Financial advisers and wealth managers: the next 10 years
Looking into your crystal ball what do you see as the technology needs, trends, challenges, and milestones that lay ahead for financial advisers and the industry at large over the coming decade?
This is for a story on the future of technology for financial advisers.
Answers (13)
Data Transfer.
It's ridiculous that we still don't have a simple, standardized way to transfer data in our industry. Data transfer is the biggest barrier to entry for new software companies and once there is a simple way to do this, it will kick off a "golden age" for investment advisor software.
The time has come for the creation of an independent, non-profit standards group to create a generic specification for transferring data across custodians and software packages.
Russ T
Owner, Thornton Wealth Management
Best Answers in: Retirement and Estate Planning (1), Wealth Management (1)
I think the trend toward web-based solutions will continue and gain momentum.
Whether it's current web-based solutions like MoneyGuidePro for planning or Redtail Technologies for CRM or forthcoming solutions like FIdelity's WealthCentral platform, I think things will continue to migrate to the web.
In some respects, migration to the "web as platform" can be seen as either increasing or decreasing security risks.
Generally, however, I think web-based solutions have a much easier learning curve and higher rate of adoption across advisor and/or employee pools of workers.
Can't wait to see what's around the corner for advisor and industry technology.
Hi Davis,
I think we will see all successful financial services firms working off of a centralized, web-based platform for CRM, Financial Planning and Portfolio Management. Tools like eMoney Advisor will be the norm and the aggregation of client data across platforms for real time analysis and decision making will drive our industry.
Rob S
CERTIFIED FINANCIAL PLANNER(tm) at Northern Financial Advisors
Best Answers in: Government Policy (3), Equity Markets (2), Personal Taxes (2), Wealth Management (2), Financial Regulation (1), Criminal Law (1), Personal Debt Management (1), Retirement and Estate Planning (1)
Great answers so far...
Combining thoughts from the first few, a big challenge is going to be competing with these information systems as companies continue offer them direct to consumers. Clients are getting more and better advice from their 401k/403b providers as firms fight harder to keep money from rolling-over, in some cases they’ll get a personal advisor dedicated to them whose job it is to not let that money leave. It’s not just Suze Orman that clients will come to you with questions on their plan, it will be detailed analysis from Fidelity on why not to do a rollover to your firm.
Other places we’ll see competition with our advice are growing as well. Clients are receiving the same personal projections now from many sources, they can run their own analysis through their discount broker, get a qualified second opinion online for a low-fee. There are even advisory firms springing up selling time with their advisors as a company-paid employee benefit.
What clients that would listen to your advice for a fee, won't take time their employer paid for with another advisor?
Some advisors are spending a lot of time and money trying to keep ahead of the technology game, but successful advisors are going to have to find what their 'value-add' is when clients are able to access advice from multiple, personalized, high-level sources.
I am going to jump on the integration/aggregation bandwagon. Our clients' lives are becoming more and more complicated with so many moving parts than even 10 years ago. We need to have fully successful aggregation software that syncs so all our systems talk to each other. It is frustrating to have to retype a new address into 3-5 systems......it's silly to not be able to accurately get all the account values. Slowly but surely we are getting there in various forms.
Data standardization and intelligent automation represent the greatest need and challenge in the next decade. It’s currently being demanded by broker/dealers and advisors alike (even if they don’t know how to phrase it).
The ability to easily transfer/read/write/update/copy information from one system to another would be invaluable to both the broker/dealer and the advisor. The standardization of data (or more specifically, metadata) will allow for sharing as well as for allowing multiple applications to perform usable updates and changes that could be read by any other application. This would eliminate the entire problem of a user not wanting to adopt a system because they are already integrated with another system. The information would be free to flow and be used by any system the advisor wants it to. There are tremendous compliance benefits to a metadata standard, but in the spirit of keeping my response short, I’ll save that for another day.
As broker/dealers and advisors have access to more information they will need a way to handle this increased flow. Intelligent automation is the best solution. Systems will not only be able to automatically perform tasks, but they will be able to perform them according to the preferences of the advisor. The benefits of an intelligent and automated “assistant” that works the way the advisor wants it to work 24/7 are obvious.
We are also going to see the development of a new breed of internet technologies that are technically not “web-based”. These applications will natively have more integration with the user’s operating system blurring the line between “local” and “internet” applications. This will increase speed, functionality, security, and general usability. We can already see the beginnings of this trend for advisors and broker/dealers in rich internet applications like Grendel.
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My answer will seem like I’m old fashioned and set in my ways. But nothing could be further from the truth. I won Capital Investment Advisors, Inc. and in fact, we own our own co-location computer data center right in the basement of our office building. HOWEVER, technology will simply make our ability to transmit information to our clients quicker and easier. But, it will not replace the need for human interaction. We find that the most successful investment advisors communicate with their clients, either by phone or in person. Simply posting results on the internet or providing and Internet based interactive solutions for clients will in fact usually hurt a clients long term results. We find that encouraging our clients to follow the direction and guidance that long term historical data provides is the single best value we can provide. Enabling them to trade in and out of stocks is a return killer. Nothing has ever outperformed good old fashioned large cap sticks where the dividends are re-invested. New stocks, new companies, growth stocks, are risky and under perform decade after decade. People pay a premium for new, and chase the growth. This kills their returns. It is human nature to sell at the wrong time and buy at the wrong time. We stay the course and this is where we know our human interaction is necessary and beneficial for our clients. We force our clients to remember the past, history tells us the future. Don’t trade; buy the top tier companies that have been around the longest. Don’t rely upon projected forward looking financials that show enormous unsustanaibable growth. Under 20 PE ratio stocks that pay a dividend don’t lie. The dividend is either paid or not. What more proof does an investor need then getting a dividend? This means their company had the money to send a cash reward back to their investors. Then re-investing that dividend back into the company dollar cost averages their investment and sky rockets their returns. It’s a proven model that works. So, I embrace technology, but I fear it’s as the typical investor today is so short term minded they may use technology to jump at the wrong times. Financial advisors job is to keep their clients on course and avoid the urge to use technology to jump ship just at the wrong time.
While 5 years ago I would have answered this question by saying data aggregation is one of the biggest challenges and changes to occurr I would now say looking ten years out a big change, that makes aggregation less important, is the move torwards alternative investments. Wealth at the upper end is already deep in investments like hedge funds and private equity and this trend will continue down to lower levels of wealth.
Private investments bring with them a whole host of challenges and are made more complex by the fact that these investment are often made via pooled capital buckets like partnerships, which brings another level of requirements.
Data transfer, aggregation, and web-based ASPs are present now, and as leaders in each space emerge, standards will follow.
The most significant challenge I see with respect to advisers and the use of technology is the democratization of the value-added services advisers provide. The advent of wikis and mass collaboration is likely to creep into the space of advisers. Consumers of advisory services will no longer seek one trusted adviser for a myriad of services, but rather collaborate with a host of specialists, each of which offers a specialty in one specific area.
We're seeing specialists emerge for a variety of services, including IRAs (Ed Slott at IRAHelp.com), college funding (Rick Darvis of College Funding, Inc.), and tax planning (Michael Kitces at kitces.com).
With mass collaboration and wikis becoming more and more mainstream, advisers will face new challenges and have to respond by developing new service models, pricing structures, and business models.
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I believe that usability will become a competitive advantage in the financial planning technology marketplace. Even with the most popular applications in use today, there are significant issues with regards to how easy it is to get stuff done. It can take weeks or even months for a new employee to learn how to effectively use even the most basic tool.
The new version of Junxure, which we use extensively in our office, is a great example of this. Because features were piled one on top of the other and it was built in Microsoft Access, Junxure was stuck with the insanely poor interface. One of the six “major enhancements” listed on its website is a “modern new interface.” Although a slight improvement, I would argue that it still is one of the most difficult to use and learn tools in the industry today. Instead of a refinement of existing features they compounded the problem by adding even more new features and allowed you to tweak the interface to your whim.
It’s the same notion as providing a client with an 80 page financial plan with all the trimmings. The client isn’t likely to read your detailed report, and may even set it aside and completely ignore it. Similarly, a user won’t use all the new (and even the old!) features of Junxure if it is to onerous to get things done. I think there is a real opportunity for a competitor with similar or even less functionality to take market share simply by making it easier to do things.
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Great answers thus far.
Accurate, timely and aggregated data (Client, Account, Static Security and Holdings) remain the foundation of the infrastructure for implementing financial advice and guidance. Providing this data at the investor level (across accounts, account types, brokers, custodians, etc.) is still a challenge, and will become a larger challenge over the next 10 years because of two driving forces:
1) The increase in the use of alternative and complex securities in retail portfolios (significantly increased data and requirements)
2) The demand to provide and implement advice across the investor's entire portfolio, and ultimately across his / her entire household (Unified Managed Account and Unified Managed Household)
Slick front-end tools and reporting will continue to be developed, but the complexity added by the two items listed above provide even more compelling evidence that the underlying data management (aggregation and warehousing), portfolio accounting engine, and rebalancing engines will be the greatest technological drivers to allow financial advisors to deliver and implement the advice their clients will demand over the next ten years in an efficient and controlled manner.
Donald C
Institutional Investment Management for foundations, public pensions, and individuals nationwide.
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Davis,
I feel that technology needs will continue to center around two areas: The need for privacy/security and the need to more precisely manage portfolio risk.
Re privacy/security:
As we become a more mobile and more communicative society, we demand greater accessibility to information and to people. As the concept of an "office" disappears, the need for accessibility goes up but the need for security remains. I really want to be able to access client data whether I am in Florida or Helsinki, and I love that through VoIP I can be reached anywhere...but balancing accessibility with security is a challenge that will only grow.
Regarding managing risk:
I think we'll see an increase in increasingly complex instruments, especially the type that provide a "rifle shot" exposure to a highly specific occurrence. Fidelity came out with Fidelity Select funds back in the late 70s or early 80s and suddenly instead of buying "Large Cap Domestic Stocks", one could actually go and buy as specific a sector as "Japanese Telecommunication". The mid 80s began the trancheing of mortgages, and then municipal housing deals got involved, albeit later, with supersinkers, pacs, and mezzanine bonds. The wire houses began coming out with retail audience directed derivatives based on the spread between the Yen and $US, and it seemed as if as the years went on, you could buy more and more products that focused on less and less. Caps, swaps, collars, swaptions, etc. proliferated. For sophisticated portfolios, these items provide extraordinarily precise risk management. For the uninitiated, they were nuclear.
As computing power increases, and as scenario creation becomes easier, the risks become more defined. Once risk is better defined, the instruments to manage that risk will come to market. I see more risk management tools evolving, each with more complexity than the last.
Increasingly complex risk management tools, better data and personal accessibility, and higher security are the three things I see for our future.
Just a quick response to Ben Gilbert's comments: I certainly appreciate the issue of complexity vs. features in software systems and come up against this every day. There is a constant battle between people wanting flexibility and features yet they want it to be "simple" -- this is true in my experience of every single software application on the market. Take Microsoft Word...while it is easy to create a letter there are literally thousands of features and options to work with.
In my experience a simple answer to this lies in ongoing training -- in my firm we all take training classes every quarter and this has resulted in a very high level of use of our software systems (including Junxure!)
With that said we are always open to suggesions on how to make things better -- feel free to contact us at support@gowithcrm.com.
Greg Friedman, MS, CFP
President, CRM Software
