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.
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.