Journal of Financial Planning: December 2016
Greg Friedman, CFP®, is CEO of Private Ocean, a leading wealth management firm in Northern California, and CEO of Junxure CRM, a purpose-built CRM system for advisers. Reach him on Twitter @JunxureCEO.
If you have been to at least one conference this year or are just a casual reader of the industry trade press, then you know that the future for adviser technology is either so bright that we’ll all need to wear two pairs of sunglasses, or we will all be replaced by robots and Amazon.
Additionally, it seems that not a day goes by without a hyped announcement from general business systems that want in on the wealth management action with outlandish claims of “We’re simply overlaying our platform to become the ‘silver-bullet’ total system for advisers.” It can easily make your head spin.
From predictions that artificial intelligence, white-label robo-services, and big data will transform how we as advisers operate and work with clients, to the potential that voice recognition technology like Apple’s Siri or Amazon’s Alexa will be the next iteration for how investors get advice, we are being bombarded with future visions for our industry that—depending on who you are—are either super exciting or downright terrifying.
The good news is that technology innovation focused on advisers and the delivery of financial advice is being driven by our collective success.
Technology Disruption
What was once a sleepy corner of the financial services industry is now being rapidly transformed by the inevitable beat of technology innovation. Independent financial planning advisers are, and continue to be, the fastest-growing segment in wealth management, and the industry is taking notice.
At the same time, however, the overall adviser population is predicted to shrink as aging advisers retire and new regulatory requirements from the Department of Labor’s fiduciary requirement chase commission-based advisers to the sidelines. According to various studies, anywhere from 10 to 25 percent of advisers are planning on exiting the business over the next few years because of their retirements and the impact of the DOL fiduciary rule.
These secular changes in the adviser population and technology advancements are bringing a renewed focus on our industry as a place for technology disruption, despite the fact that for decades our industry has been known as a laggard in technology adoption due to the historical conservative nature and regulated structure of financial services.
The saying, “What can be automated, will be automated,” is a disruptive theme that is playing out in real time through new technology integrations designed to remove manual processes, improve accuracy and timeliness, and reduce costs in a much more competitive and regulated environment—a welcome development for both human advisers and their clients.
At the same time, these industry changes are attracting new technology-based entrants looking to establish a foothold in our industry. This technology transformation opportunity in wealth management is rapidly attracting massive investments from new tech entrants and venture capitalists, as well as from legacy asset managers and custodians looking to protect their turf.
The challenge for advisers who have been in business for a while now is how to sift through these exciting new options and industry hype to discern what really will be the future of the delivery of financial advice in order to make the best technology decisions for our firms.
How the Trends Play Out
As both the CEO of a large advisory firm and CEO of Junxure CRM with more than 12,000 users, I have the unique position to see how these trends are being played out in both businesses. The very good news is with technology innovation, cloud systems, and new integrations with custodian platforms along with other purpose-built platforms such as financial planning, portfolio management, and risk analysis, advisers today have a superior selection of tools to better manage their businesses than they did just a few years ago.
Leading advisory firms are rapidly adopting these purpose-built platforms that originated in the wealth management industry to enhance their client experience, improve their profitability, gain scale, and insulate themselves from future technology competition.
Unfortunately, a significant segment of advisers are still behind in adopting these existing technologies and are square in the sights of these technology disruptors. According to a recently released study by global consulting firm PwC (see “Sink or Swim: Why Wealth Management Can’t Afford to Miss the Digital Wave” at www.pwc.com), less than one-quarter of advisers have digital capabilities that go beyond email, and one-third have no financial technology systems at all.
According to the PwC study, “Those wealth management firms that cling to business as usual, focusing on manual operations, pure investment management, and siloed client data, should get ready to see market share diminish at an increasing pace over the next five to 10 years.”
For firms behind in technology adoption, this should serve as a wake-up call to take action. However, many firms are in a state of future-shock; they are confused by the rapid changes in technology, and thus don’t know where to begin or how to make sense of the many new choices available so that they can build a sustainable business that can benefit from technology innovation instead of being disrupted by it.
Clients First, then Data
My 30-year experience growing and managing an advisory firm that recently passed $1 billion in AUM has been always to focus on clients first, and then data—client data, firm data, adviser data, and staff productivity data. The lifeblood of your firm lies in this information. The focus then becomes on how can you successfully gather, analyze, and manage this intelligence so that you can make sound business decisions, enhance your client service delivery, and find ways to streamline processes, gain scale, and lower costs in order to run a profitable business in a world of declining fees and new competition.
Therefore, my advice is to get a handle on this critical information in a structured format, in one organized repository so that you have the quality data you need at your fingertips. Further, by taking advantage of new workflow automation tools, custodian integrations, and business intelligence dashboards in today’s wealth management CRM systems, you are able to take a page out of the robo-advisers’ playbook and automate many of the day-to-day processes, enhancing your client’s experience and improving service delivery.
For example, at Private Ocean, I have immediate and real-time access to employee productivity data, employee capacity information, client profitability information, and other types of data that drive important business decisions and increases our profitability. Our systems also include a client service monitor that allows us to implement client service models for efficiency, as well as automating the implementation of these models. These tools are invaluable in helping us compete.
By taking this approach to focus on your client and business data and getting it in a structured format in a flexible, feature-rich CRM system, you will also be building a bridge into the future where technology innovation will take us.
While we don’t know exactly what that future will be, we do know that it will be digital. Once automation happens to an industry, it doesn’t go back to the old ways of doing business. Having organized data in a structured, open-architecture platform will position advisers to easily transition to the latest methodologies and future systems, keeping us one step ahead of the robots via our personal, human touch.
No one can predict the future with 100 percent accuracy. But there are lessons we can learn in these early days of technology disruption that are playing out around us. In the meantime, where did I leave that extra pair of sunglasses?