Financial reform may drive demand for more technology on the desktop, as registered investment advisors and brokers attempt to live up to the fiduciary standard embodied in the nearly enacted Dodd-Frank bill.

With a mandate to look out better for the interests of investors coming out of the crisis-created legislation, "brokers will do more planning because it helps them fulfill their responsibility," said Alois Pirker, research director for wealth management at Aite Group, a Boston consultancy.

But the tools that will let them fulfill that responsibility fall short, Pirker said.

At the low end of the scale, where investors have relatively simple needs and relatively easy to categorize goals, the software deployed by most firms does not fit well into the way advisers work, day to day, in order to serve hundreds of clients effectively, Pirker said.

At the other end of the scale, high-end software still gives way to teams of accountants, financial planners, data entry clerks and managers who figure out estate, tax and other plans for a relative handful of very wealthy clients.

"Clearly, what has happened in the past is financial planning applications have been offered sort of one-size-fits-all,'' Pirker said. "That's a difficult thing. When you ask them what do you want to have better, it depends on where the adviser comes from, and what the financial adviser actually tries to achieve with financial planning."

In a survey of 390 independent registered investment advisers and broker/dealers, Aite Group at the end of 2009 found that individuals charged with helping investors intelligently allocate their money among available investment alternatives would, in turn, allocate the biggest portion of their firms' application development budgets to financial planning tools.

Out of the entire application budget, improving such software would consume 14% of all dollars-"which is huge," Pirker said.

The next biggest chunk, at 11%, would go to the more amorphous goal of integrating applications more smoothly.

Fiduciary Standard & Tools Go Hand-in-Hand

The 14% figure "shows that despite the tools that have been thrown at advisers, they don't feel like they have the right tools at hand," Pirker said.

The coming of reform means fixing the faults in financial planning software comes to the front burner.

The previous standard for investment advice was "suitability," making sure a particular asset was appropriate to put in a customer's account.

Now, the standard will be that of a "fiduciary," which, in effect, requires the adviser working out of a mutual fund firm or the broker/dealer working out of brokerage firm act at all times for the sole benefit and interests of the customer.

That can put an entirely different face on what tools should start showing up on the screens of advisers' and brokers' computers.

"If you use financial planning as a means just to get to the investment assets, it's a different proposition than if you are providing a service that is financial planning in itself," Pirker said.

Advisers or brokers looking to serve the "mass affluent" population, where an individual account may contain $100,000 or $200,000 of assets, tend to need software that is simple and straightforward. Profile the client, define goals, measure current assets and where they are allocated, target a new allocation and use that as a jumping-off point for recommending and making investments.

Wachovia Securities, now a part of Wells Fargo & Co., found though that it could not buy any off-the-shelf product to make even what it would call "investment planning" work, Pirker said.

So it had to create its own software, called Envision, that fit into the way its brokers actually worked every day: serving clients. The product tried to streamline processes, limit the scope of planning, create a plan of record, recalculate it regularly and let the adviser work flexibly with customers with updated information.

STP Customer Service

The goal: Straight-through-processing, from establishment of goal to purchase of security or other asset.

"Originally, planning was much more ivory tower, a specialist activity. Now it's gradually come down to the broker's desk," Pirker said.

And, with reform, putting the right tools at the desk will become increasingly important.

"When you are asked to be a fiduciary and provide advice on a product-independent level, the planning process gets a lot more weight than it would have had before," Pirker said.

But it won't be easy, particularly for large firms. A customer of Merrill Lynch might have assets sitting assets sitting in savings and checking accounts at Bank of America, its parent, in a Merrill Lynch investment account, in what once was a Washington Mutual mortgage account and a wealth management account at US Trust. All now are part of the same company. Yet pulling together all the data to get a full picture of what the individual or family is worth and begin to plan can be a gamestopper.

"If technology would keep up with that, that would be great,'' he said. "It's not that easy."

Advisers can waste days trying to pull together data on customers that should flow easily into aggregated accounts. Screenscraping tools have helped, in recent years, where immediate decisions are not needed.

But the aggregation often "falls through the cracks" and advisers can waste days trying to pull the data together by themselves.

The more financially planning-oriented advisers would even allocate up to 22% of their firms' application development budgets to whatever is the core financial planning application.

That development could even find a way to marry planning with compensation of the adviser. In the Envision example, Wachovia, Pirker said, basically said: You get extra compensation if you (a) sign up a client (b) establish a relationship and (c) interact six times in a year, figuring out needs and fulfilling them.

Kind of the way a fiduciary relationship gets established and carried out.


How financial advisers would have their mutual fund, brokerage or other employer spend its application development budget.

Financial planning tools 14%

Application integration 11%

Customer relationship management 8%

Broker workstation 6%

Proposal generation 6%

Portfolio construction and analysis 5%

Portfolio management system 4%

Compliance systems 3%

Other applications 2% or less

SOURCE: Aite Group survey of 390 financial advisers, fourth quarter 2009

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