draw down, you want make sure you defer as much tax as possible to the end. You would sell your long term equities out of your taxable account first, and then work your way towards your tax free accounts down the road. So just locating assets properly within the accounts that you have available to you.

Jack Sharry: Mark, why don’t you talk a little bit about the, we’re gonna get into operationalizing in more detail in a moment, but why don’t you talk about just the operational aspect of that, because what Charles just described, people say, “Yeah, of course, you should do that.” But doing that when you’ve got 6, 7, 8 accounts, you’ve got all sorts of holdings, markets change, you know, what you bought 20 years ago is still in your portfolio. And it’s, you intend for today’s purposes. But talk a little bit about that dynamic, because you are actually in the business of operationalizing what Charles just described.

Mark Hoffman: Well, as we all know, so Charles did a great job with the description. But as we all know, most firms, many firms, all firms in the industry are single account focused. And that’s for a number of different reasons, not least of which is they’ve had to organize themselves to help clients in that way. But I would say that all wealth management firms can operationally go multi account, which is a requirement to do asset location, it’s just a matter of the firm’s priorities and will. And that adds to the difficulty. But it isn’t as complicated as it sounds. Every asset has, based on the client and their tax rates, has an after tax return. And so when you look at those assets, that’s what Charles was talking about, you place the assets with the highest after tax return often in the shielded accounts, whether that’s a Roth or a qualified account, and the assets with what we say has the least tax drag, having the last least amount of tax impact when you have to do a withdrawal in a taxable account. So it’s really the fact that you can use overlay technology, which is what LifeYield provides, to sit on top of the legacy systems that can still be single account focused, and you’re really providing an overlay view to give instructions to set those accounts up to get the highest after tax return and the highest income. I guess I’ll give you a real life story. There was one client that LifeYield worked with over a two year period on their multi account project. But when the project went live, even though it took two years to implement, the payback for the two years of investment came in under 10 months from client tax savings. And the tax drag savings still continue to this day and are being measured. And the advisors have the benefit of talking to their clients about how they’re doing such a good job it covers their fees. So it’s a real success story.

Jack Sharry: So going back a little bit, Charles, on the whole asset location conundrum, because that’s kind of where all the studies we see, I’m sure you see the same, the biggest bang for your buck, if you’re going to improve tax alpha, after tax returns, is asset location. Talk a little bit about the dynamic when you’re working with a firm because it’s one thing to say, yeah, I hear that asset location might be important. But my systems are hard. How do you have that conversation? How do you help them through that? Because we’ve had plenty of those and they can be challenging.

Charles Smith: I think, you know, a lot of firms get caught up in the details and the effort that goes into some of these things but as Mark just said, the payback for the client, once you do implement them, is significant. If you remember, Jack, this is actually before I even… EY, we, EY and LifeYield come on a, on a white paper that talked about all the benefits of all the different opportunities to save the client money and optimize their investments across a number of different account types and techniques to do that. But only when we talked to clients about that we really kind of draw them to the fact that, hey, you need to make sure you’re doing what’s right for your client. Right. I know, there’s a lot of red tape and work to get through to fund this. But ultimately, the benefits of what you’re going to do by providing tax optimization, asset location, smart drawdowns is going to benefit them. And to Mark’s point, there, it’ll pay for itself over time as clients realize the benefit you’re bringing, right, to them in terms of after tax return, optimal tax withdrawals and just really giving the full picture of their assets. The upside is tremendous, because you’re really giving that client something that you know, had they did this on their own, there’d be one or two percentage points of loss that they would be losing by not managing taxes effectively. And that’s the whole goal of all of our firms is to make sure clients are getting the best advice. And that’s really what draws people to the advisory. I talked in the beginning about advisory being the way forward because a lot the investors who are self directed, they don’t know what they don’t know, right. So it’s the advice and tools and capabilities that we can bring as, as professionals in wealth that really are going to drive them to our firms and the capabilities that we bring. So it’s really putting that end client at the top of the list and making sure you’re doing what’s right for them.

Jack Sharry: Let’s shift our discussion. And I’m going to come to you, Charles, first. Then, Mark, if you’d weigh in. Just on operationalizing, what we’re talking about. Because it’s one thing in theory to talk about what we’re saying, and we all agree, we know it because we’ve worked at it for many, many years. So we know that it works. And in the case of what we do at LifeYield, we actually quantify the benefit in dollars and cents and basis points for that matter. In terms of the improved outcome. So it’s real. You know, there’s a bunch of white papers. Charles mentioned a white paper that he and I and our respective teams worked on together with the MMI. It’s called Modern Wealth. It’s still available through LifeYield. You can get it off of our website and just check in there. But basically, we describe what we’re talking about here in some detail. That’s one, and then there have been many other studies done. I think Vanguard’s done one, Envestnet’s done, PNC has done one, Morningstar, and they all say the same thing, basically. So it’s inarguable that it works. Now the question is, how do you operationalize it? So, Charles, talk about some of those challenges, because that’s where you are brought in often, not only to figure out the strategy, but then help them in the implementation. And that’s where things get more challenging.

Charles Smith: It definitely does. And I think it’s all about starting out with the end, end state in mind, right. So when we work with clients on implementing, you know, solutions, like yours or others, it’s about laying out where you want to be, what’s the experience gonna be like, and designing that end state. So it starts out with design, prototyping, visualizing where you want to be, getting feedback from advisors and sometime clients, that’s what the benefits are going to be in quantifying that, and then working with your technology teams to kind of lay out the architecture to get you there. A lot of times, as I mentioned before, getting the data together, unwiring what you have today, and putting in a solution that allows you to do what we need to do to provide the benefits we’re talking about, it’s, it’s hard, right? So it is about laying a long term plan, being realistic about what you’re trying to accomplish. It’s going to take sometimes longer than what you think. But if you plan out properly, and you provide the right access, you know, use your technology team to open up APIs and get access to the right data, then there are tools you can implement fairly easily but straightforwardly like, like your, like LifeYield, right can be interjected, it’s got the ability to kind of connect to multiple systems and bring it all together, right. So it allows your firms to bring those benefits, but it’s about laying that end state out first, and getting through some of the current state, I guess, red tape and issues you have with existing legacy platforms. But really to give folks that end state view, the business case for, as I mentioned before, driving returns for clients, and showing the benefit you’re going to receive at the end. And to get everyone aligned to that. And then doing the hard work to kind of unweave all the existing legacy platforms. But that does take time, it’s not easy. But once you get the data in line, understand your current state architecture, lay out the plan to get you to that end state, then it becomes much more clean in terms of your approach.

Jack Sharry: So, Mark, why don’t you talk a little bit about, because you got your fingernails pretty dirty, doing all this stuff over the years trying to figure out how to make it, a term I love is interoperable. In other words, a coordinated ecosystem, something that works all the different elements. That’s the data that Charles mentioned at the start of the show, that’s the planning, that’s the proposal, that’s the ongoing portfolio management. Of course, the market changes every day. So you gotta adjust and transitions and rebalancing, and ultimately income, we’re gonna talk about income in a little bit. But why don’t you talk a little bit about how you’ve worked with clients, and you’ve, you mentioned the, an overlay kind of approach, where you’re coming in, and also Charles mentioned APIs, why don’t you just describe sort of the how that works, because we also, at LifeYield, have had plenty of conversations over time of build versus buy. So why don’t you talk a little about, given the way modern API architecture works, it’s not a build or buy, it’s about how you create a system that then you tap into various vendors to make it all work and APIs is the way to go. So why don’t you describe how that all comes together?

Mark Hoffman: Well, I guess what I’d say, echoing a little bit of what Charles was saying is that, and these are some of the big lessons we’ve learned with working with a number of different firms. In terms of operationalizing a multi account approach, the first lesson, I think, is that there are multiple starting point options to choose from, because it is operated as an overlay. So depending on what a pain point a client may have, you can start in one place. And the nice thing is that any of that original work can be repurposed. So it’s kind of like building a puzzle. It doesn’t really matter where you start, the priorities of the firm and where they have budget and where they have personnel. That’s where you can start. But you can then keep going. And there’s nothing wrong with that other part of the puzzle that you built, it’s all going to get connected together. So let me give you a tangible example. Some of our clients have started operationalize multi account from financial planning or investment proposal, where we’ve already got the concept of multiple accounts. Now you just need to connect them to some down stream trading systems and managed programs. And as Charles indicated, there’s a lot of work there. But that’s one place to start. And you can do it in a stepwise approach. Another place that we have had clients start is they’ve got a demographic of clients that are in withdrawal, and they need retirement income. So they’ll start at their custodial system, and have those multiple accounts and be able to do intelligent withdrawals, even if the clients got RMD requirements. And they may have Social Security coming in. But they still need to get a bulk of that retirement income from their investment accounts, doing withdrawals and rebalancing. So we’ve had clients start in that area. None of that work needs to be thrown away, you can easily start, as I said, filling in the puzzle in the different areas. But it is a commitment in approach, multi account versus single account, that the firm needs to take the long term point of view. But the benefits, there’s benefits to the client all the way there that can be tangibly shown in dollars and cents.

Jack Sharry: And from a practical standpoint, as you’re advising clients, Charles, how does that play out? What are some of the issues they raise, because I think they’re fairly common, but it might be useful for audience to understand that they’re not alone in trying to figure this stuff out. Because one of things we haven’t talked about, but since firms are kind of, tend to be set up in silos, and you’re connecting lots of different parts of an organization. So, dare I say, politics that sometimes enters into our P&L, or call what you will. But talk about, how do you help firms work that out? Because that’s new for them, they tend not to work horizontally, they tend to work vertically into whatever, whatever their department is, or whatever their area of focus is.

Charles Smith: Yeah, it’s, it’s definitely a challenge, right? So anytime we work with the client on a, on a concept or an idea, right, it’s important find a champion within the firm that understands what needs to be accomplished and the steps and has the, I guess, the political capital to kind of push it forward. And that’s about building the cases around it to kind of, you know, bring in the CTO and chief administrative officer and the front office and get them involved and aligned to what’s going to be the end state for all them, right. It’s not easy. There’s always detractors when you’re trying to bring a new, new solution forward and get momentum, but ultimately, building that case and showing each of those individual parties the benefits… sometimes, you know, you don’t always get everyone aligned, but you want to make sure you find the right like, the right champion, that’s gonna… has the right momentum, the right vision, right, to bring it forward. And that’s always not easy to do.

Jack Sharry: Yeah, I’m gonna echo that. And I’m gonna shift gears in a moment, Mark, to ask you about withdrawals. We’ve talked a lot about accumulation, we’ll talk about it with Charles in just a moment. Before we leave this topic, though, about working across the company. One of the things I found as I deal with, echo what Charles has said fully, is that you need a champion that I call an architect builder, someone who’s building the platform who’s charged with making, making all the stuff work together. And then you also need a senior level person who’s ultimately gonna sign off on the budget, whose, frankly, neck is on the line of thing for the thing to work. So there’s some some risk for, what has been new, it’s getting more and more commonplace. But certainly, in the beginning, it was someone that took a risk on something that was untried. Now, what we’re seeing is across the industry, firms are moving in this direction, they get it, others have done it, they’re succeeding in a big way. So that’s paved the way. But I know that as we deal with firms there’s probably two types of champions, either that C suite or senior level champion, or owner often. And then there’s the architect builder who’s got to make it work. And a lot, frankly, we spend a lot of our time just helping on that, just trafficking that sort of back and forth, and in and out, and I’m sure you have a lot of fun with that too, Charles. So, but I’m going to shift gears here a little bit, Mark, talk a little bit about income. Because if you’re going to talk about the most challenging thing to make happen, it’s to generate an income. And so why don’t you talk about some of the things that we’ve discovered since we’ve built the only systems that are multi account coordinated, even, we’ve built systems that incorporate, include Social Security as part of the solution, along with tax optimization. Why don’t you describe the intricacies there? And, frankly, it seems, as we’ve done this now a number of times, that’s more in the understanding at the client level, but once they get it, ultimately, you’re going to improve outcome, you can quantify the benefit, and it’s happy campers, notwithstanding there’s some complexity to it. But why don’t you describe some of the things that we’ve come to learn around intelligent withdrawals and tax-smart income?

Mark Hoffman: Well, the intelligent withdrawal use case, I would say, is the most sophisticated use case that’s out there for a multi account approach. And it requires a multi account approach. So, and that’s nothing new. It hasn’t really been automated until, I think, we came along. But it was something that advisors had to do and that was most often performed with what are called systematic withdrawals, where if you have required minimum distribution, you just set with your custodian a switch that withdraws, you know, whether it’s monthly or quarterly, the required amount, and in, just indiscriminately sold a chunk, whatever that might be. And there were no, there was no coordination with, you know, your IRA, your wife’s IRA, maybe you still needed a little more income from your taxable account. There was no tax coordination at all, the only coordination was done by your accountant when you got your tax bill at the end of the year. But once you’ve agreed upon the multi account approach as a firm, and this overlay concept, like I said, is like building a puzzle, you start, you pick a place to start, and then you build on from there. Once you get everything connected, you’re able to do a tax smart withdrawal, which, Jack and Charles keep talking about some research that we did a long time ago with Ernst & Young, where they validated our algorithms to make sure they did what we said they would do. And they, indeed, there’s a 30%, 30% of your assets can be saved from going out the door in taxes by doing tax smart withdrawals across your multiple accounts. You have to take the RMDs if you’re of the age that you have to, but then where else do you get to the rest of the assets and how you coordinate those different accounts? And you know, which accounts do you take from and where? If you do it in a tax smart way, you get that 30% savings. We have one large client that put together these intelligent withdrawals and it keeps growing organically now, by 30% or 40% a year. And they measure, they wanted to do a simple measurement to be able to talk to clients about what they’re doing now by coordinating their different accounts for their retirement distribution and what they, what the industry standard is is. So they simply measure what happens when they do an intelligent withdrawal versus what happens in that example I started with where the accounts aren’t coordinated. They’re doing first in first out, indiscriminate, systematic withdrawal of a piece of the, of the account, and found that in the first year that they did it, they saved their clients $11 million all total in withdrawals. And the next year, it was almost double that, and on it keeps going. So while it is complex to do the intelligent withdrawal, it pays for itself. And it gives your advisor the ability to communicate with their client about the solution they’re providing, and the extra work they’re doing for you as a client, as opposed to talking about traditionally selling products and investment returns and market movements and things.

Charles Smith: Mark, you’re right. It’s actually… I would say it is complex, but I think you guys have figured it out. So it’s one way for firms to move forward is to find a tool that allows them to, to do it, right, to figure out taxes. We’re an accounting firm and a consulting firm, but we’re also tax firm. So we’ve put together a series of tax offerings as well, because we know tax is an important part of wealth. And a lot of the advisors don’t know enough about it. So we’ve got something, a platform called Tax Desk where advisors can call us up and get advice on taxes when they have questions, right? Because a tax is a huge piece, 30… If you can say, if I told you every time I gave you a dollar, I’m taking 30 cents away. You’re not gonna want to do that, right? But if you can minimize that, that 30% tax or 40% tax, that’s a low hanging fruit to give your clients an additional return. So advising you to spend a lot of time thinking about tax impacts and how to minimize tax for their clients and firms like yours and ours can do that.

Jack Sharry: One of the things I’m noticing, and we’re going to wrap up here in a moment, this has been a great conversation… One of things I’m noticing, as I look at industry, media, press, and promotion, and emails, what have you, a lot of chatter right now around taxes. It seems that, while the markets have been kind of late, it wasn’t too long ago they were less kind and people know things go up and down. And we’re also at a point, it’s called Peak 65, where, in the coming year, more people will go beyond 65, I’m not sure the exact numbers here. But it’s something like more people will be over 65 than under 65. In any event, people are moving toward retirement. That’s something we’ve known for a long time. It’s now up to 12,000 people per day. Point being is that as they’re moving toward retirement, they want to take income. So that’s going to become increasingly important and taxes are just a drag on it. That’s, just people assume, death and taxes, just what happens. But there are ways to minimize there. So, this has been a great conversation. Really appreciate your perspective, this has been a great discussion. So what I’d like to ask of each of you, what are some key takeaways, Charles, we’ll start with you. What are some key takeaways from our discussion today?

Charles Smith: Yeah, I definitely, definitely taxes. We kind of covered that so I’ll focus on some, a couple of other things. One is definitely, I mentioned in the beginning, data, right. Having the right data in the right spot to analyze, and provide the best insights for your client. And we see a lot of firms talk about next best action. To be able to have data available to understand what’s important to them and make recommendations by understanding their positions, their, their lifestyle, their income, right, where they stand in terms of college, retirement. Having that data in front of you to make those recommendations and advice is critical. So that’s, that’s number one. Number two is, when it comes to applications and using applications, definitely rationalizing what you have to. This is a great time in the market. We’re seeing a lot of firms today rationalize what they have pn their platforms, on their desktops for their advisors. It’s good time to retrench as the market starts to turn around and rebound, to streamline and automate and give your advisors more capabilities and more time to focus on the client and less time dealing with logging into different applications and doing things manually. So automating, streamlining, and giving more time to your advisors is critical. So, productivity for advisors is number two, focusing on that, I think is number two. And number three is, I mentioned earlier, always keep your clients’ best interest in mind. I think for years, you mentioned, Jack, we were very product focused, very single account focused, trying to build out things from that lens. But when you look at the full client holistically and always look to provide things that makes their lives better, easier, richer, minimize taxes, we talked about, putting the, your, your initiatives and projects along those, that lens, you’ll always do the right thing, you’ll always, you’ll be building towards a successful business is how we look at it.

Jack Sharry: Terrific. Mark, what do you have to say?

Mark Hoffman: Well, I’d say this is one of those situations where, not to sound too cliche, there’s something for everybody. Tax alpha generated by coordinating a client’s multiple accounts increases their balance, increases their balance by a lot. And asset location is really the dominant component of tax alpha for the bulk of the market. Those clients with a half a million to $7 million. The wealth management firms gain a lot more net new assets by consolidating the multiple accounts and managing those assets for their clients. And then the advisors get to show that they’re providing a solution, and they’re really benefiting the client while basically covering their fees. So it’s a good situation. As we’ve all discussed here today, there are complexities to it, there’s work to it, you’ve got to roll up your sleeves, but the benefits are there. Enough firms have done this that the data is there to show that it’s well worth doing. And in fact, everybody’s going to have to do it because that’s the way this industry works.

Jack Sharry: It seems to be lining up that way. So, Charles and Mark, it’s been a real pleasure to spend this time with you. Thanks very much. I enjoyed it. I get to talk to you guys a lot as is but this was a lot of fun to zero in and focus on this whole, this whole thought around WealthTech in the Weeds. If you have enjoyed our podcast, please rate, review, subscribe, and share what we’re doing here at WealthTech on Deck and this special series of WealthTech in the Weeds. We’re available wherever you get your podcasts. Again, Charles and Mark, thanks so much. It’s been a real pleasure.

Charles Smith: Thanks, Jack.

Mark Hoffman: Great. Thanks, Jack. Thanks, Charles.

Charles Smith: Good seeing you, Mark. Thank you.