Everyone knows what FOMO is … the Fear of Missing Out. Technology and social media make it easy to be aware of new trends, destinations, events or products. But even if people are aware of what is popular, this rarely translates into immediate mass adoption. For example, Taylor Swift didn’t break Ticketmaster on her first tour.
My experience is that advisors are similar. We want to be in the know of hot new investment ideas, tech and solutions. Think back to the last conference you attended. How many cool ideas did you see? Now, how many did you implement? Awareness alone rarely leads to adoption in wealth management. Why? It’s not FOMO but FOMU, the Fear of Messing Up.
It is an awesome time to be a financial advisor, especially an independent RIA. Why risk fixing something that is not broken? Clients are not complaining, AUM keeps going up, and financial plans look spectacular. But could it be creating complacency? In Fidelity’s 2023 RIA Benchmarking Study, only 29% of firms said improving client satisfaction was one of their top five strategic initiatives. Viewed another way, 71% of firms are content that their current level of service is good enough.
When Henry Ford told consumers they could have any color they wanted, as long as it was black, this was driven by Ford’s complete dominance of the market. Yet that lack of attention on the customer opened the door for General Motors to take market share by catering to the customer with more colors, styles and options. Today, FOMU is creating a massive opportunity for growth-focused, innovative wealth management firms.
The Capacity Conundrum
Complacency is not the sole reason innovation is adopted slowly in wealth management. Technology changes exponentially, but organizations change logarithmically. This concept, described as Martec’s Law, was created by Scott Brinker in 2016. Tech evolves faster than firms can physically implement new solutions.
Larger wealth management firms have dedicated chief operating officers (COOs) and are increasingly hiring Chief Technology Officers (CTOs) to evaluate new solutions, conduct due diligence and determine which solutions to integrate into the existing infrastructure. Selecting and successfully integrating new technology is only part of the challenge. Firms also need to convince advisors that they should invest the time to learn how to use the solution and make it part of their process. Again, if it is not broken, why fix it?
This leads to the problem of “tech debt.” Industry studies estimate that less than two-thirds of enterprise technology is being used, and less than 15% of technology is used to its full capabilities. Include the possibility that a better or less expensive option could come to market in the six to 12 months it takes to implement a new solution, and it makes sense that firms are apprehensive about the risk of doing something different.
For smaller firms the task is even more difficult. Creating capacity for technology evaluation and implementation will need to come at the expense of other responsibilities. A dedicated COO, if there is one, often has more responsibilities than they can reasonably handle. If a firm is growing, onboarding new clients and advisors takes priority over platform enhancement. The fastest growing firms often have the most challenged infrastructure.
Eating an Elephant
How can firms make the time to unlock capacity if they don’t have time in the first place? Desmond Tutu is credited with saying, “There is only one way to eat an elephant: a bite at a time.” That is sage advice for RIA firms. Let’s use Desmond Tutu’s guidance and apply it to RIA firms in three simple steps.
Step 1: Identify
Analyze the advisor processes for prospective and current clients to identify where gaps and bottlenecks exist in the current service model. Document the steps and identify which ones are delivered consistently across the firm and which ones are unique to certain advisors. Determine which steps are manual and which ones are assisted or completely automated by technology. Then quantify the time each task takes and assess the impact the task has on the current advisor and client experience. And most importantly, does the client recognize the value of the work being performed?
Step 2: Evaluate
Begin with the tasks that are highly manual, take the most time, and are not easily recognized by the client as delivering value. Be careful not to assume that clients easily recognize critical taxes such as tax planning, asset allocation and security selection. The advisor absolutely knows these are important, but we need to examine this from the client’s perspective. Would it change the client’s perceived value if the task took ten hours or ten minutes?
Prioritize which tasks or steps consume the most time and are utilized by most or all advisors. Focus on three to five tasks that have the highest potential for capacity improvement. Create a standardization of that process to create immediate impact. Then evaluate technology solutions that can automate those processes. Finally, weigh the cost of the solution both monetarily and by the expected time it would take to integrate and adopt.
Step 3: Activate
Easy and better always win. Select solutions that are easy for advisors to use, create better outcomes and are less challenging to integrate. The benefits must be clear to the advisor and to the client to overcome the inertia of adoption. If one solution is amazing but requires a lengthy and complex integration, the risk of failure increases. Prioritize solutions that require less energy to integrate, do not require extensive advisor training and can deliver immediate impact. The key is to select one or two solutions that have the capability to unlock significant advisor capacity with the shortest implementation cycle. Create a long-term strategy that employs the concept of incremental integration. This means activating one or two things at a time to limit the risk of tech debt.
Find a trusted advisor
Most firms don’t have the expertise or capacity in-house to efficiently evaluate, select and implement new technology. The opportunity cost for a senior team member to invest the time necessary for due diligence is substantial. Find someone who has experience across technology, practice management, behavioral finance, and wealth platforms. This could be a consultant or a fractional CTO — someone who works on projects for multiple wealth firms in a part-time role. It is better to rent the expertise until a firm determines there is a justifiable need for a full-time position. Many firms have their COO learn and try to take on CTO-type responsibilities, but that is difficult to do when their plate is already full.
Technology integration will be a continuous evolution in wealth management. It is not an episodic event. Competition for clients is expected to increase and firms that can provide a better experience for more clients will be the winners. Now is the time for growth-focused firms to develop a long-term strategy that creates both a differentiated solution and capacity for advisors to efficiently manage more households and assets.
Mike Casciano has over two decades of experience in the wealth and asset management industry. He began as a financial advisor in 2005, then worked with BlackRock and Principal Asset Management in various roles including wholesaler, portfolio consulting, model portfolio strategy and wealth technology. In 2023 he founded EVO Wealth Consulting, to help RIA firms implement processes and technology to deliver a differentiated and scalable service model. EVO sits at the intersection of wealth management, asset management and wealth technology.
