Practice Management

Top performing advice firms have a distinctive focus on technology

Top performers also spend twice as much: InvestmentNews technology survey

Mar 22, 2019 @ 2:34 pm

By Ryan W. Neal

It's traditionally thought that smaller advisory firms are able to embrace new technology quicker than larger firms. With fewer advisers to train or accounts to migrate, the small boat can turn quicker than the large ship.

But large firms appear to have finally turned the corner with technology, and it may be boosting their bottom lines.

The biggest firms tend to be among the best performing in terms of operating profit margin, revenue growth, revenue per professional and these top performers spend, on average, nearly double the rest of the advice industry on technology, according to the 2019 InvestmentNews Adviser Technology Study.

(More: Independent advisory firms plan to increase digital marketing budgets this year)

Beyond spending, top performing firms evaluate their technology more frequently, focus more on the impact that technology has on productivity and profitability.They also concentrate less on cost.

That focus is leading them to place a greater importance on technology that improves client experiences through more personalized advice, better outcomes and more effective marketing efforts. Top performing firms are more likely to offer tools like a collaborative dashboard, online appointment booking and eSignature.

Because top performers tend to be larger firms with clients that have assets under management that are 75% greater than the rest of the industry, it's not surprising they are investing less in technology that is geared towards the mass affluent, such as budgeting apps or goal-tracking tools, the InvestmentNews study found.

However, top performers are more likely than all other firms to be leveraging a robo-adviser solution.

Matt Sirinides, InvestmentNews senior manager of research and data, said it's probable that these firms are offering digital advice as a standalone offering to attract younger investors.

"Our assumption there, and we've seen this in our other research, is that they're generally using it for accommodation accounts. Or to let young advisers attract a younger clientele, as part of a next-generation initiative in the firm," Mr. Sirinides said. "A lot of other firms have essentially written off robos, especially the smaller firms."

(More: 6 myths about millennials that could harm adviser businesses)

Regardless of size or profitability, all sized advice firms continue to struggle with a lack of integration between their technology tools, as well as a shortage in automation. These two issues are correlated: automated workflows require seamless flow of accurate data, which is impossible without deep integration across the tech stack.

Advisers using an integrated, all-in-one solution provided by a broker-dealer, custodian or third-party vendor reported higher satisfaction with technology than advisory firms that are on open-architecture platforms or those that select individual pieces of technology.

Adoption also remains a challenge, with 56% of advisers surveyed saying "fully utilizing the firm's current technology" is more important to achieving growth goals than "investing in new and emerging technologies."

(More:Say goodbye to technologies that don't spark joy)

Median technology spending across the industry leapt 12.1% in 2018, the largest change tracked by the InvestmentNews studysince 2013.

This is partly due to increased adoption, as more advisers using the tools results in greater licensing and tech training costs, Mr. Sirinides said. A 22% increase in software spending also helped drive an uptick in the overall tech spend.

Advisers also have more choice than ever before.

Custodians, broker-dealers and asset managers are investing heavily in technology as a means for product distribution and asset collection, and private investment in adviser-facing fintech is booming.

While firms on average are spending more money on technology, the spending remains consistent at around 3.22% of revenue.

"Revenue growth has been pretty dramatic over a full decade," he said. "It just shows that firms are reinvesting in their business."

So even if the larger ships have finally caught up with the small boats, the rising tide continues to lift them all.


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