As technology is pushed further to the front of agendas within the wealth management industry, firms should be cautious not to overlook the personal touch.

As technology is pushed further to the front of agendas within the wealth management industry, firms should be cautious not to overlook the personal touch, delegates heard at the Family Wealth Report Summit in October.

The speakers on the second panel of the event, entitled “Tech and Ops Q&A – Effective Implementation In Wealth Management Firms” were Glenn Bolstad, vice president of sales, North America at Appway; Michael Delgass, managing director at Sontag Advisory; Antonio Perrotta, chief technology officer at Bessemer Trust and April Rudin, founder and president of the consultancy The Rudin Group. The panel, held at New York’s Metropolitan Club, was chaired by Wendy Spires, head of research at ClearView Financial Media – publisher of Family Wealth Report - and was sponsored by Appway.

Doing digital

At a time where technology has permeated all industries, Rudin highlighted that financial services and wealth management in particular have been fairly slow at adopting digital systems.

Technology is a revenue generator, and shouldn't be solely perceived as an expense item, she said, adding that it should be embedded into all aspects of a firm’s offering.

Representing the RIA sphere, Delgass emphasized the importance of technology in the implementation of culture from the bottom-up, by putting processes and accountability in place.

However, Perrotta stressed that how a firm defines its digital strategy is critical.

“We should not try to define a new digital way of interacting with our clients, what we need to do first and foremost is understand how we as humans interact with our clients, then use digital to complement that way of human interaction,” he said. “The point is not to define a digital strategy, but define a differentiated client interaction strategy, in which digital will complement the human side.”

Similarly, Delgass argued that there may not necessarily be a place for social media within advisor-client contact. He warned instead of wrestling between signal and noise when communicating with clients digitally, particularly when reporting.

“Providing on a standard real-time basis the performance of every security in a portfolio is noise,” he said. “It’s not good for clients, it induces bad behavioral finance and is the wrong granularity to focus on. The concern I have about the way we talk about digital generally and the wonderful way it opens up communication on a real-time basis and we can customize everything, is that it induces people to ask questions that they don’t know they shouldn’t be asking. I think as advisors we have a responsibility to try to educate people as to what questions they should be asking and not setting up interfaces that put that front and centre.”

Spires said that digital must be implemented in the right way to ensure high-quality interaction. Instead of updating the client on tanking stocks, for example, digital can give clients access to preparatory material prior to conversations with their advisors for more valuable interactions. She emphasized that it's not about replacing human interaction or reducing contact with relationship managers, but rather on making them more productive.

Legacy systems and innovation

Panelists moved on to discuss the compromise between legacy systems and innovations. At the back-end, legacy systems aren’t going anywhere, Bolstad warned, as they are mission-critical and can not be changed that often. As front-office systems are changing at an increasing speed, these need to be decoupled from back-end legacy systems.

Perrotta stressed the importance of harnessing the skill of innovation, defining it as “something that resides in the intersection of what is possible from a technical perspective, what our clients want and what is feasible from a business perspective”. He said it must permeate an entire organization via training staff to innovate as well as changing culture from the top-down.

“I applaud firms that come out with innovation teams rather than [merely] responding to clients’ requests,” Rudin added.

It is not only legacy systems that firms must combat, Delgass added, but “legacy thinking” among staff. “There’s innovation, which can be great, but it doesn’t mean anything if those new technology systems are not adopted and used internally at the firm,” he said.

Client onboarding

Asked about the steps firms can take to minimize client dropouts during onboarding, Bolstad outlined the main pain points for prospective clients: the time it takes and transparency from the financial advisor as to communicating the various stages involved. Technology can help this by speeding up and automating the process, he said. By doing so, clients can be automatically told what is expected of them and be made aware of what steps are remaining.

“You will have a much happier client with fewer dropouts, and someone who is going to be happier with the overall experience is more likely to refer other individuals through that process,” he said.

Rudin argued that financial advisors shouldn't view the onboarding process negatively but instead as the first client touchpoint and ability to impress them.

“It’s the transition from telling to showing the client how they will be treated and you’re collecting all the information on them as to how they want to be treated,” Bolstad added

Echoing these sentiments, Delgass said: “This is a huge chance to listen, it’s the discovery process. At the time of acquiring you were talking with the client to find out what they need from an advisor and why they might use you, but this is a much deeper dive potentially. It’s finding out the preference, but it’s also finding the strengths, weaknesses and pitfalls of families, what to look out for and what will keep you up at night”.

The rise of the robo-advisor

Panelists then discussed the growing trend of robo-advisors. Bolstad argued that their popularity will increase with the generational switch with Millennials more focused on self-service.

Yet Perrotta was more skeptical about their place in the wealth management industry. Bessemer’s CTO argued that robo-advisors are “in the business of providing automated, off-the-shelf, basic financial planning advice,” whereas wealth management’s value lies in high-touch customized advice for clients. Nevertheless, he noted that robo-advisors are on the cutting edge of what can be done with digital media.

Despite their advantages, Delgass questioned the fee structure of robo-advisors, especially when using them across a client base with a broad range of assets under management.

Risk management, compliance and cybersecurity

With many business risks becoming compliance issues due to any potential detriment they could bring to the client, Delgass highlighted the risk management processes in place at Sontag Advisory. It has adopted processes often found at wirehouses and transitioned these to the RIA sphere, such as assessing business continuity plans, advisor attrition and security breaches, among others.

“How will you audit your mitigation of that risk? And that’s where technology has got to come in, you have to automate some of those functions and technology to give people a broader sweep of the processes you put in place,” he said.

Perrotta added: “The regulatory process is an outside-in process. The internal audit compliance processes are top-down processes. What we think all our firms can benefit from in this case is a bottom-up process in which you literally reach out to your lowest level of management and ask 'what keeps you up at night.' The answers are very different to the ones you get when replying to questionnaires from compliance, regulatory, legal or audit bodies.”

The onboarding process forms an essential part to show clients a strong compliance regime from the get-go, Bolstad argued. “It’s turning it around from something you need to do to something you want to do,” he said. For example, advisors can display to clients established processes for dealing with politically-exposed persons, as well as how to risk profile efficiently to understand their goals and aspirations. Compliance is “really about your fiduciary responsibility to your client and how you value them,” Rudin added.

When combating cybersecurity, Bolstad said firms must have the right processes, channels and orchestration in place. “It really comes down to adhering to that and understanding the risk and operational risk that you’re endeavoring with, and having the systems in place that you can identify the threat as occurring before it gets too far into that. I honestly don’t think security is stopping the move forward to technology. I think we as a society have to be better at handling it and identifying those threats as soon as we can,” he said.

Delgass stressed that the biggest risk to security is not technology, but advisors themselves. He explained how most breaches come through advisors, such as fraudsters profiling a client based on their residence and age and using people to approximate this, rather than large-scale hacks seen at JP Morgan.

“Your second level of security, where you have to have a verbal authorization on a written wire letter, may or may not work. The advisor community is on the front line here in every respect to try and help clients and is also hurting them,” he warned.