What top firms do differently with adviser technology

Today we launch the InvestmentNews 2015 Adviser Technology Study survey. Join the conversation and take the survey now.

We do a lot of research here at InvestmentNews around practice management, from taking the pulse of advisory firms’ financial performance to benchmarking the compensation and staffing of the elite firms in the industry. But after analyzing a firm’s financial health and the single biggest factor on their bottom line — staffing — what practice-oriented feature affects advisory firm performance most?
Tech is at the root of just about every basic function of today’s advisory firm. Not only does it help advisers run their business — from cloud applications that have replaced servers to software solutions indispensable to business development such as customer relationship management software — it is also often central to the client service experience and acting at the heart of their marketing apparatus. Sixty-five percent of firms cite their website as a a primary marketing tool, according to the InvestmentNews 2014 Financial Performance Study. Yearly technology spending may only make up, on average, 8% of the typical advisory firm’s annual operating expenses, but it is arguably among the most important lines in an advisory firm income statement.

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So, how do advisory firms leverage the technology available to them? How do “top performers” — the most profitable firms — outperform their peers in the realm of technology?
What we discovered in the 2013 edition of our study was that the most basic to approach to investment in technology was to enhance productivity, with expected benefits to clients coming in a distant second. Ranking fourth, between expected benefit to clients and expected benefit to staff, was increased profitability. This is a clear signal that when firms are aligning technology investments and operations with goals, profitability is not a goal. It is an outcome. And this approach was only accentuated among the top-performing firms.
In order to achieve productivity, advisers must have a strong vision for their technology investments, which are highly variable and address a host of different issues. If technology is purchased and implemented effectively, it will solve specific problems within a firm — and create an efficiency that leads to, or enables, new sources of growth.

(Take the 2015 study to see how your firm measures up against the industry.)

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While different firms will have different goals, technology initiatives and specific investments, there is consistency in how firms allocate their technology budgets and make shifts in their spending.
In our last study, firms were increasing their tech spend by more than 10% against the previous year. When the results of the current survey come in, I’d be surprised to see any slowdown — looking at income statements of the typical advisory firm over the past three years, tech spend as a percent of revenue has climbed slowly but steadily, holding a stronger and stronger claim as the third largest expense at the typical advisory firm’s balance sheet, falling behind rent and, of course, staffing expenses. And more than 50% of respondents said they planned to increase tech spending.
An important lesson in technology spending is that the most successful firms are not outspending their peers — they are spending differently. The best firms are dedicating 33% more of their tech budgets to outsourcing and consulting than their peers. Taking advantage of tech provider services for training and installation, or adopting more cloud services to free up in-house IT administration, frees up professionals to spend more time on core advisory activities, and less time administering firm technology.
Adviser technology is about improving productivity, but leveraging it efficiently is anything but simple. Learn how your firm’s approach compares to the industry at large: take our 2015 Adviser Technology survey, which should only take about 30 minutes, and benefit by receiving a free copy of the study upon its publication.
All charts reference data from the 2013 InvestmentNews Adviser Technology Study.