Now is the time for all good financial advisors to come to the aid of their practices. One of the smartest, easiest ways? Go high tech. But go swiftly before you find yourself seriously lagging the competition.
Savvy choices and thoughtful use of technology have been shown to indeed help expand advisors’ business. Certainly, tech can prepare you for an influx of the many new clients expected to change advisors or hire their first once the financial crisis subsides.
“Research shows that four out of five affluent investors are considering switching advisors. That’s a very large business opportunity for those who have a compelling value proposition,” says John J. Bowen Jr., founder-CEO of CEG Worldwide, a coaching and consulting firm for financial advisors.
To help grow your business — or at the very least to just stay competitive — it is essential to optimize the use of technology. “We’re at a place where it’s not a matter of ‘if’ — it’s a matter of ‘when,’” says David J. Drucker, editor of Virtual Office News, whose spin-off 2009 Technology Tools for Today conference will be held February 25-28 in Addison, Texas, at the InterContinental Hotel.
One of the most intriguing new studies delving into how technology can boost financial advisory business was performed last year by Harvard Business School researchers partnering with broker-dealer Commonwealth Financial Network.
The study showed that Commonwealth independent advisors who used more computer-assisted work processes — mainly in the areas of client service and operations — grew assets under management at a faster clip than did other FA respondents.
On average, advisors in the top information technology (IT) use quartile increased AUM about 10 percent quicker than those in the bottom quartile. “The results suggest that investments in IT can enable financial advisory practices to grow more rapidly,” says David James Brunner, a Harvard Business School doctoral candidate who designed the study and conducted it with input from HBS professors. Results will be published in a forthcoming academic journal.
The study of 203 respondents, out of 310 surveyed, found “a very strong relationship between rate of growth and the amount of IT the advisors used,” Brunner says. Further, advisors who were providing a broader range of wealth management services and also offered more client customization had “a significantly stronger relationship” between IT and asset growth.
“The effectiveness of [FAs'] IT systems may play a crucial part in determining the rate at which [their] practices can grow in the future,” Brunner notes.
“But IT is not somehow magically causing [asset] growth. One reason it is associated with faster growth,” Brunner says, “is that it helps the advisor offer a better [client] experience,” such as higher quality client service.
And to be sure, today’s competitive marketplace requires broker-dealers themselves to make ever-increasing investments in tech, notes LPL Financial, citing a 2008 study of the independent arena conducted by Tiburon Strategic Advisors.
For FAs, a superb time to invest in more technology is right now, says Drucker, who is based in Albuquerque, N.M. (www.daviddrucker.com). “When the market tanks, people put their heads in the sand. But eventually they’ll come up for air. When they do, a lot of advisors are going to experience a strong inflow of new clients; and they’ll need technology to help them build their capacity and handle all that new business. This is an excellent time to gear up.”
Hi Tech No Substitute for ?High Touch
Still, using cutting-edge technology can be a doubled-edged sword. Get carried away with the near-bottomless cornucopia of innovations, and you could wind up with results 180 degrees from what you’re seeking.
“The more technology-competent the advisors are, oftentimes the less money they make,” says Bowen, formerly an FA for 26 years with, at one time, a $2 billion-plus RIA at Charles Schwab. Bowen bases the above statement on anecdotal evidence he’s observed as a coach of wirehouse and independent producers, many of them “superstars.” “They get so caught up in the technology that they forget how important the client relationship is, and they stop being client-centered.
“We found that advisors who spent 60 percent or more of their time on client-facing activities made six times as much money,” continues Bowen, located in San Martin, Calif. “Technology is a great, cost-effective facilitator that can make you more efficient; but,” he warns, “sometimes it can get in the way.
“When you interview a client and put everything up on a plasma screen to impress them, the technology may be cool — but it can make you seem aloof. What the affluent investor is looking for,” Bowen says, “is someone they can trust, have chemistry with and can connect with immediately.”
Drucker seconds that. “Technology isn’t a marketing ploy,” he says. To wit: Starting out as a fee-only planner in 1981, “I was so proud of the financial planning software I’d developed that I told prospects we had the best in the business — a unique, customized system. But they really didn’t care. Investors just want to know what the results are, that you’re going to meet their needs. They don’t care how you do it.”
According to Drucker, technology targeted at increasing AUM needs to be specifically marketing-related: for instance, developing a website to bring in new clients.
Bowen calls that “leveraging technology for credibility marketing — identifying the niche you have and [presenting yourself] so that you’re perceived as an expert. You need a compelling value proposition on your website that’s aligned with the conversation you’re having with prospects.”
However, in order to take on more and more assets, advisors also need to invest in spectacular tech time-savers, such as a client-relationship management (CRM) system and a portfolio reporting system.
And nowadays, FAs must make a major decision when acquiring the new technology: to go either desktop or Web-based. Along with in-office use, the latter affords remote access and the ability to pull up records and the like when visiting clients.
If you’re a wirehouse advisor, your firm will of course make this and other tech decisions for you. Merrill Lynch, for example, is emphasizing remote-access mobile computing. Right now, it has a pilot version of its wealth management workstation available on FAs’ BlackBerrys.
“Technology is absolutely a top priority for Merrill Lynch,” says Chris Randazzo, managing director and head of Global Wealth Management technology, based in New York City. “Studies show that our top-tier advisors use more technology tools, such as CRM [systems] or customized management reporting. We have statistics showing that advisors who [make greater use] of our Client Review Center wealth outlook tool are typically in the top tier. They hold those client relationships, and the assets have grown over several years.”
So, are we finally, truly headed for the paperless, all-electronic, office? Not long ago, folks scoffed even at the concept. Now paperless seems to be on track to become a reality — at least among forward-thinking financial advisors.