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Helping advisors, clients monitor investments smarter – with John Prendergast

For various reasons, investors have hard a hard time making sense of how well they’ve performed. Brokerage statements are broken and without the right tools to measure performance, investors (and their advisors) have suffered.

Until blueleaf came along. Founded by John Prendergast, this week’s guest on Tradestreaming Radio, the firm provides client reporting and portfolio monitoring tools to advisors and their clients. Simply and elegantly.

Listen to the FULL program

About John Prendergast

blueleafJohn is an experienced senior executive who’s led product management, marketing, and finance teams. His background in banking and personal financial planning has shaped the vision for Blueleaf.

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Announcer: You’re listening to Tradestreaming Radio, with your host, Zack Miller. Expand your mind. Become a better investor with tools, tips, and technology from the smartest investors on the planet.

Zack: And welcome to Tradestreaming Radio. I’m your host, Zack Miller, and this is the place where investors come to learn directly from experts and help them bubble up tools, tips, and technologies to help you make better, smarter investment decisions.
Our guest today also does that. He provides tools and technologies to the financial advisory community. It’s John Prendergast, he’s the founder of a company called Blueleaf. Blueleaf is a technology firm that provides portfolio monitoring and client reporting tools to the financial advisory community and their clients. It’s a nifty tool, very elegant in its simplicity. I want to thank John as well for joining us. We had to re-schedule this a few times as we had some technical issues. John, thanks for your patience. I think the interview turned out great. I hope you guys enjoy it.
Again, you can find the archives of this program on my website, www.tradestreaming.com. You can also find the archives of this show on iTunes. Wherever you are, sign up to subscribe. Sign up for my free weekly newsletter just to keep you posted of everything that’s going on at Tradestreaming. We’ll keep you abreast of all new tools and technologies that are helping people make better decisions and manage their money better.
Thanks again for joining us, and we’ll speak to you soon.

John: My name is John Prendergast. I’m the CEO and founder of Blueleaf. Blueleaf is dead simple client reporting and portfolio monitoring for financial advisors and their clients. My background, well, my background’s eclectic. As an undergraduate, I became one of the first Boston Chicken franchisees, and ultimately sold that business.

Zack: Those were some good years for the Boston Chicken, huh?

John: They were. Chicken was in. They were very good years. And I learned an awful lot as a young person starting a real business with real physical assets and employees.

Zack: You were able to do that as an undergrad?

John: Yeah. I mean, just the last year of my undergrad. And eventually, I flipped to part-time to finish, but still taking three classes a semester. It was hard. It was hard. And then after that, I did a series of other things. My undergrad is in computer science and economics, and I’ve loved finance for a long time. Trading stocks actually helped put me through college. I love technology and worked in a series of start-ups. Ultimately, my interest in finance and technology led me to business school and investment banking after a series of start- ups.

Zack: That’s the year you were at FBR?

John: No, no, no. I was at Jefferies.

Zack: Jefferies, okay.

John: The part of the bank I worked for used to be a bank called Broadview, which strictly focused on software and technology deals, M&A, and later with Jefferies, public financing. I had a great career there, and decided I wanted to go out and create things, not just sort of harvest value. Creating things again was really on my mind for a long time. Left in 2008, and started to explore problems that ultimately led to the founding of Blueleaf.

Zack: So, let’s talk about those problems. You’re a technologist. You’re an entrepreneur. You could have done anything. What attracted you to the core problem at hand, which I’d like you to describe? And then, why this opportunity?

John: Yeah, sure. So, panicked phone calls, I guess, is the best way to describe it. I got lots and lots of panicked phone calls from very smart friends and colleagues in 2008, doctors . . .

Zack: So this is a timing issue? Where the markets are just falling apart?

John: Exactly. Doctors, lawyers, other investment bankers, and even some financial advisors. As we tried to sort through what was going on, what to do, I realized that the data problem of understanding where all my money was, or as the case now is, where my clients’ money is, never really got solved. There were technologies that were developed to help, but solved means it’s fixed for the client or the advisor, and while technologies existed in some form or another, they weren’t adopted widely.

Zack: What’s that, like aggregation technologies, particularly?

John: That’s at least one underlying technology, yes. They weren’t adopted nearly as widely as I would have expected. There were lots of reasons for it. They’re expensive, it doesn’t work that well, it’s not intuitive. Mint started to solve some of those problems on the consumer side, focused around expenses, but nobody had done it on the investment savings side. When you looked at advisor software, it looked like it’s out of a 1970s . . .

Zack: It’s based on DOS, MS-DOS.

John: Exactly. It looks like it’s off one of the sets of Star Trek, sort of blinking lights and very old-fashioned. There seemed to be a lot of pain around this central issue of managing all of the information and letting the computer do a bunch of the work that computers are good at and letting the advisor advise, and letting the client see everything in a simple, transparent way in one place. While the technology may have been there nominally, it just wasn’t happening. So we started to run down the road of solving this transparency and data management problem that underlies a lot of what, it turns out, prevents advisors’ businesses from being really scalable.

Zack: So before we talk about how you built the solution, can we talk about why you think that . . . obviously, there’s a lot of money floating around in finance. Why hadn’t somebody truly solved this problem previously?

John: There’s a trend over the past four or five years you hear about in start-ups called “consumerization.” Really, it’s this notion – and Apple drove it a lot – this notion that really sophisticated technology should work for you and not you for it. Where you see this is things like Apple products. They’re very simple to use, they’re obvious. You won’t see big user manuals with Apple products. So there’s this trend to have simplified the user experience around many of these kinds of technologies that have been consumerized. You see this first in the consumer marketplace, and then ultimately in business software, and it hadn’t really come to financial services.

Zack: Is there something specific about financial services? Is there something about, sort of this underlying obfuscation or just lack of transparency in the industry that led it to just not adopt some of these things right off?

John: No.

Zack: Pejorative terms, but I’m curious because it sort of thrived on the fact that things were a little bit opaque for many years.

John: Yes, pre-internet, clearly, information was the currency, and post-internet, that currency is becoming transparency and trust.

Zack: Related, though. Those are two related things, right?

John: They are. I think the reason that financial services have been slower to adopt this is because some of the challenges are baked into the way that the financial services universe operates. Some of them are legitimate concerns around security. You can’t just let data flow any which way.

Zack: Right.

John: But of course, that is a name that hides many sins, right? And so in some sense, we have institutions that run jails for money. They try and gather the money . . .

Zack: That’s a great metaphor. Yeah.

John: . . . and they try and keep it in jail, and then they still try and sell product on top of it to that captive audience. There’s no incentive in that world to open the data around the money, so it’s been a hard problem and people have had to jail- break the data. So that’s been slower to happen. Yodlee, one of the first account aggregation providers, and ByAllAccounts, too, I believe, were both founded in 1999. That’s a long time ago.

Zack: Yeah.

John: But it’s taken a very long time for them to be reliable enough that folks can really use them and depend on them. So I think that’s part of it. I think the other part of it is if you look at the software vendors in the financial services marketplace, most of them have come from financial services.
Why? It’s a complex space. If you’re just a software guy, there’s not much you can understand easily about financial services. It’s a very steep learning curve. If you ask somebody in software what ‘alpha’ is, you might get that it’s a Greek letter, but you’re probably not going to get that it’s this surplus return notion. There’s a language that creates a barrier. And so there’s very few . . .

Zack: So there wasn’t a lot of cross-pollination going on with other industries?

John: Yes. That’s exactly right. And a lot of the software vendors in portfolio management and a lot of the software vendors in financial planning were very smart advisors who essentially were scratching their own itch. That’s great for an insider’s view of fixing those problems, but it lacks the breadth of vision you get from software experts, people who have solved this and really done consumer work and really done more traditional business-to-business software or software-as-a-service. There are a lot of lessons that can be applied from those broad markets into the financial services industry, and that’s really a lot of what Blueleaf is doing.

Zack: That’s a great historical rundown. So let’s talk about your company, Blueleaf. Let’s talk about that itch. So the itch is this growing need to provide transparency to the clients. Is that driven by the advisors or is that driven by demand on the client side?

John: Transparency is an underlying driver here, yes. But from the advisor’s perspective, that’s an important feature, and we actually hear a lot of advisors talking about wanting to do that. There’s something more fundamental going on from the advisor’s perspective.

Zack: Which is?

John: Data is really hard to wrangle and manage. I may have data from my custodian which I can deal with, but as soon as I mix in all of the other accounts that my clients have, and if I try and do anything comprehensive with them, things get to be a bit of a nightmare.

Zack: Meaning accounts that are not held with that custodian?

John: Correct. Accounts held away. So if I’m somebody who’s concerned with financial planning in any way, shape, or form, or simply advising on the money I manage with any kind of fiduciary perspective, I need to understand the client’s full picture. As soon I do that, I start to get into this paper shuffle where clients have to share statements with me, and a lot of back and forth that’s very expensive, time-wise and financially, as a result of having to have people to help deal with that shuffle of information. Then when I further get into this and I think about reporting on performance, there are all manner of expensive processes that I need to maintain in order to use the currently available systems. I need to do reconciliation, and for the advisors in the audience, they’ll all recoil at that. For those of you who aren’t advisors, imagine balancing a checkbook every day, and now multiply that across your 100 or 200 clients every single day. That reconciliation process is necessary to use portfolio accounting systems today in order to calculate performance.
So there’s an enormous amount of work in just simply reporting that your investments are up by 0.4% today. So some of these are things that Blueleaf seeks to attack. We simplify the data management and the data gathering, and we make the platform one place where both client and advisor can see the data. We have a simplified client reporting interface and performance reporting interface that does not seek to do what portfolio accounting systems do. We don’t seek to report performance at the position level. We don’t have every report under the sun. It’s very simplified. In return for the less flexibility that we give, we give vastly lower cost of operations.
So you don’t need to do all the reconciliation that you do with the other systems. We have a different approach that requires simply less maintenance.
We’re trying to simplify advisors’ businesses. That’s our mission on the advisors side, to simplify business. The way that we do that is by taking out a lot of these operational processes, and also by really driving towards self-service on the client side. It turns out, maybe counter-intuitively, that when clients can service themselves, they are happier. This isn’t about foisting costs off on clients, it’s about giving them what they actually want. And in return, it turns out that it happens to also further lower an advisor’s cost of doing business and has some really nice benefits.

Zack: So how are your clients looking at this? Is this a profit center? Or is it a cost lever for them? I guess two questions, one, are they able to defray these costs on to their client base? And two, are they able to charge more now that they’re able to have command over assets beyond the custodian?

John: The answer is yes. It turns out that Blueleaf saves advisors money. It simplifies their practice. Some of the ways it does that is, as I said, lower operating costs around lessening the burden of reconciliation, lower operating costs in terms of making things like virtual client meetings possible in a dynamic way.

Zack: I hope you don’t do that over Skype as we’ve seen trying to record this call a couple times.

John: A lot of the advisors on the platform use WebEx and Join.Me.

Zack: Join.Me, okay.

John: Which is one of our favorites.

Zack: That’s made by LogMeIn?

John: Yes, it is. So you see this virtualization of these businesses that lead to very new capability to scale, so they’re simply able to handle far more clients than they were before. So that’s one thing. We also see folks using Blueleaf to do prospecting and initial screening of prospects. They put prospects on Blueleaf before they are even clients. It’s an approach we think of as gathering data before gathering assets, and it really, really starts to turn the whole marketing equation on its head.

Zack: Because they’re able to do some sort of analytical selling up front?

John: Yes, and if you think about it, it’s actually allowing them to give prospective clients some of the experience and some of the benefits of working with them before they . . .

Zack: It’s like trying them on.

John: Exactly right. But in a way that’s very user-friendly and very much at the client’s pace. It really lowers the friction to gathering assets. So that’s something else that we’ve seen.

Zack: I talk about it on my blog, sort of this learn, try, buy cycle of financial services where somebody first comes to a website, finds out about somebody, then they try to try them on. And for most advisors, it’s hard to do that. Maybe you’re reading their blog or getting their newsletter, maybe speak to them a couple times. This is a real, like you said, you’re putting yourself in the shoes of an actual client and feeling that relationship. That’s got to be very powerful, I would assume.

John: Yeah. The data suggests that it’s very powerful, and the advisors we’ve got on the platform who are doing this are very excited about it. So that’s a big win. And then there are advisors who also extend their service to actually cover the assets that are held away. The most common use case here is a 401(k) plan, and we’ve got a number of advisors that use Blueleaf to actively monitor the 401(k) plan’s allocations, for instance. So every day we get updates from the 401(k) plan, we break those apart into the component asset classes within each of the funds, and as those things change over time with the market and based on contributions, we can identify drift from a target model. We’ll actually send up a flare, we’ll send an email to the advisor that says, ‘Hey, Jim Smith’s 401(k) is now off-target’. So it’s proactive. You don’t have to say, ‘Hey, in six months I’ll go back and check’, because the software is automatically monitoring. You’re vigilant 7 days a week, 365 days a year.
And you know that the software is always monitoring it. So the dynamic changes completely because now you’re calling Jim or sending Jim an email, ‘Hey, Jim. It looks like we need to re- balance your 401(k) or adjust your deposits, which is why, by the way, Jim, that I’m now charging you 25 basis points on this money, because we’re actively managing it together’.

Zack: So when I had the first look at Blueleaf, I have to admit that I didn’t quite understand its robustness, because it’s not just an account aggregation. That was why I misspoke, I think, in the beginning of the conversation. And I guess there’s not even really a term for it, because it’s part practice management, it’s part marketing solution, it’s part portfolio manager. So is there something external to you or some competitor, maybe even in a different industry, that you guys look at as sort of a paradigm?

John: There’s no great analogy. I think there are a number of firms within the industry that do parts of what we do, and many good firms. There are portfolio managers who have front-end client portals. You’ll hear the ‘client portal’ term bandied about, and certainly, client portal is some of what we do. There are firms who do performance reporting, and many of them do a lot deeper performance reporting than we do, lots of good firms with whom we work, in fact, and work in parallel. A number of our advisors will run Schwab PortfolioCenter, a number of other advisors will run in parallel Orion Advisor Services. I really like the guys at Orion. I think they do a wonderful job with what they’re delivering, and they’re technically quite advanced compared to many of the other services. So I really like those guys.
So we do part of that. There’s a bit of this proactive monitoring which some of the portfolio accounting systems do a little bit of. But then the account aggregation and the data gathering piece is all organic. It’s all built in, so there’s no data movement from this system to that system. And that’s a lot of the operational efficiencies. It’s all just here. People talk about it as integration. It’s more than that, right? Integration implies that there are these different that you’ve had to tie together. And that creates a lot of. . .

Zack: You’re sort of sitting on top of everything?

John: Yeah. And that creates a lot of failure points. We’re a different kind of system with a bunch of these functions that are all on one platform. And then of course there are the communication pieces and this sort of ‘CRM-light’ type functionality. We’re not a CRM system, we work with many of the other CRM systems. But for a lot of the quick look-up things that you would otherwise use CRM for, you find advisors using Blueleaf. Give me quick balances. Give me a quick sense of what’s going on in this account. You can do that on Blueleaf faster and more efficiently than really any other platform. We think of this as the new front office.
So this is a way for an advisor to extend and automate their front office, and even extend it beyond their four walls of their client base. This is where the prospecting piece comes in. So it’s very much front office technology. It happens to have a bunch of back office components that are tied to it to make it simple, but it’s really all about managing the client relationship in that active, real way, not about sending a client an email or maintaining their contact data.
So that’s what Blueleaf is trying to do. From the client’s perspective, it’s really all about my advisor now giving me the one place I go every week or every day, or every month or quarter.

Zack: Every ten minutes.

John: Or whatever frequency I choose. Ten minutes wouldn’t be very valuable for them. But with whatever frequency I choose, I can see all of my information in one spot. And that’s all of my information, whether it’s with my advisor, whether it’s at my 401(k) plan, whether it’s my house that isn’t online but I’ve got it added manually to the system. It could be a small business that I hold that I want to see as part of my portfolio that my advisor has added to the big picture for me. It’s really one place to see everything.

Zack: And what’s your revenue model? How do you make money?

John: We’re a SaaS business, so we give software as a service. The advisors pay us based . . .

Zack: Pay as you go type thing?

John: Yeah. Based on the number of clients that they’ve got.

Zack: Okay. And how does that scale?

John: That’s clients or households. So it’s key, it’s not number of accounts. We don’t care about how many accounts a client has.

Zack: Have you gotten into large firms? Maybe like an independent broker-dealer where they’re actually paying for this for their guys on the platform? Or is it you’re making one-off sales? What does your marketing plan look like?

John: Marketing plan? Well, no plan survives first contact with the enemy. But right now, we have a model that is mostly direct. So advisors come directly to Blueleaf and buy Blueleaf through us for their business. I don’t want speak too much to the future, but there are a number of large firms that we’re dealing with that will set up relationships for all of their advisors. But I don’t want to pre-announce anything.

Zack: Sure. I’d love to hear when that news comes through. Can you talk a little bit, I know you don’t want to prognosticate the future, but can you talk about maybe from your platform point of view what are some of your goals in the near future? Are you going to add more functionality? Is there a value in keeping it sort of, like you said, simplified? Where are you taking it?

John: Well, simple and deep don’t have to be at odds.

Zack: Right.

John: So I think you’ll see over the coming year a lot of depth added to the platform. The allocation stuff that we do is going to get a lot more sophisticated, and we’ll have a lot more flexibility. The performance reporting will get deeper and more sophisticated, again, without adding complexity. What you’ll see are direct integrations with a number of firms so that we can do some more interesting things. On the functionality side, yeah, I think you’ll see additional stuff there, but not things we want to talk about just yet. You’ll also see some integrations that you might expect with planning software and with CRM software.

Zack: Just extending the ecosystem?

John: Yeah, but particularly on the CRM side. I think we’ve got a very different perspective in terms of how those integrations need to operate and how people need to be able to navigate among those various systems. So there will be unique takes that are designed to make the system simpler to deal with.

Zack: Interesting. That sounds really interesting, I think, because part of the issue for advisors in my experience is that, particularly for some of the smaller shops, is they don’t necessarily have a lot of that in-house savviness with using some of these platforms. So I think it’s really key to keep it simple and deep, like you’re describing.

John: Agreed. What we found in some of the larger houses is even if you’ve got an internal IT person, they’re an IT person. Don’t mistake that person with a software developer. There are a few firms we’ve seen that have actual software developers, but they are often there for a purpose of working on trading algorithms or something along those lines for the more investment manager- type advisors. They’re typically not around to do this kind of nitty-gritty integration-type work. This stuff just needs to work. The fact that advisors are even thinking about this stuff is absolutely insane.
In fact, I’ll give you an example of how I think about Blueleaf. I had an Android phone up to a few months ago, and I noticed this pattern where it worked beautifully when I first got it, and then over time, I started having to deal with it. I had to think about it. I had to re-boot it. I would try to make a call and it wouldn’t let me. And eventually I started thinking about my phone too much and I got rid of it. And I got an iPhone. And I don’t think about my iPhone at all.

Zack: It doesn’t demand.

John: It doesn’t demand my attention. It just works. And that’s the vision for Blueleaf. It just works. Everywhere we hear an advisor say, ‘Oh, this was painful’, that’s a place we put resources and try to eliminate the pain. Because to the extent that this just works for both advisors and the clients, is the extent to which we will be successful helping advisors run their business and making them more scalable, right? Scalability is all about simplifying a business so that the cost of operating is reasonable and the costs of growth are reasonable, particularly as compared to the cost of acquiring a client. And in this industry, that’s very high. So when the revenue is strong but the costs of servicing that revenue is high, it limits how scalable, how big a business you can build.

Zack: Sure.

John: We want to fix that.

Zack: Move beyond the 200. I don’t know why people pick that number, but it’s sort of like that magic number size of a practice, 200 clients, or whatever it is.
One thing, and I’d like to end on this. You mentioned just in passing now was that you’re listening a lot to your own prospects, what they need, their pain points, and then trying to build that into the system. Do you have a formalized process for product development? Do you have some type of beta users where you’re going out there and just sort of getting them to play around with stuff? How are you incorporating some of those things into your product?

John: Sure. So we have a very formal – well, formal, no. We have a very, we think, sophisticated process around how we develop that and it is all test-driven. So you will very rarely hear us say to an advisor, ‘So what else would you like us to build?’. That’s not their job. That’s our job.

Zack: Right.

John: Our job is to figure out what to build. Their job, an advisor’s job, is to tell us what’s not working, what their problems are, what’s hard in their business, what’s expensive, where are they spending too much time. And it is our job to come up with solutions that solve those problems. So we don’t take feature lists. We get requests and we keep them, but we keep them not to simply build out that feature. We keep them so that we can see patterns that suggest underlying problems. Then we’ll go out and we’ll spend time validating whether that underlying problem actually exists. What are the drivers? What’s the shape of that problem? And then come up with solutions from our perspective about how to make that whole business problem simpler. And we’ll do that in sometimes very counter-intuitive ways, ways that don’t at all look like what the advisor may have asked for.

Zack: Can you give me an example of something like that?

John: Yeah. One of the most counter-intuitive things that we do is our weekly update. We send out an email to all the clients in the, well not all, about 98% of the clients on the system every week. This is a very simple piece of information. It’s an email that comes out and says, ‘Your balance at the beginning of the week across all of your accounts was X. Your balance at the end of the week was Y. This is the change’. And there’s some detail . . .

Zack: I’m sure very few advisors ask for that functionality?

John: Very few advisors ask for that functionality. They have been trained to focus on the long term . . .

Zack: Monthly statements . . .

John: . . . and monthly, or what have you. Don’t focus on the short term. And there are problems with extending that to mean ‘don’t provide information in the short term’. The main problem is the mainstream media. It exists. Jim Cramer is on TV every day, and the news is telling you how bad things are every day. So the absence of information actually creates a bunch of tension for clients that becomes very, very hard to ignore. And simply telling a client to not think about the big pink elephant in the room tends to have them thinking about the pink elephant in the room.
So what we’ve realized is that this, what we call the “CNBC effect,” this weekly update, actually does a number of really wonderful things. One, it actually eases clients’ minds because they see how irrelevant Jim Cramer is to their life, and they see it in dollars and cents in a very simplified way. This isn’t a performance report. This is just I had X dollars, now I have Y dollars, this was the dollar change. And I know now when Jim Cramer tells me that everything’s ending, the world is ending and I need to go into gold, that last week I may have been up by $2,000 on an $820,000 portfolio across everything that I own. And I think to myself, ‘Huh. Okay, I have nothing to worry about’.
It turns out that the advisor’s clients who are getting that information and consuming it are actually longer-term focused, more relaxed, and easier to deal with than those who are not, those who weren’t getting it. It turns out that by sending it weekly, you allow for whatever frequency the client wishes. In other words, it’s an email, so I can hit delete or archive. And so if I wish to read it quarterly, I can just look at it quarterly. If I wish to read it every week, I will do that. As it stands today, more than half of the clients on the platform will review that email every week, and about 87% of the clients on the platform will review that email once a quarter. And then there’s a small percentage that won’t look at it at all.

But all of them that get it are happy for the information. In fact, some of the folks have a little ritual of grabbing a little cup of coffee every Saturday morning just before 9:00 when the email comes out, sitting down and looking at it. Amazingly, the number of calls that the advisors have reported getting has gone down since the clients started to receive that email, yet their brand awareness has gone up. Why?

Zack: Mm-hm.

John: Now they’re touching that client with a branded piece of information 52 times a year, and it’s one that gets opened. Very few advisors have a 52% or 53% open rate on an email newsletter.

Zack: I sure don’t.

John: So there’s marketing benefits, there’s client transparency benefits. And oddly, the counter-intuitive piece is there are benefits in terms of keeping the clients focused on the long term. Nobody would have asked for that.

Zack: For sure not. John, that was a great illustration. Thanks so much for all your time you spent talking about your background and Blueleaf today. Hopefully we can stay in touch.

John: My pleasure. It was fun talking, and I look forward to talking again.

More Resources

Even More Resources

  • http://blog.blueleaf.com/simple-is-a-breakthrough-business-strategy-for-advisors/ Want a Breakthrough Strategy for Advisors? It’s simple … | The Scalable Advisor

    [...] For example, adding a client portal to share information with individual clients, particularly one that builds in account aggregation and allows secure sharing with the rest of the client team (CPA, tax attorney etc.) can help. But you have to choose well and that starts from the guiding philosophy of simplicity. [Some additional thoughts here.] [...]

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