Constant Innovation In Wealthtech – Fact Or Fiction?

Larry Roth, CEO, Wealth Solutions Report

Wealthtech Providers Have The Opportunity To Focus Their Innovations On Some Basic Functionality That Advisors Say Need Major Improvement

During the past year, U.S. firms made more than 200 wealthtech-related announcements. Wealth Solutions Report covered more than 40 of them. I’ve heard some version of the phrase “wealthtech providers are constantly innovating” more times over the past decade than I can recall. While this refrain may be true, it does not quite capture the deeper challenges impacting financial advisors and their firms. 

To be sure, it is valid for wealthtech providers to point to their track records of rolling out new products and upgrades on a regular basis as well as integration partnerships with complementary tools. Breakthroughs in automation, data analytics and aggregation, machine learning, natural language processing, artificial intelligence, remote offices and mobile device applications have the potential to transform how advisors work.

Massive Appeal

There is a reason why Orion Advisor Solutions has approximately $3 trillion in assets under administration serviced across approximately 2,300 advisory firms, Envestnet has approximately $4.8 trillion in total platform assets across approximately 106,000 advisors and Schwab reportedly has approximately $3.7 trillion, or 54%, of RIA assets.

Just as there is a reason why thousands of people travel across the country multiple times a year to attend the assorted wealthtech industry conferences that providers tend to host in warm weather states like Florida and California. For more on that, see our recent guide spotlighting Orion Ascent, the T3 Advisor Conference, WealthStack, Future Proof and the Riskalyze Fearless Investing Summit.

Yet the inescapable reality is that financial advisors and wealth management firms have different concerns than wealthtech providers, and from each other. I had firsthand experience with this during my tenures as CEO of AIG Advisor Group (now Advisor Group) and as CEO of Cetera Financial Group.

Wealthtech providers need to sell their platforms to as many users as possible, often through a combination of enterprise level and small-to-midsize business level recurring licenses. Wealth management firms need wealthtech platforms that enable them to scale up their own businesses at maximum profitability, primarily by attracting high-performing advisors through recruitments and M&A deals. Advisors need wealthtech platforms that enable them to improve how they attract and serve clients.

Down To Earth

Penny Phillips, Co-Founder and President, Journey Strategic Wealth

This brings me to a tweet that Penny Phillips, Co-Founder and President of Journey Strategic Wealth, posted back in October: “So many webinars about the “future of fintech” & how exciting it is. 0% are discussing the basic problems that we haven’t yet solved for individual advisors esp at custodial level: acct opening, docusign, reporting. Please come back down to earth & refocus on present issues.”

Her tweet quickly received more than 100 likes, six retweets and several comments from others in the industry supporting her perspective. That may be because Phillips spoke to the crux of the conflict here, which remains alive and well today. Good technology presents solutions to pressing needs, by addressing current human behaviors. If advisors are still struggling with basic things like account opening, “wealthtech innovation” merits a serious reality check.

Indeed, as one commenter, John Stoj, founder of the flat-fee RIA Verbatim Financial, tweeted in response to Phillips, “This is so huge. I swear I’ve almost lost a few clients just because of account transfer complications.”

John Stoj, Founder, Verbatim Financial

Granted, some hurdles with account openings and transfers involve regulatory requirements that advisors and their firms must meet regarding client disclosures, recordkeeping, confidentiality and cybersecurity measures. I also would be remiss if I ignored the fact that the average financial advisor – at approximately 55 years old – is not exactly a technological expert. (Phillips is much younger than that.)

Even back office support staffers, who ostensibly should have mastery of the relevant software, rarely know or make use of all the features in a wealthtech platform that could maximize their efficiency. But, ultimately, that is on the wealthtech provider.

After all, a highly versatile wealthtech platform with robust functionality and countless features still should be user-friendly and intuitive enough for advisors and support staffers to make the most of it without having to commit a burdensome amount of time learning how it works.

Platform Selection

This is a significant factor when you consider how many different tools an advisor might have to touch. Customer relationship management (CRM), financial planning, portfolio management, risk analysis, model marketplaces, turnkey asset management (TAMP), trading, custodial, reporting, marketing, billing, workflow and document management, compliance, cybersecurity, digital communications oversight, business intelligence and more.

Of course, wealthtech providers that offer what strive to be nearly comprehensive all-in-one platforms have the ability to streamline their products and minimize a user’s learning curve while keeping costs down for the wealth management firm. On the other hand, that package will not work for every advisor and it may cease to be the best option for the wealth management firm as its business evolves.

The alternative is for a firm to assemble a patchwork of integrated wealthtech solutions from the full array of possible providers. The benefit of the patchwork approach is the potential for better customization than the nearly all-in-one approach, but it can be costly and still take a lot of time to get right through trial-and-error and steep learning curves.

In theory, the largest wealth management firms can build their own in-house wealthtech platforms. This is risky. For one thing, advisors prefer the familiar and a new in-house platform could seem very unfamiliar to some advisors. For another, software development is not the core competency of any wealth management firm so the odds of building the superior platform are low. And good luck trying to gradually “fix” an in-house platform over the years as different mid-level and C-suite decision makers come and go.

The Way Forward

What, then, is the most practical way forward for advisors, their firms and the wealthtech providers that serve them?

According to a report released in January by F2 Strategy, firms should institutionalize CRM-related analytical processes around business and prospecting, better define their CRM goals, research CRM options before committing and find the proper fit for their goals. In theory, advisors and their firms could modify that approach for almost any wealthtech solution, from portfolio management to compliance.

David Knoch, CEO, Docupace

David Knoch, the CEO of Docupace and one of our previous WSR Wealthtech Leaders of the Month, shared another insight for our January Wealthtech Roundup. “Advisors and RIA leaders cannot know ahead of time when a new product will be worth their time or money,” he said.

“To combat this uncertainty they need two things – a strategic plan with measurable goals and to work with a company they can trust,” Knoch said. “Wealthtech is based on two main pillars – relationships and results. If you don’t develop both, your time in the industry will be short.”

As far as I can tell, the most popular wealthtech providers deliver genuine value-add to the industry. They also have substantial opportunities to enhance their most basic capabilities. 

Meanwhile financial advisors have every incentive to both give constructive feedback to wealthtech providers on what they need and to learn which tools are best suited for their practices. Wealth management firms can help advisors, and their own bottom lines, by facilitating meaningful conversations and implementing useful training programs about the appropriate platforms.

Taking these steps could lead to game-changing innovations in wealthtech.

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