Technology companies–mostly software providers–looking to do business with wealth managers have put themselves in a predicament. They sought to build the most sophisticated products and services useful to every firm. But what they built is so complex, too few wealth managers want to use them.
In 2019, Cerulli Associates, a Boston-based research and consulting firm, evaluated the technology wealth management practices were using at broker-dealers, RIAs, and others. It then segmented the practices into light, medium, and heavy technology users and found that beyond financial planning and client relationship management, or CRM, software, advisors are using minimal technology beyond that.
The researcher found that 44,055 advisor practices, representing $8 trillion or 40% of advisor-managed assets, are only medium technology users, meaning the practices “do not use technology extensively and could be better serviced by strategic partners.”
“Technology has the power to transform a practice by elevating the client experience and increasing overall productivity. However, many advisors are unable to unlock the full potential of their technology stack because they are plagued by a common set of challenges that impede adoption,” Marina Shtyrkov, a research analyst at Cerulli, wrote in the report.
“Even heavy users–practices that currently use a breadth of tools–believe that they are not fully leveraging their technology.”
The biggest hurdle the majority of practices (68%) faced was a lack of time to learn and implement technology. Other challenges were inadequate resources and training from their broker-dealer or custodian (52%), lack of support staff (54%), and data security risks (50%).
Consequently, RIAs, who tend to have less support than advisors at broker-dealers, are especially strained. They might enjoy more freedom to choose their own software and tools but the “universe of available technologies is nearly limitless.” RIAs have less time, a proliferating number of choices to vet, integrate and maintain, and are cost-conscious.
“For independent advisors, it is a question of cost vs. return on investment (ROI),” Shtyrkov said in the report.
To improve adoption of technology, Cerulli “urges strategic partners to consider how to balance customization with simplicity” and leverage young advisors as early adopters who can encourage others.
The lagging adoption of technology could be more a symptom than a disease. But either way, technology companies that don’t improve might be in peril. Another researcher recently warned the wealth management industry: “Digitize or die.”
And new companies have identified the market for simpler technology and designed their companies accordingly.
One example is Altruist, a new digital, commission-free custodian for RIAs that emerged last year and promised to simplify advisors’ technology. If it replaces much of the existing software needed to run an advisory business like it plans to, many of the technology intermediaries will become irrelevant, according to its founder.
