Advisor practices that implement sophisticated technology systems also tend to do a better job of growing their client base and their assets under management, according to Cerulli Associates.
The correlation, the research firm said, is partly a result of technology freeing up advisors to spend more time with clients.
“Those practices that are using technology in a more sophisticated way are enabling their advisors to focus on those actions that are most valuable,” said Michael Rose, director of wealth management at the Boston-based consulting firm. “So, for example, advisors whose practices are heavy users of technology identify that they are spending more time in client meetings, more time doing financial planning and analysis, more time prospecting for clients, and less time on client service problems.”
Rose, speaking last week at a webinar entitled “Wealth Management Technology: Financial Advisor Adoption, Utilization and Performance,” said that the benefits of technology should compel firms of all sizes to seek more ways to automate their backoffice operations.
"The correlation between financial advisor technology adoption and practice performance is growing stronger," the firm said in an introduction to the webinar. "According to our latest research, advisory practices considered heavy users of technology tend to outperform other practices in terms of new client growth rates and assets under management (AUM) growth rates. In fact, nearly 30% of heavy technology users are identified as being higher-growth practices over the most recent three-year period, compared to just 9% of light users."
Rose said small firms sometimes struggle to keep up with larger competitors when it comes to technology.
Smaller firms or solo practices tend to offer fewer services than larger multi-advisor firms, and having fewer services requires less technology, he said.
“Practices that have less than $100 million in assets under management, we see those practices being the least sophisticated technology user,” he said. “They tend to be solo practices or provide a more limited range of services.”
But beyond the $100 million in AUM, there are more clients, a greater need for practice efficiency and operational efficiency, more services offered and more teams delivering those services.
“They’re providing more advanced planning services, estate planning, advanced income tax planning,” he said. “As a result, the range of technologies they need to deploy those services increases in sophistication. There’s also a more sophisticated investor, so those practices are also increasingly focused on client experience.”
Light users of technology tended to have AUM less than $100 million, medium users between $100 million and $250 million, and heavy users of technology tended to have AUM greater than $250 million, he said.
One of the challenges for advisors growing their firm size is, as they increase the range of services they’re providing to attract bigger clients, they’re often faced with having to do more without making more—unless they use technology to their advantage, he said.
“They’re providing more services, but they’re not necessarily increasing their fee, their AUM fee, and so they have this profit-margin compression challenge where they really need to be able to operate more efficiently in order to maintain profit margins,” he said. “Technology is really the key enabler in that, and the results speak for themselves.”
According to 2023 Cerulli research, 95% of advisors currently use e-signature technology, 92% use video conferencing, 87% use investment research tools, 83% have a client portal, 80% use CRM and 76% use general financial planning tools. These pieces of technology tend to be the kinds of tech that light users of technology employ.
The kinds of technology more sophisticated firms would use include specialized financial analysis tools (61%), document management (59%), proposal generation (53%), investor risk tolerance analytics (53%), marketing or prospecting tools (46%), portfolio risk analytics (42%) and tax analysis and planning (27%).