Integrating Tech Can Lead To More AUM

By Cyril Tuohy

InsuranceNewsNet

Call it the toggle tangle: financial advisors toggling back and forth between one software application and another.

The systems may look good on paper, but in the real world of phone calls, texts, emails, rescheduled appointments, trading deadlines, tax strategies, and capital gains and losses, working with separate software platforms is costing many advisors a lot of money.

Companies using disparate systems manage less and deliver lower profits than advisories using deeply integrated computer platforms. Over time, those differences mean millions of dollars in assets under management.

A 2012 study of registered investment advisors (RIAs) conducted by Aite Group, found that in RIAs with little or no systems integration, client size averaged $583,000 in investable assets compared to $1.15 million in investable assets at RIAs with some integration.

Differences are magnified when comparing ultra-high-net-worth clients, according to Aite Group in the report titled “RIA Productivity and Profitability – Integration Pays.”

The report’s authors, Alois Pirker and Bill Butterfield, estimate that on average, the difference between advisors with integrated systems and those without equates to approximately $90 million more in client assets per practice.

Revenue generated by a practice with no integration came to $562,000, compared to revenue of $657,000 for advisory practices with some technology integration, according to the survey.

The survey also found that advisors at firms with some integration earn about 20 percent more income annually than do their peers at RIAs without any integration.

Raef Lee, managing director and head of new services and strategic partnership with the SEI Advisor Network, said that advisors – often entrepreneurial, aggressive, A-type personalities – sometimes get too excited about technology.

“I know of one advisor with two financial planning systems, two customer relationship management systems, two custodial systems,” Lee said in an interview with InsuranceNewsNet.

Part of the reason for the mish-mash has to do with mergers and acquisitions where one system was not designed to fit with other systems. Computer systems, therefore, have to run side by side in advisories that in many ways still operate as a cottage industry.

In other cases, company founders and owners are obsessed with the latest software packages, or order custom-built platforms.

As a result, a lot of advisors either have too much technology, or “keep things alive too long,” Lee said.

Productivity gains from a fully integrated system can deliver anywhere from 12 to 20 percent in lower expenses, he also said.

Struggling with the toggle tangle, it’s not unusual for advisors to struggle between Microsoft’s Office suite for basic office work: Excel for spreadsheets, Word for office memos, Outlook for calendar and office tasks, Sharepoint for collaboration, PowerPoint for presentations.

Add to that basic office software array separate portfolio management systems, customer relationship management (CRM) systems and record-keeping systems, and it’s impossible to learn all the features that come with the programs.

More than 30 percent of RIAs surveyed said that their company has no technology integration among business applications. Only 7 percent indicate that technology applications have cross-product functionality, the Aite Group report found.

“The greater efficiency exhibited by staff whose practice has some technology integration is manifested in the ability of their firm to achieve greater scale,” write Pirker and Butterfield.

The good news is that technology integration is on RIAs’ radar screens. Of the 201 RIAs surveyed by Aite, the respondents said they would dedicate, on average, 11 percent of their budget to increasing the level of technology integration.

Integration took the largest piece of the technology budget pie compared to other budget allocations for financial planning, mobile access, analytics, and document and portfolio management, the Aite survey also found.

Stan Lochrie, chief executive officer of Etesian Wealth Advisors, an advisory firm with more than $300 million in assets under management, said his company built its systems with integration in mind when the company started in 2009.

Advisors, working out of offices in Spokane, Wash., and Lake Oswego, Ore., have access to the status of a client’s estate, tax status, projected income for next two years, written documents outlining a client’s investment policy, risk and reward profiles, and clients’ hopes, worries and fears.

“The client calls and in two or three clicks you're right into the meat of what's going on,” Lochrie said.

His system integrates the hard data points with the “soft data” points: the number of children in school, how clients plan to fund their retirement, the ages of family members and even the government’s share of a client’s wealth.

Etesian’s integrated technology platform has helped the company grow by nearly 400 percent but the staff has increased only 20 percent, according to Aite Group.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].