The following is an edited transcript of the webcast “Key Findings of the InvestmentNews RIA Technology Study,” which was held May 5. InvestmentNewsDirector of custom research Kelli Cruz moderated the panel. Panelists included David Welling, Chief Solutions Officer of Black Diamond Performance Reporting; Bob Oros, vice president and national sales managers at Trust Company of America; Timothy D. Welsh, President and Founder of Nexus Strategy, LLC; and Davis Janowski, technology reporter at InvestmentNews.
(Listen to the archive of the May 5 webcast,
Key Findings of the InvestmentNews RIA Technology Study.)
InvestmentNews: Given that one of our key findings is that 97% of the study's participants have the desire to expand their businesses, how do you think technology helps a firm to grow?
Mr. Oros: The first dimension is using technology to help you become more efficient, more productive and theoretically, to reduce cost. If you're looking for that outcome, you need to put technology against the things you're doing every day that really slow down your productivity. A lot of advisers make the mistake of simply bringing in technology and thinking it's a silver bullet, and what they end up with is taking a bad process and simply making it less bad, but not really making it good.
Another dimension is using technology to help you build your firm in terms of expanding current client relationships and becoming more competitive with prospects.
A third area is using technology to expand your ideal client criteria. Many of you have minimum investment standards. Wouldn't it be great if you're an adviser with a $500,000 minimum to use technology to bring in a $250,000 household and do it efficiently? As that person grows into that $500,000 client, you've already got the relationship with them.
InvestmentNews: How does technology help firms use their advisers and staff members to improve the client experience?
Mr. Welling: The real key is to be able to grow with scale. When you look at an advisory firm from a pure profit-and-loss perspective, 70% of the costs are in people. I encourage people not just to think about the line item on their P&L, but think about what technology is going to enable them to do today and into the future. The traditional portfolio management system has been around for almost 30 years. What I think is really exciting now is that technology is moving to the front office. That's where you see use of customer relationship management software really spiking up. There are other areas as well. From Black Diamond's perspective, the reporting not only is moving to the front office, but getting deployed through multiple channels. Most advisers want to grow, but they don't necessarily want to increase the number of employees in their firm. They just want to build their client base and increase the value they're able to provide to the market.
REDEPLOYING STAFF
Mr. Oros: When you think about return on investment in technology, it doesn't always have to be in the form of reducing head count. Certainly, if we can slow down head count, that's a good thing, but there's also the redeployment of the human capital you already have invested in. Many of you run small to midsize businesses where the folks on your staff are more than just employees, they're part of the family, and you couldn't even conceive of eliminating them. But the ability to put them into a role where they're adding more to the client experience or more to the growth of your business can be an equally if not more important form of ROI.
InvestmentNews: The majority of firms are seeing a return on investment from technology — either through revenue generation at 87% or cost savings at 89%. Do you see the investment in technology as a revenue generator or a cost savings? What do you think is the right way for advisers to think about the equation?
Mr. Welling: I'm going to give you the easy answer, which is it should be both. What you're trying to do is improve the client experience first. So you start there with more of a value statement. But when you think about it from an ROI perspective, ideally it should be both. We're a technology company and advisers are using us for outsourcing and technology solutions. Fundamentally, people are coming to us to improve the client experience, but also to be able to create the ability to grow with scale. I don't see a lot of advisers making a decision on technology purely for cost savings. What you usually see is your technology costs may actually go up a little but you're displacing the need for other costs in your business. The revenue-creating opportunity from technology is freeing up all the great people you already have in your office, putting principals who are trying to enter trade tickets or involved in daily reconciliation back into selling activities and bringing in the business. That's where the revenue creation comes from. It comes from using your high talent for its highest and best use.
INCREASING LONG-TERM VALUE
Mr. Welsh: We see a lot of folks looking at current savings. But you can extrapolate that out into what it can do for your business when you go to sell your firm. We encourage advisers to think not about an investment just as income today, but also the value in your business that you're going to be able to achieve down the road. Just a quick back-of-the-envelope exercise — typical multiples in the RIA space are five to 15 times cash flow. So for every extra dollar in cash flow, you can get a five to 15 times multiple. That may really change the way you think about spending on technology and actually encourage you to spend more because that ROI you're seeing isn't just about lowering costs today or increasing revenues, it's all about your profitability and future business value. The final point I'd make is there are other things to think about in ROI, beyond just the economics. One is managing risk. Obviously, from a compliance and regulatory point of view, being able to control your information and have enterprise content management so you can easily comply with compliance changes is going to become a much bigger focus.
InvestmentNews: Here's a question that just came in from one of our listeners: “What advice do you have for offices that have implemented software that is just too much for them? We signed on with a new CRM program last year and it's too much for what we need. Should we continue with it or go with something else?”
Mr. Welsh: In those kinds of situations you want to have more of a long-term view, say six or 12 months out. We would encourage the firm to think of the features and functionality, and more holistically, rather than say, "We think it's too much and we want to recoup our investment.' They may want to think about moving to a different platform. CRMs pretty much all do the same thing — some have more bells and whistles, some have work flows, some are in the cloud, some are on your desktop. Instead of swapping the CRM for another one, you may want to think about the technology platform and whether you want to control the experience and host it in-house or work with a technology provider, or go into the cloud. That may change the decision. It really depends on where they see themselves moving forward. A strategic view would help them make the decision best for them. Typically, it's not a very simple black-and-white answer to just stop with what you've done. There is the issue of recouping some of that investment.
Mr. Welling: There are three key steps when you think about any piece of technology that you're changing in your office. The first is a requirements list, the second is what system you're buying and the third is the trading plan. In terms of the requirements list, what are the top three things you've got to have this system do for you? Unfortunately, too often you see advisers buying a piece of technology and they're not really clear on that. Often, there are multiple perspectives that can be competing in an adviser's office. So you've got to be laser-focused on what you're buying and what you're buying it for, not just what it might be able to do at some point in the future.
Mr. Janowski: And a huge question mark is, what does the system integrate with out of the box? If it does a great job with your portfolio management and performance reporting technology, it may be worth keeping, even if there are more bells and whistles to explore. But you've got to take a very holistic look at this before you just dump it because you could get more out of it than what you may initially think.
InvestmentNews: A listener inquires about the importance of custodian platforms to IRAs.
Mr. Janowski: I have been surprised to see that advisers are not excited about what the custodians are doing, mainly because they don't want to be beholden to one particular master. They all want to see what vendors they're going to go with. For some of them, if the platform meshes with what they're already using or what they're interested in, that level of interest goes up a great deal.
Mr. Oros: As the custodian on the panel, I think that advisers need to expect more from their custodians. As the authoritative source of the assets of the data, we should be maximizing efficiency around things like trading and re-balancing. Those functions should be as close to the custodial data as possible because the further removed they are, the more you're dealing with downloads, uploads and reconciliations, which in my mind equal cost and risk.
Mr. Welling: One critical thing when you think about any solution — and custodians are part of this as well — is whether it's an open solution. It's a very dynamic marketplace. You want to be dealing with an open system so you can change the pieces. That's the thing that's exciting for us as a technology company working with custodians. It's really very different than it was a few years ago. Make sure you're picking people who really believe in open architecture and can prove it to you. That gives you the best position to be able to change parts down the line.
Mr. Welsh: Integration is the top issue everyone is talking about. It's really forced people to work together. However, this does create some confusion in the industry for advisers. Should they wait to see what comes down the pike? Who's going to get picked by whom? Looking to who truly has open architecture, who can truly integrate with multiple custodians, and who has the ability to be flexible and customizable should be at the top of the list of your requirements.
InvestmentNews: Here's a question from a firm in the middle of a website redesign. Can you provide any guidance?
Mr. Welsh: Your website really is your most important piece of technology that's client-facing. The first impression these days is your website. When we work with advisers we ask, "What is the purpose of your website?' Is it just the bare minimum of acceptability, or is it something really useful and dynamic? Do you have a place to download marketing assets, such as white papers or industry articles? Can you use it for lead generation? Having something as simple as a blog on your website can really be the foundation for your social media plan. Not much guidance has come from the SEC in terms of what you can and cannot do in social media. But if you have a controlled environment like a website, then you can use the other social-media channels such as Twitter and Facebook to drive traffic there to let them know your blog has been updated. Your content can be preapproved and you can archive it, and it can be a solid base of operation. You want to define the four or five things you want your website to do for you and make sure you have the capabilities to do that. The other side of the coin is creating a client portal where you can place documents, reports, information, your newsletter. Send clients an e-mail saying, "Hey, your report has been uploaded. Go take a look.' It enhances your communication channels above and beyond the unusual media.
Mr. Oros: A comprehensive website is just table stakes now. And you have to think about it in terms of who your clients are going to be in the future. They are going to be people who are growing up on tablets and Droid phones.
Mr. Welling: I can hear some of the silent voices out there saying, “Well, I never got any new clients through my website because they want to talk to me.” It may not be the lead generator, but it's certainly a place where people are looking to learn about you. And social media is a great accelerant because it makes it more efficient for advisers to get their names out there. There's also a lot of investment going on in terms of getting information to clients. Thinking about what you can do to get some real meat in content up there for your existing clients is very important.
InvestmentNews: Can you share any specific marketing ideas using LinkedIn or Facebook?
Mr. Janowski: LinkedIn often is looked at as the most conservative and old-school of the social-media sites, with Facebook being the purview of the really young. But to seriously look at and vet clients, there's no better source out there right now than LinkedIn. There are a lot of ways to use it to cold call much less obtrusively and find things that you may have in common, even recreationally.
InvestmentNews: How do you recommend advisers use Twitter?
Mr. Welsh: Twitter is an amazing medium. In terms of practical application, advisers can use it to announce they've done something, such as updated their blog. Or you can comment on an article. You don't have to be very eloquent on Twitter because there's only 140 characters. It doesn't take much time. It's really a powerful channel that I don't think many advisers have grasped. According to the survey, only 17% of you are using it. You can also use it to just listen in. You don't have to tweet. You can just start following other advisers to see what they're doing until you get a handle on it. We've also seen many folks use Twitter for search. You can type in a phrase and bring up a list of content around that. If you're not at a conference or event, you can just pull up all the tweets around it and get insight from people who are there. It's almost like the notes of the class. So there are multiple ways to use Twitter. I would encourage you to sign up for it and start following other advisers. You don't have to worry about putting something out there right away. But ultimately, you can build followers by posting things. We've seen advisers have upwards of 3,000 or 4,000 people.
InvestmentNews: As we look out three to five years, where will some of the biggest contributions from technology be?
Mr. Welling: First, the cloud is here to stay. A web-based delivery mechanism makes it so much more nimble to release new functionality. We go through releases every two weeks. That just is an unprecedented pace of innovation. The second is mobile. That's something we see taking off. When you're out of the office, you need to be able to access critical information. Third is the notion of the end-client experience. That's a very exciting piece of the equation and one that can really help advisers. When you look at where the cost is in an adviser's business, it's people. So being able to get any leverage to make that more efficient makes a big difference to your business.
Mr. Oros: It's important to use technology to shrink the time between when advisers make a decision to execute a change for all their client portfolios and when it actually gets executed. You need to make that as close to instantaneous as possible. The last thing is continuing to use technology to evolve and anticipating how your clients are going to change in the future and what kind of ways they want to be served.
Mr. Welsh: A great quote from [Glen Leinhardt], a futurist who spoke at the
InvestmentNews FPA Business Solutions Conference, was, "Technology will never replace people, but people who use technology will replace people who don't.' Those are great words of wisdom to live by — don't be afraid of technology, but really embrace it and understand what it can do for you.
