If some financial advisors seem to know clients’ needs before they do, there’s a good chance software is part of the reason.
Financial technology — or fintech, for short — has increased competition in the advice business via automated online platforms. Yet at the same time, advisors have found that those digital advances have bolstered their ability to serve clients, both by freeing up their time and helping their businesses run more efficiently.
“It allows us to better advise our clients, quite frankly,” said Lisa Casciaro, a certified financial planner based in Montville, New Jersey, and president of the state’s Financial Planning Association chapter.
“It’s been good for advisors, but also for consumers,” Casciaro said, adding that she has expanded her client base from the wealthy to the so-called mass affluent due to the evolution of fintech and the extra time it’s given her.
The term fintech generally refers to technology that enables parts of the financial services world to be automated. For advisors, it means that tasks such as portfolio rebalancing and data aggregation are now done by software, and keeping tabs on the particulars of each client’s situation is handled by digitized systems. The result is less time spent crunching numbers, entering data and poring over spreadsheets.
“There’s more time to discuss work-life balance, health, kids, starting a side business, home-improvement projects, et cetera,” said CFP LaKhaun McKinley, owner of MNM Vested in Grand Rapids, Michigan.
“This helps clients understand that financial planning goes beyond their retirement accounts and that I can be a helpful partner and resource for more than just investment advice,” McKinley said.
Among independent advisory firms, 58% plan to invest in new technology this year, according to a study released last month by Schwab Advisory Services. Top reasons include wanting to serve more clients (38%), reducing manual work (20%), letting employees focus on high-value work (17%) and improving security (11%).
While the amount of money that advisors spend on fintech is hard to quantify, venture capitalists and other sophisticated investors view the entire fintech universe as a promising market: In 2018, $16.6 billion flowed into U.S. fintech firms, up 46% from $11.3 billion in 2017, according to Accenture, a global consulting firm. Including investments in other countries, the 2018 amount was $55.3 billion, more than double the $27.4 billion recorded a year earlier.
Those investments could go into a variety of fintech solutions, ranging from a mobile payment app for consumers to back-office automation for banks and advisors. Or, it could flow into advisors’ fintech competitors: so-called robo advisors.
In the U.S., assets under management among those platforms — which include standalone firms like Betterment and Wealthfront, along with options from legacy firms like Vanguard and Charles Schwab — is somewhere north of $200 billion, based on various published calculations.
In comparison, the amount managed by advisors is in the trillions of dollars. Among federally supervised registered investment advisors, regulated assets under management reached $82.5 trillion in 2018, according to a report from the Investment Adviser Association and National Regulatory Services.
Robo options tend to be cheaper. They come with fees that range from free to about 0.75%, depending on account value and services provided, compared with about 1% among traditional advisors.
“I think fee compression is a challenge for advisors,” said CFP David Zavarelli, a financial advisor with LPL Financial in Danbury, Connecticut.
“But proper use of these tools, which gives us more time to understand clients, can justify a fair fee,” Zavarelli said.
Robo advisors also come with lower minimums — sometimes $5,000 or less. This has made investment management, once the province of the affluent, available to people lacking sizable account balances. Client money is typically put in low-cost exchange traded funds or index funds.
Some robos offer basic investment management, which could include automatic portfolio rebalancing and tax-loss harvesting, while others include extras like financial-planning software for investors. Some services even include a human advisor via phone.
Despite the competition, advisors remain a key part of the financial-services ecosystem, said Vijay Raghavan, a senior analyst at Forrester Research in Cambridge, Massachusetts.
“There are still things that a computer algorithm can’t advise on, so there’s still value in financial advisors,” Raghavan said.
Advisors say that while comprehensive planning has always included aspects such as estate planning, cash flow and retirement planning, there’s more time now to dig deeper into those areas. And, fintech makes it easier to do to so.
For financial advisors, the key piece of fintech generally is the client relationship management, or CRM, system which serves as the hub of an advisor’s daily work flow.
“It’s notes, my calendar, list of things to do — everything starts there,” said LPL’s Zavarelli, who uses a CRM system from Redtail Technologies.
For example, a CRM system may remind an advisor that a particular client hasn’t reviewed their will in a few years. Or, perhaps another one’s child is turning 18 — which could generate a conversation about the need for a health-care proxy. This document would allow the now-adult child to authorize a parent to make medical decisions on their behalf. Without it, if a young adult child ends up in the emergency room or has another health issue, the parent could be cut out of the conversation.
“”That’s something that individuals don’t usually think about, ” Casciaro said.
Advisors also typically use sophisticated financial-planning software, which generally provides a variety of information about the client’s financial life — i.e., assets, liabilities, savings, spending habits — as well as the ability to make future projections about income and spending.
“We also can do ‘what if’ scenarios,” said CFP Chris Schiffer, executive vice president and chief operating officer at AEPG Wealth Strategies in Warren, New Jersey. He uses eMoney for that piece of the puzzle.
“We can add different scenarios to their plan, and then have a collaborative discussion about what the future will look like,” Schiffer said.
The third key component is investment management, which includes data aggregation and portfolio rebalancing.
Advisors also rely on other fintech, such as risk assessment software. For that, Schiffer said, his firm uses software from FinaMetrica and then based on the results, has a discussion with the client about portfolio allocation.
Schiffer also uses a program called Social Security Timing, from Covisum, to do calculations for maximizing benefits and determining a breakeven point.
It’s worth noting that there can be ongoing charges for using any of the fintech options. For instance, planning software can run from $150 to $350 a month, Schiffer said, and portfolio accounting software typically runs about $30 to $70 per account, per year. And, often, the more accounts or users an advisor has, the lower the price. Other software options, such as Social Security software, can cost less, he said.
A benefit to fintech is that it can encourage client involvement. For example, through financial-planning software, clients can keep track of all their accounts — both assets and liabilities — in one place and see how they are financially faring and where their money goes.
“They’re really encouraged to reveal their entire financial picture, which benefits both of us,” said Zavarelli, of LPL, who uses MoneyGuidePro.
Of course, having client records stored digitally also means firms should be investing in cyber security.
“Any solution that supports an advisor must meet the highest standards of security to give investors and [financial institutions that work with advisors] confidence,” said Raghavan, of Forrester Research.
While the fintech fans among advisors tend to be ahead of the curve in terms of implementing the newest options, it’s also possible to get too wrapped up in making improvements, said Casciaro, the FPA’s New Jersey chapter president.
“If you lose so much time trying to set up everything perfectly or trying to automate every single thing, you’re losing the benefit of why you brought in software in the first place,” Casciaro said.
Additionally, the technology could be improved, said CFP Avani Ramnani, director of financial planning and wealth management at Francis Financial in New York.
“One thing I haven’t seen done well, and I’m hoping fintech companies pay more attention to, is integration,” Ramnani said.
In other words, different software programs don’t always communicate well with one another.
Meanwhile, advisors also employ other types of non-advisor-centric technology. For instance, virtual meetings have led some advisors to offer digital meetings with far-flung clients. Additionally, digital signatures can make what once was required an in-person signature on some documents a much quicker and efficient process.
Zavarelli said that when he moved to LPL from Raymond James several years ago, electronic signatures — enabled by software called DocuSign — saved him a huge amount of time because there was no printing, mailing or faxing involved. And, he said, 85% of his clients were able to provide their digital signatures without help.
“I was pleasantly surprised,” he said.
Correction: Lisa Casciaro is a certified financial planner based in Montville, New Jersey. An earlier version misstated her location.