Joel Bruckenstein, publisher of Technology Tools for Today.

Cyber security is a “point of emphasis for both the SEC and FINRA,” said Joel Bruckenstein, publisher of Technology Tools for Today, adding advisors need policies and procedures in place to protect themselves.

Providing his outlook on the fintech industry at the Junxure Advisor Conference in Denver in late September, Bruckenstein said advisors need to educate their employees on the various ways they could be hacked. “Most of you are going a lousy job of educating your employees on cybersecurity,” he said. 

Social engineering is the biggest cyber threat to advisory firms, according to Bruckensten, and guests to advisors’ offices are a risk, too. If guests have bad online habits, they’re putting your firm at risk when they use your network. He recommended setting up a separate Wi-Fi network for clients to use when they visit your office. 

Passwords are another issue, he said. Two-factor authentication is one way providers have tried to protect users from themselves, but it’s been met with resistance. Bruckenstein said biometrics will alleviate some of that resistance.

Bruckenstein recommended advisors hire a third-party cybersecurity specialist to audit their firms rather than using their own IT specialist.

Robo-Advisor vs. E-Advisor

Robo technology is “good and getting better,” Bruckenstein said. Big players like Envestnet, Schwab and Fidelity are building or releasing a robo offering. Asset managers like BlackRock and Invesco are releasing their own robos as “a new distribution method.”

The good news for advisors, Bruckenstein said, is that the most successful model so far has been the hybrid robo-advisor model.

Vanguard is the best example of that model, he said, noting that although they’re cheaper than traditional advisors, they don’t offer the same level of service. “However, most people can’t differentiate.”

Unlike robo-advisors, which provide algorithm-based financial advice through a digital platform, e-advisors are advisory firms that offer a traditional financial planning services enhanced with technology offerings. For example, e-advisors offer interactive performance reporting for their clients, take advantage of automation for more efficient workflows and communication, and use data aggregation to give their clients a full picture of their financial health. Bruckenstein cited a survey by Fidelity last year that found only three out of 10 advisors are e-advisors.

That’s bad for firms because e-advisors manage greater median AUM, serve a greater percentage of millionaire clients and can serve 55% more clients without having to increase staff, he said.

A subsequent study by Pershing found that 90% of advisors spend more time on email marketing than social marketing—“probably not a good way to grow your business in the 21st century,” Bruckenstein said. Less than 55% of advisors use tablets in client meetings, “missing out on the on-the-spot opportunities to collaborate” with them.

The study also found the average advisory firm doesn’t integrate its web-based client portal with a mobile offering, Bruckenstein said. He noted clients, especially next-gen clients, “want to interact with you through an app. If you can’t do that, you have a problem.”

Choosing a custodian is a technology decision, according to Bruckenstein, because the level of integration with third-party providers gives advisors more options.

A less open system with fewer integrations may be more efficient and secure, he said. The “real risk” of choosing a custodian with fewer integrations is “if it’s a closed system, and there’s not a lot of innovation happening, sometimes they can get complacent.”

Financial planning software, and the industry at large, hasn’t done a good job of keeping up with changing demographics. More women will control more wealth in the coming years, Bruckenstein said, and the country is increasingly multicultural. 

Data Management and Future Trends

Technology could let advisors automate a multitude of time-consuming tasks and improve the level of service they can offer clients. Consumers are already used to things like voice recognition from other financial services providers like Capital One, he said.

“They’re going to say, ‘How come a credit card company that I’m paying a minimal amount of money to can offer this experience, and I’m paying you a lot of money and the experience is crap?’” he said.

Technology can also help advisors understand their clients better by helping them make sense of the data they collect. Data needs context, Bruckenstein said. The future is in predictive analytics, which supports more than just when a client is likely to buy, but when and how much. “I always used to ask my clients, ‘Where do you spend your money?’ They would tell me something. It didn’t usually align with their actual spending,” he said.

“It’s not that they were lying to me. They were lying to themselves.” Big data can help advisors customize the experience their clients have with them based on their habits, preferred methods of communication and the type of device they use. “Not everybody who logs on to your ‘client portal’ will get the same experience,” he said.

Machine learning and artificial intelligence are already affecting the financial services industry, and Bruckenstein noted virtual and augmented reality are going to have an impact “sooner rather than later.” He predicted that within six months to a year some of those capabilities will be available to advisors to use with their clients.

“It sounds crazy, but besides gaming, financial services is one of the ideal places” for virtual and augmented reality, according to Bruckenstein.

Finally, there are better uses for blockchain than bitcoin, he said. Reconciliation between custodians and firms could be simplified by using blockchain, for example. “Imagine if all the data from all the custodians resided on a single blockchain database?” he said. “Reconciliation, by definition, would go away. Everything would already be reconciled.”

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