Journal of Financial Planning: March 2018
Molly Pandya leads product management at Envestnet. The 15-year financial services veteran drives Envestnet’s end-to-end technology and solutions ranging from portfolio management, financial planning, performance reporting, and digital account management tools.
Just a couple of years ago, the word “digital” was largely used to refer to the new entrant in the financial services industry—the robo-adviser. Financial planners’ long-standing, often paper-based processes were quickly becoming archaic and cumbersome, and the robo-adviser was viewed as the competitor, but now technology is increasingly viewed as a planner’s team member. As technology has evolved, we’ve also seen the term “digital” evolve to more broadly represent a way of serving clients that incorporates technology meaningfully for both the client and the planner.
As the fast-paced digital world continues to take shape, financial institutions and planners need to engage with technology through various levels. Planners need to be able to interact with clients through a wider range of consumer-facing technologies like client portals, digital onboarding, and mobile-focused communication. According to the 2017 InvestmentNews Adviser Technology Study, 85 percent of “innovator” advisory firms (defined by InvestmentNews as using technology to the fullest) offer a client portal, and 37 percent of those firms offer fully digital onboarding and account opening. Sixty-nine percent of all advisory firms surveyed have optimized their websites for mobile use. It’s only a matter of time until these numbers are required to increase to meet client needs.
Three Segments of Investors
Currently, many of us think of investors in three segments. First, what we often attribute to millennials (but can be true for any age) is the digital-first group. These are people who prefer to engage digitally—whether it’s via text, an app, or video chat software (which only 34 percent of adviser firms use, according to the InvestmentNews survey).
Next is the middle group, who are somewhat hybrid in their expectations of digital tools. This group has mostly adopted technology, but it might not be as core to their DNA as it is to the digital-first group. They do most things online and tend to prefer email and text to a phone call. This group may want to use technology tools upfront, but when it comes to making investment decisions and being reassured that they are on the right path, it’s the interaction with their planner that delivers the most value. This is where we rely on what Envestnet calls the “Kasparov Principle.” Named after chess expert Garry Kasparov, this theory focuses on humans and machines working together, not against each other, to deliver the most effective outcomes. These are the ideal prospective clients for planners looking to have a hybrid digital practice, and the perfect place to insert technology.
And finally, there’s a group who may be less inclined to engage digitally and relies more heavily on face-to-face interaction. For these clients, planners can embrace technology on the back-end to streamline regular processes, but their clients find personal interactions to be most valuable.
Technology Integration
Knowing all this about different client audiences, how can planners successfully integrate this kind of forward thinking and technology into their practices? It all comes down to how they use digital tools. At its core, technology can simplify every day, nitty-gritty tasks for planners.
According to research from the Aite Group and sponsored by Envestnet, bank/trust planners who integrate advanced technology into their practices see a 76 percent revenue increase over their peers with basic or no integration (see the white paper, “Technology Integration Turbocharges Advisor Productivity: Making Time for Clients”).
What’s more, the survey found that independent registered investment advisers (RIAs) integrating advanced technology into their practice generated approximately 50 percent more financial plans and investment proposals compared to their peers who were not using technology. By integrating technology, planners are able to focus more on the client activities, investment management, and relationships that investors find so valuable.
Planners can incorporate technology into their practices in different ways. Many use a single provider that addresses multiple technology needs, from onboarding to trading and reporting, in one consolidated platform. Others may choose to integrate multiple best-of-breed solutions. In both cases, technology platforms are evolving to support both the varying needs of clients and planners.
Technology providers are recognizing that what may have been acceptable before in terms of manual data entry, swivel chair processing, and paper-based solutions, is no longer satisfying expectations that the robo-adviser helped to shape. Today’s investors and planners expect technology to be easy, fast, and to enable a more connected experience.
Account Aggregation
I have found that aggregation capabilities are one of the most meaningful digital tools in the marketplace today. As I go out and speak with investors, planners, and home offices, the consistent message about enabling full-service advice is the importance of seeing the full picture of the client. From the investor’s perspective, being able to pull together information about their assets across many providers is valuable, but they also expect this to be easy, not a shoebox full of receipts and statements that have to be saved and sifted through.
I recently spoke with a close friend and asked her to describe an interaction with her financial planner—specifically, what she found most valuable about it. The first thing she said was that the planner had sent her a link to a client portal where she could aggregate her accounts and input her financial data. She and her husband sat at the kitchen table the night before the meeting and logged into the portal to create a budget and pull together their assets so that at the meeting they could determine how much they should be investing and how much they needed liquid for spending. This was a novel concept to her that changed the way she perceived financial planning, and these are the types of digital tools changing the profession.
Electronic Account Opening
Another key evolution in the financial planning profession is the shift from paper-based to electronic account opening. What used to be a few days and a number of wet signatures has turned into almost instant account opening and electronic signatures. Where funding previously took weeks, it can now be done the same day the account is opened. And clients expect to be able to see account statuses anywhere and anytime—from their desktop at work during the day and from their phone or tablet on their way home on the train.
Now, keeping in mind the three segments discussed earlier, planners may choose to expose tools like data aggregation and online account opening to their clients, or they may choose to leverage them only in their back offices. The key to success lies in identifying how clients want to engage and leveraging digital accordingly.
At the end of the day, we are all consumers of digital tools. Whether it’s a Facebook app, talking to our Amazon Alexa, or FaceTiming a distant relative, these tools have changed the expectations of how we interact with all facets of our lives, including financial planning.
We know that the financial services industry has and will continue to evolve in response to the growing demands of today’s digital age. The rise of the robo-adviser has created new expectations, and the decreasing popularity of a robo-only approach has paved the way for a hybrid, man-and-machine approach. By combining advanced technology tools and the personal perspective of a human planner, positive outcomes can be delivered to clients to ensure they have the resources they need to make smart financial wellness decisions.
This column is for informational purposes only and is not intended to constitute legal, tax, accounting, securities, or investment advice.