As has been the case in many other industries, technology outsiders have been acting as disrupters. Free or very low cost platforms provide a user experience today that is superior to what clients can get from their advisors. This is not sustainable, hence the renewed advisor interest in better client-facing technology. In addition, most advisory firms seek to grow their businesses and maintain their profit margins in an increasingly competitive environment. This is leading to a newfound appreciation of usability as it relates to advisor-facing software. The easier it is to use, the more automated it is and the more scalable it is, the more productive advisory firms can be. Quality software cuts training costs, improves efficiency, reduces errors and provides scale. That’s a powerful combination.
A Renewed Interest In Financial Planning
There was a time when financial advisors could make a living by simply charging for asset allocation and monitoring it on an ongoing basis. It seems clear those days are gone. Digital advice platforms offer consumers essentially the same service for prices ranging from zero to 25 basis points. One could also argue that robo-advisors do a better job of creating portfolios aligned with client goals than do balanced mutual funds, target-date funds or lifestyle mutual funds.
If investment management and asset allocation services are becoming increasingly commoditized, what’s the financial advisory firm to do? Many are pivoting to deeper, holistic, financial planning engagements with their clients. This is a long overdue and positive trend. In the past, many financial advisors paid lip service to financial planning; only a small minority provided the actual comprehensive service to clients. This is starting to change. The perception among most advisors I speak with is that financial planning services are much less likely to become commoditized. While I agree that this is the case in the near term, it remains to be seen what will happen in the longer term.
The renewed interest in financial planning has created demand for better, more customizable and more usable financial planning software. Most of the better-known names in the industry are responding with improved products.
Last year, eMoney released a totally new version of its flagship product, which was very well received in the marketplace, and further enhancements are scheduled for later this year. Industry leader PIE-tech recently released a new version of MoneyGuidePro. This version includes numerous usability and collaborative features. It is also the first financial planning software product to incorporate built-in work flows that guide the advisor through the creation of the financial plan. Advicent continues to improve upon its NaviPlan application, and it also offers Figlo, an engaging, client-centric financial planning application. Finance Logix, which was purchased last year by Envestnet, is expected to release a major new version shortly.
The last few years have seen a few new entrants into the field for the first time in recent memory. Two that have attracted my attention, as well as the attention of many advisors, are Advizr and RightCapital.
Account Aggregation
Account aggregation is a key to both advisor efficiency and a great end user experience. Account aggregation improves advisor efficiency when it can provide the advisor with a holistic picture of the client’s finances or when it can be used to automate what were formerly manual tasks. If advisors don’t directly manage all of a client’s finances, they cannot efficiently create for him or her an appropriate portfolio or provide accurate financial advice. Account aggregation allows advisors to see the full picture. Account aggregation can also automate data entry. For example, instead of populating the financial planning software manually, an advisor using data aggregation can enter much of the data automatically. This saves time, improves accuracy, and lowers the cost of plan preparation and maintenance.
Aggregated data is also necessary to populate client dashboards, providing clients with an up-to-date view of all their financial assets.
Unfortunately, the usability and accuracy of account aggregations services, while much improved from years ago, still leave much to be desired. In most cases, the accuracy of the data is good enough for populating financial plans and client dashboards, but in many cases not good enough for performance reporting.
Better Analytics
Only a small minority of financial advisory firms today have all of the analytics they need to make important business decisions. Even when the data is available, it is not always in a user-friendly format. This state of affairs is rapidly changing. Many technology firms, custodians and broker-dealers are creating preformatted business analytics dashboards to help advisors better run their businesses. These dashboards typically contain things like asset growth analytics, revenue growth analytics, profitability measures, client demographic changes over time, and much more. Armed with this data, firms can better plan and better deploy their resources.
Voice
Although voice has yet to make much of an impact in fintech, we believe that it will have a significant impact in the future. Apple, Microsoft and Google all allow users to use voice commands. The success of Alexa, Amazon’s voice technology built into its Echo speaker, has reportedly exceeded even Amazon’s initial expectations. As a result, Google is releasing a competing product called Google Home, powered by Google Assistant.
In the not-too-distant future, it is likely that all clients will be able to access their financial information using these tools. For example, they will be able to ask Alexa what the performance of their portfolio has been over the last 12 months or if their financial plan is still on track to meet all of their financial goals.
On the advisor side of the business, we expect that advisors will be able to pull up a client’s financial plan or portfolio just by asking. In the future, you may be able to rebalance a household and harvest a $25,000 short-term loss just by telling the software to do it. What a time saver that would be!
Looking Forward
We’ve limited this discussion to technologies readily available today, either in the fintech space or in the consumer marketplace. There are many other technologies, including facial recognition software, artificial intelligence and many more applications that we expect to affect this business soon.
Some advisors are resisting technological change, but an increasing number are embracing it. It is the latter group that is sure to prosper in the years ahead.