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This is Master's in Business with Baravorite Holds on Bloomberg Radio. This week on the podcast, I have an extra special guest. Natalie Wolfson is CEO of Orion. She has an absolutely comprehensive resume in the financial services industry, everything from AMEX
to asset Mark to Charles Schwab. Not only has she been named to a number of one hundred most Influential Women in Finance, I don't know many people who have seen as much of this industry on the front lines as she has for as long as she has, and is now in a position to very much drive change within the industry as CEO at Orion. We know Orion, I know Orian as a performance reporting company. We've been using their their software for I don't know, almost a decade,
and they're just a powerhouse in the space. There are few people who have her unique insights into the inside baseball of what drives change in actual wealth management. Not only working with finrun the SEC on the regulatory side and working on the technology side, but having some insight into behavioral finance and understanding what advisors need to help their clients obtain their goals. I thought this conversation was
fascinating and I think you will also. With no further ado, my interview of Orian CEO Natalie Wolfson.
Thank you so much for having me. It's great to be here.
Well, it's great to have you. Full disclosure, my firm uses Orion as part of our tech stack in managing the four and a half or so billion dollars we have. But let's talk a little bit about you and your background from UC Berkeley undergrad and then an MBA from UCLA. What were the career plans?
So I have to say I graduated Berkeley with a political science degree focusing on international relations and power politics, and so coming out of cal I had absolutely no idea what I wanted to do with my life other than move to New York and start my career.
I'm always done when people in California say that, because every time I visit California, it's just so delightful. The weather is fantastic, even just the geography is fabulous. What was it like coming to New York?
Oh, New York is fabulous. I mean, anyone who lives here knows this, but especially coming from the West Coast. I love San Francisco. I live in the San Francisco Bay area right now. But there's something just so twenty four to seven about New York City, and you know, I was interested in being part of that. And I thought, if you don't do it in your early twenties, why when would you do it? So I came to New York no job plans, no ideas.
No kidding. Wow. So what was the first gig in New York? As a NBA graduate?
So I wasn't an MBA yet. I was just a BA. And I was fortunate enough to have a marketing internship at Caesar's World, which is what I did to work myself through college.
Caesar's World is what the casinos? Oh really, yes? And that was in New York City they were headquartered.
No, the internship I did in Nevada, uh huh. And then because that internship was in marketing, I had some opportunities to do consulting work and then eventually found my way to American Express working in their marketing department.
Got it. So you did get your New York experience. How long were you at AMEX for?
I was at Amex for about three and a half years, and then I started a company in New York. It was the mid nineties or the late nineties. And who didn't start an internet company in the nineties, that's right. And then when that company quickly failed, I moved back to the Bay Area and started working at Charles Schwab.
Ah. So you were Schwab for a while, right about ten years? And what was that experience like? You were in product development, strategy, segment management. Tell us about your various roles at Schwap.
Schwab was a great place to spend ten years of my career. And one of the things that was so fantastic about it is most of the time I was there, it was growing really quickly, which created a lot of opportunities for me and other folks at Schwab to try different things. And so I started in marketing, active trader marketing, and then I fell in love with the active trader
segment of the market. I had an idea that a group of us wanted to try out at Schwab, which was to build a mobile trading application for active traders.
What year was that.
That was nineteen ninety nine.
So long before there was really any sort of smartphones. The BlackBerry was the closest thing, and even that there were no real apps or anything.
That's right. I mean, I don't know if you remember this, but the mobile trading applications we built at at Schwab were on phones that had numbers, so if you wanted to enter in a you had to at one once be won twice. And then also pomp pilots. So we used both of those devices to build one of the first mobile trading applications ever and it was It was
a great experience. And then I fell in love with technology and product development, moved from there to strategy, then moved from there to investment product development, worked on Schwab's first ETF offerings, their equity mutual funds, fixed income mutual funds, and then when I decided to leave Schwab, I went to Pershing and worked on investment platforms.
Another very substantial custodian. Yes, what was your experience like at Pershing after Schwab, which is just such a unique animal in the investment world.
You know, Pershing's is a different custodian. They have different emphasis, they serve a different clients.
Site, little bit higher end.
No, they tend to be or at least at the time, we're very much focused on clearing for the broker dealers versus Schwab that was more focused on the rias Pershing does both than When I was brought into, Pershing was hired to help the ra part of the business and the broker dealer part of the business. And they wanted to ensure that they had the investment platforms they needed
to compete globally. So built in a retirement offering, an insurance offering, expanded their mutual fund offering, expanded their etf offering. It was great, great job.
To choice is good. So Schwab to Pershing and then you end up at asset Mark for just about a decade and you had a lot of roles there, chief commercialization officer, chief solution officer. Tell us about your professional experience at asset Mark.
Yeah. So at asset Mark when I was brought in, I was brought in to help transform the platform and grow it. And the reason the first role was chief Commercialization Officer was because my emphasis was bringing together all of the ps of marketing, promotion, place, price, and people
segments into a unified offering. And then once that work was done and we had done that, it was time to expand our markets, expander segments, build a growth strategy, and so I did that as chief solutions officer, and then when my predecessor left Asset Mark, I was asked to join a CEO and was CEO there for about two and a half years.
How was that experience and how different was being the top of the org chart from being a worker bee a little further down?
You know, I love being a CEO. I don't know about you, but I love it. I love being able to lead the team. At Asset Mark I was a public company CEO. I enjoyed working with investors. I enjoyed that aspect of the role. And one thing about being a CEO versus you know, being a chief solutions officer, chief commercialization officer, you spend a lot of your time outside the company as well as inside the company. So we still spend a lot of time with your clients,
which you do at every level of the organization. I believe you also spend time with investors, with other aspects of the industry, a little bit more time on strategy and innovation, and that's an exciting part of the role, representing your firm and its success to investors, to potential partners.
And then from Asset Mark in October twenty twenty three, you're recruited to become CEO at O'rian tell us a little bit about what that process was, and let's delve a little bit into what Orian actually does.
Yeah, so, I have been a long time admirer of Orian, just as a trendsetter and an innovator in the industry, both in technology and wealth services. When Eric announced that he was going to be departing, Eric being the previous CEO and founder, Eric Clark. When he announced in I guess it would have been last spring that he was leaving the firm, the executive chairman of the board, Charles Goldman, reached out to me asked if I would be interested.
He and I had a few conversations before I decided that it was something I wanted to do, and I really believe that Orian has the potential to make a huge impact on the industry. You know, met the board really liked to what they had to say about plans for Orian, spent some time with Eric. Was very important to me that Eric was a big part of picking the future CEO, and it's been fantastic since then.
So I know Orian for many years because from the RIA perspective, from a registered investment advisor perspective, clients want to know how their portfolios are doing, what their performances, both in absolute terms and relative to benchmarks, and you want an outside third party doing it as opposed to someone just telling the client yeah, yeah, you're doing great.
You really want to see the numbers, and you want to know that a trusted objective third party is running that, not the person who you're trusting to manage the money. That's the core role I think of when I think of Orian, But there are a lot of other things the firm does tell us about the various roles and responsibilities Orian has within the RIA industry.
You're right that the heritage of Orian is por ffolio counting, trading and reporting. That's kind of at the heart of what O, where Ryan came from, how it was built.
Over the course of the last five years, though, Orian has added to that core capability a depth of services and wealth management, everything from portfolio customization through and indexing all the way through fully outsourced portfolios, and so Orian now has a wealth business and a tech business that work together to help financial advisors save time and effort and spend more time with their clients and then on
the technology part of the business. Around what we've built around portfolio counting, trading and reporting is the entire advisor interaction with their investor.
Meaning how they interface with both Orian and the client themselves.
That's right.
Tell us a little bit about that.
So in the additive services that Orian offers now our financial planning, compliance, CRM services, risk and analysis, portfolio construction, and advisor portal, an investor portal, and clients can choose our clients can choose to use all of it in an integrated way, or they can choose to use a piece of what Orion offers and integrate that into their client experience.
So CRM is customer relationship management for people we may not know the acronym. Tell us about the portal, that is the client's interface with their own assets and portfolios, regardless of what platform they're on. Tell us what comes through the portal to the client.
Yeah, So for the investor client, what comes through the portal is their holdings, their connection between the portfolio and the financial plan, a variety of comparisons that advisors can walk through with the investor about how their portfolio, if the advisor's proposing a new portfolio, how the proposed portfolio
compares to the portfolio the investors in. Now we have behavioral finance tools so that the investor can understand their relationship with wealth and their risk tolerance, their needs at a greater level of detail, and they can compare that to that of their spouse, and then also compare that
to the portfolio that the advisor is recommending. The advisor's portal, in contrast, has portfolio construction tools, sophisticated reporting tools, workflow management, the dashboards that help the advisor understand the strength of their business and the strength of their relationships with their clients.
And again, you can choose to just use Ryan for reporting that's great, or you can choose to use Oryan for more depending on the size of the advisor and the degree with which they want to control their clients experience.
Huh, that's really intriguing. So you've been at the firm now for barely eight months. What changes have you begun implementing or have you just kind of started out with a little bit of a listening tour and picking up some surveillance about what's actually been going on before you join the company.
In the first ninety days, I absolutely did a listening tour. I talked to as many financial advisor clients as I possibly could. In fact, in my very first day, I talked to our top twenty clients, reached out to them, wanted to let them know that I was interested in hearing from them. And then for that first ninety days, I made sure that I talked to as many clients as I could. I also want an internal listening tour.
Wanted to get to know the team. You know, I'd been at my previous firm for ten years and so everyone knew me. I knew everyone in the firm. I knewho top performers were, how we were organized. I had to learned that about Orian. Get to know the team, Understand how we were organized, understand what they enjoyed about working with Oryan, if there are any opportunities. And so after that first ninety days, I started looking at things that we could prioritize a little differently. Eric Clark, the
founder of Oriyan, you know, he's an incredible CEO. At the same time, you know, I personally felt that we need to emphasize put a little bit more emphasis on building a client service model, making sure that we were developing for scale, putting in place services that are highly flexible and integratable, and so pivoted just slightly to make sure that we were focusing on the information and the data and the accessibility to it, so that we could get to a place where whether clients wanted to use
us for micro services or want to use us for holistic technology, we can integrate that into their client experience in a way that saves advisor's time.
Let's talk a little bit about the transition that you undertook. You followed Eric Clark, who was not only a long standing CEO, he was the company founder. How challenging is it to take over from a founder?
You know, the first thing I'll say about that is it's a big change for the team and the clients. You know, anytime a founder decides to move on to their next chapter, it just creates uncertainty, and both the team as well as clients just want to make sure that you're committed to the same purpose, that you're committed to the same level of service that they've come to expect from the predecessor. And the great news about Eric and me is because Eric was a part of the
selection process for me. We knew going in that we were highly aligned on what we think about the market, how we want to serve our clients, where we think the future opportunities are in technology. And so while I've absolutely adjusted the strategy slightly to focus more on integrations, the heart of Orion remains the same.
So Eric, Eric Clark has been called the legend in the RIA community. Tell us a little bit about what makes him so legendary and a little bit about your relationship with him.
Yeah, so there's no question that Eric is a legend in the RAA community. The reason that he is a legend is because his technology helped power the growth of the industry. He was a visionary and that he saw how much time advisors were on portfolio construction, performance reporting, reconciliation, and how much the ria's interaction with their client could be improved if that work was taken off the advisor's plate and if the advisor had the benefit of those
insights to deliver back to their clients. And he built it in a highly innovative way. You know, Eric was very focused on ensuring that right after he built a solution, he started improving it as a result. Right now, Oryan serves about eighty percent of the top rias in the US, and we have four point three trillion in assets that we service. He also is a huge voice of the importance of independent advice, and I am too. So we
both believe in independent advice. We both believe in powering rias and the enterprises that serve them, and we both believe that the more time we can give the advisor back, the better off the advisor the investor are. I talked to Eric a couple times week. He's a great thought partner. He's a great person to bounce ideas off of. He
reaches out to me sometimes when he has questions. He's still on our board and he's a really great board member, so the relationship is strong and getting stronger every day as we continue to work together. He's a great advisor and partner.
So I just have to share a quick Orion story with you, and again, Riddhelts Wealth Management has been using Orion pretty much from day one, but fifteen years or so ago. I just have this vivid recollection of what we had to do every quarter when we weren't on a platform like yours. First we had to get approval for what the performance numbers were for the quarter. Then we would print out documents, which were different for every client,
because not every portfolio is identical. Not everybody was in the same set of funds or same set of investments, And so you would print out the cover letter, you would print out the performance letter, and this was quarterly, and everything would get stuck in a Manila envelope and get sent out. And you mentioned behavioral finance earlier. The fascinating takeaway was it turned that quarterly number into a
big deal, both emotionally and intellectually. And you know, sometimes the quarter ends strong, sometimes it ends weak, and in the scheme of things, three months is not all that important. And the surprising advantage of moving to a computerized always on system like Orian was that we gave clients, you know, the joke is, you could check your performance twenty four to seven, but please don't check it occasionally, but don't
obsess about it. And once you move from that quarterly, you know it was the culmination of three months, and everybody was focused on that number. Suddenly the little squiggles on the chart didn't make that all that big. Difference. People went from freaking out over a quarterly number two, Hey, I have access to this whenever I want. Surprisingly, it becomes less meaningful on a day to day basis when it isn't this big quarterly event.
It's true, It's very, very true. And the other interesting thing that's happened more recently is the transition to more personalization in financial services. I mean, we have personalization in every aspect of our lives right now. You can create your own clothing, you can create your own streaming, you can create your own music. Like there's personalization in all aspects of our life, and financial services is catching up, and platforms like Oryan can bring that to the advisor.
We can innovate on their behalf. Whether it's through custom portfolios and custom indexing, or it's through expressing values in your portfolios, or it's in how you customize the investor experience you want to create on your white labeled investor portal.
Drawing attention to behavioral finance and how you emotionally attached to your wealth and your financial plan versus benchmark based performance is a huge change in the industry and something that orian's a big part of We're pushing the limits
of behavioral finance. We're pushing the industry in a direction where it's not just about fulfilling your goals as it relates to wealth, but finding true happiness and giving advisors the tools that they need to have those conversations with their client.
So, once you run people through this three or four minute questionnaire the BFI twenty, what spits out the other end.
What spits out the other end is your behavioral finance profile. You could be an optimist, maybe your conservative, maybe you're curious about investing, And then you can contrast what makes you that profile relative to your spouse or relative to your children, so that if it's you and your spouse who are making decisions about money, you understand why you might be in conflict. And then we also give tools to reconcile that conflict, to understand it and to reconcile
the conflict. And then we also use AI so that the advisor can send communications first draft communications to clients in different market environments and important parts of their financial planning conversation with their client that understand their profile and include optimal language related to their profile and their portfolio. In those first draft communications.
That optimal language is in order to not cause people to misinterpret things. Or we found calling portfolios conservative or aggressive generated a negative response, and so we came up with a different nomenclature for all of our different portfolios. And I'm kind of a space geek, so I love the concept when I first heard it is based on different NASA missions depending on how far out they go, and the Solo system, so left the Solar system that's
the most aggressive portfolio. Pioneer a little closer, a little less, a little less aggressive manner the same. But you would be surprised that merely saying to somebody, oh, we have you in a conservative portfolio based on your risk tolerance and goals. I'm not a conservative person. I understand that it's just a loaded and the same thing with aggressive. Hey I'm not an aggressive person. I'm not a big risk taker. No, but you have forty years and you
have no other obligation like that conversation. It's so funny how language can be misinterpreted, and behavioral finance really addresses that.
It's so true. I mean, words matter, and that's one of the reasons that we don't use aggressive. We use financial optimist because It's about the optimism and the point of view and your willingness to endure draw downs and market change. It's one of the reasons that bucketing is so powerful in financial services. Investors can understand, oh, this is the goals I have for my money for the next one to two years, the goals I have for three to seven, the goals I have for seven plus.
And you can have conversations with them about how common drawdowns are and what they're willing to endure and how likely it is that seven years from now based on historical performance. You know they're aggressive. And I hate to use the word aggressive, but there I should say. Equity waiting pays off and it's really exciting work we're doing at Orian, and I think it benefits advisors and helps them bring these tools to their clients at scale.
So I'm glad you brought up the word scale. You guys are well over four trillion dollars, well over six million accounts. There has to be massive challenges with scaling that up even larger as you continue to grow. What are the challenges with this, especially as you get deeper into customization where no two arias, no two clients really look exactly alike.
You know, it's definitely a challenge, but one that Orion's spends a lot of time and effort on so that our clients, enterprises and oraas don't have to do that on their own. The first is you need to make sure that all the data that the advisors and the enterprises need are accessible twenty four to seven. And to do that we have to invest in data streaming capabilities. And then also we partner with Redshift and Snowflake to
provide data access data access capabilities. We invest a lot to make sure that as our clients grow and their needs for information grows, that are tools, whether they be reporting or trading or performance and orientation, meet their needs at different sizes. You know this the industry's consolidating, the industry scaling up everywhere, and Ryan, we need to be part of that.
I have some consolidation questions for you a little later. I want to stay with the concept of scale. How do you accommodate everybody who wants this personalizations? Do you get requests that are like, hey, that's just a little bit of bridge too far. If we offer that degree of customization, well then it's going to put other things at risk. Where's the balance between some uniformity and the ability to adapt to every customer desire.
You know, it's interesting in my view, you have to build your technology or investment solutions with the goal to be highly customized and highly personalized. If you don't do that, then the foundation is shaky. And so we want to make sure that our technology looks and feels like advisors need it to to be consistent with what they offer, either their advisors or their clients. We want to be sure that our communications tools leverage large language models so
that can be highly personalized. Again, as a first draft within advisor teams or between the advisor and the investor, we need to make sure that the channels we're using are highly custom You know, I was reading materials when I joined to Ryan that ninety eight percent of text messages are open and responded to in ninety seconds, versus you know, less than thirty percent of emails that are responded to within a week, if they're responded to at all.
And so you also have to customize your channels to make sure that you're benefiting your advisor. You need to customize look and feel, and if your systems are built with that in mind, then you can be highly highly flexible.
You mentioned custom indexing before. We found custom indexing to be one of the fastest growing parts of our business, especially for people who and this was a little bit of a surprise versus how we anticipated this going. People who are deeply concerned about task loss harvesting. Either they're selling a business, they have low cost stock or founder stock, or some other capital gain. They're trying to manage through highly concentrated position that they want to de risk but
not create a giant tax obligation. How are you finding the growth of customer and indexing going.
Custom index is growing really fast. It's one of the fastest growing part of our platform. We have over four billion in portfolio customization today and when you look at the growth rate of the adoption of it, it grows each quarter that flows into those products grow in the high double digits, and so we're very, very excited about
the growth of the platform. You mentioned the most important use case, which is tax management, also tax transition if you're moving from one provider to another and you want to manage your tax in the transition. And then the last is you know, different investors do have different values and they want to make sure that their portfolios reflect that. Some it's religious, you know, they want it to reflect
Catholic values or Islamic values. Other times they're very very focused on governance, and that degree of customization for some is incredibly important. Now, obviously the regulators are concerned about that too, and so we need to make sure that our rules are compliant, help our advisors comply, and so we.
Do that two questions. So first custom in next we use as canvas. Speaking with them, they tell a couple of really interesting stories. First, on the value side, the single biggest requests they get no tobacco, no guns, which kind of surprised me, but I guess it kind of makes sense. It's a simple adjustment, and if you don't think you want your capital going to those companies, it's just a simple boxer check and that's it. It comes
out of the portfolio. They also tell a story about the New York Catholic Bishop's investment and the ability to say noah drugs related to abortion or anything that violates their sense of their rules, their religious beliefs, and it's easy to make those adjustments. What are you seeing in terms of other use cases? So clearly, tax us harvecing is a big one. The personalization on the value side is the other issue. When you talk about governance, how are people adjusting in that space?
You know, it's interesting there's all sorts of research that boards that are diverse or boards that have certain controls and processes in place are highly aligned to future success of the companies. And so when people implement the g of ESG, what they're really implementing.
Is that how good government How.
Effective is that board in delivering returns to the shareholder. So that's a common use case. You know. The other thing I would just mention is that transition where you're moving from one advisor to another, or are you moving from one portfolio to another, or in your examples, trying to transition out of a concentrated position is extremely important and when managed correctly, can deliver outsized alpha to the investor.
And it it's taxed alpha, tax alpha, and it puts the advisor, the advisor in a different position with our client because tax is confusing and complex at something that most investors avoided all costs, and the advisors able to talk to the investor about tracking error how close, how closely you want to track a certain index or how closely you want to manage that concentrated position relative to the destination portfolio, and it raises the bar on the
conversation between the advisor and the investor.
You know, our experience has been it's not only complicated, but tax preparation relative to somebody with a sophisticated set of portfolio and investment needs is a very specialized niche. When we launched a decade ago, I never thought we would open a tax practice, but there were so many requests for it, and anytime we would review a previous tax file and we always found almost always found mistakes, overlooked opportunities. Hey why did you pay thirty percent capital
gains here? You held this for five years? Why didn't you check this? But hey, this was a qualified investment. This should have been in a different category. And so we had to build that out because the demand is there, and very often the average accountant just doesn't have the experience with capital markets. They're leaving a lot of tax alfa on the table.
It's true, it's true. And the advisor that can deliver those types of opportunities to the investor has a very loyal client forever and custom indexing and portfolio customization, whether it's related to values or hedging or other aspects, is another way for the advisor to deliver services to the investor. They have no hope of doing themselves, or no hope of doing in a self directed way.
You know, it's amazing. You generate a good return for people, and it's abstract and theoretical, well, eleven point two versus ten point eight. You know, you can extrapolate it. You can, but hey, here's one hundred thousand dollars in tax savings. Suddenly it's real money. And even though it's less than the performance of the portfolio, it doesn't matter. It's so visceral and real people have such a funny response to taxes.
I guess we've all drank the kool aid that no one wants to pay more taxes than they have to save someone some money on taxes their client for life.
That's right, And they see it on the tax forms. They can actually see it in real time that year on those.
Tax forms, that quarter so makes a big difference.
It does, it does.
So let's talk a little bit about what's going on in the industry. Now, there's a lot of flux. There's a lot of challenges. What are the biggest events you see coming up? What are the biggest adjustments people in our industry should be thinking about.
I mean the first is definitely regulation. This is an incredibly active and innovative as it relates to regulation. See right now, the number of rules that are underway exceeds recent memory and the reach. The reach of those rules are extending the reach of the SEC. So you have the cybersecurity rule, which is incredibly important. There's no one in the industry that questions the need for this industry to be very secure.
That's the nightmare scenario.
That's right, and we all need to be focused on protecting client data and privacy. At Orian, we spend a lot of time wornest compliant. We also are SOK two Type two compliant. We have a large team that focuses on cybersecurity and privacy to make sure that we're not just understanding the rules that the SEC has in place, but also what they're interested in and where they're going with the rules.
Let me let me interrupt you sex. So the biggest set of changes we've seen recently, have over the past six months, have been the marketing rules what you can and can say, even to existing clients, which every now and then I'm kind of perplexed about, Hey, here's how these indexes have done over the past couple of years, and if we just take the past one hundred years average, here's what we can Monte Carlo simulation, here's what we
can expect. Like that has kind of changed. You have to be very wary of not showing hypothetical past performance. I find some of it to be a little confusing, Like I understand the rules, Hey, you can't make stuff up. You can't say had you put money with us over this period, you would have done this perfectly credible. It seems like around the edges it just goes further than you think is warranted. So that's been a set of rules. What are the rule changes are you looking at?
Well, I mean you mentioned the marketing rule, and I think that that's changed the way performance reporting is calculated and distributed across the industry, and that clearly impacts around doubt because performance reporting is a big part of what we do. In addition to cybersecurity, there's also the third party rule, which is rias and investment advisors that leverage
third party providers to provide services to their clients. The proposal is they'll be held accountable to do deep diligence on those third parties to make sure that their security, their effectiveness is what the investor expects. And for Oryan, we want to make sure that we're there to help our advisors comply. We provide the advisors with the research they need on us as a third party, and for the third parties we use at Oriyan. We deliver that
to the advisors so that they can comply. And this third party rule and the cybersecurity rule, both of those are aimed at making sure our industry is secure, which is a great thing, but they introduce a lot of complexity for financial advisors, and we need to make sure that we help financial advisors clear that complexity and comply.
We mentioned custom indexing earlier. You suggested there was some more rule changes about that. When it comes to what the SEC expects in terms of either value based investing or governance, what are the changes there. I'm curious about that.
The SEC is incredibly concerned that financial performance is the primary measure by which the advisor communicates to the investor their success. They worry that with the introduction of different values, it's getting in the way of the investor maximizing their investor performance, their investment performance. And so when I say that there's regulatory interest in this, it comes down to clarity.
Regulators want to be sure that the investor understands if they're choosing to implement a particular value that can have consequences for investment return. And I think that technology providers like Orion can easily provide those trade offs if you relax the tracking error constraint, because you don't want to invest in tobacco, which is a common usage that you mentioned, and tobacco is a successful part of mark which isn't exactly true.
Well it was twenty years ago.
But isn't exactly true right now.
So it turns out killing your clients for decades is a bad strategy.
It does turn out, right, that is true.
It worked for a while, but eventually they all die off.
Yeah, and eventually, you know, the new generation wants to focus on other things. That said, you know, if you're, as an example, concerned about oil and gas, well that's been a great part of the market, and by avoiding that part of the market has consequences for a return. If you have issues with Tesla for one reason or another, right, you know, if you eliminate that part of the portfolio,
well then there's consequences for returns. And we just need to do a good job as an industry of explaining to our clients that investing consistent with your values is your choice. But it does relax tracking error. It does have the potential to create a deviation from your portfolio. In the benchmarkt right.
There's a couple of really interesting things related to that. One is, check the box for no tobacco, no guns. It's like a fraction of a percent. It really doesn't move the needle. It doesn't make any difference. The other thing is I never really understood if you're concerned about the environment, if you're concerned about global warming, going low carbon seems to be reminds me of the War on drugs, where we were trying to interdict the supply, but we
just ignored the demand. And I love when you know, Google and Apple and Microsoft are labeled green companies, they're some of the biggest consumers of you know, carbon based energy of anyone out there. Low carbon seems to miss the concept if you want to reduce carbon consumption, you have to not merely address the suppliers, but you have to address the consumers also. The underlying philosophy of that
just seems fundamentally wrong from an economic standpoint. If you don't reduce demand, you could do whatever you want with you know, supplies, They'll find a way to get drugs into the country as long as the demand is there.
Yeah, it is definitely true. And the other thing I'll just say related to that, and this comes back to the marketing rule and ESG. You also have to make sure that the claims you're making are accurate. If you're saying that your ETF or your investment vehicle is green, it better be green. And I think that in some instances the measurement was wrong.
The greenwashing was a big really has been a big issue. That's right. And you'll we have seen this every time a new trend comes out, whether it's AI or low carbon or whatever it is. Do you remember for a while everybody was trying to turn their companies into a meta company or whatever the hot trend of the week was. It finds its way into the quarterly reports regardless of whether there's any truth to it or not.
Yes, it's true. And what it all comes back to for me as it relates to values and customization is the original The originator of these ideas were actually religions, and if you're investing consistent with a Catholic faith, you better be investing consistent with that religion. We should hold all values based portfolios to the same standards.
Maybe it was Calvert was the first mutual fund that had Catholic value based investing as its core, but they were they were doing this because there was a demand from those investors who said, we don't want a B or C because it's not consistent with our belief system. I would like to see the SEC make sure that the management companies are true to the underlying belief system. But I don't know how much further you can go.
If someone says I don't like Facebook or I don't like Tesla as a client, and as long as the advisor isn't making any promises about that, Hey, this has had a giant run up and it's giant sell off and it's at a partial recovery, and we can't tell you what this is going to do in the future. But if you don't want these. If you tell us this is on your do not own list, I don't care if the client wants that, they just have to recognize, hey, it's a big company and it could impact their performance.
Yeah, you know. And the tools that the advisors use, like oriyan should make it easy for them to communicate to clients the percentage of total S and p returns that have come from tech. And you never know exactly which tech companies are going to deliver those returns. But by ignoring Facebook or ignoring Tesla for reasons that are personal to you, you may give up that kind of return.
Right, I mean, just up to the investor. That's exactly right. So you mentioned large language models and we danced around AI. Let's talk a little bit about that. How can you, as a technology provider to the wealth management industry integrate artificial intelligence into your offerings?
So at Orion, we've integrated it in two parts of our offering. The first is our client relationship management system REDTAEL. We have an offering called redtail Speak, and what redtail Speak does is it delivers the advisors' messages both internally and externally to investors and to teammates via text and one of the things that the AI does as it relates to redtail speak, is it creates text messages between
advisors and investors first drafts. The advisor has to take a look at it and make sure that everything's accurate based on the text based exchanges that the advisor and the investor have had in the past, and we think it has a lot of promise because it reduces the amount of time it takes advisors to communicate with their
clients in a personalized way. The second area of orian solution that we offer AI, and we've experimented with AI, is in our portfolio comparison tool, where you bring in clients' behavioral profile, bring in their risk tolerance and metrics around their risk tolerance, and you compare the portfolio they have
today to the portfolio that the advisor is proposing. And part of those conversations between the advisor and the investor, you know, this is back and forth when the advisor wants to ensure the investor understands something, the investor wants to ask advisors questions, and so what we deliver is first draft communications between the advisor and the investor at the time of comparison and then also at specific market events that the investor may find troubling if their risk averse,
or they might be opportunities if they're an optimistic investor. We're also testing at Orion knowledge management systems for our own service teams and for our own developers to see if we can get more rapid speed to answer, more accurate speed to answer in our service teams. What we learn in those tests will want to share with financial advisors because potentially the models that we're developing will have application outside of Orion too. But that's work that's underway.
Mentioned Redtail speak, we briefly alluded to consolidation in the industry. I know Redtail as a standalone CRM. Obviously you guys acquired them a couple of years ago. What are you seeing in terms of consolidation both within the RIA industry itself and then with the universe of service providers that are part of that ecosystem.
There has been a tremendous amount of consolidation among advisors. Independence has been a winning model in the marketplace for the last two decades.
Like tofine what you mean by independence as opposed to being part of a big bulge bracket.
Farm financial advisors who are either affiliated in a ten ninety nine relationship with a broker dealer or are purely independent meeting their entrepreneurs. They have their own ria, and they're regulated differently. Those two segments of the market are the fastest growing advice models because investors value local, un biased advice in their community.
Are we discussing fiduciary Are we just discussing fiduciary? Okay, so that's a key challenge. I'm a fiduciary, A big chunk of the industry is not, and I have been utterly wrong thinking it would eventually dominate everything. Although there are some trends that suggest we're moving in that direction.
I think we're moving in the direction a lot slower than many of us thought.
Yes, it's like twenty years ago it should have been done, and here we are in twenty twenty four and it's still a subject of debate.
I do think though, that regulators are stepping their way there with REGBI, with the form CRS. Tiptoeing into a fiduciary model where investors understand any conflicts is where we are now, where the SEC is now. It is my hope and expectation that the industry will eventually get to a fiduciary standard.
Right an on a related issue, you're on the board of advisors for the CFP parent company, tell us a little bit about what you do with them.
So I was until very recently on the board of directors for the CFP board and what and.
This is a certified financial planner, that's right.
And I believe that the CFP, the certification for financial planners, is a great indication of the quality and education advisors have and can deliver to their clients. I'm also a believer that we need to bring diversity into our industry. We need to educate and attract talent to the industry because it's inside colleges and universities. Financial planning isn't a profession that's well known or well understood.
It is offered in a few schools, right it is?
It definitely is. And so while I was on the CFP board board of Directors, the board was very focused on raising the awareness of the CFP certification, raising the entry rates of the industry for young professionals, and increasing diversity either through mid career transfers or degree programs at universities. And that was to feel really proud of what we did at the CFP Board the four years I was there. It's a great organization.
It's interesting because when you look at the average age of the typical advisor and amongst the CFP community, it's kind of a hole in the donut. You have lots of folks sixty plus. I think the average age is like sixty two, some crazy numbers. It is too and while there's a new crop of cfps coming in in their twenties and thirties, there's definitely that gap between those two generations.
You know, it's really interesting. So my hypothesis about why that donut exists is the big recruiting classes of the wirehouses diminished over that time period. And so you know, whether it's wirehouses or insurance companies, they used to be the trainers of our industry, and they had segment strategies that led them to the upper end of the market, and it just wasn't as much new entry into the industry.
As it relates to the age of advisors, something that I talk about at Orion all the time and publicly too, is right now there's one hundred and six thousand or so financial advisors that over the next ten years, in one way or another, are likely to transition out of the industry. One hundred and six.
Thousand, that's out of four hundred thousand or.
Something of three hundred thousand, really.
A third over the next decade. That's amazing, it is.
And the retirement of financial advisors something's been talked about for many years. At the same time, there's great exit ramps for advisors right now, either through consolidation and purchase of their business or reducing their ownership of their revenue, becoming part of bigger advisory firms, and then sunsetting their careers. And so if you look at the assets controlled by those one hundred and six thousand or so advisors, there's about eleven point nine trillion, wow, which is more than
our whole industry serves today, meaning the independent advisors. And so the opportunity to help advisors be consolidate orders to benefit from these these trends in the industries right now, and I think Orian's in a great place to do that.
Huh. Really quite fascinating. We talked about cybersecurity as a large concern as the nightmare scenario, and we were just talking about AI. The first question is how do you keep your financial technology platform safe? And second, seems like there's an arms race between the good guys and the bad guys using AI to penetrate through cybersecurity defenses.
Absolutely, you know, and companies, all companies need to be vigilant every single minute of every single day. We all need to invest a lot in cybersecurity. We need to learn from the innovation and the evolution of attacks and protocols, and at Orian we have a large team doing that every day. I mentioned earlier that we were NISSED compliant
and sock to type two. We use third party penetration tests because the most vulnerable part of any system, the most vulnerable part of any system is your team, and so you need to make sure that you're educating them along the way, which we are at Orion.
It's the human failure that's almost always the softest part of the armor. And if you can engineer around a person, you can penetrate almost anything. People surprisingly reveal, Like I keep reading about these stories about someone will get a phone call or an email, Hey I can't get in, can you log me in? And it's not a person, it's an AI generated voice, And you'd be surprised how people kind of fall for that.
And you think about in our industry not so much, but in other industries, how much of it is biometric? Your face, your fingerprint, your voice, and all of that is replicable by AI. So you need you need to ensure that your protocols are ahead of that.
So the other thing we haven't talked about are alt's venture capital, private equity, crypto. How does that fit into your platform? How do these and other tradable or investable assets work with the services you provide to the advisor community.
You know, as it relates to new investment types. Just like we're investing in understanding new technologies, whether it's AI or large language models or biometrics, we need to do the same with investing. So right now, I think everyone should be thinking a lot about tokenization. You can securitize anything. We should be thinking a lot about accessibility and liquidity of assets that are non standard, whether that's crypto or
alternative investments. We should be making these asset types more easily accessible, more easy to evaluate, and easy to hold in a portfolio. And that's all of those things are things we're exploring a oryan right now.
So last big question before I get to my favorite questions I ask all of my guests, is you obviously have a big job ahead. You're kind of now got your feet wet, You're sliding into the job, You're in a comfortable place. What are the challenges you're looking at? What do you want to do to take Oryan to the next level.
There's so many things I want to do with Orian. I think the most important one though, job number one for me. To me, one of the biggest challenges we faced in financial services is a fragmented offering that we deliver to financial advisors and to investors. And the reasons
for that fragmentation is we're such a creative industry. People have an idea, they build a technology, they have an idea, they build an investment solution, and that fragmentation creates real challenges for financial advisors, either challenges and ensuring that they're diligencing and building optimal portfolios on the investment side of the equation, or that they have technology they can actually
leverage on the technology side of the equation. My favorite statistic, and I think the true opportunity for Oryan is that if you look at Jdpower results ninety percent of advisors know they need to use technology, only little less than fifty percent actually find the technology they use useful, and only ten percent of advisors is from our wealth Tech survey. Less than ten percent feel the technology that they have today is sufficient, and the reason for that is it's
very functionalized. You have your reporting system, and that reporting system may or may not be integrated into your trading, and that trading may or may not be integrated into your portfolio construction, which may or may not be integrated into your performance report or your investor portal. And so I believe the biggest opportunity for ORYAN is to break those barriers down, to integrate those solutions and save advisors a lot of time and a lot of effort.
So I have to follow up with those stats. Half of advisors or is it advisors say half of the technology they use doesn't deliver.
Less than fifty percent of financial advisors say the technology they use isn't as useful as it could be.
I mean, we live and die on technology. And while you know, I personally hate typing on glass and I could come up with show me a technology, I'll give you. Here's what the downside of is. The upside is we're so much more productive. We can do so many more things, so much more quickly, so much more efficiently than we used to it, while none of the tech we use
is perfect. I'm I guess it's the gray hair. I've been doing it long enough that I can remember going back to what we talked about earlier, the quarterly printing out everybody's performance statement and then jamming them one by one into Manila envelopes. I remember like five of us sitting around six o'clock at night on whatever. The first of the next quarter, first day of the next quarter was just with everything laid out because you couldn't even do it until the quarter ended, and at a certain
you had to generate everything and print it out. The whole process took like three days, and it was literally stuffing statements into envelopes. It was just horrific. So I don't know. Is it a function of expectations. I'm surprised that that many people find their technology not meaningful to them.
You know, it's it's interesting. I do think you're right about if your benchmark is the paper quarterly reports that used to go out six weeks after quarter end.
We were good. We were like two three weeks after, right, not too bad then. And by the way, if we're late, the phone is.
Ringing, that's right, then today's technology looks pretty good. If your benchmark is your iPhone then and all the apps and how integrated they are on the iPhone, then financial services technology has a long way to go. And so what I believe is because of advancements and data streaming and data access, and because of advancements in how technologies can work together. As an industry, we can be more integrated where the client conversation between the advisor and the
investor is at the center of the client experience. We offer versus the function you're trying to provoid perform trading, rebalancing, reporting, which is where we're organized.
Right. So I see on a lot of people's phone the Bloomberg app. There's a Schwab app. Tell us about the Orion app.
So we offer an app to finances and investors where they can see their investment performance, they can see communications from the financial advisor, they can see the performance of their portfolios, they can engage with their behavioral finance profile. It's just incredibly important for investors to have access to information about their accounts all day, every day.
Are you finding clients use those regularly or do they wait for the next fifteen percent renown before they start tapping the screen.
You know, you'll have to tell me what your experience is on this. I'd be interested. What I find is that investors interact with their portfolios more when things are going well, and then they set the high water mark of performance, and then as portfolios get more and more distressed in a draw down environment, they look at it less and less well.
The old joke is no one opened their statements during the financial crisis. That's not that far from our experience. I will tell you we spend an awful lot of time before someone becomes a client. We were fortunate enough to launch in twenty thirteen, which was a great you know, start of a new bowl market and a great decade ahead of it. But we spend a lot of time warning clients, hey, thirteen percent of year is whatever the average was for the twenty tens, thirteen fourteen percent, not
not our performance, but the SMP. We spend a lot of time warning people this is aberrational. This is way above eight nine percent historical average. You should your return expectations should be ratcheted down. Take the wins when they show up, but don't get too used to fourteen percent a year. You're probably not going to see that. You know, It's funny people freaked out during twenty twenty two stocks
and bonds both down. The following year you have the SMP up double digits and the Nasdaq up big double digits. I think it was twenty five and fifty respectively, some crazy number like that. And you know, again, it's the same conversation, lower your expectations. Don't think that this is usual. So we really try to make sure clients know, hey, eight nine percent is great, if you get that fantastic.
What I find during draw downs is that prospective clients tend to reach out because when the tide goes out, that's when people realize, hey, I'm not so thrilled with my particular person, my guy or girl. I'm ready to make a change. So suddenly things get busier. What do you see money in motion during corrections or during the bull.
I think the work that financial advisors do during corrections, focusing people on their goals versus short term performance, helping them understand how common or uncommon drawdowns are like this, and what typically happens or could happen after just aligning the portfolio and the performance with what the client's expecting
of it. The work that you all do in dislocations in a tough environments pays dividends for years after right, and so like at Oryan, in any environment like that, we are going to be investing in communications and support and insights on our client's behalf, so they have those conversations and they can benefit. As you say, the tide goes out, right.
We say internally during dro down's corrections and crashes are when advisors earn their keep greed, right, that's for sure, all right? So I only have you for a couple more minutes. Let's jump to our speed round, our favorite five questions we ask all of our guests, starting with what's been keeping you entertain these days? What are you streaming, watching, listening to? Tell us? What's keeping you amused?
So I love podcasts and I love random podcasts. So I listen to Broken Record, It's all about music. I listen to Revisionist History with Malcolm Gladwell. I listen to History. I love bag Man Rachel Maddow I thought so interesting to listen.
To my wife's reading her most recent book.
Is she enjoying it?
She's loving it, she says. It's a little it's like you have to read it, put it down for a day or so, and then pick up the next show. It's dense. Yes, And we'll talk about books in a minute. Okay, if you like broken records, I have two things to recommend. One is polyphonic. I don't know if you've ever seen that. It's a YouTube podcast, if that's the right word. And the other one is you can't unhear this. Okay, you
cannot hear this is also YouTube. They go into a depth of recording of Beatles albums and songs, and it's just the oddest, strangest little things about a change in tempo halfway through the song, or someone cursing in the background that slipped through and was broke gust on radio and nobody knew about it on Just like the funniest, oddest, quirkiest little things, but really significant elements in a song that you just don't notice because it's all part of
the music, and once you hear it, it's sort of you can't unhear it. It's really interesting.
I love that. I'm actually gonna look at that on my way home. I spend a lot of time on planes.
And podcasts are great for that. Let's talk about your mentors who helped shape your career so well.
Charles Goldman, who's the current executive chairman and my predecessor CEO at ACIM Mark absolutely has been a mentor for me since I started working with him at Asset Mark. I mean started working with him at Schwab before I joined him at Asset Mark. Debbie mcguinney, who's the former president of Schwab Institutional, she was an incredible mentor to
me at a really important part of my career. Gave me some great advice about leadership and changing the way you think as you get more senior in an organization. Those are probably the biggest two.
Let's talk about books. What are you reading now? What are some of your favorites?
Oh my gosh, I love history, so anything. Doris Kern's good one. Absolutely love Team of Rivals was fantastic. I love financial services history, so smartest men in the room. I love all the history about Enron and the financial crisis. Devil take the hindmost which is all about the history of speculation and the resulting consequences of speculation. Those are all great books.
Along those same lines. Did you ever read When Genius Fail?
Yes, so loved it.
Right, so amazing about long term capital management. Yeah, the smartest guys in the room, that's Bethany Frankel, amazing, right, Like it's amazing what they got away with and for so long. Yes, just steamrolling everybody.
It's so true. And you know the consequences of that. A firm that had over one hundred years of history just disappeared. And so I just think we all should be students of the industry that we're in.
Just to say the very least. Yeah, our final two questions, what sort of advice would you give a recent college grad interested in a career in either financial technology or investing.
To go for it. It's a fantastic industry to be part of. Lots of creativity, lots of growth, lots of innovation, incredible amount of opportunity. You know, don't be overwhelmed by the vocabulary or the math or things that frighten people away from the industry. You'll have a great career.
You know. I meant to ask you the left brain right brain question, what's more important creativity or the technical skills? I might as well throw that out to you here.
Yeah, so myself, personally, I tend to lean more left brain with the analytical, methodical, numbers focused approach. But I don't believe you can be successful if you lean one way or the other. When you're doing something that's truly first time ever or new, you want to delight your clients in an unexpected way, you have to be creative, and so I try to exercise both muscles. When we were building mobile trading, the creativity right side of the
brain needed to take over. When you're building a service model, the creativity, I think right side of the brain needs to take over. When you're building a new asset management vehicle, or a new set of investments tools, or a new business line, you better be analytical.
Really interesting. Our final question, what do you know about the world of finance and investing today? You wish you knew thirty or so years ago when you were first starting out.
I wish I knew how fun it was. Really, I really do, and by fun, I just mean you are making a huge impact on people's dreams and goals and lives. You know, if you're working with institutions, the investors in those institutions are teachers and firemen through their pension plans and their retirement plans. And when you build something that's new and creative, seeing the impact it has on lives
is just incredibly fun and interesting. So I wish, I wish I would have known that I would have sought the industry out versus randomly finding it.
I don't know if I've ever heard that answer before, that that's a great answer. Well, well, thank you Natalie for being so generous with your time. We have been speaking with Natalie Wolfson, CEO of Orion. They have over four point three trillion dollars in advisor assets on their platform. If you enjoy this conversation, well, be sure and check out the five hundred previous discussions we've held over the
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