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How New Tech Can Really Help Advisors: Cerulli

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Adopting new technology can significantly help advisors, potentially providing both greater efficiency and improved productivity, but many advisors continue to be resistant to new tech, according to research firm Cerulli.

Advisory firms that are “heavy” technology users “tend to be larger and better-resourced practices whose scale affords them the ability to better take advantage of technology solutions,” the company said in its tech-focused Cerulli Edge — U.S. Asset and Wealth Management Edition for October.

“Technology may also make them more efficient, therefore allowing them to achieve scale,” the report said, adding: “Average practice productivity increases as technology use expands, suggesting that technology plays a role in improving productivity” also.

“It’s a virtuous circle — technology begets growth and growth begets increased adoption,” according to Marina Shtyrkov, a Cerulli senior analyst.

One of the most significant findings of Cerulli’s study was that most advisors did not use technology extensively, focusing only on several core tools with moderate outcomes, it said.

Cerulli estimated that, as of 2019, 40% of advisor-managed assets were held by “medium” tech adopters— practices that incorporated tech tools for financial planning and investment research, in addition to a client portal and customer relationship management, but used minimal technology in addition to that.

Client portals were used by 43% of “light” tech users, 87% of medium tech users and 95% of heavy tech users, while CRM was used by 41% of light users, 84% of medium users and 93% of heavy users, Cerulli said.

Lower down on the advisor usage chart were: Cybersecurity (40% of light users, 78% of medium and 99% of heavy users), e-signature (42%, 70% and 95%, respectively), compliance (21%, 63% and 89%), risk analytics (6%, 39% and 74%), and rebalancing (15%, 37% and 76%).

Thirty-six percent of advisor practices heavily embraced technology and controlled 46% of asset market share, Cerulli said. Average practice productivity increased as tech use expanded, suggesting investment in tech pays off for advisors.

On average, advisors who were heavy tech users managed $239 million per practice, compared to medium users, who managed $183 million, and light tech users, who managed $106 million, according to Cerulli.

Along with productivity differences, advisors in heavy tech user practices were younger, with an average age of 48.9 years old vs. 52.4 years old for those in the light user group, Cerulli noted.

Tech providers stand to be more successful in getting more advisors to adopt their offerings if they decrease complexity, even if it means decreasing the breadth and depth of offerings in favor of greater simplicity, Cerulli said.

Advisors cited insufficient time to learn and implement as the top challenge to effectively using tech, with 68% of those polled considering it a moderate or major challenge. It was followed by: compliance restrictions (64%), high associated costs (57%), lack of support staff (54%), inadequate resources and training from a broker-dealer or custodian (52%), data security risks of third-party providers (50%), low return on investment (49%), legacy systems being incompatible (47%) and negative feedback from clients (29%), according to Cerulli.

The data was gathered as part of Cerulli’s annual process of surveying financial advisors and collected on a continuous basis throughout 2019, it said. About 2,000 advisor surveys were conducted last year, several in partnership with industry organizations including the Investments & Wealth Institute and The Financial Planning Association, according to Cerulli.