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Why high-performing advisers are aggressively adopting technology

With the industry at a technology tipping point, here's what the leading advisers are doing on the technology front

May 15, 2015 @ 1:28 pm

By Hal M. Bundrick

With recent rapid advances in technology, clients now have access to investment apps on their phones that are on par with any wirehouse workstation. So, faced with a clientele increasingly comfortable with technology, how do top-performing financial advisers utilize tech compared to low-quintile producers?

"They think more strategically about technology than lower-quintile performers," said Joel Bruckenstein, president of Global Financial Advisors, a fee-only financial planning and investment advisory firm located in Miramar, Fla.

Advisers are facing a technology tipping point. Nearly 80% of high-net-worth clients under 40 say they would leave a firm that did not integrate technology into customer services, such as online access and mobile apps, according to the 2015 InvestmentNews Adviser Technology Study.

And advisers are taking the hint, with 59% saying they are likely to increase their technology spending this year, the study also showed. Client satisfaction was a major goal, according to the survey.

While consumers have access to better-than-ever technology, Mr. Bruckenstein said that's not the end game.

(Related read: Adviser technology is now all about the client)

"I'm not sure that they're always able to interpret the research the same way that professionals can," he said. “Secondly, there's a behavioral bias, which I think is one of the biggest problems that investors face. And technology is not going to solve that, or it hasn't to this point."

Besides, Mr. Bruckenstein believes that investment management is not the most important thing an adviser does.

"I would argue that most of the value that advisers provide is not on the investment side, it's on the wealth management and financial planning side of things: Estate planning, risk management. Those type of issues."

This is where new automated investing services are filling a need for advisers — providing automation for investment management and creating more time and space for these other issues. They are also solving behavioral, such as the impact of changing allocation because of emotions rather than as a strategy.

AUTOMATED INVESTING PLAYING A BIGGER ROLE

Mr. Bruckenstein believes that some advisers are not as educated as they should be about robo-advisers — or choose to ignore them.

Andrew McFadden, a 31-year-old adviser and founder of Panoramic Financial in Clovis, Calif., agrees that technology is providing a solution for the technical aspects of investment management, and creating more room for other advisory activities.

(More: Advisers slow to take up the robo opportunity)

"It's putting more weight on us as advisers to deliver advice outside of the investment realm,” he said. “For insurance, estate planning and taxes, and all those other financial decisions."

Mr. McFadden also recommends robo-adviser platforms to some of his clients — and he's not alone. In the InvestmentNews study, 6% of advisers say they currently offer robo-portfolio services — and 12% said they would be doing so in the near future.

Cost-efficiency and portfolio allocations that are guided by experts are two reasons he recommends robos. Mr. McFadden feels confident that his clients are getting a sophisticated level of expertise at a low cost. He says it helps his clients who are just starting out to get good investment advice without having to meet high minimum balance requirements.

"My young clients absolutely love it," he added. “It's like, 'Oh, this is so easy!'"

And he doesn't see these online investment services as a threat. By being paid an ongoing retainer, Mr. McFadden can assist clients in financial planning matters without actively managing their portfolio.

"I'm still helping them decide, 'Is this allocation absolutely right for me? Are there other things I need to consider?' So, it's setting a financial plan, and they need that advice, and they value it," he said.

But, ultimately, the financial planning process is about much more than technology, Mr. McFadden added. "People don't care how much you know until they know how much you care.”

Hal M. Bundrick is a contributor for Betterment Institutional, a former adviser, and a senior investment specialist for Wall Street firms.

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