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Kitces, Pershing CIO: Advisors Should Use Tech to Offer Better Advice

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What You Need to Know

  • Automation and other tech can free advisors up to focus more on clients and less on mundane tasks.
  • Advisors must offer more value to clients with their advice because it is no longer enough to bring financial products to the table.
  • It's crucial to make more Americans financially literate and to attract younger advisors to the industry.

Technology has enabled advisors to offer better advice to their clients and spend more time communicating with them by making it possible to spend much less time dealing with mundane tasks, according to Michael Kitces, head of planning strategy at Buckingham Wealth Partners and co-founder of XY Planning Network, and Ram Nagappan, chief information officer at BNY Mellon’s Pershing.

“Our industry really is in the midst of just a huge evolutionary shift,” Kitces said Wednesday during a virtual keynote panel discussion on technology at the Pershing Insite conference.

Amid the rise of self-directed, do-it-yourself investing, advisors have largely shifted away from selling products to focusing on selling the advice itself that they provide to clients, which is a “fundamentally different business,” Kitces pointed out.

“It wasn’t that long ago that consumers couldn’t get insurance and investment products — [they] literally couldn’t access them” on their own, he noted. Now, however, clients can “get pretty much any financial product they want on the internet with the click of a button,” he said.

There is “pressure on us to add more value on top” as technology “keeps moving forward and makes more and more financial services and products available to consumers,” he said.

However, “the advice business is doing better than it ever did before,” he said, adding: “I don’t view the technology as the threat but the thing that is continuing to push us up the line” to offer clients more value. It is “not enough to bring a product to the table” for clients anymore, he said.

Technology has also freed advisors up to focus on their clients by simplifying such previously time-consuming tasks as making a stock trade, Kitces said.

Similarly, Nagappan pointed out that ATMs did not lead to the elimination of tellers at banks.

Technology including artificial intelligence and automation can be used by advisory firms to “amplify our operational efficiency, transforming client experiences and enabling our business growth,” Nagappan said.

For example, predictive analytics and data science can be used by advisors to better understand their clients and build relationships with them, Nagappan said. Advisors can start to have a “more meaningful conversation” with a client if they are able to receive data allowing them keep up with clients’ major life events including childbirth, a job change or the purchase of a new house, he explained.

Advisors should also be automating the “mundane tasks that you’re doing,” Nagappan said.

A ‘Surprising‘ Year at Pershing

On Tuesday, during the Insite opening keynote, Emily Schlosser, who joined the firm just under a year ago as its chief operating officer, said the one word that summed up her first 11 months with the firm was “surprising.”

“Everything that’s happened to us over the course of the last 11 months has been surprising in one way or another,” she said. “We are sitting here, 11 months from the day I started, still in a work-from-home environment.”

In addition, “there’s a lot that’s been going on around us that I think is having a really surprising impact on our business,” including social unrest in the U.S. and “the way that that’s really changed our dialogue on diversity is something that I think has been incredibly surprising,” she explained.

“I’m really encouraged by the depth of conversation that we’re now having around diversity and inclusion and how we think about our talent,” she added.

Those conversations on diversity and inclusion have been “really meaningful and good guideposts for us,” according to James Crowley, the firm’s CEO.

The “good part” of the surprises and challenges that Pershing and the industry have faced over the past year is that they have “helped us sort of rethink what we’re about and the direction that we’re headed,” he said.

The surprises “served as a catalyst to rethink again who we are, who we want to be and how to show up for all of our clients out there,” he explained. That began with “listening much better and having much more focus, listening to all of you, listening to our colleagues and opening up our minds to think and rethink. [Pershing has] actually been much more inclusive as an organization and as leaders of our organization.”

Pershing has also had the “opportunity to sort of catch up on where we really are and direction that we’re headed,” he said. One of the things he heard several advisors say was it’s “sometimes difficult to work across the seams of Pershing, which really caused us to rethink how we were organized and it caused us to think about how can we realign our organization much more to be aligned with the business models that you all have,” he said.

Another thing that the firm’s executives had been thinking about was what’s the “best way to bring all of BNY Mellon to our client relationships … so they can compete more effectively,” he said. That led to the organizational structure change that Pershing announced earlier this year.

Pershing said in April it was realigning its U.S. business to address shifts it saw “in the marketplace driven by the convergence of business models and the move toward holistic wealth management.” As a result, the firm became newly aligned under two main segments — Wealth Solutions and Institutional Solutions — down from three segments, one of which served broker-dealers.

2 Other Challenges

Crowley went on to note the importance of financial literacy while introducing Joan Schwartz, the firm’s chief legal officer.

“Three quarters of consumers are struggling with some aspect of their financial lives,” Schwartz said. Meanwhile, national student loan debt passed the $1 trillion mark and “Americans are responsible for self-funding their retirement plans as pension plans have become a thing of the past.”

The “key” to facing these issues is “empowerment,” she said. “Educating the American public on the basics of financial literacy is critical,” she said, pointing as examples to basic concepts including budgeting and the power of compound interest.

She also pointed to a major challenge facing the industry, noting 44% of advisors today are over 55 years old, only 10% are under 35, and a third of advisors today plan to exit the business in the next 10 years.

“This is a real threat,” she said, “not only to advisors’ businesses but to investors’ wealth.”

Pictured: Michael Kitces