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With budgets tighter than ever these days, many firms have found it difficult to pursue new technology initiatives and make new purchases. As a result, advisors are doing all they can to use their existing technology as effectively as possible.

But even as you navigate the present, it’s important to position your practice for the future. It’s not too early to ask yourself a key question: How will you run your business when things begin to turn around and you find yourself once again looking for ways to strategically manage rapid growth? Indeed, demand for the independent advisory model could be stronger than ever in the coming years given the continued uncertainty in a number of Wall Street firms.

As that happens, don’t fall back on old habits. For the better part of the past two decades–when advisory firms’ annual revenues were rising fast–most advisors simply took the path of least resistance and hired additional staff members to manage growth, address problems, and pursue opportunities. Meanwhile, technology was largely ignored or underused by advisory firms, which resulted in more bloated, less efficient practices that relied heavily on manual processes.

The fallout from that approach is hitting some advisors hard today, especially those who find themselves trying to meet greater demands from clients with less time and fewer resources than ever. As we move forward into the next stage of growth, technology–not larger staffs and payrolls–may play a significant role in your efforts to provide exceptional service to more clients, and operate efficiently enough to do so profitably.

Consider These Initiatives

So what technology initiatives should you be pursuing during the next year or so? The answer will largely depend on what technology you already have in place, how well you are maximizing those systems, the goals you’re trying to accomplish, and where your firm is in its lifecycle. That said, there are some key issues that you should consider regarding how to allocate your technology spending going forward. For example:

Customer Relationship Management

We have heard it before, but it remains true that many firms continue to rely on basic calendar tools to organize and manage relationships, despite the fact that virtually every advisor understands the value that CRM can bring to the client experience. Even advisors with full-fledged CRM systems often don’t use them to their full extent and capability. Only around half of CRM users create task lists that help manage workflow and less than one-third integrate CRM with theirportfolio management systems, according to the 2009 RIA Benchmarking Study by Charles Schwab.

Advisors without CRM may want to consider incorporating it into their practices, and advisors with CRM may want to wrap it around advanced business needs instead of using it as just the place to store client names and birthdays.

Perhaps the most compelling aspect of CRM as the economy emerges from the current downturn will be its ability to provide crucial business intelligence that advisors can use to take a fresh look at their practices and reignite growth. For example, CRM can incorporate data from other systems (portfolio management, accounting) to help advisors better understand operational issues, and generate reports on key metrics–such as client profitability, retention rates, and growth in new assets from new and existing clients. That information gives principals insight and visibility into the operational performance of their firm at any number of levels–from the individual client, various client segments, relationship manager, or service team–to make smarter and more timely business moves.

Document Management

The trend toward paperless office solutions will likely ramp up again as budgets improve. In fact, a document management initiative was important enough to Foster Group in West Des Moines, Iowa, that the firm added it back to its 2009 budget after removing it earlier. The reason: “We could easily see that document management would generate the most efficiency gains of any project we were considering,” says Travis Rychnovsky, who heads up the firm’s operations and IT departments.

Likewise, LarsonAllen Financial in Minneapolis hopes to launch a document management initiative once the economy has stabilized. The firm’s director of operations and chief compliance officer, Chris Johnson, believes that the more electronic the office can be, the better. “Clients increasingly want their advisors to act as gatekeepers who can store their crucial personal documents. And going forward, the ability to answer clients’ questions quickly is only going to get more important, especially as firms grow and try to serve more and more clients.”

Trading and Rebalancing Systems

Maximizing a portfolio’s after-tax returns–long a key concern of affluent investors–has become more important than ever in the wake of the market’s performance last year, when dramatic losses were often accompanied by sizable capital gains tax bills. Advanced trading and rebalancing technology can streamline trading duties, especially at firms with more sophisticated client rebalancing needs. For example, firms with complex portfolios and clients with especially high tax sensitivity (high-net-worth families and business owners and executives, for example) often spend significant time evaluating portfolio holdings, planning trades, and executing them. Moreover, the people who handle those critical duties are usually principals, managers, or other highly compensated team members. Advanced trading systems can rapidly evaluate the holdings of client portfolios that are run by more than one investment manager, for example, as well as multiple portfolios within an extended family unit. Armed with that information, the systems can automatically identify any overlapping holdings, recognize the potential for trades that would violate wash-sale rules, and highlight specific securities that would generate the maximum tax benefits if sold. This obviously saves time and money, while also allowing advisors to make smart buy and sell decisions faster and take better advantage of shifting market conditions.


Farming out essential but non-client-facing activities to third-party providers is increasingly becoming the norm for a growing number of advisory firms even though responsibility for the performance of the outsource service provider remains with the advisor. Firms often find that outsourcing certain functions can help them achieve scale and take on more clients in a shorter period of time without additional employees.

Outsourcing is already common with functions such as information technology, human resources, and bookkeeping. One area that advisors often overlook, however, is outsourcing the data management and reconciliation duties in portfolio management systems, quarterly reporting, and billing. Outsourcing these functions can allow firms to reallocate staff to higher-value activities that do more to drive revenues and profits, and to better manage employee headcount.

When advisor Mike Hebert of Rockland, Massachusetts-based First National Corporation transitioned to a fully independent business model three years ago, he opted to outsource data management duties in order to get up and running more quickly. He also considered the job of daily downloading, reconciling and adjusting key data critical enough to require dedicated expertise. “The initial idea was to eventually have someone at the firm take on these duties, but the third-party solution has worked so well and saved us so much time that we really have no desire to bring it in house,” says Hebert. “We’re able to spend more of our time and energy on working with clients than we would otherwise.”


In Massachusetts, pending legislation on data security and identity theft may be finalized by the end of the year. The Massachusetts law may go further than existing laws requiring data encryption and stronger data security requirements. It currently contains requirements for deploying encryption and protection against data leakage for information on portable devices such as smart phones and laptops, and information that is transmitted wirelessly over public networks. This legislation is being viewed as a strong harbinger of privacy-related regulations across the country.

IT providers may need to examine their current systems and policies and look for ways to upgrade their firewalls, antivirus software, and security-aware browsers. Emerging technologies that create an additional layer of protection may also need to be considered, such as two-factor authentication, in which a token or card displays a series of numbers that change periodically and must be entered along with user names and passwords to access information. Additionally, it may be smart to create, follow, and document formal processes for updating your security technologies, monitoring security logs, managing passwords and access rights among staff (including those who telecommute), and other elements of an information security program. Stay tuned as the legislation is finalized.

How to Buy? Five Smart Steps

The technology initiatives above may or may not match up with your list, of course–but making smart decisions about which initiatives to pursue and the specific technology solutions to implement should be top priorities for all advisors. A significant number of our clients tell us that in the wake of the market meltdown, they’re focusing more than ever on making the smartest possible buying decisions for their firms. Here are some factors to consider:

Step 1: Focus on your return on investment (ROI). Many advisors during this downturn have learned that there is no room for waste in today’s practices. When it comes to a potential technology purchase, that means determining the return on investment the technology can deliver–and, just as important, how fast that ROI can be achieved. ROI is hardly a new concept, of course. But even just two years ago, advisors were often easily swayed by an impressive product demonstration. Not anymore. “ROI has always been important, but in the past we might have been more relaxed about it,” says Johnson of LarsonAllen. “Now we need to see we’ll get a big bang for the buck right up front.”

LarsonAllen’s sharpened focus on rapid ROI is a major reason why the firm is pondering a software solution that will automate the firm’s compliance review and updating duties. “We’re still working on the ROI analysis, but on the low end it looks like we can save $15,000 to $20,000 in time costs just in the first year alone,” says Johnson. “That’s a no-brainer in my eyes.”

Step 2: Tie purchases to key business needs. Before any technology investment is made, it’s crucial to step back and determine the specific opportunities you’re looking to pursue and the business needs you’re trying to address. One example: Another budget item that the Foster Group reinserted for 2009 was an e-mail marketing system after conducting a survey that revealed that clients wanted more frequent and up-to-date communication from the firm. “It was clear that it would be money well spent, even in a tight budget environment, because it was more cost effective than doing paper-based communications, and it was a very direct way to give clients what they told us they wanted and increase their confidence in us as result,” says Rychnovsky.

Step 3: Carefully evaluate vendors. One big change that Johnson has made in his selection process in the wake of the downturn is his focus on sizing up vendors’ financial health. It’s “higher up on our list than ever,” he says, because of the recession, the credit crisis, and the increased risk of firms going under. He reviews vendors’ balance sheets as much as possible and talks extensively to their existing customers to assess how happy they are with the company and its products. “When I hear multiple users praising a system and the service, I have more confidence that the vendor will remain healthy in terms of cash flow and operations,” he says.

When you speak with other users for vendor references, ask questions that will yield truly useful information. Common questions like “Do you like the technology?” or “How’s the service?” won’t uncover the necessary details that will help you make an informed decision (See Ask These Questions sidebar for tips on technology referrals from your peers.)

Step 4: Prioritize technology with a broad impact. One reason Foster Group decided to keep document management in its budget was that it would have a positive impact on a large number of employees throughout the firm. In addition to helping client-facing team members do their jobs faster and better, it would also benefit employees doing human resources, finance, accounting, and compliance work. “Document management can be used in a much bigger way than just for client data, and can be more global in scope,” says Rychnovsky. “If you implement a technology that is used throughout the firm, a relatively small increase in ROI-per-person will have a big impact on the firm’s overall ROI because so many people benefit from it.”

Step 5: Create a formal evaluation process that includes staff input. A consistent best practice we see among advisory firms is their willingness to involve staff members in a formal and meticulous evaluation of technology and technology providers. When there are many people involved in the buying decision from the start, there often ends up being several key supporters who can help drive adoption of a new technology and get the whole firm behind the implementation. What’s more, when employees at various levels from different departments have a stake in the investment, the risk of the initiative failing can be greatly reduced (see Group Think sidebar for examples of how some advisory firms get buy in from staff).

In the end, the current downturn has served as an important reminder that to build a great practice, you’ve got to be as efficient and effective as possible in all environments. How you choose to run your business when times are good can have a direct impact on the decisions you’ll need to face when times are tough, and vice versa. Smart use of technology can be a great equalizer in this process–enabling you to scale your business and take full advantage of growth opportunities when they arise, and operate at maximum efficiency in all business environments. This way, you might find your firm in a better position to weather the next downturn.

Adam Moseley and Wade Spencer lead the independent investment advisor technology consulting team for Schwab Advisor Services, a provider of custodial, operational and trading support for more than 6,000 independent investment advisory firms. They can be reached at [email protected] and [email protected].


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