Highest Earning Advisors Are ‘Tech Obsessed’: Jefferson National

Scale, consolidation key benefits of integrating technology

The highest earning advisors spend twice as much on technology as other advisors, according to Jefferson National’s Advisor Authority study. Almost all of them — 94% — said they would incorporate new technology in their practice over the next 12 months, and 80% include integrating technology and software in their corporate goals.

These “tech obsessed” advisors, as Mitch Caplan, CEO of Jefferson National, called them, aren’t ignoring the robo trend. Caplan said on a webinar, “The marketplace is finally understanding that a robo-advisor is not in fact an advisor at all. It’s just a digital experience.”

Nothing takes the place of guided advice, he continued, adding that technology is integral to advisors because it opens new ways to communicate with clients as well as scale their platform. “We believe in the coming years you will see considerable amounts of consolidation where scale will matter,” he said. “Technology can be a driving force in the successful integration of companies and in the growth of those franchises.”

The Advisor Authority study found that more than half of advisors who had been through the consolidation process found it favorable and would look to do more, Caplan said. Among highly successful advisors, three-quarters said consolidation was “real, relevant and could be in their future.”

Caplan expects consolidation in the entire wealth management industry to speed up because “scale matters. While technology is integral and important and it’s been transformative, scale matters at the end of the day.”

Robo-tools can help advisors build that scale to grow their business and support their in-person advice. Caplan said there are two distinct categories of firms that are implementing robo-tools. Some practices were using them on the front end for clients who prefer to interact that way. Others are using it when they serve multiple members of families that have related accounts, which may be smaller or harder to service.  

“It’s the idea of using technology to drop the scale level so you can serve somebody in a different way, and it’s cost effective for you and the franchise and also works for the underlying client,” he said.

Over half of advisors who plan to use a robo-platform in the next 12 months expect to use it with clients who have less than $500,000 in assets. However, 52% of advisors who have already implemented a robo-tool say they use them with clients who have over $1 million in investable assets.

“Typically you think of the robo solution as [appropriate for] a client who has little or no assets and they’re in the early stages of wealth accumulation,” he said. “Instead, we saw some of our most successful advisors recognizing that it was guided advice that led [the relationship], but the technology that empowered their ability to engage.”

“The ultimate measure of our success is your success,” Caplan said. “We believe very much that the future is fee-based. We feel like with the [Department of Labor] and the pending changes, there is more to come, and that understanding and having the mission-driven approach toward serving RIAs and fee-based advisors puts us in great stead for 2016 and beyond.”

On the DOL fiduciary ruling, which could be released Wednesday, the biggest impact may be investors’ understanding of what ‘fiduciary’ means in a practical sense for them, according to Caplan.

“I think it’ll be fascinating to see over the next couple of weeks what the ruling actually looks like,” Caplan said. “There was an extraordinary amount of powerful lobbying going on” over the proposed rule, and “there’s no doubt something is going to pass.”

Caplan said that “it’s remarkable how few consumers and clients really even understand what the word ‘fiduciary’ means.” He believes one of the immediate consequences of the rule is that it will “get the conversation going in a way in which the true definition begins to take shape,” and over time will “drive the marketplace away from commission and into fee-only and fee-based.”

Furthermore, the rule has been driven by the Obama administration, he said. “Normally it might have come through the [Securities and Exchange Commission] or potentially even legislatively, but it came through the DOL because it was really about the administration to begin with. Since the DOL’s purview is really retirement accounts, that’s what it impacts.”

However, he said, it’s almost impossible to run parallel standards that address retirement savings the same way as assets in taxable accounts. “My guess is you will see a lot of pressure on the SEC and others to begin to think about what the fiduciary standard means and harmonizing their standard on the taxable world with the tax-deferred world.”

--- Read Massachusetts to Scrutinize Robo-Advisors on Fiduciary Duties on ThinkAdvisor.

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