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Tech Survey: How advisors restock toolkits amid fintech's 'Wild West'

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Mobile is No. 1. The fervor for robo advice is cooling. Cost concerns abound. And FOMO paralysis is holding firms back from big purchases.

Those are just some of the major findings of this year’s Financial Planning Tech Survey.

Several surprises emerged when we asked a controlled audience of hundreds of independent RIAs, planners affiliated with broker-dealers and other advisors to tell us which technologies they prefer, what will markedly alter the wealth management industry, what products they are buying and avoiding — and why.

To be sure, there’s less unease about the disruptive nature of robo advice. Automated investing has prompted much handwringing about its potential to displace traditional practices.

But as online platforms have added financial planners to offer hybrid services, upstart challengers have been absorbed by larger firms, or shut down, and incumbents have raked in billions of dollars of assets through their digital platforms, advisors see less reason to be concerned.

Indeed, our survey found that many advisors expect technology to lead to more hiring — not less — at their firms.

Advisors say they look to tech to strengthen their roles as trusted financial coaches who guide clients through challenging life shifts and complex decisions. They are selecting from an ever expanding set of tools, from file sharing to video conferencing.

We found that even tech-savvy advisors can get lost in the dizzying array of choices, competing platforms and new ideas. As some pressing issues are clarified, new uncertainties emerge.

“It’s a little bit of the Wild West in fintech. There are lots of cool ideas out there,” says Paul Strid, a founding principal at Concentus Wealth Advisors. “It’s a little overwhelming because there are so many options.”

Because purchase decisions can determine how well advisors serve clients and meet challenges from competitors, firms are often reviewing the tech they use. Subscription and licensing fees for a full tech suite can be among a firm’s biggest expenses.

From CRMs to robo advisors, planners share what's in their toolkit.
December 3

This year’s Tech Survey sheds light on how advisors are making these decisions, where they are having success and coming up short, and which tools they are picking and why.

When we asked survey participants which technology is most likely to change the wealth management industry over the next one to three years, skepticism of the probable impact of robo advice came through clearly in comparison to last year.

The percentage of advisors naming it fell markedly this year, more than for any other technology category. Robo advice dropped to fourth place from second in the ranking of transformative technologies.

Deployment remains low as well. Only 16% of advisors say they have a robo offering.

Certainly, robo tools are still widely viewed as ideal solutions for many self-directed clients. They are also considered a good way to sign up younger clients who may later embrace valuable, full-service relationships as they accumulate wealth.

“Clients were able to sign up completely on their own without even stepping foot in our office,” says an advisor at an independent RIA with more than $500 million AUM, in regards to her firm’s implementation of Schwab’s robo platform. She added that the tool enabled the firm to bring in many new clients who did not meet its customary asset minimum. “It’s easy and simple and cheap. We recently launched an ad campaign for it and we’ll see if that’s able to draw in more clients.”

That approach might be impractical for smaller practices without the scale to administer relatively small portfolios of relatively low-balance accounts. Advisors must still manage billing, make privacy disclosures, review client profiles and meet regulatory requirements.

Some wealth management firms are choosing an approach somewhere between robo and traditional relationships, such as using model market portfolios as a way to offer more affordable pricing to clients with smaller accounts. “I would have turned these over to a robot before,” says an advisor at an independent RIA. “The client pays a bit more here but gets personalized access the robot cannot provide.”

Responses on how new technology will affect hiring further supported the notion that robos complement wealth managers. About 26% of advisors say that advanced technology will lead their firms to hire more people — twice as many as those who expect additional technology to cause less hiring. (Most respondents anticipate a neutral impact on hiring.)

“Our ability to work with a myriad of technology solutions gives us an advantage in bringing in advisors from all walks of life,” an advisor at a broker-dealer says.

Advisors still say that mobile apps, more than any other tech category, are poised to change the wealth management industry in the next one to three years, the same result as last year. For many planners, adding mobile technology is essential for keeping pace with broader cultural changes brought about by telecom advances, especially among younger clients.

“The biggest challenge and success I have had are trying to deal with my clients’ kids,” says an advisor at a large, dually registered RIA firm. “The younger kids want mobile apps, which my firm does not support. My success has been the kids using their phones to access the online portal to keep track of their accounts.”

But using mobile for secure, archived communications that meet regulatory standards adds another hurdle. “So much client activity is moving to text and email. Email is no issue, but with texting it has been nearly impossible to control client behavior,” says another advisor at a dually registered RIA firm. The mobile communications platform CellTrust has relieved him of the fear of being fired, he says, should he “inadvertently text a client on an unapproved service” by enabling him to move conversations into a safe environment.

Many clients need personal relationships with experienced advisors to get through the delicate and taxing process of evaluating their financial situations and planning for the future. A human voice or a face-to-face meeting can be reassuring and help impose structure on a sometimes daunting undertaking.

But advisors continue to look to technology for more — to enhance the depth of insight they can provide and for tools that can help them keep clients from making common and predictable errors when, for instance, stock prices sink abruptly.

Respondents name behavioral finance software as the No. 2 category that will change the wealth management business. Many survey participants report that clients have responded positively to advanced risk-profiling software, which helps align their investment portfolio with their individual tolerances for risk.

Yet the cost of such tools is a major consideration. One advisor at a small practice gave a positive review of her specialized risk-profiling application, but says she is giving it up because of the expense in favor of a component embedded in the financial planning platform she uses.

Other cost concerns came up, too. “They’ve made a lot of strides to strengthen their product,” an advisor at an RIA firm says, describing the portfolio management platform he uses. “Unfortunately, we don’t need most of those upgrades, either due to already having a different solution or because our approach doesn’t merit the upgrades. The accompanying cost increase for all the upgrades is therefore harder to swallow.”

For expensive technology to justify its cost, fundamental architecture must be in place to support its functionality. One area of friction is the reliability of feeds of financial data from major financial institutions into portals and financial planning platforms with account aggregation features.

Advisors need comprehensive visibility into their clients’ finances to provide sound advice, and account aggregation can help make the process efficient. Yet, describing the portal solution he uses, an advisor at an RIA firm says, “like many other aggregation tools, we run into issues when links break without a lot of explanation.”

There’s no doubt that tech is transforming wealth management, and that financial planners will need new tools to compete. But with budgets stretched, advisors will continue to closely monitor their tech ROI. Watch for platforms that break through and deliver the biggest bang for the buck.

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