Assessing the Impact of Major Investment in Advisory Tech

A new Celent report, “The Financial Planning Technology Landscape,” penned by senior analyst William Trout, offers a highly detailed description of the advisory marketplace from the client service technology perspective, with a particular focus on the expectations of the emerging Millennial generation.

As an overview, Trout suggests the “needs of next-generation investors are driving substantial investment in digital tech.” The reason for this is as simple as it is enduring: “Technology empowers clients and allows advisers to focus on higher value activities.”

Crucially, Trout says, “differentiation in the vendor market today centers on ease of use as much as functionality.” New modules and features are designed today to support intuitive workflow. At the same time, the analysis finds guaranteed income and shortfall analysis tools have become the pillar of most planning modules, as have tools focused on compliance management.

“The changes noted here take place amidst a shifting industry value proposition,” Trout notes. “In the new world of financial planning, value is derived from the ongoing dialogue as much as from the end product or plan.”

Celent’s analysis shows investors’ embrace of mobile channels and client portals has “made this dialogue a 24/7 proposition.”

“Indeed, it speaks to a virtuous cycle: as efforts to humanize financial planning drive technology investment, new technology fosters increasing levels of engagement,” Trout says. “Such a pattern augurs well for the human adviser confident enough to put aside low value activities, and use digital tools to maximize the use of his time.”

As laid out in the analysis, there are many examples of activities that advisers used to consider the staples of their offering—tasks such as fielding participant phone calls regarding enrollment or investment decisions; monitoring and rebalancing client portfolios; reporting on stock performance and general market trends—which today can be largely automated by practice-support technology and through partnerships with recordkeepers. In fact, many Millennial investors prefer these tasks to be automated or addressed through self-service digital portals, preferring to work with an in-person adviser only when they have gained significant assets, more to set long-term goals or address highly personal issues, such as minimizing lifetime taxes or setting a sustainable budget.

NEXT: Friction in serving Millennial clients? 

“The [traditional] adviser is often left cold by Millennial behavioral characteristics, which may include skepticism, disdain for ceremony, and a right here, right now mindset,” Trout speculates. “But the adviser whose horizons extend beyond the golf course needs to find ways to address that generation’s mobile, 24/7 mindset and sense of immediacy. Technology firepower is needed to boost delivery, engage clients, and maximize the use of the adviser’s limited time. Little wonder that a business historically defined by the human element is attracting millions of dollars in digital investment.”

Among the conclusions Trout draws is the suggestion that the longstanding vendor arms race, initially built on the increasing complexity of solutions, now tilts toward ease of use. “Financial planning technology vendors, in short, must get nimble to stay relevant,” he concludes.

Trout acknowledges that many advisers did not get into this business to focus on technology—and this group should not worry that the personal element of advising will entirely disappear anytime soon. However, burying one’s head in the sand and sticking to outdated business models from the time before the rise of personal mobile computing won’t cut it, either.

“Addressing these forces is a significant effort but it will be paid back tenfold,” Trout concludes. “Indeed, the more firms invest in strategy now, the less repositioning they will need to do in the future. This logic holds true not just for the financial planning vendor community, but also for the banks, brokerage firms, and other wealth management institutions that have become vested in its success.”

Looking to the future, the research says that “perhaps the most notable and sustained trend has been the industry embrace of adviser-led versus adviser-facing technology.”

“The distinction between these approaches is subtle but important,” Trout says. “Adviser-facing suggests the adviser works largely on his own; i.e., he gathers client information at the outset and then re-emerges to deliver the final plan. Adviser-led planning describes a collaborative work process, whereby the adviser engages clients around their goals and scenarios around their realization.”