We talk to the industry about the kind of issues that should be considered when buying technology for wealth managers.

This news service is looking at technology and how it shapes and changes the way in which the wealth management sector operates. What perhaps needs to be asked, in all the hubbub from vendors pitching wares and firms lauding latest offerings, is what do wealth managers really want? What’s going to boost business in terms of winning more clients and keeping those they have? Also, there remains a bewildering variety of firms out there. How do private bankers and other wealth professionals choose what suits them best and avoid costly errors? 

We talk to a number of firms on both sides of the Atlantic about the kind of decisions wealth managers need to make and the errors to avoid. We’ll be adding more commentary in the days to come.

"Committing to a technology transformation is a significant step and not a decision to be taken lightly. You need to make sure you are being an intelligent buyer. You must be aware of the risks that you are taking and that the firm you will partner with is capable of mitigating those risks and achieving your strategic objectives,” Brett Williams, managing director, SEI Wealth Platform and Private Banks, UK, part of US-based SEI, said.

“When it comes to major technology transformations, the cost of making the wrong decision is far higher than any other cost involved. By going to a technology partner with a clear view of what you are trying to achieve - from cost savings to risk control - they can draw on their expertise to help you succeed.”

There are, Williams said, signs that wealth managers need to be challenged more about their technology purchasing decisions. 

“The most common mistake we see is wealth management firms trying to find technology that simply replicates existing processes rather than thinking of it as a strategic advantage. You should expect your technology partner to challenge you to ensure that the solutions are fit not just for today but for the future,” Williams said. 

Advisor360 chief executive Rich Napolitano, who has been CEO since December 2019, said an obvious place for wealth managers to start is understanding the flight path of their business. Working often with broker-dealers, his firm is also considering doing more work with family offices and RIAs.

“The conversation should start with where is your business and where is it going? Try to assess how clients think. And they should ask are they trying to `buy a car or build a car?’”

Firms also have to keep up with clients’ rising expectations of what they can get from tech, and this can be seen among Millennials, for example. If firms don’t have state-of-the-art tech, they can struggle to keep talent,” Napolitano said. “The wealth management business is still ripe for transformation.”

A constant concern is that advisors need to spend more time with clients and devote fewer hours on administrative chores, he said. 
 

A checklist
Like a good pilot, having a strong, clear checklist is essential.

“There are several key questions to ask, including: is the solution proven with other wealth managers in the market? How frequently does the partner run on/over time and budget? How have they successfully managed previous implementations? How will the solution evolve to meet future needs and what investment does the partner make annually into development? And does the provider have individuals I can see myself working with in times of pressure?” said SEI’s Williams. 

What can firms do to negotiate the competition among vendors for their business and how can third parties help?

“In many cases, external help can support a selection process by removing historic or legacy attachments to previous decisions and therefore levelling the playing field. It is important, however, to ensure that expectations are clearly communicated from the outset and not projected by the consultant and that any existing relationship between the consultant and the vendor is understood. It is also important to resist the temptation to be driven by superficial pricing. If you don’t challenge, consultants can focus too much on a number rather than the long-term value of a proposition and the total price [needed] to achieve your objectives,” Williams said. 

A report last year by T3TechnologyHub, run by Joel P Bruckenstein, organizer of the annual Technology Tools for Today (T3) Conference, drills into the buying and tech usage habits of wealth managers, and it unearths a number of important trends. For example, the report (2020 T3 Inside Information Software Survey Report), found that there’s a “generational shift happening in the fintech space, which would appear to reflect a shift in service models”. It said that younger advisors are more likely to use financial planning software than older ones, and fee-only advisors are more likely than advisors working in the brokerage world. Younger advisors are also “less likely to use asset management software, reflecting a slow but potentially tectonic shift from the AuM revenue model (and a portfolio management value proposition) to flat, retainer or subscription fees (and a financial planning value proposition). This transition is first becoming visible in the financial technology choices made by advisors,” the report said.

The T3 report also noted that a “growing number of advisors are augmenting their financial planning calculation engines with specialized (tax planning, social security analysis, medicare analysis) tools, which offer a deeper dive into a topic than the planning tools do currently.” The report said financial planning firms are starting to add their own versions of specialized programs.

One cautionary note from T3 was its surprise at how wealth advisors are still not great users of document management and cybersecurity tools, notwithstanding oft-publicized stories about privacy breaches. 

“Why? We can’t give you a good explanation, but there appears to be a lot of opportunity in the enterprise content management space. Last year we documented our surprise that so few advisors were using cybersecurity solutions, and the market share numbers have increased this year - but only to around 7 per cent of all respondents. Let’s call cybersecurity another category of opportunity - both for providers and also for advisory firms that have been slow to adopt,” it said.

Advisor360’s Napolitano argues that one important tech feature to think about is the “master agreement.” These gather data and information on clients in one place so that firms don’t need to keep asking the same clients the same questions when executing their business.

There is a challenge for firms to deal with the sheer range of offerings out there, he added. “It is hard for a lot of these [wealth management] entities to handle all the technology development.”