Advisers still behind on digital account opening, industry leaders say

While there's lots of exciting new technology available to financial advisers, much of the industry is still plagued by the same administrative challenges that have bogged it down for decades, according to a panel of industry executives at the Riskalyze Fearless Investing Summit in Salt Lake City last week.

Take account opening, for example. After years of investing in middle-office technology and client-facing portals, many firms still struggle with such a basic and important task, said Lori Hardwick, an industry veteran who was recently named chair of the board of tech company Docupace.

“It still to this day baffles me how much crap goes into opening an account,” Hardwick said. “It’s crazy.”

Envestnet CEO Bill Crager agreed, adding that 22 years after helping to launch his technology and asset management company (of which Hardwick was also a founding member), account opening remains “a nightmare” for many advisers.

“We can talk about integrated intelligence, integrated financial plans and access to crypto or alts or insurance, but we still can’t open accounts,” Crager said. “[Advisers’] administrative nightmares are legit and they’re costing our industry a lot of money.”

Tricia Rothschild, a member of Riskalyze’s board of directors, said that during her time as president of digital custody and clearing firm Apex Fintech Solutions, it was fascinating to see how difficult it was for traditional wealth management firms to match the digital account-opening processes offered by fintech startups.

“It is shocking and I think as an industry we just need to make sure that we put in some investment there,” Rothschild said.

Of all the predictions he would have had for wealth management in 2022, Cody Foster, co-founder of Advisors Excel and AE Wealth Management, was sure that digital account opening would be commonplace. Foster even invested in a fintech company working to solve the problem, but that company no longer exists.

“I still think we’ll solve it. I think we’ve made progress, but it shocks me that we’re still this far behind,” Foster said.

Beyond traditional investment accounts, advisers also need to keep with fintechs offering investors access to new types of products — such as digital assets — or strategies traditionally reserved for the ultra-wealthy, like direct indexing. The classic 60-40 investment recommendation has blown up, and investors are more open than ever before to new approaches, Foster said.

“We launched direct indexing and people love it,” he said. “I think anything that’s creating tax efficiency in this model today is going to be very, very important.”

Not being able to provide access to digital assets may be the reason that an increasing number of clients also hold investible assets away from their adviser, Hardwick said. It’s incumbent on providers to give advisers every tool they need to meet client demands.

“I do think we’re a little behind the eight ball on this one,” she said. “You can blame it on regulatory, you can blame it on lots of things, but at the end of the day, I do think that most platforms are moving toward having it at least accessible for those clients that want that exposure.”

While financial advisers should have an answer for clients asking about digital currencies, MarketCounsel CEO Brian Hamburger said he thinks the industry should temper expectations. While there's understandable excitement about the potential for massive returns, many advisers started trading cryptocurrencies without even having experience in traditional currencies, he said.

“Investments in digital currency probably have a role … but I think the advisers going headfirst into digital currency are probably taking on more risk than they realize,” Hamburger said.

[More: Envestnet adds crypto to Tamarac with two fintech integrations]