Family Wealth Report speaks to CircleBlack, a wealth innovation firm which is in beta testing mode for financial advisors.

CircleBlack, which describes itself as a “wealth innovation company,” recently entered into the next phase of its development – beta testing for financial advisors.

Lebenthal Wealth Advisors was the first firm to sign on as an early adopter of the cloud-based platform, which will be released more broadly to the RIA community and the clients they serve at a later date.

CircleBlack was designed to provide financial advisors with information about client portfolios, advisory relationships, total wallet share of assets and industry investment trends. It also provides mobile capabilities and automated updates and alerts, promoting frequent advisor-client interactions and thus boosting the client experience.

John Michel, chief executive of the firm, has built numerous businesses in the past including Bloomberg Wealth and the Merrill Lynch entities that were combined into what is now called Merrill Edge.

There is some truth in the phrase “trust but verify,” Michel told Family Wealth Report. A product like CircleBlack allows clients to verify where all their assets are and how they are behaving on a daily basis.

Michel referred back to the “Apple craze” and how a number of investors didn't know they had, for instance, a 30 per cent exposure to the company because their various advisors had each invested in it.

“We look for those kinds of things,” Michel said. “In that case, Apple didn't turn out to be a particularly bad investment – but this is not always the case.”

CircleBlack charges a fixed fee per client for its services – and they can have as many accounts as they want – while pricing is still being finalized, the different price points will depend on how much human interaction they want to help use the service. The firm is currently run by a team of 20, with around 200 clients on the retail side queued up to join the platform.

Business challenges

In terms of the challenges associated with running a business like CircleBlack, Michel said – somewhat unsurprisingly – that a lot of effort goes into the technology and data cleaning.

“People intentionally don't put everything in one place,” he said. “And what I've learned is that there is no such thing as perfectly clean data.”

He described the business as a “shadow accounting system” representing all a client's assets in a clean and sophisticated format, enabling CircleBlack to produce personalized performance reports at both the instrument and account level.

“That is, in some regards, the hardest thing we do – but also the most defendable competitive advantage we have,” Michel said. “Performance reporting has become a real-time issue, not just something in the background.”

Another issue relates to security and data – something which he acknowledged is on everyone's mind, particularly those operating in the wealth sector. He highlighted how a significant percentage of fraud over the last ten years was linked with people receiving false account statements.

“But since we independently pull data from custodians – not from end-providers – there is no way of creating a false electronic record,” he said.

Meanwhile, data is “never in one place unless it's presented on-screen,” Michel added. “It can't be broken into, so to speak, because it's read-only. Even if someone figured out how to get the information, they wouldn't be able to do anything with it through the CircleBlack platform.”

While CircleBlack has a proprietary technology tool – Wealth Alert – to carry out portfolio checks, Michel emphasized that the firm is not a compliance system.

“If you wired money out to a foreign country, that will be in your transactions, but we won't send an alert about it,” he said. “We're really about the investments. We do a lot of checks to help people know what's going on in their portfolio but we're not a compliance watchdog in that regard.”

Robo advisors

CircleBlack also says it is an innovative solution to eliminate the so-called “robo” threat, by arming advisors with cutting-edge technology.

Michel said the notion of robo advisors – a new term in wealth management lexicon – and the threat they are perceived to pose to the industry reminds him of the time when discount brokerages started to crop up.

(Robo advising has been defined as online services that use analytical tools to create financial plans or investment portfolios for investors.)

“What we've seen in our business is that most clients who have advisors value those advisors greatly, but they also have an online brokerage account, for example.”

He believes robo advisors will become a slice of most people's investment. “We will see clients with robo and regular advisor accounts,” he said.

Content: “Less is more”

Another aspect of the CircleBlack value proposition is providing tailored editorial content to clients and indeed their clients (ultimately, the platform will be available to both firms and individuals) based on stated goals and investing habits.

In the past, advisors would typically send a monthly newsletter via email covering investment trends and other related content, Michel said. “But if you have hundreds of clients, you have to cover the water front so everyone gets something out of it.”

He added: “What we've heard over and over again is less is more. Clients want content which is personalized – but not too much of it.”