Opportunity knocks for strategic partners that can help financial advisors solve their technology gaps, but they first need to break through barriers to adoption, according to new research from Cerulli Associates.
In “U.S. Advisor Metrics 2019: Ushering in a Digital Transformation,” Cerulli finds that 44,055 advisor practices representing $8 trillion – or 40% of advisor-managed assets – are "medium" users of technology and do not use it extensively. To measure technology use across the financial advice marketplace, Cerulli evaluated advisors’ technology stacks and categorized their practices into three user segments: light, medium and heavy users.
Not surprisingly, larger practices are most likely to be heavy technology users, as scale affords more resources. Overall, only 36% of advisor practices heavily embrace technology, but they control 46% of asset marketshare, the study notes. In addition, more than half (52%) of practices with $500 million or more in assets are heavy users and collectively account for $5.5 trillion in AUM. By comparison, only 26% of the smallest practices, with $25 million or less in AUM, are heavy users.
Cerulli’s data shows that on average, heavy technology users manage nearly $239 million per practice, while light users manage $106 million.
“Technology has the power to transform a practice by elevating the client experience and increasing overall productivity,” observes Cerulli research analyst Marina Shtyrkov. “However, many advisors are unable to unlock the full potential of their technology stack because they are plagued by a common set of challenges that impede adoption.”
According to the research, the top limiting factors include:
- time to learn and implement technology (68%);
- inadequate resource and training from their broker dealer (B/D) or custodian (52%);
- lack of support staff (54%); and
- data security risks (50%).
Technology Usage
Firms that fall in the “medium” category incorporate technology tools for financial planning and investment research, in addition to CRM and a client portal, but use minimal technology beyond that. Heavy users, by comparison, leverage the widest range of technology, digitizing nearly all aspects of their operations using document management, e-signature and marketing/prospecting solutions, the report notes.
The report also offers a projection of which technologies advisors are currently using and what they plan to use by 2021:
- Investment research: 82% increasing to 84%
- Client portal: 77% increasing to 84%
- Financial planning: 75% increasing to 80%
- CRM: 74% increasing to 81%
- Cybersecurity: 74% increasing to 80%
- E-signature: 70% increasing to 83%
- Compliance: 60% increasing to 66%
- Document management or cloud storage: 60% increasing to 71%
- Account aggregation: 47% increasing to 56%
- Rebalancing: 44% increasing to 52%
- Risk analytics: 43% increasing to 53%
- Marketing or prospecting: 41% increasing to 49%
Independent advisors, especially, “face a double-edged sword,” Cerulli further notes. The report explains that the universe of available technologies is infinite and advisors are free to pick the “best-of-breed provider” in any category. Yet, that means they must navigate an expanding set of options that need to be vetted, integrated and maintained.
“For independent advisors, it is a question of cost vs. return on investment (ROI),” Shtyrkov explains. “IBD advisors and RIAs are far more likely to consider the high associated costs of technology a major challenge, reporting a 26.6-percentage-point difference from wirehouse and national/regional B/D advisors,” she further observes.
As such, advisors’ technology challenges present opportunities for strategic partners – e.g., B/Ds, custodians, asset managers and technology providers. To shore up adoption, the research urges strategic partners to:
- consider how to balance customization with simplicity;
- leverage next-generation advisors as early adopters and internal champions;
- involve the advisor’s team, not just the decisionmaker, in the project vision and roll-out; and
- enlist the help of third parties to overcome advisor reluctance.
“Given that 41% of advisor practices are medium users, strategic partners need to consider how to overcome advisor resistance and engage this moveable middle by striking the right balance between simplicity and customization,” Shtyrkov further emphasizes.
