A growing number of them are prioritizing technology investments, which means advisors who aren’t risking falling behind the curve in productivity and quality of service. According to a recent survey by Financial Planning, zero advisors plan to cut their technology budgets and half plan to increase their spending this year.
Advisors that are less productive and those that offer fewer features than the competition tend to lose out on business. Here’s why keeping up with technology is imperative for financial advisors.
What Tech Will Do
Robo-advisors have raised the bar for financial advisors. In addition to cannibalizing potential clients, the technology is rapidly changing client expectations. A recent survey found that 80% of high net worth individuals under 40 years old would leave a firm that did not integrate new technology like the automated wealth management services provided by robos. Online portals and mobile access to financial accounts and services are quickly moving from a novelty to a necessity for clients, which means advisors ignoring them could be on the chopping block.
Many financial advisors feel that they have a lot of time to implement these solutions, but in reality, technology accelerates at exponential levels. In just three years, robo-advisor pioneer Wealthfront grew from $7.6 million to more than $2 billion in assets under management (AUM). Riskalyze, a risk alignment platform, has seen a very similar growth trajectory as an increasing number of advisors embrace tech designed to automate and improve upon tasks like assessing a client’s risk tolerance.
Technology may be costly to implement and time consuming to learn—and that discourages many financial advisors from deploying much-needed solutions. But headline costs aren’t a complete picture when factoring in things like cost savings and opportunity costs.
Most financial advisors charge around 1% of a client’s invested assets as a fee, which means that someone with $1 million in assets would pay $10,000 per year. With the vast majority of clients willing to leave a firm that’s lagging in technology, advisors risk losing tens of thousands of dollars per year in revenue by avoiding these investments. The technologies themselves often cost much less than opportunity costs and potential lost business without it.
Cost savings is another key area where technology shines. With the average financial advisor earning more than $80,000 per year according to U.S. News & World Report, is his or her time really best spent doing things that could be automated with a $10,000 software application? It’s time that could instead be spent on more impactful tasks that truly set an advisor apart from the competition.
Researching Tech in Advance
Planning in advance is the best way to mitigate the costs and learning curves uncertainties associated with technology. By comparing various technologies well ahead of implementation, advisors can ensure that they’re selecting the right tools for their needs at a reasonable price. Another benefit is being able to take the time to implement these solutions and properly train staff on how to use them rather than haphazardly throwing the systems into a live environment.
Some major areas to consider investing in include:
- Portfolio management and rebalancing
- Customer relationship management (CRM)
- Document management and compliance
- Online portals and mobile access
- Client risk assessments and onboarding
The Bottom Line
The financial advisor industry is becoming much more competitive thanks to the rise in technology. Enabling the ability to streamline operations and improve client services, these technologies have raised the bar for advisors in a number of ways. Advisors who aren’t investing in tech risk falling behind the curve and losing out on business.
The technology will need to be in place to control trading actions by investor clientele, monitor securities and other related transactions, maintain up to date records of all lending activity including interest rates and terms as well as keep track of all changes that are constantly taking place. Moreover, the system should have the capability of maintain all customers, staff and management information and applicable information.