Most financial advisors “do not use technology extensively” but the ones who do, are more efficient and manage more money, according to a study by Cerulli Associates, a Boston-based research and consulting firm.
“While the analysis was done before the Covid-19 pandemic, which is unquestionably a game-changing moment for many firms and advisors, there are several key takeaways that Cerulli gleaned from the way fintech is applied in the wealth management arena. One of the most significant findings of Cerulli’s analysis is that most advisors do not use technology extensively, concentrating on several core tools with moderate outcomes,” Cerulli said in a report published last week.
Only 36% of advisor practices “heavily embrace technology,” meaning in addition to commonly used tools (like client portal, financial planning, and investment research software) they are also likely to use document management and e-signature software, as well as marketing and prospecting solutions.
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Medium technology users — which total over 44,000 and represent $8 trillion in assets — account for 41% percent of practices, and light users account for 24%, according to Cerulli.
The extra effort to select, establish, and use more technology is paying off for the heavy technology users, who have a disproportionate 46% of the market share of advisor-managed assets. Medium technology users account for only 40% and light users manage just 14%.
The most technology-savvy firms tend to be larger. On average, heavy technology users managed $239 million per practice, medium users managed $183 million and light users managed $106 million.
Out of practices managing $500 million or more, Cerulli estimates that 52% are heavy fintech users and that they collectively manage $5.5 trillion. Just 25% of the smallest practices, defined by Cerulli as those managing $25 million or less, are heavy technology users.
“It’s a virtuous circle — technology begets growth and growth begets increased adoption,” Marina Shtyrkov, senior analyst at Cerulli, said in the report.
The Covid-19 pandemic forced advisors to work and interact with clients remotely, accelerating technology trends that were already underway. Considering there is no vaccine yet for the novel coronavirus, and the time needed to distribute one when it arrives, some advisors and clients might forgo in-person meetings for much or all of 2021. During that time, technology companies have a window of opportunity.
Cerulli believes technology companies can better engage the “moveable middle,” or medium practices that are using some software tools and might be willing to use more. “Entrenching them further into the firm’s ecosystem can also be a retention strategy,” Cerulli said.
Technology companies can do this a couple ways. They can simplify their offerings by giving advisors moderate levels of choice (which Cerulli has recommended in the past). Companies should also leverage next generation advisors in practices as early adopters, while still involving the entire team, according to Cerulli.
“Technology has the power to transform a practice by elevating the client experience and increasing overall productivity. Providers have an opportunity to capitalize on the current digital environment and deepen adoption by addressing roadblocks and offering support so that advisors can fully embrace the benefits of the functionality,” Shtyrkov said.
Although, it might be a big ask to get them to meet in the middle. Narrowing a service offering is not a decision technology companies would make lightly and there’s no promise that advisors would take to the changes.
This year, advisors have been both fast to adopt new technology and especially slow to give up investment management, even though it would be better for them and their clients.
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.