Technology providers must navigate a fine line as they cater to the needs and preferences of wealth firms
As the COVID-19 pandemic continues to assert its grip, many wealth firms pushed toward a remote-work paradigm are exploring more technology-enabled means of operation, administration, and client communication. This presents a prime opportunity for vendors – but they must still walk a delicate line.
In a new report, Cerulli Associates highlighted how wealth management and advisory firms in the U.S. have been able to achieve greater efficiencies depending on the degree to which they used technology. Heavy users, it found, could spend 24% more time on practice management and 6% more time in client meetings compared to the general population of advisors.
“By reducing time spent resolving client service problems and managing investments (trading and rebalancing client accounts), advisors gain back time to focus on their clients and their business,” Cerulli said.
Other statistics suggested that industry assets tended to be slightly concentrated toward heavy tech users. While only 36% of advisor practices heavily adopted technology, they controlled 46% of asset market share. Over half (53%) of practices with US$500 million or more in assets, which together account for US$5.5 trillion, were heavy users; in contrast, just one fourth of practices commanding US$25 million or less in assets were heavy users.
Advisors that used tech heavily managed an average of US$239 million per practice; medium users managed US$283 million, and light users handled US$106 million. The survey also found that advisors in practices that use tech heavily were 48.9 years old on average, compared to advisors in light-user practices who were 52.4 years old on average.
A positive feedback dynamic tends to develop when it comes to adoption of technology by larger firms, Cerulli said. The scale of larger and better-resourced practices allows them to take better advantage of technology solutions as the work and training involved in adoption can be apportioned more reasonably. The successful integration of technology, in turn, may make practices more efficient and allow them to achieve scale.
“Niche technologies (e.g., Social Security optimization, mind mapping, stress testing) are most applicable to practices with a narrow focus, or larger teams that can afford extra digitization,” Cerulli said. “Small practices can also benefit from this technology, but the associated cost—especially on top of their core tech stack—is often not feasible.”
Client portals are also projected to grow significantly, with total estimated use of client portals among all advisors estimated to reach 84% by 2021. While firms may elect to take on multiple client portals, Cerulli warned that having too many can create confusion for clients, and could introduce complexities for advisors as they help clients set up access credentials, provide training, and resolve locked-out accounts.
And while extensive customization options can be beneficial to let firms adopt the features for their specific needs, the report noted that broker-dealers that build their own technology solutions may face additional complications as they devote personnel and ongoing effort to maintaining those systems. An excess of choice, therefore, can create a burden as the industry strives for greater fintech adoption.
“Ultimately, technology providers walk the line between simplicity and customization. … While some advisors want to customize every setting and assumption, appreciating the depth and detail available to them, others prefer templates and turnkey resources that prioritize simplicity and ease of use,” Cerulli said.
