In the race to compete with low-cost, online algorithm-based investing services, financial advisors are constantly bombarded by sales pitches about the latest and greatest in financial technology.
And they're buying. In North America, advisor spending on digital tools for managing wealth will reach $2 billion this year and swell to $5 billion by 2017, according to Boston-based research from Aite Group. The products, typically software, help advisors with everything from financial planning to compiling information from a client's multiple accounts.
Despite the urgency to use cutting edge technology, the pitfalls in picking the wrong tool or rolling it out poorly are real. The watch phrase for advisors that many experts suggest: spend wisely and implement well.
The first step in a well-thought-out and smooth implementation of a new financial technology product is making sure the software fits the firm, said Neal Quon, chief executive and co-founder of financial technology consultancy QuonWarrene in Orange, California.
Quon said he has seen many advisors install new software only to be underwhelmed by its capabilities. The on-screen images may look prettier than an Excel spreadsheet, for example, but the program does not actually save time.
Advisers should think about choosing financial technology as they would a client’s portfolio, Quon said.
"When a client comes to you and asks, 'Should I buy Google?' the answer is, 'It depends.' 'Does it line up with your long-term investment objectives?'"
Another consideration for firms is how the new product works with other software already in use, or planned. For example, will it be able to upload and use existing client data? Will the firm's custodian be able to analyze information it generates?