Why Technology Is More Important Than Ever to Attract, Retain Advisors in New “Normal”

Written by: Sean Lawlor | Envestnet Inc.

Many financial advisors have been jumping ship in recent years as an expected retirement boom (or in glass half-empty terms: talent shortage) looms. This was before the COVID-19 pandemic sped up the digital revolution of the industry overnight. Going forward in this competitive environment, your tech stack can be the make-or-break factor when it comes to attracting experienced talent as well as the next generation of advisors to your firm.

Cerulli projects that total advisor headcount in the U.S. will decrease 1.4% between year-end 2018 and 2023, as nearly 40% of advisors in the country plan to retire in the next 10 years. Meanwhile, a 2018 Fidelity survey found that more than half (56%) of advisors considered switching firms in the previous five years, while nearly one in four (23%) made it a reality. 

There are a few common factors that could be making many advisors restless. For starters, fee compression trends, lower commissions, and tighter margins. It is no secret that many advisors are doing more for more clients for less money. 

Inefficient workflows and systems can only make things worse. Afterall, time is an advisor’s most limited resource. Yet, 22% of it is spent on administrative activities, according to data from Cerulli Associates. This can be especially frustrating for tech-savvy up-and-coming advisors who see it as wasting time on operational tasks that could be simply automated. 

New talent does not want to run around printing and creating excel spreadsheets, which is still the norm for firms where the majority of workflow processes are paper driven. And even experienced talent can be turned off by an overall office workflow and book of business that is not automated through a clean, integrated technology stack.

It is also quite a challenge to provide effective solutions to clients when one is working off disparate data management systems. Time spent reloading data and running multiple reports is less time to focus on a client’s goals and growing a business. When one solution set on an advisor tech stack conveyor belt is not integrated with another, headaches abound. If something breaks, advisors must jump through different hoops such as financial planning software, CRM tools, and then whatever TAMP that is connected to the custodian. It doesn’t have to be this way; this technology can be connected as one unit.

Tech Stack Differentiator

Whether it is younger advisors just entering the business, or advisors who have more experience – or maybe advisors who are thinking about leaving their existing broker dealer, technology and an attractive tech stack can make all the difference. In fact, many larger financial advisor practices today leverage technology on every front. 

More than half (52%) of practices with over $500 million in assets heavily embrace technology, according to Cerulli research, and they collectively account for $5.5 trillion in assets. These firms digitize nearly all aspects of their operations (from financial planning, investment research, CRM, client portal to document management, e-signature, and marketing/prospecting solutions).

The survey also found nearly 90% of advisors view their firm’s technology as effective at improving the client experience and creating capacity to serve more clients. Another key benefit for advisors is utilizing tech to broaden investment offerings. 

These offerings and capabilities can help firms remain competitive and grow in the years to come. It can also help retain the talent a practice already has. 

Among employee advisors under 40 who are highly satisfied with their firm’s technology, 82% say they “definitely will” remain with their firm, and 76% say they “definitely will” recommend their firm to other advisors. But among those dissatisfied with technology, just 33% say they “definitely will” remain and 29% “definitely will” recommend, according to J.D. Power’s 2019 U.S. Financial Advisor Satisfaction Study.

And according to a 2016 survey from Fidelity, eAdvisors (or those who use tech) had:

  • 42 percent higher assets under management (AUM) than tech-indifferent advisors
  • 35 percent more AUM per client than tech-indifferent advisors
  • More high value clients ($1M+) than tech-indifferent advisors
  • 24 percent higher compensation than tech-indifferent advisors
  • Higher satisfaction with their firm and career than tech-indifferent advisors

This trend has been growing over the past decade. Aite Group did a survey of 403 financial advisors in 2015 and found the 10% of advisor practices that were digitally enabled outperformed the traditional practices. The research predicted that advisors able to provide both client engagement and digital services as being positioned to grow. 

The Aite Group survey also found more than 90% of digitally enabled advisors increased their assets under management within the previous year, with more than a third of the practices growing by more than 10%. Among traditional advisor practices, only 53% reported asset growth of 5% or more in the previous 12 months, while over 20% experienced no growth or declined.

COVID-19 Change Agent

Having the right technology also offers advisors flexibility to work remotely, if needed. Firms that already embraced technology have been able to remain up and running and in connection with clients during the COVID-19 crisis. This has been a critical time for clients to be able to hear the trusted voice of their advisors and see their financial plans in real time.  

The world has changed, and technology has offered a solution for many financial advisors to help clients continue moving forward during uncertain times. Despite not being able to work from the office, many firms have seen their productivity spike over the past two months. Those who made the switch to virtual and remote for the first time will likely never go back to the way things were. 

This is innovation at its finest. We may have also seen the death of the standard intra-year investor in-person meeting, as many advisors and investors may opt to go virtual even when Main Street fully reopens. Many industry networking events have also gone online during this time, making them more efficient (which can greatly increase attendance). 

This progress has been a light at the end of the tunnel during recent trying times. More than ever, firms with integrated tools and solutions will be the most appealing for talent in this new normal (for recruiting new advisors and retaining those already with the firm). 

Related: The Digital Challenge for Leadership

Sean Lawlor is senior vice president and head of enterprise data solutions at Envestnet Inc., a provider of intelligent systems for wealth management and financial wellness. He is a member of FPA’s FinTech Advisory Group.