3 major changes taking place in wealth management technology

It’s an exciting time to be a leader of a technology company in the financial services space, specifically in the wealth management realm. As the chief executive of Interactive Advisory Software, I have witnessed in recent months some key players get acquired. Envestnet first purchased Tamarac for $54 million and then Placemark for $66 million. Morningstar Inc.acquired By All Accounts for $28 million, and FolioDynamix was just acquired for $199 million. Having acquired an existing software company, Interactive Advisory Software in 2012, I have a unique perspective.
These acquisitions should make leaders of a wealth management firm pause and reflect on what is occurring in the wealth management technology space. Doing so will ensure that your firm’s technology vision is focused in the right direction. What I see are three major trends that the wealth management technology industry is rapidly moving toward:
1. Providing an integrated platform, not disparate technology
A wealth manager has many software needs. The core necessity list includes customer relationship management, financial planning, portfolio accounting, trading, re-balancing, reporting, and client portals. The challenge is that for a wealth management firm to perform efficiently, workflows and reporting must be created across these systems that are based on seamless data integration. This is certainly not a new concept and has been illustrated through industry trends over the years. A past example of this was when a group of veteran professionals formed Your Silver Bullet. Their goal was to solve this issue by writing the standard for software integration, but they never really gained any traction. The trend at today’s leading technology firms is to provide comprehensive integrated platforms.
(More from Nathan Berk: 5 ways to improve your tech evaluation process)
Wealth management firms have realized they want all of the benefits of an integrated platform but do not want to run the large IT departments required to support these technologies. Also, the firms’ management enjoy the simplification of dealing with a single vendor, as opposed to the typical disparate vendors, for the sake of simplification as well as cost savings. The platform vendors typically can ensure accurate data across all system functionality, supporting more efficient and accurate processes and reporting. This is transforming the leading wealth management technology providers into wealth management platform providers.
2. Unified household management
First, we need to agree on the definition of a unified managed household, or UMH. A UMH is the efficient capability for financial advisers to assess and address the holistic investment needs and objectives of multiple, related individuals within a household that considers all the investment resources of the household, as well as the breadth of investment vehicles and account structures available to it. Simply stated, it is the adviser’s ability to manage the entire household’s assets to meet the household’s goals. It is critical in today’s world because clients want holistic advice and comprehensive financial planning and investing. The ability of the adviser to explain the tax benefits of certain financial strategies across the household accounts regardless of their custodial registration, making recommendations on which accounts to draw down and when in their clients’ retirement years, or providing a comprehensive household net worth with cash flow projections, are absolute musts for today’s clients. This requires unique financial planning, portfolio construction, trading and reporting technology.
Leading technology players have identified this need and are positioning their platforms to support the advisers. Wealth management technology players are racing to provide integrated financial planning and sophisticated proposal processes into their technology stacks. But it goes beyond financial planning and spills into what I will call overlay management. The technology must include tax efficient trading tools which support such functionality as trading across different registered custodial accounts, Social Security optimization tools, and asset location and draw down scenario modeling. As discussed above, seamless integration among the different technology functions is required to provide efficient UMH.
(Also: Technology’s role in deepening adviser-client relationships)
3. Outsourcing
Wealth management firms have realized they need to return to the basics in order to grow and survive. The firms must focus all of their energy on marketing, asset gathering, financial planning, and management of their clients’ lives and households. This provides very little time for technology development and management, complex financial product development, or performing non-core services such as client initiation, performance reporting, billing, and even trading. The leading wealth management technology providers are establishing themselves in these service areas in order to provide outsourced asset management solutions to the advisers. This strategy frees the advisers to focus on their clients and grow their business.
These global changes are requiring advisers to view their technology providers in a different light and determine if they are able to offer truly integrated platforms. I know the advisers on the Interactive Advisory Software platform strive for a solution that provides not only technology but also integrated financial management, overlay tax management, services, and asset management options. That is driving us to invest millions of dollars into our technology, service offerings and partnering to bring integrated asset management. If your providers are not headed in this direction, then you may not be positioning your firm to succeed in the near future, putting you behind other wealth management firms.
Nathan Berk is the chief executive officer of Interactive Advisory Software.