Technology has transformed the way we view and engage in business activities across all industries. What was once considered a cost center that was siloed away in a separate department is now recognized as the key to current operations and future growth. Today every company is a technology company and must understand how technology affects their employees, their customers, and their ability to pivot and keep pace with market developments.
Wealth management firms, particularly high-performing RIAs, that embrace and adopt new and developing technologies find themselves in a stronger position to withstand challenges and threats to their business. As we learned from the Covid-19 pandemic, threats and uncertainty come in a variety of ways. The right tools and technology separate elite RIAs from the rest of the pack; they are more prepared and have a stronger brand among both current and potential customers.
Perhaps the greatest advantage technology offers firms is the ability to scale operations through digital transformation. Top RIAs use technology to digitize operations in ways that improve advisor effectiveness, drive deeper customer engagement, meet the needs of unique market segments, and attract new clients.
Advisors perform better when properly enabled
The independent RIA business model has become a more attractive option for advisors to service their clients. Between 2015 and 2020, the number of RIA advisors grew from 59,600 to 65,000, with no signs of slowing.
One of the reasons this model is so attractive to advisors is because it gives them a unique opportunity to combine their passion for financial services with the entrepreneurial spirit and autonomy that comes from building their own business. A 2015 survey also cited that advisors are moving to the RIA model because they believe it leads to higher payouts, a more personable culture, and more control over investment decisions and portfolio recommendations. In the war for young talent, this makes the RIA path appear more attractive than traditional financial careers, which to date are lagging behind tech companies offering innovation, flexibility, and a greater sense of purpose. While many wealth advisory firms are facing a cliff of retiring personnel, RIAs are keeping pace; the number of RIAs with owners under 40 equals the number of RIAs over 60, and just under half (40%) of advisory team members are women, according to recent data from TD Ameritrade.
Nearly half of high-performing RIAs believe having the right employees in the right roles is critical to their success. This goes beyond recruiting the right people; many top RIA firms are also restructuring their teams in somewhat non-traditional ways. For example, many are shifting from a single advisor supporting a client to a team-based client support model, offering clients different areas of expertise and a broader array of services.
These market-leading teams are growing by adding additional back-end administration roles, allowing employees to focus on broader strategic goals.
As the number of advisors and clients in RIAs grows, technology plays a critical role in client support. The flexibility and scalability of cloud solutions like document storage and CRMs make the transition from one account manager to many team members seamless. A centralized place to store all client documents becomes essential so everyone who needs access can do so securely and from any device.
A client-centered approach through technology
The rapid advancements in technology have given rise to an age of extreme customer empowerment and the democratization of information. Young investors flooded the market in 2020 as they sought to capitalize on gains touted in Reddit posts and TikTok videos. This eagerness to invest is tempered by their inexperience in investment strategies and risk, leaving an opportunity for RIAs to help guide sound investment decisions. Firms need to leverage that same technology to work smarter and continually improve how they manage accounts, optimize portfolios, and streamline processes.
One way RIAs use technology to streamline processes and enhance customer engagement is through digital operations. Traditionally, document management and consultations happen in person with local branches and advisors. But, the market for virtual advisors and paperless management is enormous.
esearch from McKinsey suggests that 42 million households representing US$66 billion in annual revenue are prime candidates for virtual advisors. Tapping into these consumers that hold between US$100,000 to US$1 million in wealth virtually makes managing their portfolios more cost-effective and builds a niche in an underserved market.
These clients span across generations and are eager to work with an advisor that can offer them personalized financial advice and access to their portfolio information immediately from anywhere. Removing the reams of paperwork and manual filing from client onboarding, transactions, and transitions enables advisors to serve their clients more efficiently while also giving them a more transparent view of their documents that they can view anytime, anywhere.
Technology also helps RIA firms encourage a deeper engagement from their clients by using data to make better decisions.
Innovative CRM platforms and data management tools can integrate with tools specifically built for wealth management to help advisors give customers a more holistic view of their situation, understand market trends, and manage their portfolios more confidently as they build value for their future. This data empowers advisors to focus on each client as an individual and better design plans that meet their needs and minimize risk.
High-performing RIAs are focused on offering a broad array of services – customized to an individual client and their goals. This is particularly helpful when working with younger investors, who above all value transparency, a clear understanding of fee structures, accessibility, and technology-enabled solutions in their investment approach.
As firms expand their services, there can be some regulatory hurdles that can increase overhead. Advisors can utilize technology solutions that help them efficiently manage paperwork associated with new investment options and ensure continued regulatory compliance. Additionally, firms can leverage technology solutions to scan their current client database to see who would benefit or be interested in expanded investment opportunities.
Another way RIA firms are using technology to focus on customer experiences is by improving their cybersecurity position.
As the world becomes more digitized, cybercriminals are becoming more ambitious, and people are becoming more concerned with the security of their data and assets. The wealth management industry is not immune to these attacks. Advisors need to stay ahead of the cybersecurity curve to protect their clients’ immediate and longterm financial security. The right technology gives RIA firms peace of mind by providing detailed checklists to properly prepare their firms to stave off cyberattacks and avoid damaging their clients or reputation.
Scaling operations through technology
As more RIA firms enter the market, elite firms set themselves apart by creating a solid and scalable business model. As competition becomes more abundant and the traditional markets more saturated, firms look to technology to help them find new markets for differentiation. 57% of top RIAs believe that targeting new client segments is an essential part of their winning strategy. One way technology helps forward-thinking RIAs achieve this is through scale.
Firms use technology to scale their business by combining integration tools and systems to form a comprehensive solution they can introduce into new markets.
As cloud computing and digital solutions become the norm across the industry, it is important to implement tools that will talk to each other properly, share data appropriately, and streamline workflows through automation or consolidation. For example, if a firm decides to implement a cloud-based document management tool, they will want to ensure it integrates with their CRM so they can access the necessary customer data without having to constantly move between tools.
When a firm leverages a comprehensive technology built for wealth management, it opens them up to options including:
• Acquisition: Tech-enabled RIAs can purchase another firm and add their services into their overall offering, thus diversifying their capabilities.
• Specialization: By adding more services into their offerings, elite RIAs focus on the overall breadth of their offering while using specialist voices to provide clients with multiple touchpoints.
• Customization: Technology allows firms to give customers a more personalized experience at scale.
Another key advantage of technology for RIA firms is standardizing operations at scale. Many cloud-based solutions are customizable – scaling up or down to meet increased traffic or feature needs – allowing organizations of all sizes to scale their operations while optimizing their ROI and reducing on-site technology spend.
This increased scalability helps firms build an infrastructure that lends itself to operational excellence – i.e. the ability to meet customer needs at scale – giving the firm time and resources to reinvest in their people, their clients, and their future. This operational excellence comes in the way firms use technology to communicate and collaborate with clients.
Consider the following when implementing solutions into your technology stack:
• Electronic signatures
• Virtual meeting software
• Screen sharing technology
• Digital forms
• Text, email, and automated messaging
• Online calendaring and availability management
• Website management
• Business metrics tools
• Knowledge base, FAQs, and other helpful information
Firms harness a strategic advantage by knowing their value proposition, how to communicate it, and how to execute it. 71% of RIA firms reported that they embraced technology as a means to handle their strategic concerns. Having the right technology solutions not only helps you execute, but it provides a way to scale successful practices across your whole organization without incurring significant costs.
Attract the best clients to your firm
Client acquisition strategy is a key part of any successful RIA. New client acquisition costs average around US$3,119 per client. That could be one reason why the Schwab study found more than half of RIA firms are focused on gaining new clients through referrals. A strong brand will naturally follow a deeper, technology-enabled customer engagement strategy – giving firms one financial ROI benchmark to track new solutions.
Much of the cost to acquire a new client is taken up by paying the advisors’ salaries. The role of technology in the client acquisition process is to maximize the time available to each advisor to engage with potential clients and onboard them quickly.
One way to streamline this process is through formless data entry. Moving client onboarding operations to the cloud allows advisors to send and receive essential information needed to open accounts and close deals easily and securely. This saves advisors time, allowing them to spend more time talking with potential clients, which drives down the firm’s average cost for each new client acquired.
Another way that technology helps client acquisition strategy is through referral programs. RIAs seek out credible networks that build relationships and provide access to new markets. For example, millions of young investors want advice to take the next steps in their investment journey. As this tech-savvy group heads to these credible networks, they will be more likely to interact with your brand, establish a connection, and be ready for deeper conversations about their financial future.
As you work within these networks, add value in every interaction and showcase how your firm can provide a customized experience that matches what the investor hopes to accomplish.
RIA firms entered the decade in a position of strength. As these firms expand their digital transformation by utilizing established and effective technology solutions, they will continue to scale their operations, attracting and retaining top talent, customize offerings to attract younger investors, and attract new clients.
High-performing RIAs embrace technology and make it an integral part of their strategy for acquiring clients, scaling business operations, improving customer experiences, and empowering advisors to exceed expectations.
As you incorporate technology into your overall strategy, consider comprehensive solutions that integrate with your CRM, increase your ability to customize, and meet all security and compliance requirements needed to meet your clients’ challenges confidently and successfully.
This article is from The Wealth Mosaic's US RIA WealthTech Landscape Report 2022. Access the full report here
