When it comes to building and integrating a tech stack, financial advisers should be careful to avoid the trap of automation for automation’s sake.
“The integration itself takes work, so you want to make sure you have some goals behind that,” Eric Clarke, chief executive at Orion Advisor Solutions, said Wednesday during a panel discussion at the InvestmentNews RIA Lab series.
“If the integration is going to drive operational efficiencies, great, but make sure you’re not spending more time working through integration details than the efficiencies you will be saving,” Clarke said. “As a firm, have a goal and an underlying reason for the integration. And ask, are you creating a better client experience or creating operational efficiencies? Sometimes operational efficiencies don’t create a better client experience but they help reduce errors. You want to make sure you have a reason that you want these technologies talking to each other.”
As Stern pointed out, the pursuit of independence as a financial adviser means making choices around technology, which presents both challenges and opportunities.
“Technology enables advisers to do what they do best,” he said. “But if you’ve been in this industry as long as I have, you know that every firm has a different way of doing things.”
Stern said that at Riskalyze, “it’s all about the data.”
“You have to think about things like account groupings, workflow across multiple systems, even something as simple as investment products and different IDs,” he said. “Just getting the data in and organized and translated correctly can present challenges.”
Yang said she looks for open architecture platforms and hopes more companies move in that direction to enable more tech stack integration.
She also believes that “automation is your friend,” and cited the example of generating individual investment policy statements for every client.
“With the right technology, with the click of a button you can generate personalized IPSs” Yang said. “Without automation you cannot scale, and if you cannot scale, you cannot grow.”
But because of the rapid pace of tech innovation, the panelists said RIAs are constantly faced with the decision between best-in-breed or an all-in-one tech solution.
“It can be a tough decision because switching costs can be very high,” Yang said. “Always check out the best products in each category, but you don’t have to go with the best product, because there are conveniences to going with all-in-one. And if you do go with the best product, make sure it offers open architecture.”
Stern responded to that by saying, “Don’t assume all-in-one isn’t best-in-breed.”
And Clarke qualified, “I refer to it as most-in-one, instead of all-in-one.”
In terms of what’s on the technology horizon, Yang said she expects more in the way of behavioral finance.
“There’s a paradigm shift,” she said. “Advisers don’t know what to say during market turmoil, because of the assumption that markets are efficient, and investors are rational. But with the right technology, advisers should be able to have more robust conversations with clients around behavioral finance.”
Along those same lines, Stern sees a future of leveraging data through machine learning.
“We’re spending significant thought leadership cycles just understanding the data we’re getting, but how do you know if a client is happy or getting ready to leave?” he asked. “How do you know which clients you should reach out to, and where am I vulnerable from a regulatory standpoint?”
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