United Capital’s CEO Joe Duran is a man on a mission. His $16 billion firm is seeking to redefine the role of a financial advisor. The firm’s approach centers on the concept of financial life management, which emphasizes the importance of no nonsense truth and discipline in enhancing the overall wellbeing of its clients. Backed by Bessemer Venture Partners, Grail Partners and Sageview Capital, United Capital has invested heavily in technology to help advisors grow their AUM and streamline their operations. Now, its platform has been made available to outside parties under the brand, FinLife Partners. The Financial Revolutionist’s Gregg Schoenberg spoke with Duran in an interview that underscored Duran’s determination to use innovation and straight talk to make advisors more relevant than ever to their clients.
The Financial Revolutionist: Welcome, Joe. Could you provide a profile of the typical United Capital client?
Joe Duran: Our individual clients are people who have worked their whole lives to clear between a half million and $10 million in investable assets. It’s working professionals, executives or independent business owners who are typically married with families and obligations. We like to think of ourselves as the professionals who are there to provide the judgment, empathy and discipline needed to make the right choices.
FR: Understood. What’s the general age of these clients?
JD: Around 53. The kids may be off to college, but they still have got big expenses.
FR: Are you trying to shy away from the concept of being a wealth manager?
JD: Well, we did our research to ask consumers what they thought wealth management meant and it ran the gamut from banking to accounting to investment management to financial planning. So we thought that we needed to define more clearly what we do. At the top of that wealth management pyramid is the guidance clients get from an advisor. We think that if you’re being charged for that guidance, clients ought to receive the tools to make good decisions about their entire financial lives. We call these services financial life management because they go beyond investing.
FR: So how do you deliver these services?
JD: We have built tools and systems that walk people through protocols. Those protocols help advisors diagnose their clients’ financial decision making processes, behavior patterns and biases, and seek to optimize decision making.
Interestingly enough, I can tell you that after having gone through this process with clients thousands of times, rarely are they able to articulate what they are working for off the bat. It doesn’t matter how much money they’ve got, what their age is or how many years that they’ve been married. That’s pretty sad when you think about it. There are millions of us working every day and almost nobody sits down and asks, “What are we doing it for? What’s our “why?”
FR: Really? Nobody has a clue?
JD: Oh, they’ll have some vague or fake goal like, “I want to be able to retire,” but they’ve never sat down and thought about it in depth.
FR: When people go through your process and tell you what they’re working for, do you always believe them?
JD: The way we perform our process takes care of that. By gamifying our protocol through the use of our Honest Conversations exercise, we can get to the truth pretty quickly.
JD: Absolutely. We tell everyone there’s no right or wrong answer; the only thing that matters is that you be honest about what really matters. And so what happens is that a husband and wife might agree that the number one priority is spending time with the people they love. Then, they’ll leave our office and go have a glass of wine. And they’ll call us back and say we want to reprioritize. They might come back saying that not being a burden to their family is the number one priority. Regardless, they have clarity and agreement, something they never had before.
FR: Okay, let’s turn to the digital client office component of your program. Can you talk about that?
JD: There are two basic sleeves of technology that comprise the FinLife Partners offering. It’s the front end, which we’ve already touched upon, that is comprised of powerful behavioral economic technology systems that help advisors engage with their clients.
The second part is the digital middle office, which is powered by Salesforce. It allows an advisor to use almost any planning system that he or she wants, to integrate to any portfolio strategy and to do all of this seamlessly. Let me emphasize that it’s important to create capacity because our approach adds work that most advisors were never doing before.
FR: But to be clear, your aim is to use your in-house technology to ensure that the human connection remains central to the client relationship?
JD: Absolutely. You can use technology to strongly empower human interactions.
FR: You’ve spent all this time and money to create this proprietary system that approaches how people are working, saving and investing in a very holistic fashion. What drove your decision to white label the product, rather than just use it to build a bigger edge for United Capital?
JD: Look, we think the industry is broken. Financial institutions and the independent advisors are not helping people to make better choices, which is ultimately what we all get paid for. We want to change the entire industry for the better.
You can always think small and say we have something so special that no one else should have it, or you can think big and say we have something so special that everyone should have it. Plus, the truth is that the world emulates good ideas and over the long run, opening up our systems will force us to keep improving and become far more competitive than if we just kept FinLife to ourselves.
FR: So you are not afraid of cannibalization?
JD: No, we’re basically disrupting ourselves.
FR: Let’s talk about something near and dear to many FR readers: automated investing. I take it that you are not a fan?
JD: Actually, I look at the models of firms like Betterment and I thank God for that model. All of these robos that do not use human advisors today are going to be forced to bring on human advisors at some point to survive. I’m absolutely convinced of it.
I’ll give you a good example from a different knowledge industry to explain why. If you’re incorporating a company, you might use an online firm like LegalZoom to get started because it offers a great set of basic tools. But the moment some form of complexity enters the equation, when your company is at risk, what do you do? You go out and get yourself some human legal guidance.
These firms that do not have human advisors today – and wind-up losing money on their clients given all the marketing expenses that they are incurring – will end-up losing all of their clients if they don’t bring on human advisors.
FR: Have you ever been tempted to either start your own robo or do a deal with one in order to get your hooks into clients earlier on?
JD: No, because I don’t like losing money, and as of yet, none of the robos have proven they can make money. Plus, we do think that it’s important to be known as a human-first firm. If people don’t think that you’re a human-first firm, they’re more likely to leave you in the long run. Someday, it’s going to be very hard for a firm like Betterment to convince people that they have advisors who want to help them.
Look at the auto industry. It’s very hard for Kia to have a luxury car. The same is true about branding in the financial services industry. The high quality brand that works with million dollar clients can go down market, but it’s quite hard for a down market firm to go up market.
FR: Can you give a financial industry example?
JD: Yes. Goldman Sachs can say, “We’re now working with retail clients.” It’s very hard for LPL Financial to say, “We’re now working with $15 million clients” and be credible. You just don’t have brand pollination when you go from the mass to the affluent market.
FR: Speaking of big brands, congratulations on your deal with Fidelity Clearing and Custody. That looks like a big win for you. Can you talk about it?
JD: Thank you. The Fidelity deal touches on a big theme that you’re writing about in your blog, especially for Gen X advisors. For advisors who have 20 years or more left in the business, they do not have the capital budgets to invest in technology like they need to. They know that they have to become part of the mobile revolution; they know that they have to do it, but they don’t know how to begin. They can look at us and see that we have already invested millions of dollars in our platform and that advisors using our solution achieve better results. Why wouldn’t an advisor want to piggyback on that?
FR: Am I correct in saying that part of the capital you raised from Bessemer, Grail and Sageview was to develop the platform that you’re offering now?
JD: Yes and no. We have a very profitable business and have used cash flow to fund our development. However, their money helped us to accelerate our growth.
FR: Turning to the macro picture, Joe. You talk to thousands of investors every year. Do you believe that we have a retirement crisis in this country?
JD: We absolutely have a crisis.
FR: Do you have any hope?
JD: Yes I do, and keep in mind that I came to this country with absolutely nothing. This is the greatest country in the world, but we initially resist seeing that the world has changed. But we’re also the first country and the most aggressive country taking on change when it happens.
FR: But even if the whole country gets on board and adopts some form of financial life management, whether it’s provided by you or someone else, will that be enough?
JD: No. It won’t be enough for anyone who doesn’t do it. And even for the people who get on board, there are still some inescapable realities. One, they’re going to be working far longer on average. Two, they’re going to realize that spending patterns are going to need to be far more conservative. Three, the approach on legacy is going to be fundamentally different in the next generation. People are going to say, “I’ve got to take care of me first because I don’t want my kids to have to take care of me.”
FR: You’ve stated some uncomfortable truths. Do your advisors point out these major shifts occurring in our economy to get people to think in very specific terms about their money?
JD: Yes, but keep in mind that this isn’t about creating chaos. This is about showing people the truth. Ultimately, every advisor’s number one responsibility is to help people see the truth – not their biased perspective of it, not what they would like it to be, but the truth as it is.
FR: If you could change one thing about the US retirement system, what would it be?
JD: I think the most important thing is giving people some form of income stream. There’s no way for an individual to get any form of income today and the longer interest rates are kept so low, the more certain I am that people are going to be forced to work past the retirement age. So in my mind, you have this dreadful dilemma because the government is acting in ways that are counter to the wellbeing of its citizens because they have completely bankrupted our taxpayer-supported balance sheet.
FR: Let’s turn to your personal story. I read that the TV show Dallas was one of your motivators. How did growing up in Rhodesia (now Zimbabwe) shape your career, your outlook on money and your desire to come to the US?
JD: I grew up in an incredibly unstable environment and as a consequence, I’m very motivated by my fear that everything could be taken away tomorrow. When you grow up in a country with no rule of law, it creates a level of unpredictability that puts all of your responsibilities on yourself. There was no protection of any kind, not contractually and not institutionally. But it forced me to rely completely on myself, which was great training for coming to America and making something of myself.
FR: So would you argue that growing up in a wartorn, highly unstable society has proven to be one of your greatest advantages?
JD: It is my single biggest advantage, yes.
FR: When some of United Capital’s clients are dealing with children who are indulged, does your philosophy show through?
JD: Every family situation is different. But our goal is to help our clients optimize their choices. Sometimes there’s a case where a child should be told to leave the house and get a job. In other cases, you’ll see a kid who requires a little more care and nurturing. But it’s not programmed; you can’t put that in a computer. You need to have an advisor who understands and cares deeply. But you also need someone who has the discipline to help you get to the truth.
FR: Thank you very much, Joe.
JD: Thank you too, Gregg.