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The pace of change in advisor technology has never been greater, nor has the technological disparity among financial services firms. At one end of the spectrum, some firms are still using hardware and software originally developed and deployed in the 1980s. At the other end, we have firms deploying software that didn’t even exist in the financial advisor space a few years ago. Below, we discuss a few of the technology trends shaping the industry today. We believe that all of these trends will play a role in the future success of financial advisory firms in 2016 and beyond.

The Evolution of Digital Advice Ad Digital Advice Platforms

Attitudes toward robo-advisors and other digital advice platforms within the industry are evolving rapidly. As recently as two years ago, most industry executives and advisors were still skeptical of these platforms. That is no longer the case. 

On the retail side, firms such as Wealthfront and Betterment continue to refine and improve their offerings, and new players continue to emerge. Some of the newer entrants are focusing their efforts on a specific market niche. For example, SheCapital and Ellevest are two direct-to-consumer robo-advisors marketing directly to women. As the retail space becomes increasingly crowded, we expect to see other firms deploy niche strategies to differentiate themselves. Although we’ve yet to see a proliferation of niche strategies among advisors deploying their own digital platforms, the developments on the retail side may be a harbinger of things to come on the advisor side of the business.

The retail offerings from new entrants have acted as a catalyst, spurring digital advice platform development from established financial services firms. Schwab Intelligent Portfolios has enjoyed a successful launch. More than 500 firms have signed up to use Institutional Intelligent Portfolios to date. Although Schwab does not break out advisor and retail assets on the platform, at the end of the first quarter of 2016 assets totaled $6.6 billion, up $1.3 billion from the fourth quarter of 2015.

TD Ameritrade is in the process of upgrading Amerivest for a relaunch. Fidelity is currently piloting Fidelity Go. In addition, Vanguard continues to enjoy great success with its Personal Advisor Services platform. 

All this activity is spurring independent and independent broker-dealers to respond. The U.S. Department of Labor’s fiduciary rule has been an added catalyst for the development of digital advice platforms, particularly among independent broker-dealers. Ladenburg Thalmann (the parent of Securities America and Triad Advisors) recently launched $ymbil, its initial foray into the robo-advice space. $ymbil differs from most other offerings to date. Instead of getting a portfolio of ETFs, clients are invested in one of five funds of funds tailored to various risk tolerances. LPL, the nation’s largest independent B-D, recently announced that BlackRock’s FutureAdvisor would power its robo-offering, though its investment portfolios would be constructed by LPL’s investment professionals. The offering is expected to launch in the second half of 2016. 

If all this is not enough to spur independent RIAs to get into the robo game, a recent alliance between UBS Financial and SigFig should be. Some have argued that the current digital advice platforms are not geared toward the wealthier clients that RIAs typically serve, but the UBS/SigFig alliance is reportedly working on a product that will address the needs of ultra-wealthy clients. 

The majority of advisors I’ve spoken with lately are planning to roll out a robo-like solution soon, but many seem to be struggling with how to best incorporate these new tools into their practices. So far, the majority are leaning toward using the new digital platforms, at least initially, to attract new millennial clients or to serve current clients with smaller accounts. A smaller number are looking to review their overall technology and operations to see if the newer digital platforms can replace some core existing systems and processes. 

There are numerous providers of digital platforms vying to provide digital services to advisors. They include Schwab Institutional Intelligent Portfolios, Autopilot (powered by CLS and Riskalyze), Betterment Institutional, Jemstep/Invesco, NestEgg/Vanare, Envestnet’s Advisor Now, Folio Institutional’s Advisor Connexion, Marstone, Wealthminder and Trizic. While not robo-advisors, other firms that can provide a modern user experience for advisors or their clients include Advyzon, Capitect and Oranj. We expect to see more advisors rolling out digital solutions under their own branding in the latter half of 2016 and beyond.

“We’ve seen a marked shift in advisor behavior recently,” says Chris LaVine of Marstone. “When we first announced our Powered by Marstone platform last year, there was a lot of interest from firms trying to understand what digital advice actually meant. Less than a year later, we’ve seen that interest and excitement convert to demand. We are actively engaged with several institutions who are looking to deploy a digital solution this year. This shift has been influenced by many things, including the latest DOL fiduciary ruling and a pressing desire from consumers for a digital platform.”

He adds that in his 25-year career building technology and investment platforms for advisors, he has never seen such an insatiable appetite for digital products that improve the client experience. “The demand is coming from every size and type of financial services firm—from independent RIAs, IBDs, wirehouses, regional and national banks, insurance companies and asset managers. And not just from North America. It is literally coming from every market around the globe.”

It is also worth noting that product manufacturers such as BlackRock, Invesco and Northwestern Mutual have all purchased digital advice platforms. This is clearly a distribution play on the part of those firms, and we suspect that competitors will be compelled to follow suit by buying, partnering or building their own. This should create additional competition in the space, which in turn will spur innovation and lead to better technology platform options for advisors and their clients.

Improving The Client Experience

The fintech revolution is impacting the industry on multiple fronts, but perhaps none more than the user experience. For years, both advisors and the technology firms that served them lived in a largely insular world. Technology products competed primarily on features and price. Little attention was paid to the user experience. Advisory firms were competing against other advisory firms whose technology offered the same user experience as theirs, so there was little incentive to innovate in this area. 

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.