It was 2010, and I was drowning in a sea of paperwork and data entry.
I was a Financial Planner, and I received yet another banker’s box full of documents to sort through. I had just spent the day organizing a family’s documents to prepare their financial plan. A life insurance policy from 1989. A HUD statement from a home they sold ten years ago. Rental agreements for tenants that specified how long a bathroom fan could be left on. I rubbed my eyes and knew I still had hours of work ahead of me to manually enter all the pertinent data into NaviPlan desktop.
Fast forward fifteen years, and I’m no longer spending my days in Junxure and Schwab Portfolio Center, but I am having daily conversations with advisors about their tech stack. I’m struck by how little has changed since I was in their shoes. I meet RIAs who use Google Docs as their CRM. Or worse yet, who are paying expensive monthly fees for software but continue to use their Google Docs because it’s “easier.” I met several multi-billion dollar RIA firms that manually collect client data in Excel and then enter all the data points into their various software tools. Time seems to have only exacerbated the problem; advisors have more tools than ever before making it significantly more difficult to manage their data processes.
During the time I was away from wealth management, there were mind-blowing technological advances. I have a mini computer in my pocket that can hail a helicopter, summon my favorite chicken parm sub from across town, and generate an AI headshot. I was flabbergasted to discover that advisors were still facing the same old problems I dealt with in 2010.
Why? Why have most industries been totally transformed by technology in the past decade except for wealth management?
Silicon Valley Got It Wrong
Silicon Valley conference rooms are littered with pitch decks that posit this very question on the first slide. There have been plenty of attempts to “disrupt” wealth tech. Robo advisors had their day in the sun but didn’t replace human advisors, as many predicted. It makes perfect sense to me as someone who was often on the other end of the phone on someone’s worst day of their life. If you lose your job, a loved one, or have a health emergency, you want to talk to a real person. I want someone to tell me it’s going to be ok and help me make a plan. A financial advisor is more than just a money manager. We’re coaches, therapists, and counselors first. The money management part is the gas to the car, but we’re the ones driving. As such, technology should enable the advisor, not replace us. Silicon Valley knows how to build great technology but I firmly believe that you need to deeply understand advisory in order to build technology for advisors. The stakes are too high, and the relationships are too valuable to build without intuition and appreciation for the clients.
The Rise of the RIA
It’s no secret to us that the number of advisors going independent is on the rise. Over the last five years, the RIA channel grew almost 2x as fast as the other advisory channels and commands nearly 30% of the market. Despite the growth, we are still in the early innings of innovation. The products we use in other parts of our lives - from our cars to our smart thermostats to our grocery delivery apps deliver a more sophisticated, delightful experience than the tools we use in our practices. There is much to build, and the explosion of wealth tech companies in the past few years is evidence of the demand for better tech.
More Systems, More Problems
The rapid increase in separate software tools is wonderful for our ecosystem, but it causes a unique set of challenges, namely with respect to the integrations between all the distinct systems. Since most advisors prefer to customize their tech stack by selecting their favorite components, seamless data flow is critical.
Michael Kitces says it best, “Each new tool creates an additional 'node' in the network that needs to connect to some or all of the other nodes, and as the number of vendors increases, the number of point-to-point integrations grows multiplicatively, which also means the number of chances for those connections to break (or even just function less-than-ideally) increases in kind. It isn't coincidental, then, that as the array of tech solutions available to advisors has grown over the years, so too have advisors' frustrations with their tools' capabilities (or lack thereof) for integrating with one another.”
The Kitces 2023 Advisor Tech survey indicates that advisors’ overall satisfaction with their tech stack was lower than their satisfaction with the components. Said differently, the sum of the parts was not greater than the whole. Further, as Kitces points out, each software system needs to tackle each integration one by one. This creates an enormous lift for companies to build complex integrations as they simultaneously grow and maintain their core operations.
Client Data is Hard
When building a tech stack, advisors can choose between two options: an all-in-one system or a ‘best-of-breed’ customized solution. With all-in-one platforms, data syncs easily across workflows but feature sets can be limited. Should an advisor prefer a more robust, customized stack, they will almost certainly struggle to sync their data seamlessly. I should note an important caveat: investment data flows more easily throughout the tech stack than client data. Portfolio holdings and market data usually play nicely with disparate software systems. Client data is much trickier. A financial plan will often include hundreds of unique data points. One software system might organize clients by First Name, Last Name, while another might use Full Name. Since there is no standardized organization, there must be a robust translation system in place among all the layers of the tech stack. In the absence of such a system, integrations that attempt to sync client data bidirectionally can fall short of expectations. More often than not, advisor teams spend hours a week collecting and maintaining client data across their various software systems.
How Can We Fix This?
We believe that there needs to be a company focused on solving this pressing, industry-wide dilemma. Imagine an air traffic control tower, dispatching orders to thousands of airplanes going from point A to B that need to be on time, compliant and coordinated. The wealth tech ecosystem deserves its own dispatcher, silently managing the process behind the scenes to ensure that all the various data points are synchronized.
Onboarding should be a frictionless, enjoyable experience for both client and advisor. Maintaining data should be magical, with changes flowing seamlessly throughout the tech stack. Wealth tech providers should be empowered to focus on building great software solutions, not integration piping. And most importantly, advisors and their teams should be freed from low-return tasks, such as manual data entry.
Stay tuned. Your life is about to get a lot easier.
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