By George Tamer

One of the more common questions we receive from advisors when we consult with them on their business and practice management issues is how to achieve a healthy return on technology investment.  

It's a concern for advisors as so many have been bruised by the market downturn, with revenues and profitability markedly reduced. In response, many are now looking at their existing software and systems to drive efficiencies in their firms and improve profitability.

According to the RIA Sentiment Survey recently released by TD Ameritrade Institutional, 55% of advisors surveyed indicated that they would be investing in upgrading their existing technology in 2010.  Leading the pack were investments in back-office technology such as portfolio, client relations, compliance and document management systems. But the bigger question for advisors is how best to use cutting-edge technology to achieve business efficiencies.

What we have learned from consulting with advisors is that the key to success is not just a focus on the hardware and software.  The answer is found in how these firms combine people, process and technology to define, standardize and utilize the technology so that it is used to its highest potential.

By far the most expensive line item in advisory firms is the compensation for staff, so it makes sense to reposition technology as a way to lower staffing costs, drive efficiencies and build scale into operations. This requires that advisors have a good handle on their organizational structure, job descriptions, staffing and skill levels.  

According to the October 2009 FA Insight Study of Advisory Firms: People and Pay, sponsored by TD Ameritrade Institutional, standout firms devoted a smaller proportion of revenue to compensating administrative, support and technical staff than the rest of the firms in the study. These firms have systems in place that facilitate the deployment of lower-cost labor to achieve the same results as other firms deploying more experienced staff. By putting the right people in the right places, defining and communicating the proper work flow processes, deploying incentive compensation and applying effective management, standout firms are getting more efficiency and productivity out of less experienced and lower paid staff.

Consider the following scenario that we've seen play out at advisory firms across the country. A busy, growing firm has just installed a document management system to help them go "paperless" and automate their new account opening process.  While the technology was easy to implement and they were happy with its overall performance, initially they haven't seen as dramatic a reduction in overall costs as they had expected.  

As we look further, we realize that while the firm has very advanced technology, they don't have a good handle on how the technology can streamline workflows and business processes, allowing them to get the maximum benefit from the system.  

This became evident through a very simple matter of examining the workflow process and measuring how much time various staff spent on the associated tasks.  The firm was assigning a fairly senior back-office staffer to "own" this new account process and singularly manage the scanning, indexing, routing and approvals of incoming documents into the system.  This person was assigned because they had experience and spent a good portion of their time managing this process previously.