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A tech budget built for today’s bull market and tomorrow’s recession

SAN FRANCISCO — “I feel like I always operate in a recession,” said Robert Candler, the head of digital client strategy at Bernstein Private Wealth Management.

It’s an unusual statement to make amid the longest bull market on record, but Candler’s point gets at the heart of a perplexing dilemma for today’s wealth management firms. Digital innovation is critical yet costly, so how should advisors allocate dollars today if they’re concerned about a downturn tomorrow?

Candler scrutinizes every new potential technology expenditure and fintech vendor relationship with a recession-wary mindset: “How is it going to survive in a down market that persists for two or four years?”

The Bernstein executive, speaking at SourceMedia’s In|Vest West conference, recommended attendees pay attention to the ownership of a prospective vendor, negotiate a customized deal, and, generally speaking, be strategically doom-and-gloom.

When scrutinizing the ownership structure of a firm, Candler says, pay particular attention to cases where a founder talks like a lifer, but only owns a small percentage of the venture he started after selling a majority stake to a private equity firm.

“Does the CEO just want to build it and sell it off in five years?” Candler says. “If they sell off to a BlackRock, I might not want to deal with that.”

Doug Fritz, the founder and CEO of F2 Strategy and who spoke alongside Candler, says he’s seen this happen over and over again.

Often, he says, upon identifying the private equity firm backing a tech vendor, he realizes “this [PE] firm always sells off companies.” And when that happens, advisory firms can get stuck “thinking, ‘Gosh, we bet on the wrong horse,’” Fritz says.

Of course, not all deals go badly for the acquired firm, Fritz says, but they often do when acquirers are buying vendors to “put them on the shelf.”

Once advisors find a company they want to work with, Candler says, they should negotiate a customized deal to write and own some of the code themselves.

“I want to make sure I have enough control so I can own that experience,” Candler says.

More broadly, when it comes to choosing vendors, Candler says, he knows he may have to defend the choices he made in a down cycle.

“We’re really maniacal about saying, ‘Do we really, really, really need them?’” Candler says.

To answer that question, Candler says he focuses on “my core business that I can leverage today and that I can justify the spend on versus, ‘Oh, this is something my client might like.’”

To that end, advisors should think of technology expenses in the way they allocate clients’ portfolios, he says: they must be built to weather downturns.

Firms that maintain technology investments during tough times will find they’ve vaulted past competitors, he says.

“We have a leadership team that understands you are going to have down cycles and if you cut innovation, you are going to be behind,” Candler says, adding that it’s hard to pinpoint the day when a recession is deemed over.

“If you are waiting for people to say now you can start spending again,” he says, “the people who kept spending have run really fast past you.”

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