Small advisory firms need tech, too

Small to midsize wealth management firms are more likely to purchase third-party tools than their wirehouse counterparts.

While Wall Street has been notoriously slow to adopt new technology, smaller advisory firms actually have more demand for wealthtech tools than their larger counterparts.

That’s the takeaway from a new study from consulting firm Cerulli Associates, which found the “true market opportunity” for wealthtech companies sits with the more than 2,000 wealth management firms controlling roughly $10 trillion in assets under management.

Unlike the traditional wirehouses, small to midsize wealth management firms, like regional broker-dealers, registered investment advisers and community banks, don’t have the resources to build new tools in-house and are much more likely to purchase third-party tools, according to Cerulli’s latest U.S. Wealth Management Technology study.

Three-quarters of these firms said their philosophy is to license tools from vendors and maximize the integration between the tools, rather than build out the capabilities on their own. The software they’re most interested in bringing on board is portfolio accounting (75%) and financial planning (58%) tools, followed by tax optimization (56%), according to the research.

“There is a meaningful segment of firms that is seeking to leverage top external vendors while also optimizing integration,” said Bing Waldert, a managing director at Cerulli and author of the study. “Tools in categories such as performance reporting or financial planning should help the adviser create a better service experience for his or her clients.”

While the traditional 100-page comprehensive plan was the ultimate goal of financial planning a decade ago, the new benchmark is reviewing plans on mobile apps in real time, complete with scenario modeling and ongoing updates on the progress toward planning goals, according to the report.

Of course, high-net-worth and ultra-high-net worth clients require a bit more complexity. Performance reporting systems will need to support private investments that aren’t valued daily and are often held outside of mainstream custodians, Waldert added.

While the vast majority of advisers are happy with their current technology capabilities in the wake of the pandemic, they see massive opportunities to increase adoption and fuel growth in both client acquisition and assets this year.

That demand is fueling the wealthtech sector, which hit record levels of global funding last year, with much of it going to new retail investing apps. According to recent research from CB Insights, the $14.6 billion in investments in 2021 was almost triple the amount of funding compared to the prior year.

The biggest driver of growth this year could be digital prospecting. Eight in 10 advisers agreed that new tools would enhance client acquisition, and more than 32% said they’re looking to find new clients outside of their current geographic location through virtual tools, like videoconferencing, according to a recent study from Broadridge Financial Solutions Inc.

Advisers expect to increase their use of video conferencing in the next 12 months, and more than half of the advisers surveyed said they are still conducting formal meetings virtually via phone or video chat.

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