From the May 2014 issue of Research Magazine • Subscribe!

The Real Key to Harnessing Technology

Beyond the hype, technology is boosting advisory practices

Illustration by Joel Kimmel Illustration by Joel Kimmel

Printing press, telephone, light bulb—a trio of vital inventions that long ago transformed commerce and lifestyle. In the 21st century, it is computer technology that's revolutionizing world business and culture. Are you keeping up in this era of sweeping, powerful change?

For financial advisors, digital technology offers a wealth of new opportunities for increased productivity and efficiency and, increasingly, the ability to grow their practice. The long-scoffed-at notion of the paperless office is becoming more and more a reality. In fact, mobile devices are even pulling us toward the “officeless office,” allowing FAs to connect with clients and staff from anywhere, at any time.

But here's the thing: Cutting-edge, gee-whiz tech is only as valuable as your needs dictate: The gear makes sense only if it will help improve systems or accomplish something you can't do without it.

“The key is leveraging technology to support your business, not to chase it just for the sake of it. There's always something newer around the corner with more bells and whistles—but you cannot allow the new toys to derail the bigger mission,” says Bella Allaire, executive vice president and head of operations and technology at Raymond James. Last year, the St. Petersburg, Fla.-based firm picked up a Bank Insurance & Securities Association technology award for its advisor-celebrated “Goal Planning and Monitoring” software system.

To be sure, the latest and greatest is cool and seductive. Google Glass, Internet-connected computer eyewear, is a tantalizing idea. And beyond smartphones and tablet computers are voice-controlled smart-watches that serve up messages and take photos. Software storage in the cloud has an imaginative, fanciful ring. And the allure of social media has been generated partly by prominent Twitter users, from Puff Daddy to Pope Francis.

Not Magic

The fact is, however, that technology is simply an enabler: You must first set up your business to accommodate it—then reap the rewards.

“A lot of advisors buy technology and expect it to magically change their practice. But that's not how it works,” says Michael Kitces, a partner and director of research at Pinnacle Advisory Group in Columbia, Md. “What advisors need to do is first structure their practice in a way they can use the technology. If you buy the latest fancy gadget, that doesn't require you to change. The real value comes when you change what you’re doing and then the technology helps you do it better.”

Perhaps high tech's biggest benefit is the capability to provide scalability. This means that advisors can serve more clients and pack more prospects into the pipeline without needing to hire additional staff. Thus, much of today's tech allows FAs to be dramatically more efficient and productive and, far from least, furnish a significantly better client experience.

Web-based software stored in the cloud is delivered via the Internet. This saves time and, best of all, the cost and worry of maintaining a server—computer hardware—in your office. Instead, software is outsourced to platform providers, like Amazon, Google and Rackspace, who run the servers in the cloud. You can access your programs from any location.

“Full-time IT staff and tech support is expensive. Now advisors can just open their iPad and connect to a server from anywhere and conduct business safely and securely,” says tech consultant Bill Winterberg, a CFP and founder of FP Pad, based in Atlanta.

Still, every form of technology, including increasingly popular cloud technologies, should be evaluated according to specific needs.

“Cloud-based technology is extremely promising, offering new capabilities that are rapidly scalable and easily deployed at attractive price points,” Allaire says. “But not all cloud solutions suit all requirements. However, when they do, we take advantage.”

One of the more enticing new client relationship management (CRM) Web-based software enhancements is a social information and “collaboration” feature that connects to clients’ social networking profiles, including Facebook, Twitter and LinkedIn. It automatically aggregates clients’ posts, which FAs can then view right in their CRM system while reviewing accounts.

“That allows advisors to stay in touch with what's happening with clients and bring up [such matters] when they speak with them. It helps build a deeper, stickier relationship,” Winterberg says. “And understanding what's important to the client influences their financial plan and wealth management strategy.”

Financial-planning software that lets advisors take a more engaging, interactive approach with clients certainly can be helpful. Using it with big-screen TV in your conference room, perhaps, you can conduct “what-ifs” with clients, changing numbers on the spot.

“Because they’re able to ask plenty of questions,” Kitces notes, “clients get better buy-in.”

Designed to boost advisor efficiency, new portfolio rebalancing and trade-order-management software is a big time-saver. It lets FAs rebalance hundreds, if not thousands, of accounts in only an hour, according to Winterberg.

With other new programs, advisors can view client accounts that are held away, such as an employer 401(k) plan. The FA sees each position and is able to monitor performance. Clearly, this helps to provide a more comprehensive wealth picture and, potentially, a better overall plan.

Mobile devices help heighten productivity for on-the-go advisors, but be sure yours has capability to access email and client records from your server in the office or in the cloud.

Everybody, it seems, is text-messaging nowadays. Some advisors even text with clients. But if they’re employed by or affiliated with the many BDs that prohibit this, “they’re skirting compliance law,” Winterberg cautions. He says that most BDs haven't embraced texting because of prohibitive archiving costs.

What is imperative when it comes to tech is integrating the software programs you use. That is, be sure they can “talk” to one another. For example, by integrating financial-planning software and mobile devices with your CRM, you avoid the need to repeatedly enter client contact information and other vitals into each program. Benefit: huge time savings, lower potential for error and less frustration.

“Integration drives adoption,” stresses Allaire. “If you buy a standalone, don't integrate it and nobody is using it because it's difficult, you have just wasted money.”

The “biggest reason” for the success of Raymond James’ interactive “Goal Planning & Monitoring” software was its “seamless integration,” Allaire says. Introduced about a year-and-a-half ago, the tool enhances the advisor-client retirement-planning conversation by, for instance, showing how changes in one aspect of a plan can “move the needle into danger or safe zones,” Allaire notes. To date, more than $22 billion in outside assets have been identified by RJ FAs who use this software, which was purchased from a vendor that worked closely with the firm on integration.

Many BDs and FAs have slowly begun to adopt social media. One advisor with Morgan Stanley—a pioneer in permitting FAs to use social—even netted a $70 million account by trolling for quality prospects on LinkedIn. Indeed, prospecting online in places target clients spend time can be an effective way to use these media—but as only one facet of a fully rounded marketing strategy.

Another online approach for prospecting and communicating with existing clients is to create videos and distribute them in, say, email newsletters or as posts to your website or blog. It costs zero to use your phone to “shoot” videos. Professionally produced, they are typically priced starting at a few hundred dollars. Submitting a script to Compliance in advance should prevent potential do-over headaches.

“If an advisor doesn't have an online presence, they’re simply missing out on all the people who use the Internet for financial” information, says Cliff Goldstein, San Francisco-based manager of NerdWallet's “Ask an Advisor” platform, to which more than 650 FAs have signed on to answer questions and post their profiles.

“With investors’ general erosion of trust,” Goldstein notes, “the more that advisors are able to connect with consumers and demonstrate their personality and expertise, the more they can get out from behind the industry's curtain of mystery that investors sometimes perceive.”

Robot Dawn?

To be sure, new technology and innovative enhancements are unveiled at a fast clip; but that doesn't mean advisors should jump on them just because they’re available. In fact, Fidelity's 2013 RIA Benchmarking Study found that “high-performing firms are focusing on more effectively harnessing the technology they have instead of chasing the very latest innovations.”

Yet, many FAs worry: Will technology ultimately replace them with a world of robo-advisors? Short answer: No.

“In a competition between advisors and robo-advisors, the real winner may be the technology-augmented human—the ‘cyborg’ advisor—part-human, part-technology,” Kitces opined recently on his “Nerd's Eye View” blog. “Technology can augment the [advisor-client] relationship but not replace it,” he wrote. Nonetheless, Kitces warns that advisors would do well to “stay ahead of the technology commoditization curve since clients will pay only so much for the relationship alone.”

As for Luddite FAs who lag in tech adoption or are confident they’ll continue to do fine without investing in it, Winterberg sketches a somber scenario: “If advisors are not embracing this technology, in five to 10 years, when Gens X and Y will be [inheriting] trillions from their baby boomer parents, that next generation of clients won't be interested in working with them. As the transition takes place, it is the advisors who are tech-savvy that will attract clients; advisors who aren't, will get skipped.”

Moreover, tech-shy FAs planning to sell their businesses at retirement will be at an enormous disadvantage. Client records on paper stored in filing cabinets affect selling prices— negatively. Buyers size up as unprofitable practices that have no tech to drive efficiencies and productivity.

“Your firm is worth much more if you use an electronic CRM system, [computerized] portfolio reporting and rebalancing software,” Winterberg says. “You get a higher premium and a higher multiple.”

Beware the inevitable. Says Kitces: “Technology starts to matter a lot if you’re concerned about growing your business and selling your practice. Advisors who don't adopt technology and just wind down their practices till they drop dead are going to die with their boots on.”

Technophile: Jason Wenk

A teen techie hooked on computers from the inside out, Jason Wenk and his fascination with bits and bytes grew into the millennial's helming a full-service online advisory serving clients anywhere, anytime.

Nearly four years ago, the fee-only RIA, 33, morphed his brick-and-mortar storefront practice into a virtual model in which everything—from prospecting to account acquisition to portfolio management and client reviews—is computer- or Web-driven.

What may be surprising is that all the tech he uses is affordably priced and, hence, extremely cost-effective.

“Because of technology, our 25-member team can do the work of 35 people. [Salaries] for 10 additional employees would be far greater than the cost of the technology. Our return on tech investment is therefore substantial,” says Wenk, president and founder of Retirement Wealth Advisors.

When the FA made the big move, his AUM was at $110 million; now it's up to more than $300 million.

Wenk's wall-to-wall transformation was lifestyle-driven. The former Morgan Stanley advisor was running his own RIA in Michigan for five years. But he longed to move himself and his family out of cold, dreary Grand Rapids. Why not decamp to sun-drenched Southern California? Great idea! Now Wenk works out of Laguna Beach, an artsy coastal city south of Los Angeles. The rest of his team members, including other FAs, are scattered around the country. The back-office staff remains located in Michigan.

Wenk acquires new clients mainly through online content marketing, in which he blogs answers to questions he knows ideal prospects crave. For instance, “Should I change from a SEP-IRA to a 401(k) for my small business?” Because his answers carefully incorporate many of the same “key” words of the question, it is likely to pop up high in a potential client's search findings.

“You’re allowing yourself to be found by providing valuable content,” he says. “But to make content marketing work, it's important to actually provide help, not just use it as a lead-generation tool and glorified sales pitch.”

Most of Wenk's software is Web-based and cloud-powered, and can be used with mobile devices. Portfolio management is automated, but the implementation is customized and based on client goals and risk tolerance.

The advisor picks up a wealth of useful client and prospect information with a “social collaboration” tool that connects with his CRM and automatically sends him targeted LinkedIn and Twitter profile posts.

He sets all appointments with a self-service online calendar linked to the CRM and holds client meetings on a couple of easy-to-use Skype-like video services.

Says the tech-centric FA, bred in tiny New Era, Mich.: “We find that in order to offer our advice to clients all over the country, it really doesn't matter where we’re located.” —JWR

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