As the race to rake in breakaway brokers continues to heat up, independent brokers are spending less on the areas of technology that matter most to independent advisors: customer relationship management (CRM) and integration.
According to new research from Aite Group, introducing broker-dealers — independent firms that clear through a separate firm — will reduce their focus on CRM software this year, despite advisors putting the improvement of such systems at the top of their priority list.
When asked to rank the business applications that were most important to their business, CRM came in just behind financial planning, with 83% of advisors stating that CRM software is important to how they do business, according to Aite. Nearly 40% said CRM is very or most important.
Nevertheless 66% of broker-dealer executives plan to cut CRM spending or put it on hold this year, according to the study. Instead, at the top of their priority list is broker workstations/advisor portals, account opening and management and direct processing.
To Joel Bruckenstein, conductor of Financial Planning’s
“Most would argue that CRM software is the single most important piece of software for establishing and maintaining a successful advisory practice,” he said. “[The broker-dealer executives] mistakenly all believe that their CRM is great, which it’s not.”
According to Financial Planning’s 2009 Software Survey, nearly 80% of independent advisors are only somewhat satisfied with their current CRM software. Even more revealing, nearly one quarter use Microsoft Outlook to manage their customer relationships, a program incapable of performing as a true CRM program. To Bruckenstein, independent broker-dealers are focusing on areas of technology that will provide immediate payback, like direct processing, rather than looking at long-term growth opportunities.
“It’s ridiculous that they’re concentrating on things like servicing the accounts instead of CRM. Just because they’re concentrating on those things doesn’t mean they’ve solved the CRM problem,” he said. ”What’s the direct payback to independent broker-dealers on CRM? It makes their advisors more efficient so they can spend more time building relationships and growing their practices.”
Another area in which independent broker-dealers are failing to compete with the wirehouses is integration or, in other words, how well the CRM, portfolio management, financial planning and back office applications they offer their advisors speak to one another. According to Aite, three-quarters of advisors prefer bundled technology to a-la-carte solutions, though less than 15% of advisors feel their workstations are integrated. Only half of independent broker-dealer execs say their technology programs are integrated.
According to Bruckenstein, efficient integration in the independent space may not exist.
“They want the best of everything on one platform and that’s usually not what they get,” he said. “Historically, the tradeoff for integration is the B-D selects a set of tools that may integrate with their platform but they may not be the best provider for that specific class. What advisors want is a single log-in, ideally with a single data base, where all programs talk to each other.”
With each advisor having different needs based on the size of the firm and accounts, “they still need options, making integration onto one platform difficult.”
As brokers continue to leave wirehouses for one of the many independent business models in swarms, independent firms’ ability to compete has been put under the microscope. Technology is one of the most important factors in advisors’ decision to choose which firm to join, as 64% of independent advisors insist that the technology offered to them in the decision-making process is either “important” or “very important” when deciding which firm to join, the survey says.
“It’s an opportune time for them to capture market[share] from the big wirehouses, but in order to do that they have to compete on a level playing field from a technology perspective,” said Adam Honore, a senior analyst at Aite. “You have these breakaway brokers who are unhappy with their brands for myriad reasons, but in order to grab a broker from a wirehouse you’ve got to provide some top-tier technology because that’s what they’re used to.”
Now, with less integration — and often less capital — than the larger wirehouse firms, it’s up to independent broker-dealers to prove that they can compete.
“Going forward, technology is going to be critical to the survival of advisors and to some extent to broker-dealers,” Bruckenstein said. “If [independent broker-dealers] can’t provide good technology and they don’t allow advisors to get their own, they’re going to be at a competitive disadvantage.”
