Roundtables Recap

I recently had the opportunity to host our first ever innovation roundtable. It featured a diverse group of advisors at different stages and with various challenges integrating technology into their firms. The roundtable will be a part of our upcoming series. (name, date, link)But, for now, I wanted to share two of the higher level points that came from our discussions.

The first item that became evident from our conversations is that although there were multiple stated reasons why an advisor might be hesitant to adopt new technology, the main reason centered around a concern of possibly damaging the client-advisor relationship. The thought boiled down to one simple narrative: Our clients really value relationships and technology may make it seem like we don’t value them as much.

As we went around the table and talked about technology the same sentiment was conveyed in different ways, “we are building a relationship” “we are managing life savings” “Our clients don’t want to talk to technology, they want us.” Admittedly, all of these are at least partially true. But, if we dig deeper, we’re able to see that, as an industry, the reason why we haven’t adopted technology follows our investment philosophy- we want to see proof. Think about it. We don’t tend to invest in IPOs because we want to see evidence that the company can continue to grow, pay dividends, etc.

As the conversation around technology continued, there was a point as we were analyzing some of the reasons why we haven’t fully bought in where some of us looked at each other and said, it’s not really about the client not wanting it, it’s about us. This moment was groundbreaking in that it voided all of the previous excuses that we’ve made about technology. The truth is that it’s easy for us to rationalize our lack of need for technology by pushing it on the client and saying this is still a relationship business. But, in reality, none of us in the room had talked to our clients about whether or not they wanted more technology. When it comes to technology, we fall into a trap that we continuously try to avoid when investing; making bold predictions with a lack of evidence.

This is a relationship business, and I believe that it will continue to be a relationship business. But our clients see technology, now, as part of a relationship. Friendships are relationships. Marriage is a relationship. Client-advisor is a relationship. In the first two cases, we use technology to add value to the relationship. That value may come from staying up to date with our friend’s travels via social media or communicating with our spouse and kids through text messaging. Both of these enhance the relationship that is meant to come from each. And yet, we arbitrarily dismiss the value that technology can bring to the client-advisor relationship.

Our clients are engaging with technology to build relationships in other parts of their lives, so why not with their financial advisor? Better yet, why are we assuming what they want? If positioned the right way and utilized appropriately, technology will not take anything away from the need clients have for the human, financial advisor. It will strengthen the loyalty they have to you and your firm as you build a bond that is unique to others in the industry.

The second point that came out of our conversations is that there is a significant changing of the guard happening within wealth management. There’s a clear divide between the older advisors who still look at things as performance-based and the younger advisors who are more holistic and planning oriented. I see it within the firm that my dad built and I saw it again at this table. Some of the advisors at the roundtable have been in the industry for less than twenty years, and a couple have been advisors for more than thirty years.

The generation that started RIAs and started out in the business over thirty years ago, like my dad, are bonded to the way business was before technology, and access to information became prevalent. The value provided by a financial advisor was that he could outperform the market, create high returns, etc. With innovation in technology, product, and access to information; those days are more challenging and less effective than ever.

Conversely, the newer generation is more focused on planning, holistic advice and helping to provide value in solving problems beyond just investment management. Study after study shows that we are more than likely going to provide reversion to the mean-type of returns. However, if you talk to an advisor, you might not believe it, because they only talk about their great years or their great wins. And ultimately, our clients look at losses much worse than the happiness they get from gains. So, even if you are winning for them, the moment you lose for a period, it will hurt them much worse than that good feeling you gave them through their gains.

So, we must create an environment and a relationship that extends beyond just the investment management. We know that the markets go up and down. The question becomes, how can we ensure that our clients value us no matter the direction of the market? Doing so would allow us, as advisors, to create some control in a profession that tends to be at the whim of the traders in NYC.

THE SOLUTION: Providing integrated planning solutions like being the strategic thinker for estate planning, trust planning, tax planning, insurance planning, etc. will allow us to add controlled value to our clients while also aligning their investments to their overall plan. Doing so will also differentiate your offering as these are all things that clients can’t get from Mad Money or Motley Fool. It’s both a differentiator and a value driver to our clients that can have a significant impact on their overall money situation.

Admittedly, this is easier said than done. The truth is when we’re only focusing on one piece of the financial pie-investment management-we have more time for other things or more clients. As we add more to the relationship, we limit the expansion opportunities for us to grow our business with new clients. And this is why we need “collective intelligence” or need to use technology to scale our efforts.
We are the intelligence of setting the plan, strategizing the course of action and iterating based on new information. But technology can supplement our knowledge by ensuring the activities we set up are taken, that common questions are answered quickly, and that new information is acted on immediately. This allows the client to continually feel connected to both their advisor and their unique plan.

THE BOTTOM LINE: For the newer generation advisor to be able to grow a business like the past generations had, we must be more open to technology to enable us to do more. The new generation is on the right track. And it will be valuable for the clients of these firms and is helpful for individuals that will need advisors. But we must enable ourselves to ensure that we don’t limit the number of lives that we will be able to change with this new way of creating relationships.

As we factor in all of the competing solutions available as well as fee-compression, it’s clear that clients want a more holistic approach to their financial situation. The challenge that young advisors will face is that it will become increasingly difficult to manage large books of business as planning oriented relationships are going to continue to be more and more time intensive. So, creating efficiencies while leveraging both a team and technology is going to be critical.