Technology blueprint for a typical RIA firm

The following is an excerpt from the 2013 InvestmentNews Adviser Technology Study, which was released on April 1, 2013:

The overwhelming success of the independent-adviser segment is transforming the financial services industry. With over $2 trillion in assets, independent registered investment advisers continue to be the fastest-growing segment and as a result are attracting investments by technology firms to penetrate this growing marketplace.

This is a welcome development for advisers as they look to enhance their efficiency and streamline their back offices to manage this continued growth. New, purpose-built software specifically designed to meet the unique needs of advisory firms is becoming available, providing advisers with new choices and flexibility.

Because most advisory firms use multiple custodians, advisers use portfolio management and accounting systems to aggregate data feeds for client transactions and trades from their various custodians. Often included in portfolio management software is a performance-reporting module as well as a billing module so that advisers can provide quarterly reports for their clients and automate account billing. Top vendors include Advent, Black Diamond and PortfolioCenter.

Due to the fact that many advisers follow modern portfolio theory, they need to re-balance their client portfolios periodically to maintain their recommended asset allocations based on market movements, as well as to generate cash for client distributions or to invest excess cash. This can be a very manual and complex process, which often limits advisers to re-balancing on an annual basis. Portfolio re-balancing software can automate this process, enabling advisers to take advantage of tax efficiency, as well as re-balance on a more frequent basis. Top vendors include Total Rebalance Expert (TRX), iRebal and Tamarac.

For many firms, their customer relationship management (CRM) software is the “hub” of their firm. CRM systems are designed for advisers to keep track of client and prospect information, as well as include automated work flows to ensure that client requests are followed up on and to automate service requests. Client data that is contained in the CRM can be accessed by other applications to minimize the amount of data entry needed, thus many other systems integrate with CRM, making it a central part of an adviser’s back office. Top vendors include Junxure, Redtail and Grendel.

Often advisers look to extend their advisory services to the web to enhance their service offering by providing a client portal. Client portals often integrate with CRM to be a facility for advisers to publish reports, store client documents in an online “vault,” as well as to be a facility for clients to interact with their adviser and place service requests. Top vendors include ClientView Live (Junxure) and Advisor Products.

If an advisory firm offers financial planning services, it uses financial planning software to calculate client planning scenarios, such as for how much money an investor will need in retirement, savings plans for children’s college education or a second home, how to minimize taxes and the most efficient way to plan an estate.

Often financial planning systems will integrate with CRM for client data as well as with portfolio management systems so that the adviser can manage the investments and synch those recommendations to what is modeled by the financial plan.

Tying all of this together is a document management system that serves as a repository for all of the firm’s documents to manage compliance requirements and streamline office operations. Today’s document management systems are evolving into enterprise content management (ECM) systems and are able to capture and archive all of the firms’ content, including e-mail, website, social media, voice mail, videos and the like. When combined with work flow automation tools and integrated into CRM, ECM can be a powerful business automation tool. Top vendors include Laserfiche, Worldox and Cabinet NG.

Timothy D. Welsh is president and founder of Nexus Strategy LLC, a consulting firm to the wealth management industry

This article is excerpted from the 2013 InvestmentNews Technology Study