Q: Where can advisors benefit the most from leading technology?
LIZ NESVOLD: It’s a difficult question because honestly there are advisors who aren’t taking advantage of the tools that are available today. A lot of advisors haven’t reinvested, or haven’t embraced the fact that they don’t need to use legacy systems anymore. This is a community that really started and evolved in the ‘70s and ‘80s, so it’s an aging community. Not everyone has embraced the latest and greatest. It’s a community that is very staid.
What will help aging advisors warm up to some of the tools available today?
The first time the community started to sweat technology was with the introduction of the robo advisor. Our view back in 2015 was that the direct-to-consumer firms were not going to go the way of the Dodo bird, but it would be no different when Internet banks came on the scene. The larger banks finally came to the conclusion that they were going to build the technology themselves and in 90 days had amassed the same amount of assets. So, it’s one of those things.
What do we see in the future? There will be a changing dynamic and advisors will start paying attention. There’s a whole series of digital innovation that will be powering the advisor. It’s not about robos changing the business model anymore; it’s about how tech will empower the advisor. The old guard is quickly learning to think differently about tech.
The face of the client is changing — whether the community appreciates it or not. The clients that firms are doing business with today are not the same people who are going to control the assets in the next 10 to 15 years. It’s going to be millennials and you have to interact with them sooner or later. A lot of the community, although not exactly the vast majority, are beginning to pay attention.
What’s holding independent firms back?
I call it terminal velocity. Invariably, firms get to a point where they have done what they can to grow as far as they can and have hit a wall. The firms that have come on the scene have benefitted so much from innovation. In the last decade, firms have been very comfortable with that kind of evolution and making switches and making changes if they’re unhappy. The older firms of the ‘70s, ‘80 and ‘90s that have been around a disproportionate share of new technology will be the same old, same old, in terms of their size. It becomes harder for them to get around making a change — switching custodians or moving to a new CRM — just because there is a lack of comfort with the digital side. A lot of those firms have a lack of comfort with digitization and are not creating new workflows that are incorporating the technology as solutions.
How are tech providers trying to up the level of adoption, especially for an aging workforce?
The fintech has to be at the top of its game. There are popular tech platforms that will become dinosaurs because the end consumer isn’t forcing them to continue to evolve. These are the firms that will probably be acquired — without saying names. They will be on the block at some point. Then, there are firms forcing innovation and consolidation in the fintech industry. Firms will innovate or not. Be the acquirer or the acquiree.
The truth is you have an advisor community that approaches clients differently. Everyone doesn’t approach the business in the same way. Some are investment-only and focus on performance tools. Others want the best financial planning software. This forces the vendors to stay on top of their game. It’s when we get lazy as an industry that innovation slows down.
What is the single, greatest danger for RIAs?
Not everyone is on their game in terms of cybersecurity and that will matter significantly more in the coming years. There are firms with these great platforms that are growing aggressively and all the sudden you realize they’ve been a victim of spear-phishing attack.
These are things that are just under the radar screen and advisors are just not paying attention to the fact that they exist. You have to continue to look at things you’ve never even thought you had, like mock audits and cybersecurity testing. Some of the bigger firms in the industry hire hackers to determine what’s their level of penetration. I mean, mammoth companies who spend billions to protect their end consumer. The RIA community isn’t there yet, but it’s on everyone’s list of what they worry about.
Regtech is a growth area right now, but people just don’t talk about it because it’s just not sexy. At the end of the day, it comes back to risk management. The RIA industry has a huge spotlight shining on it right now and it’s much easier to target a firm with $4 billion in assets that is multi-custodian with multiple vendors. That’s the ideal target.
It’s an evolving industry that hasn’t spent the billions yet and haven’t caught up to looking at the big data that can spot hacking activity. This whole industry that has become the darling of the financial services. This is where hackers will spend their time trying to take advantage of others.
How can an aging advisor workforce reach out to younger clients?
Forget about the millennials, we should be talking about Gen Z. How are they going to want to communicate? The changes are coming faster and faster and Gen Z will influence how millennials will want to communicate. We need to skate where the money is headed. We almost need to start thinking about leapfrogging where we are now, instead of just playing catch up. People who were late to the party are always going to be late if they are just trying to catch up. If we’re just worried about technology and millennial engagement that we’re developing today, we’re going to miss the boat again.
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