Does increased technology usage boost advisers' bottom lines?

Research shows that it pays — literally — to take an innovative approach to technology

Jul 9, 2014 @ 8:31 am

By InvestmentNews Research

This is an excerpt from the 2013 InvestmentNews Technology Study.

We have identified a group of advisory firms that use — and rely on — technology more than other firms, and after analyzing their financial performance to measure the impact on their business, have concluded that these firms have produced superior financial results.

This group of “Innovators” generated more revenue, greater profits and profit margins — and also grew faster than all other firms.

Key characteristics of Innovators

By definition, Innovators will inherently use more technology than all other firms. Interestingly, however, Innovators did not invest more money in technology, on a relative basis, than other firms: Both Innovators and all other firms earmarked 3% of firm revenues to technology expenses.

At the same time, of the firms we identified as Innovators, 43% had less than $50 million in assets, underscoring that investments in technology can produce results, regardless of firm size.

Innovators specifically:

• Have six distinct types of software solutions on their technology platform

• Indicated that five of these solutions are effectively integrated

• Almost universally use CRM, financial planning and account aggregation software

• Have five of their six software applications in the cloud

• Use mobile devices to access core firm applications nearly twice as much as other firms

• Are focused on directly improving productivity as their main objective when investing in technology

Innovators' financial performance

Given their technology philosophies, commitments to investing in technology and their focus on enabling optimized access to their technology, Innovators are positioned to address an important issue facing the advisory industry: Does it pay — quite literally — to take a progressive approach to technology?

At least for the most innovative firms in this study, the answer is quite clear: Yes.

With such robust software platforms and access to the full breadth of technology made available to advisers, Innovators have enabled significantly greater levels of productivity — and ultimately profitability, than other firms.

This is particularly evident when examining several key performance and efficiency metrics. The use of tools such as CRM and account aggregation appears to directly allow the employees at an Innovator to work with both more client households — and more client accounts — than other firms. This then carries over into the amount of assets, revenue and profit that each employee and professional is positioned to support — and Innovators demonstrated a clear dominance of all other firms in each of these key financial categories.

Investments in technology allow the advisers and business development professionals at Innovators to have more shared and centralized intelligence, more efficient access to firm technology — which is enabled by remote, cloud-based and mobile technologies — and ultimately a greater capacity to grow their firms' revenues without increasing headcount.

Innovators are growing faster than other advisory firms as well. Notably, Innovators increased their median operating revenues by 14% in 2012, compared with 11% for all other firms, enabled by businesses that are better structured for heightened productivity – and ultimately scale. This suggests that not only have the firms that are most deeply committed to technology already experienced superior financial performance as a result, they are likely continue to benefit and build their businesses at steadier rates than other advisory firms in the near future as well.


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