Journal of Financial Planning: January 2014
Technology is essential to operating a successful and profitable planning practice. Whether it’s software integration, mobile devices, cloud computing, or the latest on so-called robo advisers, you’ve got questions. The Journal’s practitioner editor, Michael Kitces, uncovers the answers in this roundtable discussion with tech experts Joel Bruckenstein, CFP®, Jennifer Goldman, CFP®, JP Nicols, CFP®, and Bill Winterberg, CFP®. And if you’re wondering how much you should be spending on technology or what the biggest bang for your tech dollars is, read on.
Participants
Joel Bruckenstein, CFP®, is co-founder of Technology Tools for Today, which produces a regular newsletter and holds two technology conferences for advisers each year. He also writes regularly on technology for Financial Planning and Financial Advisor magazines.
Jennifer Goldman, CFP®, is founder of My Virtual COO, which does implementation and strategic work for firms to make operations more profitable and lean through technology, outsourcers, integrations, and best practice processes. She is also founder of www.VirtualSolutionsforAdvisors.com, the largest directory of U.S.-based industry outsourcers and virtual staff.
JP Nicols, CFP®, is CEO of Clientific, which helps financial technology firms innovate to improve business performance. He also is a partner at Bank Solutions Group, a consultant to financial institutions.
Bill Winterberg, CFP®, is founder of FP Pad, a technology publication and news resources for financial advisers. He hosts FP Pad Bits and Bytes, a weekly video recap of news for advisers. He also writes about technology for the Journal of Financial Planning and MorningstarAdvisor.
Moderator
Michael E. Kitces, CFP®, CLU®, ChFC®, RHU, REBC, is a partner and the director of research for Pinnacle Advisory Group, a private wealth management firm in Columbia, Maryland, that oversees approximately $1 billion of client assets. He is the publisher of the e-newsletter The Kitces Report and the financial planning industry blog Nerd’s Eye View through his website www.kitces.com. He also serves as practitioner editor of the Journal of Financial Planning. Follow him on Twitter at @MichaelKitces.
Kitces: What is the biggest technology trend you see impacting financial planners in the next one to three years?
Goldman: The biggest tech trend we’re going to see are the PFMs (personal financial management software) that Michael has written about (see Kitces’ November 18 blog post, “When Will There Finally Be a Good Personal Financial Manager (PFM) Software Solution For Advisors?” at www.Kitces.com). These systems are pretty much going to revolutionize the servicing angle and the amount of back-ops work that needs to be done.
Winterberg: My trend for the next one to three years is going to be practical use of big data. Today, advisers don’t have tools or techniques to make any sense of even the data they collect from their clients. They’re going to see some tools—new integrations, new products—be introduced over the next one to three years that will produce actionable insight based on the collective data in a financial planner’s business. And they will be able to use that data to focus on growth areas in their business, referral centers from select clients, where hotbeds are for assets and new client acquisitions.
Bruckenstein: I agree with Bill. I think big data is certainly one of the big themes over the next one to three years. I think the other one is mobile. Everybody has mobile devices, but I think their utility for our business has been limited because we haven’t had the appropriate tools to take advantage of it. And you’re just starting to see the emergence of real practical tools for advisers in the mobile world. One good example is electronic check deposit, so advisers and their clients can deposit money directly into their accounts.
I think you’re also going to see, over the next 12 months, a real ramp up in automatic electronic authentications, both of things like new account applications—so account opening— and also things like authenticating wire transfers and other money movements.
Nicols: I would certainly agree with all the above, but I think about this kind of two ways. The first is very broadly and the changes outside of the industry, and there, I think one of the biggest trends is the growing gap between the haves and the have-nots. In this case, I’m not talking about clients, I’m talking about advisers and the latest technology. The firms that are adopting technology and scaling and getting bigger and better and faster are going to outpace those that aren’t making those kinds of investments.
And the other kind of external thing is the increased consumerization of technology, so the expectations of our customers are greater than ever. They carry around more computing power in their pocket than we used to send Apollo 11 to the moon, and they look at some of the firms and say, “Wow, I’m ahead of where the firm is.”
But inside the industry, I’d name three things. One is increased collaboration tools. Two is a move to more of what I’d call scalable and actionable financial planning. And the third thing is artificial intelligence and machine learning.
Kitces: JP, your comment about the gap between the haves and the have-nots—the tech-enabled advisers versus those who are not—reminds me of a Fidelity benchmarking study earlier this year that surveyed more than 1,000 advisers and found that younger advisers had larger and more profitable practices on average than baby boomers established 10 or 20 years longer, and the biggest differentiator was that the young advisers were drastically more tech-enabled.
A few of you touched on using mobile technology. I feel like the past year has been a year where we’ve seen a lot of big platforms transitioning to the cloud. Are you seeing this playing out with advisers as well? Are planners finally going to the cloud? Should they, or is there a reason for them not to make a transition to the cloud at this point?
Bruckenstein: We’ve been speaking about this for years. The impediment in the past was the particular software package, or the particular custodian that an adviser was dealing with did not make it easy to go to the cloud, perhaps because they had a program or two that [an adviser] really liked that wasn’t in the cloud.
Almost all new software development in the industry these days is cloud-based, and you’re seeing a lot of the holdouts, if you will, moving to the cloud. Finally Junxure is getting to the cloud, ProTracker is getting to the cloud, the Money Tree financial planning suite just moved to the cloud, so now [advisers] have that option, where before, they really didn’t.
Are advisers embracing the cloud? I think they are. A couple of years ago, all of the questions we were getting were about security and is the cloud safe? And now many more of the questions are about how do I do it, as opposed to should I do it.
Nicols: I would agree with that, Joel, and I would say that, for me, this goes largely hand-in-hand with the adoption of mobile. Those two obviously go together very well. And in my book, data security is the only reason to hesitate, and I think that concern is quickly being overcome by some really good companies out there.
Goldman: I’m going to come from the operations angle, and the reality is that these firms are finally realizing that the use of cloud-based technologies allows them to do a lot more free integrations—easy plug-and-play integrations—which reduces the work. Using the cloud allows them to use outsourcers, macro-manage them, and give them access to parts of systems. It is a lot more complex to integrate outsourcers if they have an in-house, non-cloud-based system, and advisers are realizing that.
I think the younger generation also realizes the last thing they want to be doing is installs or updates to the systems, and so they appreciate that the cloud-based vendors are taking care of that for them.
Bruckenstein: There’s something else, Michael, that you touched on earlier. It’s about how younger advisers are being more productive because they’re using more technology. Quite frankly, unless you’re a multi-billion dollar firm and you have IT infrastructure inside your office, which very few firms do today, it’s almost impossible to leverage legacy systems the way you can cloud-based systems. And I think cloud-based systems are a great equalizer, because advisory firms of any size can get the operational leverage they need, and they can scale up quickly as they grow through the cloud, where it’s much more difficult to do that in a legacy environment.
Winterberg: It’s also a byproduct of choice and availability. Five years ago, there were just a handful of cloud-based solutions. Fast forward to today, and there’s more choice and more options available, and integrations, as Jennifer said. The proliferation of cloud options makes the decision quite a bit easier, because the solutions can be added or can be embraced into a firm, and combined or conditioned from legacy technology with relatively minimal disruption to their overall business.
One of the drawbacks of the cloud is the portability of data. There are some very small cases where moving systems can be very challenging with a cloud-based system. Certainly, if you’re of the size and scale that Joel alluded to—a large firm with your local IT infrastructure—I marginalize it, but moving your data is as easy as dragging and dropping a database file on a server. With the cloud, it’s harder. It’s just not as clear on what your transition and migration plans are. So that would be one of those nuanced reasons of why some firms may not be comfortable moving to the cloud.
Kitces: Obviously, there’s some big overlap between what we do with mobile and what we do that’s cloud-based. I feel like we hear a lot more discussion about the fact that people should be using mobile rather than what they’re actually doing with it. So what are you seeing advisers actually doing with mobile? Or, what do you think they’re going to be adopting soon with mobile devices?
Bruckenstein: You’re starting to see the custodians integrate mobile into their core strategies. You’re not going to necessarily rebalance your whole book of business on a phone or a tablet, but individual trades, I think, are already happening.
I see more geo-services, more integration of social media with CRM, and all those things that you can do on a tablet or on a phone. It lends itself to certain things, like e-signatures or other types of electronic approvals of various things that just need to be done in the normal course of business.
Nicols: Yes, it’s definitely heading that way. We haven’t hit the tipping point yet. Right now, it’s mainly CRM and client contact activities, but more and more applications are being optimized for mobile. I would say the only thing we probably won’t see are the more complex calculations and charting and that sort of thing, but ultimately, I think it all goes mobile.
Bruckenstein: And I think alerts are really coming to the fore now. You may not be doing everything on a tablet, but very soon you’re going to be getting proactive alerts—something like your financial planning software saying that these financial plans need to be looked at because they may be at risk—and you’ll get that [notification] in your CRM. If it’s something very specific that you need to look at, you might be able to do it on a tablet. Obviously, if you need to look at the whole plan, that might not be the way you want to go unless you have a big tablet.
Kitces: Is there some point where we get rid of all of our computers and we’re just walking around with tablets as advisers?
Nicols: It depends how you define tablet. I’ve seen tablets as small, obviously, as the iPad mini, and I’ve also seen 27-inch tablets that you can put on your lap. With a 27-inch tablet, you can pretty much do anything you can do with a laptop computer, because it really is a laptop computer with the keyboard, right?
Goldman: And it’s also about the keyboard. Obviously, our younger generation is going to say that they’re more open to typing on a flat screen, but there are still some people who like that feeling of a raised key. So when you’re talking about mobile devices, are you talking about the iPad with a keyboard on it? Mac isn’t coming out with all these different funky keyboard plug-ins because nobody wants them. The question is, who is really buying those? We’re hearing a lot of advisers that are adding keyboards to their iPad and that’s what they’re taking around with them instead of the larger laptop.
Winterberg: Count me in that list, especially at a conference when I just want to be able to take some notes, sometimes I want the tactile keyboard, and I’ve got a lightweight Bluetooth keyboard that I can use or not use.
Bruckenstein: But it depends on the use case. If the software’s designed properly, there are a lot of things you can do without a keyboard. I find myself using touch applications more and more, but only in cases where the application is specifically designed for touch. Clearly today, there’s only one custodian that I can think of that has an adviser work station that’s built for touch, and that’s TradePMR. But as other custodians develop things that are more touch-friendly, I think you probably can do a lot more using a touch screen.
Winterberg: I’ve got a device now that I take with me almost everywhere except the shower, so it knows where I am, and it’s starting to know who I’m with, and when it knows who I’m with and where I am, it’s able to retrieve talking points. It’s got an app that creates a dossier about the things I should talk about with this person that I’m meeting. It’s got this artificial intelligence, and it starts being a second brain for me. And when you look at a form factor like Google Glass—that’s a device with no keyboard. You interface with it purely through voice commands, and it knows where you are, knows who you’re with. It does facial recognition. It’ll say, “Hey, that person posted about a vacation two weeks ago on Facebook. Why don’t you ask about it?” It’s a great icebreaker. It’s that relationship continuity, and it’s pretty scary what these devices will be able to glean and retrieve about the people that we interact with.
I’m optimistic that the benefit of that is I’m going to have more knowledge and retention about my clients and about my prospects than ever before because my phone or my Google Glass is going to augment my memory so that I can continue the conversation with the client as if we had just met the day before.
Kitces: Interesting. We’ve talked about a lot of different technology tools out there. Let’s talk about spending on the technology. What would you consider best practices for how much advisers should be spending on technology? Is there a clear benchmark or rule of thumb? What’s a minimum? What’s too much or a sign you’re going overboard?
Bruckenstein: I would say, based on the surveys we conduct, 4 percent of revenue seems to be, let’s say the minimum. It’s very hard to generalize, but I would say 4 percent is a good benchmark. If you’re spending less than that, you’re probably not spending enough. You can certainly spend more. It depends, obviously, on the type of office you have, and the type of business you’re doing, and whether you’re in the cloud or not. But I would say this just as a general rule—people tend to measure their tech spending in a very narrow way. In other words, they don’t often include things like training. And the one thing I can tell you for sure is probably 90 percent of [Journal] readers are under-spending on tech training. So they’re going out and buying the hardware and the software, and then they’re not teaching their employees how to use it properly.
Nicols: Amen on that one.
Goldman: Joel, what you just said is dead on. I was expecting to see a number closer to 10 [percent of revenue as a benchmark], and then I realized that none of these studies are probably able to [include], or nobody’s keeping a P&L to capture the training or the ongoing improvements. Maybe this isn’t fair, but in that tech [spending] number, does the CTO go under that for the bigger firms, or the database administrator role? So it’s a tough number to get around, but I think 3 or 4 [percent of revenue] is extremely low.
Winterberg: I think this is a statistic in search of a problem. It’s like measuring the success of a firm based on its size. Is a billion dollar firm successful? I don’t know, but they managed a billion dollars. What does that mean? So a firm can spend 10 percent of revenue on technology, and they’re going to be in the toilet on performance. But a firm can spend 1 percent on technology, and invest in people, and get training, and they can be a peak performer. So this is kind of a smoke and mirrors statistic. The importance is to reiterate what Joel and Jen and JP have said, invest in people, invest in training, and that’s going to give you so much more leverage than a number of or a percentage of revenue spent on technology.
Bruckenstein: I get a little nervous saying that for one reason, Bill, and that is, historically, this industry has not spent enough on technology. You can go into offices where you still see—and I just saw it a few weeks ago—1990s-era monitors and computers running Windows XP. And I don’t want to give people permission to continue with that type of behavior.
Winterberg: I’m right there with you.
Kitces: Speaking to your training point, a lot of the time when I hear from advisers about why they’re not upgrading things like their software and they’re still running Windows XP, it’s not that they can’t come up with the dollars to manage the cost of a software license. The issue is that they’re so comfortable with the software that they’re using, that it’s a training issue. They’re afraid of the time that it takes to relearn new software.
Winterberg: But they’re not afraid of hundreds of security holes that are in that software.
Goldman: That’s right. Or they call it a lack of productivity. They constantly talk about how their staff can’t seem to get it done, and they have all these tools, and why can’t they get things done? And, oh, there’s not even a dual monitor sitting there.
Bruckenstein: Right, they’re focusing on the wrong things.
Goldman: Yes. I would say, if nothing else, if we’re seeing an industry average of 3 to 4 percent [of revenue] for technology, that’s probably a very simple P&L of their software licensing cost. I think we could probably all agree that one-third of technology expenses is on the tech licenses, and two-thirds should be on the training, improvements, and staff or outsourced human technology-focused labor. OK, let’s jump it up to 9 [percent of revenue] and say that’s where it should be. Nine percent is what the highest-performing firms are probably spending. It’s just that the studies aren’t asking for them to break out the tech costs from the training, tech human labor, and ongoing improvements.
Nicols: To take it even a step further, my experience would suggest that a lot of that is maintenance spending. It’s either required to bring it up past obsolescence, or required by some sort of regulatory oversight and requirement. And Bill, I totally get your point that some magic number won’t get you competitive. In fact, I wrote a piece last year called “Remember When Laptops Revolutionized Financial Services?” Me neither, and I suspect I’ll be writing something similar about tablets pretty soon, right?
There’s this panacea of, oh, wow, this is the latest thing. Maybe this year it’ll be big data. OK, yup, we can check the box; we do big data. And they aren’t thinking about the effectiveness, and I think your point is well taken. There could be a firm that spends 1 percent, but does it on the right things and implements it well.
Bruckenstein: But I think the converse is also true, that some people are spending basically nothing, and you can guarantee that that’s not going to work.
Nicols: Yes, I totally agree with that.
Kitces: If an adviser is thinking about making a big technology investment, what should they think about besides trainning their staff?
Bruckenstein: Who’s your custodian? What other software do you use? Not all custodians integrate equally with all software applications. And since a lot of what most advisers do has something to do with their custodian, if your custodian, for whatever reason, is not particularly friendly with a piece of software you’re looking at, that could be problematic. I don’t know of any of them that integrate well with everybody.
And the same thing with your other software. If you have a particular software that’s key to your practice—maybe it’s your CRM—and perhaps you’re looking for financial planning software, well maybe not all financial planning software integrates equally well with that particular CRM software. And if that CRM software is key to your operation, I think you want something that integrates deeply with it.
Goldman: You’ve got to think about what you’re trying to accomplish with making the investment. Is it reducing the workload? Is it increasing a client’s value? This takes time, and I don’t want to scare people away, but [advisers] have to think about what their process is and how the tech tool helps that process. They go in reading about something that sounds great, but that may not be a fit for how they operate at their firm.
PFMs, for example, are not right for everyone. If you don’t want something in front of that client that’s telling them their net worth and alerts them [about financial issues], then you shouldn’t be making that big investment. And portfolio accounting systems; if you’re not going to produce percentage return performance reports and you never will, why would you spend the money and the effort to move to a portfolio performance accounting system? The list goes on.
What [advisers] have to think about is what are they trying to accomplish? What are they delivering to the client? What are they doing in-house, and how is this tech investment going to make things better for them and their clients?
Winterberg: One of the easier approaches planners can take is to look at the time and resources wasted doing repetitive things each day. Decrease that waste or that leak, if you will—if you’re a poker player, that’s a leak in your game because you’re losing money—decrease that by adding technology.
Two places that planners can do that, if they’re active or they spend a lot of time managing client portfolios, is rebalancing and trade order management software, which offers a huge potential for return on investment. The second is going paperless and using real document management. This is not storing your documents in the cloud. This is actual document management with some intelligence and workflow built into it, because you shouldn’t have to go to a file cabinet to learn what your client’s AGI was a couple of years ago. That should be available at a moment’s notice through your document management system. Those two programs really have the potential to deliver a significant ROI for planners.
Kitces: For firms that have a limited technology budget or bandwidth or both, how should they prioritize? What are the biggest bang-for-the-buck opportunities out there?
Goldman: I’m always going to go with a time scheduler, or appointment scheduler, because they’re so gosh darn cheap, and they cut out the whole administrative effort of scheduling client meetings. It’s cheap, and it integrates. That’s such a huge win at every firm we see.
Nicols: I’m still surprised at how many firms don’t have data aggregation, being able to pull in outside assets and then integrating that data with CRM and financial planning software. I think that’s low-hanging fruit for a lot of firms.
Goldman: I agree with you, JP, but those are expensive tools out there.
Nicols: [They] can be.
Goldman: There are not that many anymore, either. They’re getting bought.
Bruckenstein: I’ll still say CRM. I think there are still a lot of firms that either don’t have CRM or they’re not effectively using CRM software. And in many successful firms, that really is the workhorse of the office, so CRM certainly is something.
Kitces: Let’s talk about software integration. Are we ever going to have the infamous Holy Grail of adviser software, the CRM and financial planning and portfolio software that all perfectly integrate with each other?
Nicols: An all-in-one package? Probably not. But better integration from the best-in-class solutions? Yes, we’re already headed that way.
Kitces: Is that the future, more mix and match integration, so you choose your combinations, as opposed to a single platform that does it all?
Nicols: Yes, that would be my view.
Goldman: What we’re starting to see—and I’m not sure how this is going to play out—is firms that are trying to build out an overlay to the CRM, the planning software, the portfolio solutions, calling it a process tool. And the idea that the process is built out of what you need to do, when, and how. As you get to each step, which is pushed at you proactively, it goes right in the particular tech tool and helps you complete that process step. So this process overlay tool layers above all the software programs. Now, I haven’t really seen that in any working form that I would even be talking about with advisers, but I do see them coming out from a couple of different companies.
It’s going to be a very confusing message, because I still think many firms barely use the CRM, and they should have that as a foundational tool already. But for the few firms that are really cutting-edge and moving forward, they might see this as the Holy Grail.
Bruckenstein: To me, that’s almost tangential, because what you’re really talking about is just how your work flows. So yes, most firms are not even using the workflows that are built into their CRM. And what you’re talking about is taking it to a whole other level.
There are also a number of sophisticated business process management tools that have been available for some time to advisers, that they are not making use of. It’s mostly document management companies, but Laserfiche has those kinds of products; XTRAC has those kinds of products. And you’re really not seeing it much on the independent RIA side, because it’s just beyond them right now to even program that stuff. So I think it’s more likely you’re going to see it from
the CRM.
But back to the original question, I think the answer is yes and no. I think there are a couple of different paths that advisers can take to integration. One is the all-in-one, which for the most part, has not been successful over time. The only one that comes close to it today, or the couple that I see that anybody is using with any measure of success, is Tamarac, which doesn’t have financial planning but they’ve got pretty much most of the other core apps, and Morningstar. So that meets the needs of a minority of advisers.
You can do best of breed, but obviously you’re never going to get the same level of integration as you do if it’s all built into one. And you’re seeing, on the custodian side, some of them doing deals with various vendors, where they’re doing a much deeper integration, something like [Fidelity’s] WealthCentral, or in the case of what Schwab just announced, their PM2, which will take portfolio management software and build it into the custodial platform. If they do that successfully, you’re not going to be able to match that level of integration with a third-party platform.
There are different avenues, and I think based on what your philosophy is as a firm, you’re going to have varying levels of success with integration.
Winterberg: I think you’re going to see a decrease in the number of point-to-point integrations. So that’s a third part; CRM negotiates an API or an integration with a third-party financial planning software package. There’s a lot of that point-to-point integration now. You’re going to see that evolve to what Jen alluded to, with some of these middleware applications. No longer are we dependent on point-to-point integration being negotiated and tracked, and some providers in this space actually charge for access to the point-to-point integration. And that introduces politics into the equation, some of these middleware organizations that act as the go-between and the consolidator, and as JP alluded to, the aggregator. So they become the central clearinghouse of data moving back and forth. They’re handling translations, and reconciliation, and cleaning up of the signals, and data going back and forth. But it ends this point-to-point support from third-party providers, which is expensive.
Bruckenstein: But my concern, Bill, is that this is also political and could be just as expensive, because you know, there’s a number of firms that are vying to be that middleware, if you will, and whoever becomes that middleware could have a great deal of power and influence. So I think in that case, be careful what you wish for.
Winterberg: Let us hope that an independent consortium or independent body can do something about that. We’ve got to get readers of the Journal of Financial Planning to demand this, and support it, and that may mean financial support, because yes, there’s a clear business case.
Kitces: Let’s talk about another item in the news in our world—the rise of the so-called robo advisers, the various online platforms out there competing with advisers in the virtual space. I feel like we need to break them into two—the platforms that are real humans but engaging with people on a purely online format, and the ones that are the robots; pure algorithms and technology. What is your view on robo advisers? Are they friends or foes? How does this impact our advisory role in the next couple of years?
Winterberg: These platforms are going to be a financial planner’s friend. They may not be an investment adviser’s friend, but let’s be honest—a financial planner does a lot more than straight investment management. By and large, a lot of these online advice platforms or these online investment management platforms can actually be a decent prospect pipeline for the genuine, comprehensive financial planner. When these consumers get dissatisfied or they are left wanting more out of their online advice provider, I would hope that financial planners position themselves to be a gradual and attractive stepping stone from these robo adviser platforms.
Bruckenstein: I’ve got a slightly different take than Bill. I think, Michael, you did well to divide it into two categories.
I think what’s lacking in the independent space today is the technology platform to compete with something like a Personal Capital, for example, but I think there are folks out there developing stuff like that right now that they would love to sell to advisers. And if advisers had access to a platform like that, and could leverage it in such a way to reach a broader audience that was perhaps a little less affluent, it could be a really interesting combination. The technology platform could be the friend of the independent adviser. I’m not sure of the firms that are out there today that are called in our press “the robo advisers” are necessarily our friends; I think they’re our competition.
Goldman: These firms are out there marketing the power of doing some planning, and that can only help planners. Because planners as a whole are smaller firms, they don’t have the marketing prowess or the budgets that these robos seem to have, and they’re really splashing a large message across middle America.
Advisers in general are trying to go after the more higher net worth clientele who need more comprehensive planning and expert thinking outside the box at times. So the robos are like a feeder to wealth management firms. It’s like the minors feeding into the majors for baseball. So the way we see it is that robos are more of a positive than competition.
Nicols: I look at many of them as inspiration. I talked earlier about the need to start with aggregated data, and that’s something the so-called robo advisers do quite well, when only one in 10 human advisers can say they have a complete picture of their client’s financial situation. I also talked earlier about the consumerization of technology. They raise the bar for what their client experience can be.
When you link it to the trends we talked about earlier—mobile, and the cloud, and the ability to pull your phone out of your pocket and see some pretty cool aggregate reporting—and then you look at your traditional adviser and ask why you can’t have that, I think it’s an inspiration that makes, or has the ability at least to make, the whole industry better.
Kitces: What’s the biggest technology issue that planners should be thinking about, but maybe aren’t?
Nicols: I think it’s scaling their practice, and frankly, even scaling financial planning. I think a lot of financial planning is done by really smart, left-brained people who try to force recalcitrant consumers into this linear process. [What about] having multiple on-ramps? It may not be, “Let’s sit down with a two-inch stack of all of your personal papers and create a comprehensive plan.” That might be the outcome, but the starting point might be something a lot more simple.
This has typically been a business that has been difficult to scale, because so much is human-driven. I think the ability to leverage technologies in the right way can really make it more scalable from the practice management side as well.
Winterberg: I think advisers still should always be conscious of security and exposure to hacks and attacks. They are easy targets, relative to banks and fortified infrastructures like Amazon web services. They need to be very conscious that they’re taking the right steps, and performing the right audits, and educating their employees not to fall victim or prey of these social engineering and hack attacks. Advisers today are getting their encrypted files stolen by hackers, and hackers are holding them ransom, saying, “Pay up or you don’t get your files back.” That’s happening, so it’s a big technology concern that not a lot, or not enough planners, are thinking about.
Goldman: I would say that firms need to put a line item in their expenses for technology and outsourcing. Maybe that sounds self-serving, but there are way too many firms that do not have an outside IT expert just monitoring or overviewing or doing an assessment. They’ll spend money on compliance people to do internal audits, and to review their compliance documents, but they won’t spend it on a technology firm doing that. I think they need to
wrap their head around tech being an expense item.
Kitces: What is your one new technology company, or software company, or service we haven’t heard much about, but we’re going to hear more about soon?
Goldman: The ones we are talking about are PFMs like Wealth Access and Blueleaf. We think that’s going to be the play for advisers when they’re looking at PFMs to improve their value proposition to clients while reducing the internal operations work.
Winterberg: I’ll throw out there Genesis Smartware from the Fox Financial Planning Network folks. That thing is revolutionary. I don’t think advisers, by and large, are ready for it, but given time and given some maturity, there’s some pretty serious automation potential that can be programmed out of that system. Let’s be honest, this is programming, this is big league software. It’s not going to be for every adviser, but it’s worth putting on your radar and paying attention to what they do in 2014.
Nicols: There’s a company in beta right now called Advizr, and they’re looking at making financial planning both more scalable and more actionable. I think they’re going to do some interesting things in 2014 (and full disclosure, I’ve just been invited to join their advisory board).
Bruckenstein: There’s probably somewhere between eight and a dozen companies, most of which [Journal] readers have never heard of, that will be at the Technology Tools for Today (T3) conference in February. There’s a lot of emerging technologies out there, and really, I’m not at liberty to discuss 90 percent of what I know right now—things that are going to be released in late January into February and March—but there’s a lot of innovation coming in pretty much all areas of the business.
Here’s one I think I can talk about—Texas Tech is going to be announcing a new outsource service at T3 that I think is going to be really interesting, and it may become a model for something that other universities do. That’s something to watch for in the news in the coming months.