8 steps toward a tech-savvy practice

Fidelity Adviser Insights Study finds that advisers who actively used technology more than their peers had almost 40% more assets under management than those who didn’t.
By Morningstar |  11-04-17 | 

Technology can pay big dividends for advisers. According to the 2014 Fidelity Adviser Insights Study, advisers who actively used technology more than their peers had almost 40% more assets under management than those who didn’t. Likewise, tech-oriented advisers were better able to attract next-generation investors and expand the geographic reach of their firms.

Why the differential? “One big reason is time savings,” said Kartik Srinivasan, head of product integrations at Morningstar. “By using technology to automate time-intensive tasks, advisers free themselves for client-facing activities, which can help build and grow the firm.”

Choosing the right technology can be a full-time job, especially considering the pace of tech innovations. To help avoid information overload, here are eight tips to get you started:

  • Define your goals.

“Not every firm needs to have the five, six, or seven pieces of technology that make up a complete solution,” Srinivasan said. “It depends on the firm’s profile: how large they are, how many people they have in their office, how fast they want to grow, and the style of practice they wish to maintain or introduce.”

Sirisha Gorjala, Morningstar’s director of adviser software management, added, “This exercise also has to include an assessment of the type of clients you’re serving or want to serve. Do they tend to require financial planning, or is the focus more on investment management? If so, are your clients in the accumulation period, or preservation mode? And so on.

“Historically, we’ve found smaller firms tend to want quick, simple solutions, while larger firms want personalization capabilities, which adds complexity. Your firm has to figure out where on the spectrum it needs to be. Once you establish your goals, choosing your software is easier.”

  • Stay focused on scalability.

Srinivasan said that if a firm needs to continually add operational staff as its client list grows, it’s using a flawed model. “For every new staff member you add, you should be able to exponentially take on a larger number of accounts.

“Scalability decisions are vitally important,” he added, “because not all technology is scalable. A solution may work great until you hit 500 clients, and then it’s not so good. That’s why you have to ask what your firm will look like in five years. You need to make the right investments now, because switching out your technology can be a big problem, especially a portfolio-management system or CRM system that contains so much of your data.”

  • Look for tight integration and get a firsthand demonstration.

Gorjala said there needs to be tight integration between an RIA firm’s software systems. “You may not find one solution that’s a ‘be-all, end-all.’ But if you have a core platform and you retain the flexibility to use another vendor’s CRM system, and yet another vendor’s planning system, and other solutions all down the line—you’ll be ahead of the game.”

And yet, advisers must look beyond illusory promises of integration and insist on a product demo that shows how the solution will affect operations. “My rule of thumb is to press on for a better understanding of what integration really means,” said Jeff Schwantz, Morningstar’s head of adviser solutions for North America. “Don’t let vendors use the term loosely. You want a demo of the actual experience, say the data exchange between the practice management solution and the CRM system. And you want to experience the technology from an investor’s perspective as well, such as how clients would view reports on a portal.”

  • Use collaborative, proactive providers.

“National firms have put multiple software vendors together in a conference room and said, ‘Look, everybody here has a really great solution. But can’t you all get together and work jointly to meet my needs?’“ Schwantz said. “It’s a tactic that’s worked, because now we see instances where vendors work together, rather than always operating individually. They come in and pitch their integration story. But if they don’t take the initiative, then you should—by asking.”

Schwantz also provided a simple, effective due-diligence tip: “Ask the software vendor to summarize how they’ve served other practices similar to yours, with a particular focus on how their clients have scaled. Of course, you have to weigh their response by the type of organizations they’re serving. If they’re working with Merrill Lynch or Morgan Stanley or Ameriprise, their solution may have been specially customized for these large organizations. That’s different from the off-the-shelf version the same vendor may be offering you.”

There’s also an even more direct route. “Once you get the names of the vendor’s clients,” Schwantz said, “just call them and ask whether they’re getting what they expected.”

  • Remember the cloud.

Cloud computing can increase collaboration between employees and provide easier access to clients. Gorjala said that while it’s already effective, things are only going to get better. “Looking ahead, solutions are going to be cloud-based,” she said. “Today, people expect to get any type of information from anywhere, even when they’re on the road. In these circumstances, the usual desktop applications aren’t going to cut it. They constrain you to being in the office, so I would recommend a cloud-based system.”

  • Ask about dashboard tools—they can make your job easier.

“We’re seeing a new group of tools called ‘dashboard tools,’ which are actually ‘adviser portals’ that bring together the many pieces of software an adviser uses into a single user interface,” Srinivasan said. “You can bring in data from your portfolio-management system, planning system, CRM, aggregation system, custodian, and risk-management system all into one place. It’s all about simplification and consolidation.”

  • Get tech advice from custodians.

“Custodians are a great place to start for advisers who are seeking advice on which solution to pick,” Srinivasan said. “They generally have a great team of technology consultants who are industry experts. They know how advisers run their businesses. They also know all the technology players for different types of practices, and don’t get any kickbacks in return for recommending a particular technology vendor. Of course, you can also use an independent technology consultant if you’re not comfortable working with a custodian, or you feel you may get biased advice.”

  • See where your firm may be headed.

“This initial phase of integrations has been light,” Srinivasan said. “You do a single sign-on from one system to the other and pass data between them. But in the future, we’ll be taking a much deeper dive, with data flowing back and forth between systems without the adviser really needing to do anything.

“For instance, a new account opening will trigger activity in the CRM to produce the right documentation,” he said. “It might pull that account automatically into a financial plan and trigger a notification to the adviser asking the adviser to update or make changes to the client’s financial plan. It could cause a rebalancing system to send you an alert saying, ‘Hey, there’s a new account that has a lot of cash. We need to allocate it to your model portfolio. Which model do you want to confirm that you want to execute these trades?’ The adviser doesn’t have to sit there and actually force things to happen. It all takes place behind the scenes.”

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