Practice Strategies

The Sneaky Way That Tech Debt Eats Your RIA Alive

Adrian Johnstone June 19, 2024

The Sneaky Way That Tech Debt Eats Your RIA Alive

The author of this article argues that the ongoing costs associated with tech – aka "tech debt" – can creep up on firms and destroy profitability unless managed well.

The following article covers the subject of technology debt and how it affects the day-to-day operations of wealth managers. The term relates to the costs and expenses linked with using technology. Considering how the industry is said to be getting more digitalized, this is not a marginal point. RIAs and other wealth manager models know that margins are key – the need to get on top of costs is one reason for industry consolidation. 

Adrian Johnstone, CEO of Practifi, a “performance optimization platform” based in the US and Australia, discusses the topic here. The editors are pleased to share this content; the usual caveats apply. If you wish to respond and get involved in the conversation, email

We need to talk about tech debt.

Software developers understand tech debt because we stare it in the face daily. But it can be almost invisible to most RIAs. You might understand that your technology isn’t living up to your expectations, but tech debt can illuminate the true extent of the costs incurred and point the way toward better solutions.

Tech debt is the hidden costs and ongoing expenses associated with using a piece of technology over time. In the software world, it’s not always a bad thing. We might build up tech debt in the short term by fast-tracking a feature that our RIA clients want to see in their CRM. We “pay down” the debt afterward by refocusing on long-term upgrades and maintenance work.

The problem with tech debt is that RIAs don’t see it as debt at all. They look at the expenses and time costs and wrap them up into the total cost of ownership. And when you don’t see the debt for what it is, you can’t account for it.

Here’s an example that may be all too familiar to anyone working in a midsize RIA. You develop a piece of your tech stack in-house, tailored exactly to a specific need. Congratulations! Now, how do you keep it going? It will need maintenance over time. Conventions in hardware, software development and user experience will shift. If you change another component of your tech stack, your in-house tool will need to be updated to plug seamlessly into the new stuff.

Now you need a dedicated team to maintain what you built. Not to put too fine a point on it, but a lot of RIAs measure productivity by headcount. A team of in-house developers is an ongoing expense. By creating your own tech solution, you may have tanked one of your primary success metrics. What’s more, you need to think about your institutional memory and key person dependency within that developer team. How clean is the code? If your lead developer left tomorrow, how long would it take for someone else to familiarize themselves with the software?

Let’s consider another scenario: your in-house system was designed to handle a specific volume of transactions and data. As your firm grows, you start to experience performance problems.

The system slows down, causing delays in client reporting and decision-making. Your developers spend more time troubleshooting and less time on innovation. These delays can frustrate clients, leading to dissatisfaction and even loss of business. The increased workload can also lead to burnout among your staff, increasing turnover and the costs associated with recruiting and training new developers.

The businesses that tend to stick the landing with in-house tech have advantages of scale and a clear view of the tech debt they will have to manage. They also avoid the sunk cost fallacy that often manifests in an RIA’s relationship with its technology. Let’s say you build your own tools, and a few years later a new entry in the marketplace leapfrogs your in-house tools in every way. The rational thing to do is transition to a more modern solution, but you would be surprised at how many firms will stand by an outdated, expensive-to-maintain solution because no one wants to “waste” the effort that went into making and maintaining it.

That’s tech debt talking. Our industry is not always great at seeing how maintenance and development costs can linger, or the opportunity costs of new business lost from unaddressed tech debt. All too often, we only see tech debt when it becomes too disruptive to ignore. The tools actively get in the way of client work. Or low adoption creates compliance and data integrity risks. Or an M&A deal partner walks away because an RIA over-committed to messy software.

Paradoxically, the people who are directly impacted by tech debt may need help seeing the positive outcomes from addressing the problem. Psychological comfort with existing systems often outweighs the perceived benefits of new technology. Your operations and client service teams, familiar with the current setup, may resist change because they are focused on the disruption and learning curve associated with new systems. As with any kind of major change, you will need to earn the trust of your team. Be realistic about the disruption but demonstrate that the results will be worth the short-term hassle. Otherwise, “If it ain’t broke, don’t fix it” can easily turn into “Better the devil we know.”

Every RIA has its own relationship with the tools it uses. Sometimes your tech issues resolve with greater adoption, or if the firm uses more of the capabilities of the solutions it has already paid for. But understanding tech debt in your business lets you see challenges that may run deeper than your firm’s adoption rate and quantify them in a way that points back to growth.

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