Do you know how much you will spend on technology in 2018? It is a simple question, but often the specific dollar amount can be elusive for advisory firms. You probably know what you spent last year, and maybe that is your quick answer for 2018.
However, it requires more thought and evaluation to better answer the question. This is especially true considering that technology is certainly not “stagnant” in our profession, with constant changes in the players, the product offerings, and the pricing.
The first area where we should begin entails understanding what dictates the overall amount of your 2018 technology budget? Is it a certain percentage of revenue, or maybe it is based on your firm’s assets and number of clients, or perhaps you have an efficiency metric or goal, or a combination of all the above and other factors.
Sometimes the size of your firm’s technology budget is more about an overall mission or objective rather than any other metric or factor. The key point is to understand what items matter for your firm and then spend on technology accordingly.
A common misconception is that you need to reach certain revenue milestones before considering certain technology solutions. That might have been the case years ago, but not today with many technology solutions available at a variety of price points.
In fact, now it is not uncommon for newer/smaller firms to have more “cutting edge” technology than older/larger firms “stuck” with legacy technology products purchased years ago. For example, contact management systems and document imaging systems that used to require major outlays for database servers are now managed with cloud-based servers with much lower start-up costs for newer firms.
As you review your 2018 technology spending list, make sure that you also include products or services that may not be part of standard application categories, such as your website, CRM, reporting, financial planning, etc. This list could include solutions like client meeting tools, risk-analysis products, research providers and even technology infrastructure items like computers, smartphones, internet communication providers and more.
The bottom line, when everything is considered, is that your firm might be spending more on technology than you realize. That’s not necessarily a bad situation, but it’s helpful to know the numbers.
It’s also important to understand how other items can directly impact your technology budget as well. Do you plan to hire new employees in 2018? If so, you likely will be purchasing additional technology licenses and hardware items.
Maybe you are starting a new marketing campaign? In that case, knowing how much to spend would certainly involve reviewing multiple technology data sources — from your website to social media hits and how you track results and effectiveness of client and prospect contact points. You might even include spending on hiring a technology/marketing consultant to better help you with the initiative.
Most advisory firms have an extensive list of technology solutions that they pay for directly, and you can see the spending for the products you pay for. However, you also should be aware of the list of technology solutions that you do not directly pay for; examples could include solutions offered by your custodian, broker-dealer or other types of platform providers.
Even though these solutions do not have a specific cost, they still could have other expenses that involve travel for educational and training opportunities as well as important hardware or systems upgrades to fully utilize the technology. Therefore, don’t overlook these technology solutions, and make sure they also receive the appropriate funding in your 2018 technology budget.
The exercise of working on your 2018 technology spending plan should help your firm better understand if you are achieving the expected return on all your technology expenses. Realizing this goal can certainly be a moving target, but the budget process should provide some level of clarity — at least on the expense side of the equation.