InvestmentNews takes advisers through the developments and innovations in technology that'll change the way you do business today and tomorrow.

6 ways advisers can benefit from the avalanche of technology advancement

Don't underestimate the impact digital technology can have on the advice industry

Jul 2, 2015 @ 1:59 pm

By Steve Sanduski

If you take a piece of paper and fold it in half 42 times, you'll have a stack of paper that reaches the moon. That's exponential growth.

Today's technology is allowing a select group of high-performing RIAs to grow their business exponentially by 100 to 200% per year. And the good news is, this technology is available to everybody. What is it? And how can you implement it? Let's start with some context.

In 1965, Intel co-founder Gordon Moore made a prediction that computing power would dramatically increase, while relative cost would decrease, at an exponential pace. Known today as “Moore's Law,” it led to dramatic technological breakthroughs.

Technologist, author and entrepreneur Peter Diamandis used Moore's Law as a base and developed what he calls the “6 D's of Exponentials.” It's a framework for thinking about exponential growth processes in technology.

Based on my recent conversation with Mr. Diamandis, his talk at the TD Ameritrade National LINC 2015 Conference, and other research, here's an overview of the 6 D's along with my commentary on how they'll affect the financial industry.

(Related read: Lessons from from Peter Diamandis to keep your firm from ending up like Kodak)

1. Digitization. Anything that can be turned into a 1 or a 0 will be. The clearest example in our business is how robo-advisers have automated investment management. But they're not done yet as they're turning their prowess to digitizing the financial planning process, too. Betterment's RetireGuide and Personal Capital's Retirement Planner are two new tools that encroach on advisers' planning turf.

2. Deception. This is a period in which the exponential growth goes mostly unnoticed because it's doubling from a very small base. But keep doubling $20 billion in robo-assets and pretty soon you're talking some serious money!

3. Disruption. As the robos get bigger, they'll eventually disrupt the incumbent firms unless the incumbents find a way to acquire, partner with or create their own exponential technology. It's already started with Envestnet acquiring Upside, Northwestern Mutual acquiring Learnvest, and Fidelity partnering with Betterment.

4. Dematerialization. Eventually, digitization and exponential growth leads to the vanishing of the physical goods and services themselves. Consider that smartphones obliterated the need for a camera, flashlight, GPS, watch, music player, maps and thousands of other physical goods. Holograms are now dematerializing humans!

5. Demonetization. As physical goods go away and everything turns to software, the cost of everything heads toward zero. Look at what Skype did to long-distance phone call costs. Or Craigslist did to classified advertising. And now, look at what robo-advisers are doing to the cost of investment management — driving it toward zero.

6. Democratization. Exponential technology levels the playing field. A kid in his garage can create something, load it on the internet and if it becomes popular, it can go viral and become a billion dollar company virtually overnight. Instagram sold for $1 billion and they only had 13 employees. Twenty years ago you would have needed thousands of employees before you could get a $1 billion valuation.


What does this mean to you? How can you benefit from this avalanche of technology advancement without getting swept away?

Here are six steps I'm sharing with my coaching clients:

1. Make a plan. The most forward-thinking traditional RIAs such as United Capital, Edelman Financial Services, Mariner Wealth Advisors and Advice Period all have embraced exponential technology and are laying the seeds to reap the rewards. Be like them and engage in a strategic planning process to determine the best course of action for your business, monitor the plan, and make adjustments along the way. Do it now from a position of strength.

2. Prepare for a world in which you give away investment management for free. If you're still hanging your hat on your ability to pick mutual funds or create an alpha-generating portfolio, good luck. That's been commoditized. As robo-adviser services become mainstream, you'll start getting a backlash from your clients on fees. In fact, it's already happening.

3. Expand your definition of financial planning. Technology hasn't digitized the generation and delivery of comprehensive financial planning — yet. Sharpen and broaden the services you offer and clearly communicate the value of each.

4. Completely redesign your client experience. Uber didn't redesign the taxi business, it redesigned the journey. Do the same. Reimagine how you find and engage new clients (digital marketing and onboarding technology). Reimagine how you serve clients (robo-type investment management, digital dashboards with alerts, account aggregation). Reimagine how you describe what you do (mobile-friendly website with video, audio and gamification). Reimagine how you can make a profound impact in your clients' lives (help them gain clarity on life goals, save them time and make their lives easier, deepen your relationship and the trust bond, and be a steady hand during turbulent times).

5. Make it easy for clients to take the first step to do business with you. As Simon Roy of Jemstep told me on a podcast, it's a huge leap for prospects to have a couple meetings with you then turn over their life savings for you to manage while paying $1,000 a month for the privilege. Instead, use technology and your reimagined client experience to allow clients to dip their toe in the water while gradually building up to a comprehensive relationship.

6. Always be curious. The technology world is changing rapidly. And while you don't have to grab onto every trend and be an early adopter, always be curious about what's happening, and be intentional about your actions.

(More: 5 ideas from RIA marketing mavens)

The easy thing is to over-hype what's happening in the tech space. Even with that said, I'm confident that many advisers are underestimating the impact digital technology will have on our industry and in their business.

While people have been saying for years that there will be pressure on advisory fees, we finally have the catalyst to make it a reality — exponential technology and the rise of robo-advisers.

Add radical pricing transparency to the mix (thanks to robo-advisers) and the 1% fee will get unbundled and demonetized. You may get 25bps for investment management (temporarily, at least), but beyond that, clients will demand accountability and they will no longer put up with the “out of sight, out of mind” AUM fee that's debited each quarter from their advisory account.

Ask yourself, if your clients had to write you a check each quarter for your AUM fee, would they?

Despite the changes being brought about by technology, I think the future for financial advisers is extremely bright.

Advisers who expand the definition of what they do, embrace technology and completely reimagine the client experience, and who are always curious, will be in demand for years to come.

Steve Sanduski is president of Belay Advisor. Follow him on Twitter @SteveSanduski. Hear more about this topic in his latest podcast.


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