Advisors and Technology -
How can technology do more to grow your advisory practice?

 

ENVESTNET PRACTICE MANAGEMENT SERIES

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Most of the year 2010 is behind us, one marked by a discouraging economic numbers and a lethargic stock market. (The S & P 500 opened the year at 1,116 and closed at 1,183 on the last day of October.)

With a new year on the horizon, now is a good time to inventory the strengths and limitations of your advisory practice and look toward 2011 as an occasion to make improvements, even as you continue to function with wary clients and an uninspiring environment.

HIGHLIGHTS

• Successful firms – those with higher revenue, AUM, and better client retention – deliberately invest in technology, and they maximize the value of existing in-house technology.

• Top performing firms do not fit a consistent mold in terms of size or practice model. They do take an active, strategic management approach to their business.

• Achieving firms deliberately plan for key members to take an active role in new business development.

• Technology can support the transparency and documentation that regulators increasingly require.

• Clients, too, expect a broader fiduciary approach from their financial advisors.

• A holistic strategy, that incorporates a comprehensive view of wealth, supports higher fiduciary standards and helps advisors become more deeply involved with their clients, strengthening the relationship.

What meaningful, straightforward actions can you take to move your business up and forward over the next 12 – 14 months? A recently released study presents ideas that you can use to build into your own practice.1

As you might expect, the study found that 2009 was a financial disappointment for most firms. That critical benchmark, level of assets under management, was down 19% at the end of 2009 from a high in 2007. With lower firm-wide AUM, productivity of individual advisors was also down.

And yet there were firms which clearly and significantly outperformed the averages. Is there a secret here? What are these highly successful businesses doing that other firms are not? And what can you learn from these firms which will help expand your own productivity and financial success?

The InvestmentNews/Moss Adams research revealed that the top 25% performing firms stood out for four reasons. They actively managed staff levels, including layoffs; they continued to refine strategic plans; and they earmarked more partner time for new business development.

The fourth critical piece of the success equation was attention to technology. These firms, which increased their client base and AUM, were committed to leveraging technology resources – both by investing in new technology and by taking best advantage of technology that was already in-house. With the firm’s existing technology, the focus was on productivity. That meant a dedication to training and a system that made the most of existing technology.

Interestingly, these top performing firms did not fit a specific practice model or size. In fact, the range of characteristics of the top firms mirrored that of the firms included in the survey in general.

“What did stand out was the discipline and a “conscious active-management approach to business, versus a passive-management approach... An active-management focus and clear positioning — as well as building a process to drive it — really separated the superior firms from the average... they actually developed a disciplined approach around developing business from their referral resources — their clients and their centers of influence.”2

Why devote money, time and effort on technology?

With ongoing interruptions, distractions, and multiple, overlapping demands on your time and money, at any given moment, it can seem that exploring new technology is not productive. Of course, the investment in new technology does not have an immediate payoff. It is tempting to postpone the decision.

However, here is what the Moss Adams study reports. “The principal or the lead adviser of the firm must be able to dedicate the time necessary to do what they do best if they are the rainmaker or the key business development person. And they have to have an infrastructure that supports their being able to do that.”3 In other words, one of the reasons for higher productivity in the most successful businesses is that they have systems in place (including technology) that support new business development by key members of the firm.

Technology delivers fiduciary and productivity benefits

The Moss Adams study does not directly address the connection between technology and the fiduciary process. However, the research does demonstrate that the most successful firms are dedicated to a productivity-driven infrastructure. In order to keep pace with the demands of both clients and supervisory bodies, it is essential to leverage technology that fits your practice.

Regulators are demanding more transparency. They expect documentation of risk assessment, recommendations and other forms of communications to both prospects and client contacts. Firms must be prepared to document custody arrangements, adherence to the firm’s compliance manual and data backup. The Financial Industry Regulatory Authority is stepping up fraud detection, and the Securities and Exchange Commission is conducting audits with very short notice. Advisory firms must be prepared to deliver documentation in advance of an onsite visit, and then to host auditors in their offices at almost any time.

Fiduciary responsibility does not end with state and national government agencies. Prompted by the 2008 stock market fall and the national discussion surrounding the financial reform act signed in July, Americans are holding their advisors to a higher standard of responsibility. Prospects and clients have also stepped up their expectations. It is the wise advisor and firm who choose to see this call for fiduciary responsibility as an opportunity.

Opportunity in a holistic strategy

The ability to provide clients with a comprehensive, holistic view of their financial situation is entirely consistent with the ability to provide services that represent high standards of fiduciary responsibility.

Here is an example. Suppose that, until recently, you were only able to access information relating to your client’s primary investment account and a Roth IRA started about five years ago. You are only able to offer advice based on part of your client’s overall wealth. Now, with the aid of a more far-reaching integrated technology, you can incorporate an annuity, a 401(k) and an older traditional IRA which are held at other custodians.

Benefits from this new capability include:

• a chance to review risk assessment with a more complete view of the entire picture,
• more knowledge that can enable you to fine tune the client’s asset allocation,
• the potential to offer additional services (for example, realign some investments, shift the asset allocation).

Behind all these practical applications is the chance to provide deeper service to your clients and strengthen the relationship as a total wealth manager. You can also increase efficiency with comprehensive reporting through integrated technology that gives you more time to actually talk and be with your clients.

Past and Future

A group of financial industry veterans were recently asked, “Over the past 30 years, name the biggest adjustments advisors have had to make in response to market forces?” One answer came from E. Denby Brandon Jr., whose career began in 1952. He said, “The emergence of the independent financial advisor with fiduciary standards. We believe that financial literacy programs have played a role in a growing and informed consumer base.”

“The first by a wide measure is technology,” according to Ben Coombs, whose career started in 1961. “The second is the expansion of regulatory oversight and compliance requirements, and the third is the ability to outsource everything except the client relationship.”4

The ability to outsource everything except the client relationship – these experienced professionals recognize the evolution and future for financial advisors. Technology has evolved from a fragmented, make-it-yourself tool to one where providers recognize the value of an integrated approach. Advisors who are savvy enough and fortunate enough will take advantage of the opportunities this opens up.

That leaves you with more time and energy to focus on your core competency, the client relationship. An integrated technology gives you more time to know your prospects and clients better than ever before, to help them make better decisions that make a positive impact on their lives.

What is the future for technology and you? Outsourcing support is leading the way. It is up to you to take advantage of the potential that provides.

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1 2010 InvestmentNews/Moss Adams Financial Performance Study of Advisory Firms. What the findings of the 2010 Moss Adams/InvestmentNews study mean for advisers, September 26, 2010, http://www.investmentnews.com/article/20100926/REG/309269975.

2 Mark Tibergien quoted in the InvestmentNews/Moss Adams study.

3 Kelli Cruz quoted in the InvestmentNews/Moss Adams study.

4 Past, Present, Future: What the experience of industry pioneers suggests about future success, October 1, 2010, by Mike Patton, www.advisorone.com/article/past-present-future?page=0,1

 

This article is provided for informational and educational purposes only. It is not intended as and should not be used to provide investment advice and is not an offer to sell a security or a solicitation of an offer, or a recommendation, to buy a security. All investments carry a certain risk and there is no assurance that an investment will provide positive performance over any period of time. Investment decisions should always be made based on the investor's specific financial needs and objectives, goals, time horizon, and risk tolerance. The statements contained herein are based solely upon the opinions of Envestnet. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Neither Envestnet nor its representatives render tax, accounting or legal advice. Past performance is not a guarantee of future results.

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