How much technology is right? Which solutions should we choose? How do I prioritize? How do we implement? How much should I spend? The truth is this: There's no absolute right answer to these questions, but a common-sense approach can help you answer them.
The first step in technology decision-making is determining what's important to you. Where do you fall between these extremes?
• Hands on vs. everything's automated
• Focus on repetitive tasks vs. focus on advice
• Low-cost vs. highly flexible
• Busy vs. efficient
• Bursting at the seams vs. room for growth
• Stable vs. growing
• Occasional errors vs. standardized process
• More employees vs. specialized employees
Avoiding technology altogether is not necessarily a bad decision if your preferences are on the left side of the scale. If you can accept that your practice will be limited by your available hours and human resources, that's fine. Just recognize that stability doesn't exist in business: Your choice is to grow or gradually decline. For some older advisers, a gradual decline is acceptable or even desirable. For the vast majority of advisers, though, growth is important. This means technology is important.
As it is with marketing, technology dollars are necessary even if results aren't instantly apparent. Even a new firm should budget at least $10,000 to $20,000 on technology. According to the 2015 Dimensional Advisors Benchmark Study, more-established firms spend between 5.3% and 8.7% of their gross revenue on technology. This means that a firm with $200 million in assets under management receiving about $1.8 million in revenue should spend $100,000 to $150,000 on technology every year.
Step two in any technology decision is making sure you have buy-in from the key players. You can't force anyone to adopt technology. Your options are to persuade, forget about the technology, or forget about the employee (or partner).
Assuming that you want to add technology to your practice and have the support of your team, you should start with basic building blocks. In my opinion, the two essential parts of an advisory firm's technology foundation are the
portfolio management (accounting) system and client-relationship management software. Getting accurate portfolio data, billing, and reporting—while also tracking prospects and keeping good client records—is critical for a quality practice.
From there, add one piece of software at a time, even if you buy a bundled solution. Don't take on too much technology at once—that's a recipe for failure. Prioritize by choosing your biggest "pain point." What tasks take the most time? What tasks are most repetitive? What tasks are most error-prone? Tackle each item in order, according to your capacity and budget. Seek out the solution that best matches your needs. And don't just look at the sticker price! You need look at the true cost, which includes:
• Training cost
• Implementation time
• Anticipated time and cash savings
• Support and the cost of inefficient support
• Provider stability
• The solution's long-term utility
What comes next? Consider rebalancing software, financial-planning programs, research and analytical tools, paperless office solutions, Internet-based calling and conferencing services, presentation applications ... the sky's the limit! Just remember that automation isn't bad. It doesn't imply a "cookie-cutter" approach to client service. What it means is that your clients benefit because they can get more of what you're best at: providing advice. And you can get greater efficiency, better profits, and more time with clients, prospects, and family.
In the end, the choices you make must fit your needs and goals for your practice.
Read Morningstar's whitepaper to take the next step toward a tech-savvy practice.
Sheryl Rowling, CPA
Head of Rebalancing Solutions
Morningstar, Inc.
