Build or Buy? To Truly Modernize Your RIA Practice’s Technology, Choose the Latter

Build or Buy? To Truly Modernize Your RIA Practice’s Technology, Choose the Latter

Written by: By John Kirkpatrick | Stanford Investment Group

The question in the headline is one that entrepreneurs across all industries ask themselves as their businesses grow and compete.


Obsolete software applications and operating systems are a threat to survival in today’s digital age, especially for independent RIAs, which are under increasing pressure to be more efficient, precise and responsive. The pace of change and level of sophistication in technology are increasing at what seems to be an exponential rate. It is simply no longer possible for an RIA with a few good technology skills to keep up.

At Stanford Investment Group, we have tangible experience with both building and buying technology to modernize our RIA firm. Experience is the best teacher, and we possess the wisdom to know for sure that partnering with a technology vendor that emphasizes integration and automation is now the ideal long-term solution for independent RIAs.

Growing up with Silicon Valley


Our wealth management firm was established in 1982 in Mountain View, Calif.—the heart of Silicon Valley—as a broker-dealer. As the tech world grew and prospered, so did we—by working with entrepreneurs and their families, and high-net-worth individuals and families, to manage wealth through sophisticated financial planning and investment management.

In the late 1980s, we began building up the RIA side of our business, and it soon became our predominant area of service. We were one of the first RIAs on the Charles Schwab & Co. platform, and they remain our primary custodian today. Working with technology entrepreneurs and developers rubbed off on us, and we created a suite of in-house software to power our financial planning and portfolio management, filling a need that was not served by commercially-available solutions at the time.

But our areas of expertise are in wealth management, not technology development, and we found ourselves struggling to keep up with the ongoing support and enhancement needs for the software.

For example, we developed a Microsoft Excel-based program to rebalance accounts. Our advisors used spreadsheets to calculate allocations and define trades, and would then generate paper trading tickets and hand those tickets to a trader who would manually enter each one into Schwab’s trade blotter.

Our rebalancing solution was creative, but its rebalancing and trading workflows were still quite labor-intensive and did not enable us to scale for growth. The solution also was not conducive to executing nimble responses to market conditions. These limitations became clear in 2007, when the market began experiencing gyrations that would culminate in the worldwide financial crisis the following year. We found it challenging to keep up with the huge surge in rebalancing activity necessitated by the market fluctuations. This prompted our decision to find a commercial rebalancing solution that offered flexibility and automation, and would allow us to spend more time focusing on our clients and less time on software and trading.

Going from building to buying—and just in time


In 2007, we conducted a search for a commercial rebalancing software application. Our due diligence led us to choose Tamarac Advisor Rebalancing (now Envestnet | Tamarac). Our decision was based equally on the capabilities of the solution and our belief that the company would be an ongoing technology partner that would be there for us long after installation was complete. Indeed, Tamarac assigned us our own dedicated implementation team to handle system and data conversions, as well as train our staff. After we were up and running on our new rebalancing solution, Tamarac continued to monitor our progress and roll out regular product enhancements and updates.

Knowing we had an engaged and enthusiastic partner was especially comforting for us—because the financial crisis was unfolding just as we were acclimating to our new software. We adopted our automated rebalancing solution just in time, going “live” in mid-2008. By automating our rebalancing and trading workflows, we could make portfolio changes across hundreds of accounts and households, and customize rebalancing settings for each account according to their goals and objectives. We estimate that we saved, and continue to save, about three to four days of labor per month alone on trade execution and compliance trade review. In addition, the application removes a potential error point by eliminating the re-entry of trades from paper trade sheets.  

Imagine how much more time we would have spent on rebalancing in an unusually hectic period like 2008-2009 if we had to continue manually going through every account to make changes!

We also improved the consistency of client portfolios by standardizing risk-based allocation models, and benefited from a significant increase in the speed and efficiency of implementing changes to our target models. Furthermore, the rebalancing solution allowed us to easily perform tax-loss harvesting to help maximize the tax efficiency of our clients’ portfolios.

All of these operational efficiencies gave our small team of advisors the freedom to spend more time working with clients—enabling us to strengthen our client relationships as well as efficiently grow our practice during an extremely uncertain period.

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Cyborgs Are the Future for Advisors

Cyborgs Are the Future for Advisors

Becoming cyborgs is the way to go for financial advisers…blending robotics and humans into one organism.


You see, I am convinced that robo-advice models will succeed and prosper.

I am also convinced that human advisers will succeed and prosper.

I am further convinced that some of each will fail entirely and die, but in Darwinian fashion the most adaptable will survive and prosper. Smart financial advisers will work out how to become cyborgs and build an offering which is a blend of human and machine – or at least their practice will.

Despite the fear-mongering when it comes to robo’s the reality is that there are many great arguments for automated transaction systems, or robotic product delivery.  Cost reduction for the consumer, cost reduction for the practitioner….efficiency, speed, convenience for all….elimination of the frustrating and time consuming service model supplied by the industry to low value transactional customers….and let’s be bluntly honest: some people DO just need a product solution at some stages of their life, and DO NOT need holistic advice at some points.

Robo-advice makes sense commercially, and it can meet a need in life stages planning for many consumers.  It also happens to appeal to a segment of society who are happy to make their own decisions and transact from the comfort of their pyjamas during the ads in their evening television program, and who are unlikely to engage in full advice.  It is worth remembering that this last type of consumer segment is growing at the expense of the traditional intermediated product delivery systems of distribution.

However, machines do not “manage” relationships and behaviour – humans manage humans.  Humans tend to rebel against the concept (or slightest inference actually) that they are being manipulated or are at the mercy of computers and machines.  Machines and automated systems exist for our convenience, don’t they?  Nobody wants a “SkyNet”.

……So the human adviser remains in the equation……

When we strip out all the industry jargon and hyperbole the primary function of a financial adviser is to manage clients behaviour.  We don’t really manage their money – other people do the actual money management. We don’t supply products….we source them from a supplier.   What we do is manage their behaviour and expectations.  We coach them.  Machines don’t do that yet….and when they are able to (and they will be), most consumers will shy away from being managed by a machine.

But we cannot escape those arguments supporting robo-offerings as they make too much sense for clients and for us. In fact I suspect robo-advice will be a very good thing for smart adviser practices.

Believe it or not, I believe robo-offerings can help us get clients.

For most consumers there is a period early in life when their financial advice needs are fairly basic, and also there is a period later in life where all the planning has been done and consumers are moving into “drawdown” territory.  In between those times, life gets somewhat busier and complexity increases substantially.

Advice delivered by humans should be focussed upon the complexity phase.  Apart from the fact that this is the period of a consumers life when there are the most variables to consider in their planning needs, it is also the phase where behaviour management is a distinct help to the achievement of the consumers goals and objectives.  Generally people will only do uncomfortable or new things if they have a high degree of trust and confidence in the person guiding them to do so, and establishing that level of trust – or the bond between two people – is where robo-offerings will struggle to compete.

However, when it comes to identifying a fairly simple need which has a product solution then robo’s will certainly be able to deliver a solution more cost effectively and faster than the human adviser can, who is bound by increasing complexity of their own called “compliance” every time they have to interact with another human being.

The smart adviser will identify those areas of their clients lives and those product solutions which work well for those times and find a transactional solution for their clients to access.  They will build that transactional, no-advice, solution into the service offering that their practice puts into the market.  In other words they will embrace and incorporate robo-offerings into their business model.

Why?

Not just because consumers want them or need them, and not just because it is cost effective to do so.  Not even because we’d like to have a commercial revenue stream which sidesteps the more time-consuming (and therefore labour intensive and expensive) compliance requirements.

The reason smart advisers will do it is because it will help gather the next generation of clients for the firm before the complexity triggers drive them to seek advice elsewhere.


The robo-advice solution caters to those who have an identifiable need for financial services of one sort or another, but who do not yet need holistic bespoke planning.  It is an entry point for consumers to become customers of the firm, and for the firm to then work upon converting those transactional customers into advised clients for the future.

Robotics are a part of our world and our future.  We need to figure out how to make them a part of our business too, but in such a way that our business uses the robo’s, rather than being used by them.  Humans and robo’s integrated into the same service business in order to deliver they type of solutions and assistance that consumers and customers and clients want at different stages of their life.

The future for the financial advisory practice is cyborgs.

Tony Vidler
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Tony Vidler is the expert in professional services on creating strong personal branding and target marketing positioning. Tony has been in financial services since 1990, ... Click for full bio