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Advisor Tech Gurus Differ on the Robo Threat, DOL Fiduciary Rule Effects

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Joel Bruckenstein, the advisor technology expert, kicked off his panel at the Shareholders Service Group national conference with a warning to the 300 or so advisors in the room in San Diego. “What’s perfectly secure today won’t be” in the very near future, Bruckenstein said.

So even if advisors feel comfortable with their current level of cybersecurity, or plan on upgrading their security, Bruckenstein asked rhetorically “Will your clients’ Social Security numbers change within five years? Will your mother’s maiden name change in five years?” The answer is no, and Bruckenstein suggested that advisors’ comfort level with their security is ill-founded.

“All you happy people remind me of 2006, only this time you’re complacent about technology,” he said, pointing out that attendees were mostly using an insecure hotel WiFi system during the conference.

Then he asked his panel of advisor tech gurus — Greg Friedman of Junxure and Private Ocean; Dave Welling of Advent’s Black Diamond (and formerly of Schwab) and Tim Welsh of Nexus Strategy to to discuss whether robo-advisors constitute a threat to advisors. “Spenser said no,” meaning Spenser Segal of ActiFi in the opening keynote of the SSG conference on Wednesday, but Bruckenstein said flatly: “I disagree.”

Friedman, who wears two hats as leader of a CRM software firm and a wealth management RIA, said “there are a lot of threats to us as advisors,” but robo-advisors are in the class of “changing client expectations; of changing the client experience.” So robos would only be a threat “if you’re not growing and evolving your business.”

Private Ocean, he said, has an ongoing internal program that seeks to answer “How difficult is it to do business with us?” so the firm can adjust its client processes to make it easier. Friedman said he was “not as concerned” that robos would place fee compression pressure on his business because his RIA firm has a broader value proposition for clients than just portfolio construction, though he said robos would have the effect of unbundling fees.

Welling wondered why robos are “resonating with clients” and answered by saying the conversation is too much about robos’ asset allocation approach and “not enough about the client experience; the yellow pad and paper isn’t good enough” to meet client expectations about a better experience.

“At Advent, we’re trying to take a lot of lessons” from the robo client experience,” he said.

Welsh said flatly that the advent of robo-advisors “is the greatest thing that has ever happened” to the industry, and cited a bigger problem: “Joel’s (Bruckenstein’s) research points out” the already low level of overall tech adoption from advisors.

More broadly, though, he thinks the advisor industry has “been safe” from developments in technology that are already making massive changes in other industries. One example: “at the airport you can see 45 taxis idling” outside the terminal while arriving passengers are instead summoning Uber cars to pick them up.

“Automation,” Welsh said, “has finally landed in wealth management,” and the coming of robo-advisors constitutes a “tremendous time and space” for advisors and their clients. Bruckenstein jumped in to acknowledge that the “greatest disruption to date” posed by robos “has been around the client experience, but what’s been underweighted has been the investment side” of robos. That’s where advisors are “spending the vast majority of their dollars — on the investment side — even though it’s an area where you don’t add much value” in terms of actual investment returns to clients.

Speaking of the broader issue of tech adoption, Friedman called it “a leadership issue; a fish rots from the head down.” As a leader of an advisory firm, “you have to tell your folks why it’s important” to use a new tech system. “You need to commit to ongoing training in your core systems — not in Microsoft Word,” but in your CRM and portfolio management systems.

At Private Ocean, employees are required “each quarter to learn one new feature” on those core systems — “Go to the vendor” if necessary — “that fundamentally improves the experience for the client or makes us more efficient” internally. Friedman said “by the way, they get a quarterly bonus” based on learning such features, and then the employees are required “to train others” at the firm in what they learned.

DOL Fiduciary Rule and What’s on the Tech Horizon

Bruckenstein then steered the panel to discuss the implications for advisors of the Department of Labor’s fiduciary rule, arguing that “you need the right technology to support the process.”

Welling said that at Advent “we deal with all kinds of advisors, and a certain segment of the industry is righteously looking to defend the traditional ways of doing business.” To comply with the DOL fiduciary rule, larger advisory organizations especially need to “understand what (their) advisors are really doing.” Broker-dealers, he predicted, will continue to move toward a fee-based model to comply.

Welsh argued that the DOL really presents “a workflow management change,” in which you’ll need to document that “you showed them this, you showed them that,” referring to end clients. “Document what you’re doing,” he said, because SEC and state examiners “will ask — ‘Show us your audit trail,’” which is where having technology that can document your communications with clients is so important.

While Welsh doesn’t expect that there will be fewer advisors as a result of the DOL rule, as happened in Australia and the U.K. when those countries’ regulators “banned commissions,” he does expect to see some casualties, especially in the independent broker-dealer space, where there will be widespread divergence in how BDs deal with “change management.”

Some BDs are ahead of the game in dealing with this change, Welsh said, noting that “LPL cut its managed account platform fees by 30%. They’ll have a huge advantage in their space,” he predicted, which may result in LPL acquiring smaller BDs who can’t cope with the rule’s implications.

On the RIA side, Welling said that many advisors have long “talked to clients and prospects” about the benefits of being a fiduciary. With more registered reps assuming the fiduciary mantle, that benefit is “now muddier,” he said. However, Friedman countered by saying that “clients have always been confused; we all look the same” to clients and prospects, whether the advisor has a fiduciary duty or not. He warned advisors to “beware of startups that have the ‘DOL solution.’”

Instead, he suggested that advisors can use much of their existing technology tools to comply with the rule. Bruckenstein said MoneyGuidePro “builds a workflow right into” its software, while Friedman said advisors’ current technology can also be employed to “use checklists, and your CRM” to find areas where you need to change your workflow and documentation to comply, because “CRM is all about client relationships and compliance.”

Bruckenstein ended the session by asking the panelists for their predictions on which new technology tools will affect advisors and their clients.

Welsh said flatly, pointing to his iPhone, “it will all come down to the phone. How do you communicate with clients? Cool stuff is coming,” he said, but warned that “your clients will be there already.”

Harkening back to the discussion of actually using your existing technology, Welling said it’s important to “delineate between what’s cutting edge and what’s practical.” So, he said, “no facial recognition,” but there will be “some interesting stuff on co-browsing so you can have a meeting with clients using technology rather than just sending them a PDF” of their accounts or of market movements. He suggested advisors should make better use of technology like GoToMeeting, “putting your site into what we call presentation mode, so the advisor can drive” the online and visual conversation with the client.

Friedman had the last word on the practical use of technology and making sure it fits into your overall business model. “Look at your own business,” he said, suggesting that “considering co-browsing technology while you’re still using an abacus doesn’t work.”

— Check out Joel Bruckenstein and David Drucker, Tech’s Dynamic Duo: The 2014 IA 25 on ThinkAdvisor.


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