With all of the great advances we’ve seen in advisor technology over the last several years, you’d think that some of the basic technology problems that have plagued advisors for years would have been addressed by now. Unfortunately, that’s not the case.
Broadly speaking, when we think about the technology challenges that advisors face, it is useful to divide them into two camps: problems that advisors can easily control internally, and external technology challenges. Many of the internal challenges I see in advisor offices are firm-specific, but in this article let’s focus on some of the challenges that are beyond the control of most advisory firms.
Before we begin, a few qualifications are in order. The majority of RIA firms I meet with today do not have their own internal IT staff. That makes them more reliant on external providers. Those that do have quality technologists internally can address many of the issues outlined below, but often at significant cost.
One perennial technology problem that still exists today is the problem of integration. Although the situation seems to improve marginally each year, the level of integration, particularly on the independent RIA side, leaves much to be desired. In putting together their technology configuration, advisors have a number of paths to choose from. For simplicity’s sake, they can try to find an “all-in-one provider.”
For example, you can get CRM, portfolio management and reporting, a portal, rebalancing software and more today from Envestnet /Tamarac. They currently do not offer financial planning software as part of the bundle, but Finance Logix can be purchased from Envestnet as well, and further integration work is ongoing. In addition, Envestnet now owns Yodlee and a robo platform, so it is not difficult to envision an even more comprehensive offering from the firm soon.
The problem with this approach is you’ve got to be at least reasonably comfortable with all of the components of the package. For example, if you love the rebalancer and the portfolio management, but like the CRM and the portal much less, the total package might not be right for you. On the other hand, you can purchase just the components you like, but then you don’t get the deeply integrated all-in-one solution. Not every firm is a candidate for a comprehensive platform, but many of those who are gravitate to Envestnet/Tamarac.
Another approach is to choose one of the independent broker-dealer platforms. Some of these are quite robust, and the IBD offerings often include additional services such as marketing and compliance support. But they also entail compromises. For example, these platforms sometimes involve additional compliance oversight. Some advisors welcome this approach; others do not. Some platforms offer a wide choice of technology providers, but a more common arrangement is to offer fewer. As is the case with custodians serving independent RIAs, the level of integration and automation varies greatly. It is incumbent upon the advisor to perform the due diligence to ensure that the technology platform meets his or her needs.
For independent RIA firms, a popular choice is the best-of-breed approach. This can be the most beneficial in theory for a number of reasons. First, in principle, it provides the advisor with the widest possible selection of vendors to choose from. They can choose the best CRM software for their needs, the best portfolio management and reporting provider for their needs, the best financial planning software for their needs, etc. Second, it provides flexibility. If a better product in a given category comes along, or if the needs of your firm change, you can more easily find a suitable replacement for a single application such as a CRM than you can for an all-in-one solution.
Unfortunately, the best-of-breed approach entails its own unique set of challenges. The first is the capabilities and the integration partners of your current custodian. On the one hand, custodians have the potential to be a great enabler of technology for advisors, but on the other hand they often fall short in critical areas.
For any number of reasons, not all custodians integrate equally well with all third-party technology providers. In some cases, a custodian may not integrate at all with a third-party provider of interest to the advisory firm. In other cases, they may integrate, but not all that well.