Technology has had a tremendous impact on a number of different industries, and financial services is no exception. According to a recent study by RIA in a Box, advisors that use at least two technology solutions grew assets faster in 2015 than those that used none or just one. These technologies might include customer relationship management (CRM), financial planning, portfolio management, document storage, or other solutions that help save time and money.
In this article, we will take a closer look at the RIA in a Box study’s findings and how financial advisors can maximize assets under management (AUM) growth through tech adoption. (For related reading, see: Why Wealth Managers Can't Afford to Lag in Tech Literacy.)
How Technology Helps
Financial advisors provide individualized services to clients, which is less scalable than a product-based business model. There’s a limit to the number of clients that a single advisor can effectively serve since they only have so much time in each day.
Technology helps increase scalability by through greater efficiency. For example, advisors can eliminate the time it takes to rebalance client portfolios by using portfolio automation technologies. This helps businesses increase assets under management and revenue per advisor, while potentially enhancing profitability by streamlining non-advisor tasks. In many ways, technology has helped advisors productize their service offerings.
A growing body of research has shown that technology use is strongly correlated with assets under management and other key performance indicators. According to the RIA in a Box study, firms using two technologies experienced 4.2% greater growth in AUM than those using one technology and 8.7% greater growth in AUM than those using no technologies. Advisors using four technologies experienced the greatest AUM growth of 8.4%.
Picking the Right Solution
Financial advisors have countless options when it comes to acquiring new technologies, which means that it’s important to carefully select the right products to realize the greatest benefit. The RIA in a Box study found that customer relationship management and portfolio management and reporting systems were often the first to be adopted. However, the data showed that these two systems were correlated with the least growth in AUM. The greatest improvements were instead seen with investments in financial planning (e.g. forecasting and modeling tools) and document storage technologies.
Of course, acquiring new technology doesn’t guarantee that advisors will realize a benefit in terms of greater AUM or revenue per advisor. It’s important for businesses to invest time in training employees how to properly use the technologies to realize the greatest benefit. For example, a CRM system won’t do much good if all client communications aren’t recorded in the system and/or leads aren’t entered into the system for follow-up. (For related reading, see: How Advisors Need to Evolve to Stay Relevant.)
There are many different technology solutions for financial advisors, but InvestmentNews’ surveys highlight some of the most popular solutions. The most popular financial planning software was MoneyGuidePro (25.3%) followed by eMoney 360 (23.6%), according to the IN survey. When it comes to portfolio management, most advisors used their own broker-dealer platform (19.2%) followed by Morningstar Office (14.2%). The most popular document management solutions were provided by broker-dealers (23.2%), but nearly as many preferred LaserApp (22.1%).
Other popular technology solutions used by financial advisors in the survey included iRebal (15%) for portfolio rebalancing, Albridge Wealth Reporting for account aggregation (18.1%), and NRS ComplianceMAX for compliance (4.6%). That said, it’s worth noting that most advisors leaned on their broker-dealer platforms for meeting their needs rather than looking for external solutions in order to keep everything under one roof.
The Bottom Line
The RIA in a Box study showed that financial advisors leveraging technology tend to have greater growth in assets under management over time. The greatest benefits were seen with investments in financial planning and document storage technologies, but all major technologies included in the study generated some benefit. Advisors that are considering adopting these technologies should ensure that employees receive the proper training. (For more, see: Tech Trends Financial Advisors Must Stay Ahead of.)