Innovation will set apart the acquirer from the acquiree: Q&A with In|Vest speaker, Silver Lane Advisors’ Liz Nesvold
Q: Where can advisors benefit the most from leading technology?
LIZ NESVOLD: It’s a difficult question because honestly there are advisors today who aren’t taking advantage of the tools that are available to scale their businesses. Far too many advisors haven’t reinvested in technology and continue to rely on legacy systems. The RIA community started to evolve in the ‘70s and ‘80s, so it’s an aging community. And the older advisors are less comfortable embracing the latest and greatest.
What will help aging advisors warm up to some of the tools available today?
The first time the community started to sweat technology was with the introduction of the robo advisor. Our view back in 2015 was that the direct-to-consumer firms were not going to go the way of the dodo, but there were similarities to the time when Internet banks came on the scene. When the larger banks finally came to the conclusion that they were going to build the technology themselves, within 90 days they had amassed the same amount of assets as the internet-only platforms. So, it’s one of those things.
There’s a whole series of digital innovation that will be powering the advisor. It’s not about robos changing the business model anymore; it’s about how tech will create scale for the advisor. Given the potential for profitability improvement, the old guard is quickly learning to think differently about tech.
"Given the potential for profitability improvement, the old guard is quickly learning to think differently about tech," says Liz Nesvold, managing partner at Silver Lane Advisors.
The face of the client is changing — whether the community appreciates it or not. The clients that firms are doing business with today are not the same people who are going to control the assets in the next decade. The biggest and best firms will think beyond the millennials and to Gen Z. If you‘re playing catch up to try to understand how millennials think, you may miss the next digital wave.
What’s holding independent firms back?
I call it terminal velocity. Invariably, firms get to a point where they have done what they can to grow as far as they can and have hit a wall. The firms that have launched their RIAs in the last decade have benefitted so much from innovation. They feel very comfortable with the speed of innovation, and switching costs are not impediments to making vendor changes. The older firms of the ‘70s, ‘80 and ‘90s that have held market share need to continue to innovate. They have relied on aging advisors who are less comfortable making a change such as switching custodians or moving to a new CRM. Those firms using legacy technologies have a lack of comfort with digitization and are not creating new workflows that are incorporating the technology as solutions.
How are tech providers trying to up the level of adoption, especially for an aging workforce?
Fintech has to be at the top of its game. The old market leaders could easily become dinosaurs because the end consumer isn’t forcing them to continue to evolve. These are the firms that will probably be acquired — without saying names. There are firms forcing innovation and consolidation in the fintech industry. Firms will innovate or not. Be the acquirer or the acquiree.
The truth is you have an advisor community that approaches clients differently. Everyone doesn’t approach the business in the same way. Some are investment-only and focus on performance tools. Others want the best financial planning software. This forces the vendors to stay on top of their game. It’s when we get lazy as an industry that innovation slows down.
What is the single, greatest danger for RIAs?
Not everyone is on their game in terms of cybersecurity and that will matter in the coming years. A firm with a great platform that is growing aggressively may be a victim of spear-phishing attack.
These risks are under the radar screen and advisors are just not paying attention to the fact that they exist. You have to continue to look at risk management and run mock audits and cybersecurity testing. Some of the biggest firms in the industry hire hackers to determine their level of penetration. Think of mammoth companies like Bank of America and Visa who spend billions to protect their end consumer. The RIA community isn’t there yet, but it’s on every CEO’s list of what they worry about.
Regtech is a growth area right now, but people just don’t talk about it because it’s not sexy. At the end of the day, it comes back to risk management. The RIA industry has a huge spotlight shining on it as the darling of the financial services industry, and it’s much easier for a hacker to target a firm with $4 billion in assets that is multi-custodian with multiple vendors. That could become the ideal target, as opposed to the branded firms who spend millions on protection.
It’s an evolving industry that hasn’t spent the billions yet and hasn’t caught up to looking at the big data that can spot hacking activity. This is where hackers will spend their time trying to take advantage of others.
How can an aging advisor workforce reach out to younger clients?
We should start talking about how to interact with Gen Z. How are they going to want to communicate? The changes are coming faster and faster and Gen Z are influencers. We almost need to start thinking about leapfrogging where we are now, instead of just playing catch up. People who were late to the party are always going to be late if they are just trying to catch up. If we’re just worried about technology and millennial engagement that we’re developing today, we’re going to miss the boat again.