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5 Predictions for Advisor Fintech in 2017

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While there are no crystal balls out there, current industry trends point to a number of significant developments that will play out in the advisor technology sector this year.

In order to determine those, we put on our prognosticating virtual reality headset and came up with the following bold predictions.

Client-Experience Technology Acquisitions

As the independent wealth management industry expands, a corresponding increase in direct investments to acquire the systems, technologies and software platforms that advisors use to deliver advice will continue to occur in order to join in on that growth story.

The past couple of years saw an aggressive spend from firms adding robo-capabilities through acquisition or outside investments.

2017 is shaping up to become the “year of the client experience,” so look for a similar consolidation in client management and experience technologies, such as CRM, personal financial management and client portals. This M&A activity will be driven by custodians, asset managers and portfolio management platforms looking to strategically arm advisors with these critical tools to compete in today’s digital world.

SS&C Advent kicked off this trend with their acquisition of Salentica’s CRM late last year; look for it to continue with a couple of high-profile deals in the first half of the year.

(Related: Blockchain-Based Platform Opens After-Hours US Trading: Tech Roundup)

First Consumer Robo Bankruptcy

Robo capabilities are in the hands of the industry’s largest and most powerful brands, such as Fidelity, Schwab, Vanguard and BlackRock, and pricing is heading to zero. Now, the sustainability of the early consumer robos is in serious doubt.

Morningstar notes that robos’ cost of client acquisition can be as much as $1,000 per client. Yet with the average account size for consumer robos in the $30,000 range, a 25 basis point fee yields only $75 annually in revenue. With this upside-down P&L, you can’t make up for it in volume.

Adding to the alarm bells is the declining growth rate among consumer-focused robos and a similar decline in the average account size. VC investors that bet on those early robo platforms will lose patience after nine years of this death spiral and will demand an exit, putting these platforms on the block, selling them off for parts or grinding them down into bankruptcy. Look for the Securities Investor Protection Corporation to step in this year and force fire sales to deep-pocketed firms to protect customer assets.

E-Signatures Finally Go Mainstream

While the first e-signature platforms debuted in the late 1980s, the promise of time savings, efficiencies and a delightful client experience will finally become widespread in wealth management this year. As a leading indicator, TD Ameritrade’s latest advisor survey just released notes that e-signatures are a top interest for advisors when it comes to advanced technology.

For many years, the industry has been slow to adopt digital signatures due to industry regulatory and legal fears. However, the promise to speed up business will convince custodians, clearing firms and broker-dealers that have been dabbling with one-off integrations and compliance protocols to finally go all in on accepting digital signatures.

Workflow Automation Top Tech Demand

With the looming implementation of the DOL’s fiduciary standard, and emerging digital advice competition raising the client experience bar, automating processes to give clients self-service capabilities for routine requests are becoming mission critical for firms to remain compliant, keep clients happy and stay profitable. Regardless of the fact that the DOL rule may be altered or delayed by politics, the fiduciary movement is full steam ahead and firms not investing in the processes, tools and systems to deliver fiduciary advice will be left behind. 

(Related: DOL Fiduciary Rule Could Be Halted ‘Within Days’ of Inauguration)

As a result, workflow automation tools, platforms and systems will emerge as the No. 1 technology that advisors and broker-dealers will implement in 2017. New enhancements in document management systems can create a composite application that combines multiple systems through a single interface to automate any process.

For example, new account opening can be streamlined by integrating database lookups with CRM data, combined with forms-filling software and digital signatures to provide the various checks and balances to ensure fiduciary delivery. This end-to-end process can be completely automated, providing cost savings, ensuring compliance and providing a scalable platform for growth — powerful benefits that will drive demand for these new technologies.

Robo 3.0: New AI-Driven Competitors Enter

The evolution of digital advice will continue its aggressive path to move beyond stand-alone, basic asset allocation, investment selection and rebalancing — what we call the Robo 1.0 era. We are currently in the Robo 2.0 era, where digital advice is being integrated more broadly and moving more mainstream, driven not by the early VC-backed upstarts but by the massive asset managers, custodians and discount brokers.

(Related: John Hancock Uses NextCapital to Bring Robo-Advice to Its Retirement Savers)

2017 will usher in the Robo 3.0 era, which will incorporate advanced technologies such as artificial intelligence (AI) and “chatbot” capabilities that use messaging as the interface to carry out tasks in separate accounts. This combination is already at play at companies such as Digit, which uses AI algorithms to deliver text messages letting users know that a portion of their assets are being invested or saved based on set criteria and spending behaviors.

Integrating this ability with financial planning goals can put saving and investing on a behavioral finance autopilot. Combined with a robo component, it will be a formidable competitor to traditional wealth management advice delivery.

These five developments are just a short list of the massive change hitting the industry, with many surprises in store this year. 2017 is certainly set up to be a transformational year; be sure to take a minute to enjoy the ride!

— Read Large Cracks Beginning To Form Under Robo-Advisors on ThinkAdvisor’s TechCenter.