Over the last several months, I’ve traveled thousands of miles, met hundreds of advisors and spoken with numerous representatives of custodians, broker-dealers and software vendors. Although I’m generally rather upbeat about the future of this industry, there are some things that concern me about current affairs. While I’m not predicting Armageddon or anything close to it, I do believe that individual advisors and organizations that fail to address these issues will lose opportunities at best and suffer consequences at worst.

If you started an investment advisory firm in 2009 and you invested in a traditional portfolio weighted toward U.S. equities, your returns since inception probably look pretty good. Your AUM, and hence your fees, are increasing nicely each year, and that’s even if you have not taken on many new accounts. Your computers may be past their prime, and you may never have benchmarked your current software against the latest generation of competitors, but why rock the boat, right? Everything is just fine.

Well, it is until it isn’t. I hope your firm can cope with its work flow during the next major downturn. If the last recession is any indicator, many firms will have problems.

Perhaps even more distressing is that there are advisors and firms who experienced the havoc of the great recessions yet continue to underinvest in technology. During the financial crises, the inefficiencies of different advisors’ processes were exposed as their client calls and service demands multiplied. The lack of automation caused many advisors severe hardship. Some have learned their lesson and are investing during this period of relative prosperity to better serve their clients in the future, but many are not, and they will be vulnerable in the future.

It appears to us that the gap between the best and the worst performing firms is widening. The top 20% are investing significantly in their businesses, the bottom 20% are not. Who do you think will be poised to grow during the next recession?

The state of software integration within our industry has never been better; unfortunately, it is still not good enough. Advisors want to be able to log on to their computers or tablets in the morning and seamlessly conduct all of their business from a single location with a single log-on. But for most advisors, that vision is closer to science fiction than it is to reality.

Advisor Xi from Envestnet/Tamarac offers an integrated solution that includes CRM, portfolio management, reporting (including a client portal) and rebalancing. The platform does not offer financial planning software, but it does offer integration with a number of industry-leading applications. Morningstar is another firm that offers a comprehensive suite of products, and its recent purchase of ByAllAccounts further broadens its lineup. Orion provides portfolio management software and reporting (and a client portal), as well as a custom version of Salesforce as an option. The software can be integrated with TRX for advisors seeking a rebalancing program. And it can be integrated with MoneyGuidePro, eMoney and GoalgamiPro for financial planning.

All of the major RIA custodians allow their platforms to work with third-party software to varying degrees, and the integration with these outside applications is meaningful, but there is still work to be done. Fidelity’s WealthCentral offers deep integration with a number of partners, but the list of vendors is too limited at the moment. Still, the company has recently taken some steps to address this weakness, and we expect more to follow. Perhaps no custodian has done more to foster integration than TD Ameritrade. But the integration is only as good as the work done by both parties—the custodian and the software vendor. TD Ameritrade has done a great job, but its vendor partners have had mixed results. We hear from advisors that more needs to be done.
Account Aggregation
When advisors are charging substantial fees for their services, it’s hard for them to skip account aggregation services on their Web sites. Robo-advisors and other consumer sites offer it (Mint.com and Personal Capital, to cite just two examples, make it available for free). But account aggregation is also important because it can reduce your reliance on inefficient manual labor—entering data into financial planning applications, for instance.

While advisors generally find the aggregation offerings available sufficient for their client portals and planning, I know no advisors (with the possible exception of those who work with Private Client Resources) who are happy with the accuracy of account aggregation when they are trying to use it for performance reporting. Quovo is one firm that claims to offer better aggregation, and its service looks promising, but for now the jury is still out.