There has been a lot of emphasis put on creating a digital experience for customers in order to stay relevant, especially for the digitally native next generation. This has included buzz around everything from robo-advisors, mobile apps, and online chat services, to the rise of the robo-advisor-for-advisors.
However, recent studies show that advisors have gotten poor ROI from many of these software products due to poor adoption or outright shutdowns.
That’s not to say that technology for financial advisory firms can’t be impactful or necessary. Recent studies from Kitces, Cerulli and Fidelity show that technology has a real benefit for advisors when implemented in the correct areas, namely back-office tasks that can intrude on the work that actually help firms grow, like interacting with clients.
All of these studies conducted surveys based on between 500-2000 advisor responses to gauge what technologies firms use most, the challenges posed by technology, and the effectiveness of the technology used.
Read below for the four key takeaways on how to implement technology effectively in your firm to drive growth.
1: More technology can mean more growth
According to the Cerulli report, advisory practices that lean heavily into technology gain a valuable edge over their competitors, as they do better in attracting new clients and managing larger assets. The study found that nearly 30% of firms who self-identified as heavy technology users have seen higher growth over the past three years, a stark contrast to only 9% of light users.
Echoing this, Fidelity’s study found that digitally empowered firms had a mean client growth rate of 20% compared to 8% of firms who were not considered large technology adapters. Overall, the study found that firms that embraced technology best practices not only reported higher than average efficiency, but also stronger growth, better client experiences, and higher advisor satisfaction.
When advisors were asked which tools enhanced their operational efficiency, the top responses were e-signature programs (65%), customer relationship management (CRM) software (44%) and video conferencing (29%). According to the Cerulli study, these tools were also among the most commonly used, ranking first, second, and fourth in usage frequency, respectively. Heavy tech adopters tended to serve more clients per staff member, outperforming other firms across measures of clients per producing advisor, clients served per professional staff and clients per senior advisor.
Both studies found that being a digitally empowered firm means having a technology strategy, including a process for evaluating tech by need, and a more formal, firm-wide digital strategy.
Pro tip: Firms must understand how to use technology and what technology actually resonates with their client pipeline and current processes. A good way to start is to appoint a “technology champion” on your firm who is responsible for researching specific software and reporting back to the firm.
2: Back-office tasks are the enemy for advisor productivity
These repetitive tasks take too much time away from activities that actually foster growth. The Kitces study on advisor productivity found that tasks usually done by the advisor or delegated to a team member, like administrative and client-servicing tasks, were taking up 25% of advisors’ time! There is clearly a significant opportunity for technology to streamline behind-the-scenes tasks in firms.
Accordingly, it’s not surprising that the Cerulli and Fidelity studies both found that the benefits of “tech-savvy” and “digitally empowered” advisors are showing up in back-office support technology, not necessarily client-facing tools. In fact, the Fidelity study reports that tech-savvy firms were two times more likely to avoid wasting time rekeying info across platforms and were two times more likely to use automated workflows to be more productive.
The Cerulli study shows that tech-savvy advisors are outgrowing their peers, garnering the greatest efficiencies from e-signature, CRM and video conferencing tools. In the same vein, a Fidelity study shows that more digitally empowered advisors report the most significant improvements in process efficiency around money movement, trading and rebalancing, and other account maintenance tasks.
Pro tip: These findings suggest that advisory firms should prioritize digitizing their internal processes and workflows over enhancing the “digital client experience.” This shift would free up time to directly improve client interactions through more meetings, touchpoints and non-digital services.
3: Training should be a bigger focus
Despite the advantages, advisors encounter many obstacles in adopting technology. The research suggests that technology platforms should prioritize making their software easier to learn and use for implementing common advisor workflows, rather than solely focusing on new portal enhancements for the digital experience.
The Cerulli study highlights that, aside from compliance constraints of certain platforms, the main barriers to technology adoption among financial advisors are not related to its digital appeal to clients. Instead, the issues are the lack of cross-tool integrations to streamline workflows (73% of advisors reported this issue) and difficulties with training and implementation (70% of advisors).
Pro tip: Fidelity’s study found that the top growing firms were two times more likely to provide adequate training and resources on advisor tech. Educating advisors on best practices and facilitating peer collaboration and learning may have a greater impact than introducing the next generation of existing tools and technologies.
4: Clients value help from a human more than from technology
The Kitces study found that robo-advisors have struggled to succeed, even in areas with little direct competition from traditional financial advisors, such as serving millennial clients. The high client acquisition costs are challenging for both robo-advisors and human advisors, with many advisory firms lacking expertise in executing effective digital marketing strategies.
This doesn’t necessarily render “robo-advisors-for-advisors” solutions useless, but highlights the need for advisors to develop a service model that is relevant and valuable to millennials, establish effective marketing strategies, and then incorporate robo-technology to enhance implementation.
Pro tip: Advisors cannot outcompete robo-advisors purely on technology. Instead, you should leverage robo-advisor technology as part of a comprehensive service offering for millennials, focusing on your strengths and using technology to streamline processes, but only after addressing the marketing challenge.
Ultimately, the key point is that when consumers opt for a financial advisor over a self-directed technology platform, they implicitly express a desire for the unique value that a human advisor offers beyond what technology provides.
This suggests that the best investments for advisory firms are in their internal systems to improve efficiency and free up time, allowing advisors to focus on delivering personalized relationship advice.
Overall, for technology to be effective, firms need to implement a technology strategy that aligns with their client types, specific services and service delivery methods. Technology can have a significant impact in growth, but only when used strategically.
Don’t waste money on tools that don’t make sense for your customers and workflow. Rather, focus on using technology to improve productivity and free up your time for more important and impactful work.