Finding the right technology fit when starting your own advisory firm

For better or worse, trial and error often proves to be the best teacher in technology

Mar 13, 2011 @ 12:01 am

By Davis D. Janowski

Chances are that the ultimate success in building the right mix of technology for an advisory practice will be born out of failure, according to numerous experts, analysts and successful advisers.

In other words, trial and error will prove to be the best teacher.

“The comparisons are really difficult to make, there is a great deal of variation in there and there are a lot of hidden costs,” said Alois Pirker, research director at Aite Group LLC.

After all, if deciding on a customer relationship management application is like navigating a labyrinth, then coming up with a full suite of programs for a firm is like navigating multiple labyrinths at one time.

It is not an insurmountable task, however. It just takes time, a lot of reading and talking to other advisers who have trod the same path.

Mr. Pirker suggests looking for hidden fees, interpreting how basis points will equate into dollar costs for a firm or its clients, and sniffing out indirect costs and riders in that fine print.

A key point not to be overlooked at the outset is the technology itself should be as integrated as possible.

“Before making any substantial technology investments, advisers considering striking out on their own must be sure not only to consider the functionality that they will be able to offer, but specifically how their systems will interact with each other,” said Scott B. Smith, an analyst at Cerulli Associates Inc.

“Perceived productivity enhancements offered by a particular system can easily be eroded,” he said. “While a single manual work-around may not seem like much of a problem, these minor issues have a way of compiling rapidly [and] can quickly start to impact the amount of time an adviser is able to spend on client-facing activity.”

For the sake of efficiency and scalability, that means having applications that can share data seamlessly, and that bring in data from custodians and other providers automatically, rather than having to perform multistep downloads of files.

The central core of any firm's platform will likely be a CRM application and/or a portfolio management and performance-reporting system. One or both of these will be the hub around which all other applications and processes will revolve.

If an adviser is a breakaway broker leaving a wirehouse, where all the technology was provided, he or she likely will be starting from scratch.

The path will be easiest for advisers that intend to join an independent broker-dealer. There are several good choices to hold up as technology leaders, among them Cambridge Investment Research Inc. and Commonwealth Financial Network.

For advisers who intend to set up their own registered investment advisory firms, a decision must be made on whom will be the primary custodian. That can set the course for many of other tech choices and purchases, as the big four — The Charles Schwab Corp., Fidelity Investments, Pershing LLC and TD Ameritrade Holding Corp. — either have their own end-to-end platforms or are building them.

It is possible to keep costs down, at least initially, by outsourcing certain aspects of a practice and even relying on low-cost, non-adviser-specific tools.

For example, Jude Boudreaux, former director of financial planning at Bellingrath Wealth Management, recently started his own planning firm, Upperline Financial Planning LLC. He turned to for several tools, including BatchBook Social CRM, FreshBooks for client billing, and WordPress for hosting his website and blog.

“Being ruthless about keeping costs at a minimum has been critical,” Mr. Boudreaux said.

“I'm outsourcing all the investment management through Symmetry Partners LLC [symmetry-partners .com] and The Planning Center [],” he said.

Those intending to work as hybrid advisers — doing both fee-based and commission work — will want to weigh closely how well the tech offerings are stitched together. And that is far from a black-and-white proposition, as each custodian has its own complex way of helping advisers with hybrid business.

There are plenty of resources, and the best place to begin is networking with fellow advisers. Advisers shouldn't discount the information that can be gleaned from peers through social networking.

Many advisers have been amazed at the in-depth responses and contacts they have made using LinkedIn and its many advisory-related groups, as well as the “Answers” section, where they can post questions intended for fellow advisers.

Advisers who plan to go independent and want to stay with established independent advisory technology can visit (created by Your Silver Bullet LLC, an alliance of third-party technology providers), as well as (provides overviews of dozens of programs) and (listings of consultants in various areas of technology and operations).

Joining the Financial Planning Association and National Association of Personal Financial Advisors can also provide advisers with access to quite a few tech resources.

Finally, once potential systems have been narrowed down, advisers should negotiate a trial of the software or platform and live with their selection as long as it is feasible.

E-mail Davis D. Janowski at


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