It would be hard to overemphasize the impact that technology has had on the success of independent financial planning. Those old HP-12Cs empowered the first generation of planners to calculate the future values and internal rates of return of the tax shelters and limited partnerships that were the industry’s mainstay. Then Lotus spreadsheets revolutionized the entire financial industry, enabling planners to easily create retirement projections that showed clients the often sobering consequences of their spending habits, along with the happier “What-ifs?” of planners’ recommendations.
Lotus created the reason for financial professionals to put computers on their desktops–and once that happened, things really took off. Financial planning software produced those tomes advisors used to gain credibility with clients, even if no one actually really read them. Morningstar Principia allowed advisors to easily find mutual funds that fit into their allocated portfolios. QuickBooks put advisors and their clients’ finances literally on the same page. GoldMine put client data at advisors fingertips. Monte Carlo software taught us all that “average life expectancy” isn’t a valid basis for retirement projections.
In the second half of the 1990s, the Internet changed everything yet again, directly connecting independents with their custodians or broker/dealers, creating back-office trading efficiencies that essentially ended the dominance of the wirehouses. We’re still in the early stages of exploiting its benefits, but so far the Internet has provided solutions to the challenges of investment information, consolidated client reporting, client communications, unified technology, and access to experts in every facet of financial planning, business management, laws and regulations, and darn near everything else.
Until recently, the one area where independent RIAs continued to lag was compliance. With the regulatory environment heating up, many brokers and registered reps were reluctant to take on the rising cost and legal liability of assuming responsibility for their own regulatory compliance as RIAs. In fact, for the first time in my 25 years covering financial advice, some advisors actually gave up independence to rejoin the safer regulatory harbor of a B/D environment.
Now Batting, MarketCounsel
Technology is stepping up to solve the compliance issue, too, at least as far as it’s able. In-house or online systems now exist to save client communications, store client documents, schedule and notify advisors of upcoming client activities, and even connect investment policy statements with portfolio management software to ensure compliance with stated parameters. Consequently, as with most other areas of independent advice, compliance costs are coming down, and will undoubtedly continue to do so.
Yet more than other areas where technology has advanced the concept of independent advice, regulatory compliance requires more than access to information and digital economies of scale. Most advisors are trained in the art of securities evaluation, allocating portfolios, and creating retirement plans. But unless they have a legal background and some regulatory experience, most advisors aren’t qualified to direct their own compliance efforts, even with the assistance of all that modern technology has to offer. From setting up an RIA, to creating compliance systems, to monitoring firm activity, to handling complex issues as they inevitably come up, independent advisors still need the advice of competent, experienced counsel–at a price they can afford. That’s still a challenge for many advisors.
The Real Deal