Advisers use technology to attract millennials

Businesses target young investors hungry for convenience in an on-demand world

Apr 16, 2017 @ 12:01 am

By Liz Skinner

Financial advisersare stepping up their technology game. With an eye to attracting new — and especially younger — clients, advisers are recognizing that tech has to be a big piece of their pitch to this generation, and they're putting it in play at their firms.

Advisers around the country are investing in tools to better serve consumers who are increasingly used to on-demand services such as Netflix and Uber. Financial planning firms, which also depend on technology to make their businesses more efficient and profitable, are using more types of software than ever, the 2017 InvestmentNews Adviser Technology Study found, and they're spending more, too.

Technology, in fact, has been the fastest-growing expense at advisory firms over the past five years. Tech costs increased at a compounded annual rate of 16.6% between 2011 and 2015, outpacing the growth in the cost of employee benefits and employee compensation, according to the latest InvestmentNews Financial Performance Study of advisory firms.

The average total technology expenditure at advisory firms has risen to a projected $97,648 in 2017, up from $90,461 in 2015, the new adviser technology survey found. Median technology expenditures as a percent of revenue have remained pretty steady at around 3% in recent years.

Just about half of firms' tech spending covers the cost of software, with planners focusing their buying decisions on those that will speed up internal processes at the firm or achieve client experience goals, according to the InvestmentNews technology report, which surveyed 292 advisory firms.

Average technology spending per firm and spending growth, 2013-17

"We're focused on trying to keep and get new clients on board, and technology plays a big role in that," said Raj Bhatia, chief technology officer at RMB Capital. "Client demographics are skewing younger and younger."

The firm, which manages about $6 billion in client assets, is focused on improving communications and will introduce a chat feature later this year for advisers to use with clients.

RMB Capital also plans to provide online onboarding for clients and e-signature within the next year or so, after the firm gets its custodians on board with the efforts, Mr. Bhatia said.

These tools are among the distinctive technologies that more innovative advisory firms are using, the analysis found.

"We're focused on trying to keep and get new clients on board, and technology plays a big role in that. "Raj Bhatia, chief technology officer, RMB Capital

About 37% of innovators, firms singled out for using technology to the fullest, offer online account opening and onboarding, compared with 25% of all advisers surveyed. Just about eight out of 10 innovators use e-signature, compared with about half of all advisory firms.

On the robo-adviser front, one-third of firms that have at least $5 million in assets under management said they have or plan to implement a digital advice tool as part of their businesses in the next six to 12 months.

These firms are focused on using robo-advice tools to bring new, niche client segments on board, said Matt Sirinides, InvestmentNews senior research analyst.

(More data: Where tech dollars at advisory firms are being spent)

"The smallest firms are more likely to offer robo-advice as a means of simply landing smaller accounts, or a way to cheaply service accounts an adviser agrees to take on to accommodate a top client," he said.


Nearly all advice firms are using software tools for three core functions: client relationship management, financial planning and portfolio management. Adoption rates for each of these are projected to reach between 83% to 94% of firms by the end of 2017.

But there's an interesting race brewing between account aggregation and document management systems for fourth-most-used software tool.

Core software product usage, 2013-17

Document management currently stands at No. 4, with 67% of advisers using the capabilities that make businesses more efficient than their paper-based competitors. With about 5% of advisers planning to add document management software to their businesses this year, by the end of 2017 about 72% of advisers will use these systems.

If the projections in the InvestmentNews report pan out, document management would then rank fifth, just after account aggregation tools, which are set to take over as fourth-most-used software by the end of 2017, with an adoption rate of about 73% among advisers.​

Account aggregation is poised to see the greatest increase in software use over the next year, with an additional 7.3% of advisers expected to deploy these tools.

Regional broker-dealer Raymond James said advisers have clamored for the ability to include external accounts among their clients' assets so they can help clients aggregate all their assets, not just those they manage for them. It added that capability last year.

Advisers and their clients also want the ability to view it all remotely, said Vin Campagnoli, Raymond James' chief information officer.

"Today's world is not just about market hours, it's about all hours," he said.

Since the firm introduced a mobile platform for advisers last summer, "its usage has been overwhelming," he said, estimating it's been adopted by about 70% of advisers.


By the end of 2017, advisory firms on average will be using 5.8 software systems, with the six most likely categories being: CRM, financial planning, portfolio management, account aggregation, document management and portfolio rebalancing.

However, two other systems are making strides in their popularity with advisory firms: compliance and risk-management tools.

Usage rates for compliance technology saw the greatest jump in the recent study to 39%, from 29% in 2015.

As for tech aimed at matching a client's risk tolerance to an appropriate portfolio, about 34% of advisers are using these tools today, something previous InvestmentNews tech studies did not even ask about because not many systems were available.


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