Wealthtech 2023: 5 tech insiders on the tools and tips that actually help financial advisors

November 23, 2022 2:20 PM

When looking at the modern wealthtech landscape, there seems to be a solution for every aspect of the business and new "best-in-class" innovations bursting into the inboxes of tech-focused advisors on a daily basis.

There's also a willingness to spend big on these tools in order to grow. The latest Financial Planning Tech Survey finds that technology has become the top spending priority for wealth managers, outpacing continuing education, hiring, compensation and client acquisition.

But enthusiasm doesn't always translate to success. That same survey found that advisors aren't always confident about the technology they have chosen, and an Advisor360° study released in early November revealed that a majority of advisors believe their lousy tech choices have cost them clients.

Practice and client management

Betting big on tech to future-proof wealth management

April 27, 2022 11:47 AM

The options are seemingly endless. But is that a good thing? Or just another hurdle for advisors to clear?

"For the first time, maybe ever, the lack of good technology is finally starting to frustrate our clients. And I think COVID had a ton to do with that," said Doug Fritz, co-founder and CEO of the California-based wealthtech management consulting company F2 Strategy. "If I have to physically sign the documents (with my advisor) but every other experience I have, from the guy that mows my lawn to my dentist, I can automate or go on an app to sign something electronically … it makes us look like we're the Flintstones in the Jetsons' world.

"But how do you know where to invest your money? There's so much choice that it actually does keep people from making decisions. We've seen that, and when you look at the Kitces map, it's like an eye chart now. I can't even read some of the logos."

For Advisor360° Senior Vice President Ricahrd N. Hart, a great deal of potential and excitement lies in advisor tools that bring things like account opening, account maintenance and digital onboarding closer to the typical e-commerce experience.

"I want that simplicity. And then I want it automated all the way to the back office, meaning no one else has to touch that," Hart said, noting that future clients like his three kids expect a seamless, "Google-like" experience wherever they go.

"We're not delivering that today. But before I retire, I'm going to make that happen," he said.

To help financial advisors and their firms cut through the noise, Financial Planning spoke with a quintet of industry insiders for their thoughts on the tech tools needed to level up in the new year.

Doug Fritz, co-founder and CEO at F2 Strategy

Fritz said amid market difficulty, the first thing usually trimmed by financial services firms is the tech budget. But for the first time in 27 years in the industry, he is seeing wealth managers double down on their commitments to modernize.

"The amount of effort and energy going into 2023 for technology is astonishingly different," he said. "We're seeing smaller firms aggressively accelerating spend into a downturn, and I literally can't believe it."

With that in mind, his advice to firms of all sizes is to focus on one or two vendors that truly fit the identity of their organizations. By working closely with a limited number of solutions providers, the "analysis paralysis" caused by the overwhelming choice is mitigated. It also allows wealth managers the opportunity to forge long-term relationships with vendors and evolve in lockstep with them.

"Once firms have a really good focus and can say, 'this is who I am and this is what's going to make me great,' just narrow down on that one or two areas and get frickin' great at that," Fritz said. "We've seen the best firms in the country and the fastest-growing wealth managers throughout the country really emphasize on one or two areas, kind of at the expense of others."

As far as pitfalls to avoid falling into, Fritz urges advisors to not spend time or money on tech that isn't going to truly grow their business. He said when looking at data that shows the significant number of advisors regretting technology decisions, the human investment is sometimes overlooked.

"So for example, your billing system. It's not the best in the world, but it's not the worst. But someone sees a gap or things that we haven't spent money on lately. And they say, let's do a billing system change," he said. "Then it's taking like a year of your time to do something that literally moves no dials in regard to profitability, efficiency or competitiveness in your firm. And you spent all this time and all this money, and you're like, where's my ROI? I got nothing out of this … it's almost like an inadvertent spend on stuff that doesn't drive your business forward."

Another common mistake made by firms? Not asking to see some proof along with the promised pudding.

"Ask to see a demo, and always ask to talk to a current client that looks like you without the vendor on the phone. It's unbelievable how infrequently people ask for client referrals. And if they can't give you a client that looks like you … super red flag," Fritz said. "That'll tell you a ton really early, like how much BS is being put on the street. And there's a lot of BS in the vendor space.

"I can't fault them for growing the businesses. But get a client referral, get client feedback, listen to other clients and talk to your peers. They will tell you a ton about what does and does not work."

Aaron Klein, CEO at Riskalyze

The leader of the portfolio risk assessment software firm says we're living in a tech-first world, but wealth management is still working to become a tech-first industry.

"Marc Andreessen probably said it best when he said software is eating the world, right? And I think that we tend to be a few years removed from the bleeding edge of some of those trends here in wealthtech," Klein said. "And let's think about it in the context of the broad numbers, right? One recent study I took a look at said that if you take out the impacts of the market, the average firm is only growing about 2% a year, which is really, really low. And it's not enough to sustain a growth business."

Klein added that we're in an environment where equity markets are coming down, which is bringing advisory firm revenues down.

"So firms are sitting here going, 'I've got the same number of clients that I need to serve as I did yesterday. I've just got lower assets and therefore lower revenues with which to serve them today.' So how do we solve that problem?" he said. "Technology is a great driver for how we solve that problem and how we get the efficiency and the scale in our businesses. Because we can't just afford to just throw more people at the problem."

Considering the tepid growth rate in the space, Klein believes tools focused on engaging new clients and maintaining strong relationships with current clients should be the No. 1 focus.

"Understand who your investors are, chart the path through where they need to go, and then harness behavioral psychology to keep them on track. That's the technology that actually drives growth rather than just making you just a little bit more efficient or having a more centralized place to store your data," he said. "Those are nice things. But what really is going to drive the growth in firms and really drive the impact of those firms to more investors who need access to advice is growth technology."

His other recommendation is less of a tech category, but more a filter. Klein says a lot of decision makers get hung up on the next big thing without considering if people within their organization are going to enjoy using it.

"Let's pretend for a moment that every screen the advisor is going to swivel around and show what's on the screen of the client," he said. "Would the client understand it? And if the client is going to be able to understand and engage with it, then we know that the advisor and their staff are going to get a lot out of it. That's going to drive effectiveness because just adding another category of tech doesn't work if you can't actually get your firm to adopt it and actually leverage it."

Richard N. Hart, senior vice president of corporate development at Advisor360°

Hart wasn't surprised by the results of the inaugural Advisor360° survey that illuminated how many advisors regret some of what's in their stacks. In fact, it's consistent with what he has seen and heard from financial professionals over the past 15 years.

What advisors crave, and will benefit from over the next 12 months, are tools that take some of the food off of their increasingly piled up plates.

"Advisor satisfaction is down because they don't like the technology. Well, why don't they like the technology? We don't have enough automation as it relates to account opening, and it takes too long to open an account," he said. "We want to move money, but it's very, very cumbersome because there's a lot of steps in the process. And we haven't been able to electronically make it as seamless as humanly possible."

What he did find interesting was the responses around investors of different age groups. Be it boomers or zoomers, clients want more powerful tools for collaboration and engagement with the institutions they're trusting with their finances.

"That has been on my radar screen for a while, but I think that dynamic is really going to take off even more," he said. "I think the context setting here is super important, especially when we're talking about digital collaboration. This is the greatest wealth transfer in the history of mankind. And the other demographic trend is the aging of advisors. The average age of an advisor is 53. So when you take those two together, then you have to ask yourself, what are firms and advisors doing to keep those assets and to keep those customers understanding that a millennial is really a digital native?"

Hart then gives the example of a 60-year-old client who is the head of household and preparing to transfer assets to the next generation. But does that advisor have the tools needed to connect with that client's 22-year-old son who may only want to do business on an iPhone?

"So when we talk about digital collaboration and those technologies, it's things like SIP compliant, secure text messaging. We can text today, but in a regulated environment, how do we do that so that we're complying with all the federal rules and SEC rules and regulations? So that's a huge thing," Hart said. "In terms of document sharing … if I'm a millennial, or if my advisor is in Boston and I'm in San Francisco, how do we do this? So it's all about contextual sharing of information electronically and easily. And I would argue right now it's still a real challenge. I mean, yeah, you could email a PDF. But is that the most efficient way to do it?"

He adds that automation and tools that increase productivity will be game changers for the modern advisor. He said research done by his firm found that advisors are spending about 21% of their time on what they consider administrative tasks.

"That's not helping them grow their business. So how do we actually put some real machine learning into that?" he said. "Applying technology to some of those mundane administrative tasks could free an advisor up to actually make more phone calls and be out there talking to clients."

Kyle Hiatt, executive vice president of business development at Orion Advisor Technology

While he admits that it might not be the sexiest kind of tech out there, when asked what advisors should be focused on in 2023, one word immediately came to Hiatt's mind.

"Compliance. People don't like to talk about it, but everybody has to do it. And the technology, I think, has been a little behind when it comes to compliance," he said. "There's been a lot of manual processes that take place. And so again, that's not sexy at all. But you know, there is a lot more regulatory scrutiny going on in the RIA space in particular. So how can we use that technology to help advisors manage their day-to-day business?"

Hiatt said with that greater scrutiny, mitigating risk for advisors with strong compliance technology will go a long way for any organization looking to grow.

Another area of focus should be access to data. More specifically, the ability to access real-time data.

"That's really a change from these kinds of API calls … the next generation wave of exchanging information back and forth."

But regardless of category, Hiatt says advisors and firms should be on the hunt for open-architecture solutions. Integration continues to be the biggest challenge for many firms, and the "I" word isn't going away anytime soon.

"The tech landscape is pretty fragmented. People will be drawn to certain systems and don't want to change those things. So as they look to swap out their tech stack, they don't want to change everything," Hiatt said. "I think the No. 1 thing that we hear about is just making sure that the technology they choose is open architecture enough that it allows them to work with their systems."

"I think particularly if you look at those larger firms, we definitely work with a lot of those firms. But they have their own proprietary tech as well," Hiatt continued. "Perhaps they built out their own client-experience solution, and so they need data to flow in and out of that solution … that's a big, big deal. Especially for those large firms."

Colin Falls, president at Geowealth

Falls says when it comes to getting tech right in 2023, the pressure is on. And something applying that pressure is the market itself.

"For 10 years, you've had a bull market where everything's gone straight up. And it's allowed advisors to, in a decade where there's been significant innovation on the advisory tech front, experiment in a lot of different areas in terms of technology and not care as much about the operating expenses because revenues kept increasing. Client acquisition kept increasing," he said. "All of a sudden, things are starting to have a pronounced impact on profitability. And not just the technology, but the cost to service the technology."

With that backdrop, the leader of the Midwest TAMP believes that interesting but narrowly-focused singular point technologies may not be the best move for advisors right now. Instead, he sees foundational technology like an advisor's portfolio management system being more important.

"At the end of the day, it provides time and scalability. That really allows you to not focus on the menial tasks of a back office and middle office, and allows you to spend time with your clients and ultimately strengthens those relationships to drive better retention and prospecting," Falls said. "And if you're focused on trying to get the operational tech elements of the infrastructure correct, you're at risk because other advisors who do get it right are going to be out in front talking to clients, engaging with clients."

Assuming an advisor's core portfolio accounting system is firing on all cylinders, Falls said the next stop should be integrations that boost client engagement and bolster specialized services.

"Things that come to mind are having good tax capabilities embedded inside your portfolio accounting solution, which a lot of times they aren't. Right now you're using independent solutions, but I think tax planning is a big one," he said. "Financial planning is critical as anything in terms of engaging with clients, so making sure that you keep the client on the right investment journey and that you're checking in with them. So, the hierarchy of needs. Right? Once you get the portfolio accounting architecture correct, my focus would be on financial planning technologies and tax technologies, because it's extremely tangible to the end client."

Circling back to the drawbacks of singular point tech that may not play nicely with the core you've established, Falls said advisors should always consider how many of their clients will benefit from a new tool before going all-in.

"The second you start doing that, it goes into buckets, and you really just create inefficiencies, where there's not value across your entire client base," he said. "If it's not looking comprehensively at your financial planning path, those technologies won't get you the scale and market share needed to make thriving businesses. So really, just don't get distracted."