Kyle Wiggs, UX Wealth

So before we talk about UX Wealth kind of deeper, what are some of the things I always like to ask everybody that you like to do outside the office? What do you do for fun when you're not working? And I know you work a lot. Yeah, so a couple things. Love to golf. Big cyclists. So I try to get a couple of big rides in at least once a year. There's one in Colorado, many people would know, called the Triple Bypass, which goes over three of the Colorado passes. So I'd say those are probably the two primary ones. That's right. You are from Colorado. Why did the Denver Broncos stink this year? The Denver Broncos stink because John Elway was the best and the worst of GMs.

So he was the best of GMs because he convinced Peyton Manning to come to Denver. And we got DeMarcus Ware, and we got Aqib Tlaib, and the list goes on. And they basically masked John Elway's inability to draft talent. And so once Peyton left and DeMarcus Ware left and Von Miller left, the cover was bare. And so we have an incredibly weak team that has no depth, really no talent. And we just traded for Russell Wilson, who's a disaster. So there you go. I didn't mean to rub salt in the wound this early, but I had to poke the bear.

Yeah. For context, for those listening, the Broncos just gave up 70 points, and it could have been 100 if Miami were. So let's get back to it. UX Wealth. So can you explain really in a little bit more detail what UX does for investment advisors, kind of soup to nuts, and explain the technology stack and how it works? Yeah. So many would be familiar with what's known as a TAMP or a turnkey asset management platform. So names or household names that advisors would probably hit, particularly in the RIA community, less so on the broker-dealer side. So on the BD side, you have your traditional TAMPs, which are asset markets and your SEIs.

And what's happened in that space over time is that the broker-dealers are really trying to move assets away from those TAMPs and get them on their own sort of in-house platform. In the RIA community, the names that people would probably be familiar with would be InvestNet. You've got Orion. You've got GOL SmartX. And so what we do in addition to sort of those firms is we do really everything that an advisor probably has to do but shouldn't do, right? It's the things that they need to outsource to create scale and efficiency and equity in their firm. So trading, billing, all reporting.

We build out the advisor dashboard, which is branded and personalized to an advisor's business. The client dashboard, which gives clients access to all their statements and billing files and reports. And then we've got a pretty sophisticated trading system that we've built out that pipes to all the various custodians. So we work with Fidelity. Charles Schwab recently was TD Ameritrade until the merger. Interactive Brokers, Apex, Axos, kind of you name it. And so it's the idea that we give access to the investment advisor who's just trying to meet with clients, do a great job, and grow their business.

And then we basically take off their plate, all the back office sort of responsibilities that they have. And so from my understanding, kind of just looking at the website, you also provide a pretty differentiated list of available managers on the platform. it's a unique, kind of a unique set of managers. And why are you curating kind of these types of managers rather than what you might see at a traditional TAMP? So there's enough TAMPs out there. We didn't need another one that was kind of a me too. And then all of a sudden, you become the definition of a commodity, right? You're doing the same thing as everybody else. And now we're competing on either relationships or price. When I was in the broker-dealer world, many of the BDs, unless they have their own tech stack, use Investnet.

And then they all source the same model managers. Not picking on them, but they're all the same. It's the Russells and the Vanguards and the State Streets and the American funds of the world. And so now we have a situation where advisors are all using the same technology, largely. And these are technologies that were built in the late 90s, early 2000s. And then they're all using the same investments. And it's no wonder why we have fee compression, because we've essentially commoditized our business. And so as we looked at all of the model marketplaces that existed, one of the questions that we had really as a thesis was, why is every other industry, pick one, healthcare, communication, you name it, using technology to sort of, not sort of, but to literally break down barriers and push industries forward?

Except when it comes to how we invest. The ways that advisors and clients are investing today in an asset management, from an asset management perspective, are not any different than we were doing in the 70s and 80s and 90s and so on. And so we went out and we started asking a lot of questions of these various platforms, large institutions. And really what we found was, it wasn't that they didn't believe that the technology could do a better job. It was more self-preservation. It was a CIO with a CFA designation who would say, well, that's my job. So they didn't look at the technology as, hey, man, this is something that can perhaps make me better at what I do, or expand the universe of what we do.

And so we couldn't find it. And so we just decided that the hill we were going to die on is we were going to find the best technology-driven investment solutions that provide asset allocation models for clients based on their goals and objectives, eliminate the human emotion and bias. And then we sign exclusive deals with most of these managers. And so really, Brad, that was the idea behind it, was that, I don't know if it's going to be 10, 15, or 20 years, but there will come a day that we look back on investing the way we do it now. I think similarly to, when I first moved to Charlotte in 2006, you could smoke in a restaurant. Okay, my kids will never step foot in a restaurant where you can smoke.

And I think there will come a day where we'll look back and go, remember when humans used to pick stocks and ETFs and mutual funds? We're not there yet, but that's where we're headed. So what is it about these types of managers that potentially can provide, a better outcome for clients? Like why, and you briefly touched on it, the human element or the emotional element, but, what really is it about some of these, emotionless or computer-driven strategies that have the ability to drive better outcomes? So I think the first thing that we have to understand is what specifically is the technology trying to solve for? And that's a question that we ask of every one of them.

Think of Tesla, Brad, for just a second. Tesla has had challenges with their autonomous driving, largely because the problem of autonomous driving, it's a problem. And the technology is trying to solve that. And the problem is too big, right? There's too many variables that you can't program into something. Whereas when we meet with a manager, we specifically say, what exact and specific objective are you trying to achieve? And I'm going to oversimplify this for a second, but there's kind of two broad categories that we can find. One is a category that is looking to minimize volatility, looking to minimize drawdowns in a portfolio. And then the other one is pursuing alpha. And so what we have found is that the human component, when the proverbial, you know what, hits the fan,

Right? Like I don't care if you're the best money manager in the world. In 2008 or during COVID, you became emotional just like everybody else. And so your strategy all of a sudden becomes skewed, if you will, by that human emotional component. And so what we look for are strategists who have a very disciplined technology, almost rules-based, that has proven whether it was 2008, whether it was the fourth quarter of 2018, whether it was during COVID, they have a disciplined, unemotional way of de-risking the portfolio and limiting drawdowns. You're not going to miss all of it. And certainly you give up some of the upside, but it's the idea over a full cycle.

If you can keep a client fully invested through the ups and downs, that's where we see the better outcomes. And then on the other side of it, some of these managers are using technology to measure things that humans can't, right? So humans are inherently limited, whereas these technologies can run literally an infinite number of sort of simulations and outcomes on a daily basis. And so maybe a specific example is a technology that we have that looks at sentiment. So it's looking at the 500 names of the S&P 500, and it's measuring in real time everything that's being said about a company in the digital world. So it takes that information on a weekly basis.

You think of the volume of info that would be required, and it forms an opinion. Is the sentiment about Tesla for this week positive or negative? And it just ranks and it picks the top 30 names. Humans fundamentally, by the time we do research and analysis and we meet with the investment committee and we vote, it's already priced into the market, right? So we've missed it. So I think those maybe would be two ways specifically that we look for various disciplines. Yeah. So with that being said, you've been in the business for a long time. You've seen kind of the evolution of the way portfolios have been constructed. So in your eyes, how has model portfolio construction evolved throughout your career and where do you think it's going?

Well, that's a good question. I would say that the lion's share of the assets in the industry really haven't evolved. So the asset allocation logic, using modern portfolio theory as sort of the singular thesis around how we construct portfolios really in a vacuum, that really hasn't changed. The allocations that you see today aren't very, they're not dissimilar than something you would have seen 20 years ago. The vehicles that we are using, ETFs and other products, right? The access to maybe more transparent and more liquid and lower cost vehicles is really, I would say, where the asset allocation has evolved.

But the allocations itself really hasn't. And so where I see it going is that technology doesn't have an opinion. It's not a bias, if you will, around growth versus value, U.S. versus international, large cap versus small cap. It simply is trying to determine, is the environment we're in today better suited for a value company or a growth company, a large cap or a small cap, right? A U.S. or an international ETF. And so it almost in some ways throws the rules out of you've got to have style boxes all checked at a certain percentage, at a certain risk tolerance.

And it's simply trying to find the most efficient combination of securities within a given risk tolerance, regardless of sort of all the rules that we've been living by for the past 50 years. Yeah. So I'm going to ask the same question, but in a different way. So the RIA space or the investment advisory space, how have you seen the technology evolve that advisors need to adopt in order to streamline their practice? at the bare minimum, what do advisors need today to streamline their practice? And on top of that, not necessarily bare minimum, but what would be, in your eyes, the best practice technology stack they would need in order to efficiently run their practice as we kind of enter this technology phase?

Well, that's a loaded question. You have the floor. Yes. I'm going to try to give you a simple answer to a complex question. So no advisor is going to get a call from a tech provider that says, hey, my name's Brad Roth and my technology stinks. Right. Let me tell you what. It doesn't do well. Everyone says they've got the next greatest thing. And Michael Kitsis, he organizes information in such a way. That really doesn't go very far, though, because what is so important is how do the technologies on the back end connect and communicate? And that's where we spend, we hired a gentleman to run our technology stack.

We built Circle Black, actually. And we spend a lot of time thinking about sort of the friction between two different technologies to ensure that data is passed accurately and efficiently. So what do advisors need? The first thing that they need is obviously some sort of a centralized dashboard that can process and handle everything from the custodian. Because the custodians are that's not what they do. Right. So you get an overnight sink and you have to need to send that data somewhere that is very good and accurate at processing the data. Then they need a piece of technology that can automate and handle trading. Some advisors may not trade that often and it may not be as important.

But as we see a wider adoption of technology driven investments, how you trade is almost as important as the investment itself. So I think that the trading component, the order management piece is going to be really important. So along the lines of the dashboard, giving them a centralized view of their business, it needs to be able to connect with multiple custodians. So an advisor might be at Schwab, but they might have a prospect that's interactive brokers. And that client may not want to repaper to come on board with you. So I think eliminating that friction and having a centralized hub that can connect all the custodians is important. So billing, having somebody run billing accurately, efficiently deliver your billing files and statements to the client portals in an automated fashion is one of those necessary evils that doesn't drive revenue for an RIA, but is really, really important.

And then beyond that, I think it's having an open interface platform that can connect with, one advisor might like Riskalyze, but another one might like OnPoint or Stratify. And so having that flexibility, one advisor might like Wealthbox and someone else might like Redtick. And so having that ability to really, I think, have more of a hub and spoke model where you don't have to disrupt the way you run your business in order to work with whoever your outsource provider is. So I'd say those would be the sort of bare necessities that would be really important. So what do you think is next then, Kyle? If that's bare necessities, do you see an all-in-one emerging at all?

Where are we, where do you think we're going in the next, five years? And again, this is a loaded question that we don't know the answer to, obviously, but we're having a discussion. Like when does AI get in the mix with a lot of this stuff? Well, so AI can do two things right now. Again, oversimplifying. There's what you and I are talking about, which is true AI and machine learning that's helping us drive and make better investment decisions. It's not perfect, but you're starting to see like it's getting better, whereas humans are relatively stacked. So that's one piece. The other piece is that there are firms in our space that are looking to leverage AI to automate some of the service aspects of what they do.

I think the sort of dirty secret of that is the technologies that were built in the late 90s and early 2000s, not naming names, are not as efficient as the technologies built in the last couple of years. So what they're doing to augment that is use AI to try to help solve for some of the service issues and inefficiencies that their platform actually is creating. So going forward, I think you'll see that. I think you'll see an emergence of managers. I think you'll see AI as a service hub to automate, not for all the firms, but for some. We have a different opinion on that. We're very behind AI in terms of investments, but not in terms of service.

I don't know, Brad, if you've ever picked up the phone and called somebody and you just need an answer and you're talking to a machine and it takes you 10 minutes and you want to throw your phone. I think there's a human component to advice that's really important. I think that clients with money still want to talk to a person that they trust and advisors with a good business still want a support team that they can call. So I don't know that I see that. Your other question is related to an all-in-one solution. I think that there's two schools of thought. There are some people that really are drawn to an all-in-one solution. I would argue and push back on an all-in-one solution versus the hub spoke that you and I just talked about.

Forces an advisor to make a really big decision. You have to convert your CRM. You have to use their billing. There's so many things that you have to sort of say, yeah, and maybe you like three-fourths of what they do. And what happens if five years from now, some technology that you and I don't even know about is being created in a lab somewhere in California. Now you have to make a huge, again, decision to sort of break away from what you're using. And so I really think more of this kind of boutique hub spoke model where it's a best of breed for now. And then having the flexibility for that to evolve over time is probably a winning strategy. Yeah. No, it's really, really interesting.

And if you don't mind, I'd like to pivot more to the manager side. Sure. You're not in the business of managing money, but you have a unique seat because you see a lot of different managers. You hear a lot of their stories. You talk to a lot of advisors who have experience with these managers. Again, a lot of the managers you curate have unique and more active strategies. Are you hearing from them with this boom and kind of active ETFs launching? Are you hearing rumblings that they're thinking about going to market with product and get out there on a more public basis? Yes. So kind of expanding on that, what are some of the reasons they're kind of giving you for wanting to make that leap?

I can speak from my perspective, but it'd be interesting to hear what you're hearing from your side of the table as to why they think it's a good idea to take that jump. I think if I had to simplify it, the motivation to do it is distribution and revenue. Let's not sugarcoat it. They see an opportunity where they say, man, I've got this SMA business. It's good. And if I can just get it into an ETF, think about all the wonderful things that are going to happen. In theory, you can increase your fee. You can certainly increase your distribution once you hit scale. It's a lot easier to purchase an ETF than it is an SMA.

It's obviously trading is much more tax efficient. So there's a lot of benefits. I get it. But the mistake that I think they're making, and we try to talk them out of this, is don't be in such a hurry to launch an ETF and forget your core business. Because our thesis is maybe the opposite, which is let's help you launch your SMA business. Let's prove that concept that there is actual demand for your product. People like it. And then let them use it for two to three years. Let's go raise a few hundred million bucks on your strategy. Then let's go to the very people that are using it and saying, hey, you've got a $25 million allocation to the SMA.

And half of that's a non-qualified business. If we launch an ETF, would you be interested in converting that? And so now all of a sudden you could see where you could get an ETF to $100 million overnight versus a lot of them that launch because the firm thinks they have a good idea. But they don't show up on any screens, right? They don't have the assets. They don't have the history. They don't have any of it. So we think taking the opposite approach is, yes, you're right. Better distribution, more tax efficiency, higher revenue to the firm, easier to access. Those are all knowns. But getting demand first, building that asset base, and then launching it, we think is a much more effective strategy.

Yeah. And that's really interesting because I've talked with a handful of white label ETF partners on here. And they share a similar sentiment. Obviously, they want to build and get as many ETFs out there as they can. It's the core revenue of their business. But the old adage, if you build it, they will come, is not true in the ETF space. So with the rise in ETFs and the rise of active, we've seen so many active listings this year. Do you see your TAMP business evolving in some way to help these managers trade and execute strategies over time? if you have managers on your platform that want to, that have kind of met the threshold to launch, is that something you can see your business evolving, not evolving into, but as an ancillary service?

Yes. So UX today trades for an ETF. And so we offer that as a service. And then with the relationship that UX maintains with Thor as kind of a core manager, we run into this all the time. And Thor certainly owns its own serious trust, which was a big decision that that firm made at the time, just for reasons that everybody would probably know. And so it's a situation where now we have the ability and infrastructure to do what you and I just talked about, which is this idea of, hey, you've got a great strategy or a suite of strategies. Let's identify the top one or two that are highly effective and cast a very wide net.

Sometimes they get way too... Some of these ETFs are so niche that they don't have mass appeal. And so once we identify one or two of those, we'll go. And once we hit a $250, $300 million threshold, then it starts to make sense to have a conversation with, okay, we have a serious trust. Do you have interest in launching an ETF? And then we walk them through kind of what that process and what the economics look like. Yeah. that makes a ton of sense, especially since you kind of have a pipeline to be able to do so. And so do you see a world where you have, again, unique strategies on the platform that do different things and have different objectives?

Currently, advisors, I would assume, have the ability to kind of blend these models together. Do you see a world where... And I'm a big believer of this, a rising tide lifts all ships or boats or however they want to call it. But do you see a world where you could kind of combine some of your best-in-class managers together to create a single ETF, utilizing them as different sub-advisors to create a really interesting single solution that could help for, I don't know, smaller accounts or help for, as you said earlier, kind of smaller or even non-qualified accounts that maybe you get four or five different managers that have very unique strategies and create one fund and they all kind of share in the growth and share in the revenue?

So the short answer is yes. In fact, we are partnering with the University of Texas to do exactly what you just sort of laid out, which is we've got some very, very good and effective managers on our platform. But as I always say, no one's got a monopoly on best ideas. There's no single strategy that's perfect that works all the time in all markets. And so we love the idea of blending models. no different than if you and I owned a... since you were picking on my Broncos. Let's say we were blessed and today we are now the owners of the Denver Broncos. We wouldn't go out and draft 11 quarterbacks.

You need a diversified lineup of players to be effective. And you have to think about where do you allocate your draft capital and how do you spend your salary cap and all that stuff. So we're partnering with the University of Texas and their quantitative finance department, really taking a page in some ways out of DFA's playbook where we're going to go very academic, but instead of a DFA sort of strategic buy and hold bias towards value and all the ways that they manage money, it's going to be how can we blend in a single model various managers that all complement one another that over time really smooth out that return for the client.

So, yes, that is something that we are doing. We're actually launching our first kind of model of models under that category in the fourth quarter of 23. And then we're doing an advisor event in February at the University of Texas. Oh, it's interesting. It makes sense. Like if you have the audience and you have the data and you have the manager, it makes sense to either utilize academics or in some ways quantitative or technology to be able to blend them together to get the best outcome. And I'm sure that the allocations to those kind of evolve over time. And so it could even be an active fund of funds or an active manager of managers, right?

But with that being said, kind of last question here. What do you think a model manager or an ETF provider needs to do in order to position themselves in the best possible position to get their models utilized? there's a lot of people in the space. There's a lot of ETFs that are launching. what have you seen managers do to put themselves out there in a way that's effective and that gets some traction other than just obviously pure performance? But as you and I probably both know, that just investing based on pure performance is going to bite you eventually. So really, what do you think they're doing out there that separates them and allows them to gain scale?

Well, I think it's important to understand first and foremost who you're competing against. you're not going to outspend or out hire the traditional names. The Black Rocks of the world, the Vanguards of the world, the others of the world, they have an army of distribution with unlimited resources. So you have to sort of know that going in. So I think you have to make sure that, A, you're doing something that you're solving a new problem and be very clear in what it is that you're specifically solving for. And I think in solving that, you need to, again, cast a wide net. It's got to be something that has sort of mass appeal. And then I think once you identify what you're solving, I think you need to very clearly articulate.

You have a clear and concise message because you're not going to have a lot of time to get it in front of folks. And then from there, I think you need to do what you say you're going to do. You have to consistently deliver on whatever that value proposition is. Because you're not a known commodity. And so I think if you find a space that needs improvements, take you guys as an example on the Thor side, the low vol space has not been thought about for a long time. And the ETFs that exist, when you actually deconstruct them, I would argue they're not really low vol. They're just a factor-based ETF. So you guys have a very unique thought and approach to it. You do what you say you're going to do.

And you clearly articulate it. And so that would be my advice to these managers. Well, Kyle, I always appreciate our time together. And thank you for joining me. But before I let you go, I'm not going to hate on the Broncos again. But where can people learn more about UX Wealth Partners and some of the services you provide? Our website is UXWP.com. Most information that you would need is there. And you can certainly reach out to me or anyone on the team via the website. We'd be happy to answer any questions we can. Again, Kyle, thank you for joining me and hope to catch up with you soon. Sounds good. Thanks, Brad. Have a great day.

Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. We'll see you next time.