By John Wotowicz, CEO, inStream Solutions
In the era of Robo-Advisors, technology can be the tool that gives advisors the edge.
TD Ameritrade/FA Insight recently published their annual study of advisory firms. The 2016 study, FA Insight Study of Advisory Firms: Growth by Design, identified the challenge most advisors face – slowing asset growth and rising overhead expenses. In 2015, asset growth fell by 56%, firm revenue growth declined to half of its 2014 rate, and median overhead expenses per client rose 31%.
We aren’t surprised. Advisors who historically focused on investment planning are feeling pressure on their value proposition as investment advice becomes commoditized through robo-advisors, indexed investing and target date funds. Advisors need another way to add value beyond investment selection.
To address these challenges, advisors increasingly need to evolve. Many industry thought-leaders are forecasting that financial advisors’ practices must become more financial-planning centric and move planning from a secondary activity to a primary activity in order to maintain revenues and provide client value. This will empower the advisor to deliver superior client outcomes, increase client and asset retention, grow AUM and with the appropriate tools, comply with the DOL’s new fiduciary standard. This means migrating client touch points away from investment performance to focus on the attainment of client goals.
Another powerful takeaway from FA Insights’ 2016 study is that an advisory firm’s operational infrastructure, including management of workflow processes and application of technology, can be a powerful tool for leveraging efficiencies in addition to raising the quality of client service. We couldn’t agree more.
The study suggests that only 29% have applied technology to fully automate portfolio management workflow. Few firms, only 3%, say they are fully integrated so users can access data from across different applications.
Leading financial advisory firms are now implementing technology that can help them improve their client service without increasing overhead. Modern planning engines are more accurate, giving advisors and clients more confidence in client outcomes. These engines are powered by big data with analytics built on the work of leading edge financial planning experts. Accuracy in planning calculations is crucial to ensure clients attain their goals and advisors make informed decisions to guide their clients toward their goals. Those plans and the software supporting them cannot be static – they must be proactive and the analysis must include sophisticated functionality to respond to market events and clients’ life events.
What can technology do today to help advisors enhance the service they provide to clients?
- Provide alerts so the client has reason to reach out to the client and make adjustments to stay on plan.
- Deliver comprehensive practice reporting and key metrics so the advisor can manage a practice and be in compliance with the DOL’s Fiduciary.
- Mine financial data to provide tailored opportunities for clients that can improve their outcomes.
- Update client plans with new information/crowd-sourced data in a constantly changing world.
- Offer valuable “what-if” scenarios that allow intelligent client interactions and continue to build confidence.
The right technology helps advisors drive practice growth and efficiency while augmenting the value advisors bring to clients. It helps individual advisors as well as firms manage their practices. It can also help assure consistency across advisors and offices – an important objective as consolidation in the industry accelerates and many firms need to manage multiple offices.
In many ways, robo-advisors have reinforced the need for human interaction as technology can only go so far. Increasingly, advisors with the right technology can do more to deliver client outcomes. That technology can help advisory firms rein in overhead and pave the way for an enduring and profitable practice.
John Wotowicz is CEO of inStream Solutions, the premier financial planning software that is revolutionizing the way wealth managers deliver advice to their clients.