Why RIA firms probably shouldn't try to become software companies — unless they want to become software companies.
Microsoft Excel, Google Docs and others can be great tools for your business. Most readers probably have developed a great dependence on Excel. Its flexibility makes it indispensable for jobs that involve numbers — from formulas and pivot tables to statistical analysis and linked workbooks.
And there's our downfall.
Who hasn't seen an Excel workbook, Access database or Google Docs tool grow to run some core business task? In some cases, that may be just what those "office tools" are for. In others, we create a monster that requires constant maintenance to enable a business to function.
How does a business become dependent on a homemade workbook or database?
From what I've seen, accidentally. It starts innocuously enough — some well-meaning person improves and automates a process. As that tool becomes more useful, enhancements are made, increasing the value to the business. Often the development is not documented, and the "code" is all in the head of the person who built the tool.
When that person leaves the firm or becomes busy with other tasks, the now-critical application is poorly supported or nobody knows how it works. The process changes or the tool encounters a glitch, and with no documentation, the firm is caught flat-footed.
Sometimes the firm has documented the development and maintenance needs of the tool. There's a dedicated employee managing the technology to mitigate risks. It almost becomes a software company.
I'm not so sure that's the core competency of most investment advisory firms and have wondered if they know the complexity of such an undertaking (some have made the strategic decision to launch a technology subsidiary and seem to do that well). To me, it's not too different from an engineer who thinks he or she can do all their own financial planning and do it as well as a certified financial planner with years of experience.
Firms that decide to go it alone and build their own internal software often cite their unique process, noting that no software does what it needs. I have seen very, very few business processes that have such special sauce that they can't buy off-the-shelf tools.
As with financial planning, there is no right answer for everyone when it comes to technology for a registered investment adviser firm. Some processes are uniquely suited to Excel, Access and Google Docs, while other processes will benefit from a tool developed by software engineers and supported by a team of highly skilled (and paid) technology professionals.
The question to ask is, do you have the time, money and expertise to build and support your own tools or is it more efficient to buy a best-of-breed technology tool?
Dave O'Brien is owner of O'Brien Financial Planning Inc., a fee-only RIA.
