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The lockdowns, social distancing and market volatility stemming from the coronavirus pandemic have elevated the importance of digital engagement, according to a new report.

However, the current crisis has also exposed flaws in processes that are not fully digitized. Completing workflows that require manual intervention can be very difficult when operational volumes are high, clients are anxious and staff members are working from home.

The report, commissioned by Envestnet and drafted by Aite Group, discusses how end-to-end digital capabilities can help RIAs effectively engage and service clients and achieve scalability and sustainability after the crisis ends.

The paper outlines best practices for RIAs to transition all practice operations to the cloud, and support clients, during and after the COVID-19 pandemic.

“The COVID-19 crisis will have significant implications for how financial advice will be delivered going forward,” Andina Anderson, executive managing director of Envestnet | Tamarac, said in a statement.

Aite Group conducted an online survey from April through June 2019 among 400 U.S. financial advisors, including 98 independent RIAs and 48 hybrid RIAs that maintain a broker-dealer affiliation.

Key Findings

The survey found that independent and hybrid RIAs consider the acquisition of new clients to be the top benefit of digitization. In their view, digital tools are crucial for engaging younger prospects and the next generation of clients.

However, few advisors said they were satisfied or very satisfied with their client-facing digital offerings.

Among independent and hybrid RIAs, client adoption of digital tools was low before the pandemic struck, according to the survey.

Only about a quarter of independent and hybrid RIAs said a majority of their clients used digital access to reports and statements — and this capability achieved the highest client adoption rates.

Trailing far behind, just 12% of surveyed independent RIAs reported that the majority of their clients were checking investments and goals digitally. Twenty-one percent of hybrid RIAs said that most of their clients were using digital investment planning tools.

According to the report, several factors account for low use of digital tools, including costs and lack of integration with other tools in the advisor’s tech stack. Still, lack of adoption is a top driver, with few advisors promoting the use of digital tools with clients, it said.

Prior to the pandemic, one-third of independent RIAs surveyed considered offering client-facing digital capabilities a top priority, compared with nearly half of hybrid RIAs. The higher percentage of hybrids can be attributed to the emphasis on digitization by their broker-dealers, the report said.

Overall, most advisors saw a demand for digital tools, the survey found. However, 28% of independent RIAs and 21% of hybrid RIAs agreed that they had not seen demand for more client-facing digital capabilities.

According to the report, best practices for RIAs engaged in the digital transformation include developing a formal strategy, dedicating technology resources, segmenting clients and conducting vendor reviews.

Client communication and training are the most critical, and often overlooked, steps for RIAs seeking to drive client adoption of digital tools.

Account aggregation and understanding a client’s entire financial household are essential as RIAs continue to expand beyond investment management to holistic financial planning and nontraditional support services, such as health care, elder services, banking services and mortgages.

“Client adoption, technology integration and cost are among the top challenges that RIAs face as they digitize their practices and capabilities,” senior Aite Group analyst Dennis Gallant said in the statement.

The report noted that RIAs have been implementing a custodian-independent client data and service layer connected through APIs to create a client-centric, unified offering incorporating client reporting, financial planning, investment planning and other key services and digital tools.

“For many advisors, a bundled technology solution can help expedite the development of a unified, digital client experience incorporating financial planning, investment management, client reporting, account aggregation and other key services,” Gallant said.

— Check out Will Advisors Continue Remote Work After Pandemic Ends? on ThinkAdvisor.