If the financial advisory industry had the equivalent of meteorologists, they would be ringing alarm bells. The perfect storm is gathering. Three distinct high-pressure systems are moving in on the industry; each is a force unto itself, but together they will change the financial services landscape forever.
Robo-advisors and the blistering pace of fintech innovation, a Department of Labor in the throes of a volatile power struggle in Washington, and the coming of age of the next generation of post-boomer investors is compelling advisory firms to take a hard look inwardly and ask: What are we going to do to survive this? Inaction is not an option, and serious missteps in this environment can spell doom. Those that prepare properly for this storm will be fine — but prepare, you must.
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First, organizations need to identify the elements of this storm to understand what they’re up against. Only then can they find the relevant technology tools that can help them survive it.
Robo-advisors are snatching billions of dollars of business every year from traditional financial institutions, while advisors’ operational costs increase with the DOL’s fast-approaching deadline for mandatory fiduciary rule compliance. Algorithm-based robos operate completely online and can open new accounts in a matter of minutes, unlike traditional institutions that require tedious, manual data collection. Incredibly, the old-fashioned methods still generally prevail, starting with finding client information in a CRM or, still for many firms, on an Excel spreadsheet. Then, the most current version of an account application must be selected by the advisor by sorting manually through thousands of forms. Each stakeholder must sign off on the document, which is then returned for a rigorous NIGO/IGO and suitability review before being sent to a clearing house to finalize processing.
If the above process seems cumbersome, it’s because it is — these steps can take several weeks to complete and eat up significant operational costs. Meanwhile, opportunity costs remain high in comparison to the lightning speed with which robo-advisors operate. Despite an urgent necessity to modernize, wirehouses are bound by challenges including low user adoption, complexity of technology and lack of integrated system design.
For organizations that have decided they need technology to battle the robos, finding the perfect tools can be a daunting task. Fintech is among the fastest-growing industries, boosted by rapidly increasing investments in global fintech, which year-over-year grew by 75% to $22.3 billion in 2015, according to an Accenture survey. More than 40 technology companies — ranging from CRMs and financial planning, to portfolio management and risk tolerance and other specialized tools — sponsored and exhibited at a recent Technology Tools for Today (T3) Enterprise Conference. For the average advisory firm, understanding the technical nuances of each fintech application could easily be a full-time job.