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Financial Planning > Tax Planning

A Major Shift Is Coming in How Advisors Use Fintech

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Full integration will overtake open architecture as the theme of the next decade. For years, financial advisors have looked for solutions that integrate, but have been provided with open architecture, which is simply the ability to connect multiple external systems to each other and transfer common information from one system to another without double entry. If we wanted to call this type of connection “integration,” we’d have to call it “loose integration,” at best.

As any advisor who has made attempts to use this kind of integration can attest, many of the connections in the marketplace today are limited to single-sign-on or transfer of the most basic client information. Conversely, full integration solves more issues than just double entry. Full integration would require that tools with incompatible assumptions not be allowed to integrate, and for those that are reasonably consistent, would require normalization of the assumptions between the tools. Further, fully integrated systems would reconcile conflicts between or among the results of multiple decision engines.

Open architecture has its benefits, and it is easy to use and fast for fintech companies to set up and market. However, while these solutions have the appearance of a unified system, they can cause more work for the advisor, who is now responsible for reconciling the conflicts between assumptions and methodology in the tools, in addition to manually calculating and eliminating inevitable inconsistencies within the client’s plan.

A growing financial practice cannot sustain customizing each aspect of a retirement strategy, one component at a time. Full integration means that the calculation engine can solve the issues that occur when the output from one decision engine impacts a decision in another part of the plan. For example, a fully integrated tech stack could alert an advisor to the tax impact of changing a Social Security claiming strategy. The financial planner’s role will pivot from manually adjusting tech outputs to relating the optimal decisions back to the client’s life and helping the client understand and overcome any emotional biases that would otherwise prevent the client from doing what is in their best interest.

When financial tech begins to provide full integration, it will enable greater efficiency and the ability to provide mass-customization processes in financial firms. Now, highly customized, quality advice will be more affordable to the mass affluent, while still adding value for the consumer. A mass-customized approach to financial planning is smart. These technological and systematic advances will lead to better results for clients and growth for advisors.

What can advisors do now while technology is evolving? Work to strategically identify your target market first and then select the software that can be used as the hub of your business to serve that market. The advisors who will succeed in the evolving financial planning industry will do so by identifying a specific group of potential customers who have a core set of decisions to make, operating fully integrated tech tools to help them make those decisions better than anyone else, and effectively marketing the value that a better decision creates. Ultimately, we’ll likely see fewer, deeper integrations and niched software stacks win the next 10 years.

Joe Elsasser, CFP, Covisum

Joe Elsasser, CFP, RHU, REBC developed Social Security Timing software for advisors in 2010. Through Covisum, Joe introduced Tax Clarity in 2016.

Based in Omaha, Nebraska, Joe co-authored “Social Security Essentials: Smart Ways to Help Boost Your Retirement Income.”


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