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Top RIA Trends in 2021: Joel Bruckenstein

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Increased cybersecurity threats stand to be the largest concern for RIAs in 2021 — whether they are fully aware of the threat or not — while consolidation and wider use of analytics, artificial intelligence, machine learning and other tech by advisors are among the trends likely to continue into 2021 and beyond, according to Joel Bruckenstein, head of Technology Tools for Today (T3).

“The industry is evolving and it’s evolving at a rather rapid pace,” he told ThinkAdvisor in a recent phone interview. He pointed to the huge increase in advisors using video conferencing, as well as new account openings and client onboardings being done digitally since the start of the pandemic.

“These are major advances that would have happened anyway but might have taken three years,” he said. “That’s significant and there’s no putting the genie back in the bottle … These are structural changes in the industry that are permanent. And that’s a big deal.”

The Cybersecurity Threat

Although the pandemic has ushered in much wider use of tech by RIAs as a result of the shift to remote work, COVID-19 has also invited an influx of bad actors hacking into financial firms’ systems.

The U.S. government just got hacked by Russia. “If that was an advisory firm, [regulators] would be fining them millions of dollars,” Bruckenstein said.

The massive security breach “illustrates that the threats from bad actors are not going away and, if anything, I believe, they’re going to become even more prevalent,” he predicted.

Unfortunately, “most advisory firms are just not as well prepared as they should be to deal with some of these threats,” he said. Larger firms typically have somebody on staff or full-time consultants who are experts at dealing with breaches. When it comes to smaller firms, however, “I’m not sure [they] are even fully aware of just how great the threat is.”

SolarWinds software, which is at the heart of the recent hacking operation, is used by financial services firms, Bruckenstein points out.

“Many firms in the industry have some sort of SolarWinds product that either they are using directly, or that a vendor is using as part of their ‘cyber’ package. Every advisory firm should be asking their vendors about this, but few if any are so far,” he stated.

Meanwhile, regulators are “cracking down on” financial firms that aren’t doing enough to protect their clients’ data, he noted, predicting this will “continue to be an area of concern and focus for regulators over the coming year.”

The Office of the Comptroller of the Currency recently levied a $60 million civil money penalty against Morgan Stanley Bank, N.A., and Morgan Stanley Private Bank, N.A., for 2016 data breaches in two Wealth Management business data centers in the U.S.

Breakaway RIAs may be especially vulnerable, Bruckenstein noted. “When you break away,” the larger firm you left is no longer around to be responsible for security, “so if you are not aware of it and you don’t ask the right questions and you don’t take the proper precautions, you’re at risk.”

Consolidation Continues

Consolidation, meanwhile, has continued through the pandemic. “You’ve seen numerous buyouts of smaller firms over the course of this year” by larger financial firms, according to Bruckenstein.

He pointed to Charles Schwab’s recently completed purchase of TD Ameritrade, as well as Goldman Sachs buying Folio Financial/FolioFN as examples.

The list goes on and “I don’t think we’ve seen the last of that,” he said.

That “raises some potential concerns for RIAs,” he noted. Among them: “Is too much power being concentrated in the hands of too few firms right now? I don’t think so. But if the trend continues as it is, there’s certainly a possibility that that will happen and that it could stifle innovation.”

The Virtual Paraplanner

“I think you’ve already seen some major movement on the analytics side over the last couple of years, and that’s accelerating … to put meaningful data in front of advisors in a way that they can digest it and take action on it,” Bruckenstein said, calling that a “very positive trend.”

Meanwhile, we are also “starting to see the emergence of a number of products that really do leverage either machine learning or artificial intelligence in clever ways,” he said.

“One really clever one that I am quite fond of is FP Alpha,” he said. “What FP Alpha does is an advisor can feed in information — for example, a client’s tax return [or] a client’s estate planning documents — and it’ll analyze those documents and also whatever other information the advisor has compiled about that family’s financial situation and it will surface recommendations.”

What this means is that “the rise of the virtual paraplanner is actually happening as we speak and that’s a big deal,” he said.

For instance, benjamin is an AI assistant and business support system that provides advisors with workflow automation. “That’s also really significant because it can take some of the tasks that are routine but time-consuming and automate them,” Bruckenstein said.

Other Predictions

Bruckenstein also predicted the huge number of online trading platform outages and glitches we have seen this year will likely slow after the pandemic is over. At that point, there will be fewer individual investors at home with time to make trades during the day and more staff at data centers who can quickly fix any issues that arise.

“I think some of the systems were just not prepared for that type of volume because it’s unprecedented,” he said, stressing he thinks the large volume is not being driven by advisors and brokers.

He also predicted that, by Q3 next year, RIAs and other financial firms will be able to have as many people as possible back at the office who want to be there. But “new habits are forming” and “one of the things we’re learning is you’ll probably never need as much office space as you did pre-pandemic,” he pointed out.

Many employees will continue to work at least part of the time from home, even after the pandemic is over, he said, predicting a hybrid approach across the industry. Meanwhile, “clients and all of us right now crave human interaction,” so at least some meetings will happen face-to-face, but “virtual meetings will supplement” them, he predicted.

Finally, he predicted a return of business travel for meetings and conferences after the pandemic ends. But he predicted there will be fewer such trips and events than pre-pandemic, and that advisors and others will be more selective in which events they decide to attend.

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