Assembling a technology suite is one of the most critical decisions facing a financial advisor going independent.
Beyond basic infrastructure like computers, smartphones, phones and a secure internet connection, firms have to consider the digital workstations they provide advisors and support staff; portfolio management and trade execution technology; client-facing tools like an account portal and financial planning; and practice management software like a client relationship manager (CRM), reporting and billing. The so-called “tech stack” has to support the firm’s value proposition, help it stand out from other wealth management firms, serve as a foundation for the practice and be flexible enough to adapt with growth.
“A lot of advisors who try to do it themselves and try to go alone, they haven’t really thought through all the things a wirehouse platform provides for them,” said Sarah Alderman, a managing director at consulting firm Foreside. “Technology is ever-changing. It’s important to consider what they’re working with now and how that could look and evolve in the future.”
There are also client service levels to consider. “In addition, clients are increasingly expecting highly personalized and holistic service from their advisors,” added Matthew Berkowitz, lead of consulting firm Capco’s U.S. wealth and asset management strategy practice.
Not exactly an easy decision. Where does a firm begin?
Before anything else, firms need to determine a vision for what they expect their firm to look like. Specifics like the size of the practice, target client segment, services offered and potential areas of specialization should be accounted for when building a technology ecosystem, Berkowitz said. Firms also need to identify individual needs for trading, reporting and billing, Alderman added.
While these variables make it impossible for anyone to offer a silver-bullet solution for advisors going independent, there are four archetypes for building an independent technology stack. There are pros and cons to each and no two firms’ setups will look the same, but for advisors thinking about going independent, here are some common routes others have taken to make the switch.
1. Fintech Vendors
This category includes some of the all-in-one platforms on the market, like Advyzon or AdvisorEngine, or an assembly of best-in-breed technologies that focus on individual tasks, like Morningstar, Redtail and Riskalyze. Many of the most popular wealthtechs can integrate with each other and can be accessed either directly by the advisor or through a partnership with an asset manager or advisor network, said Berkowitz.
The main advantage with going this route is flexibility. The market is saturated with companies building tools for advisors, and independent RIAs can pick and choose the tools that precisely fit their needs and budgets without paying for anything they won’t use, which can be crucial for firms trying to operate on a lean budget. Finally, startups often provide the most cutting-edge technology, helping advisory firms stay a step ahead of competition at large financial institutions or demonstrate to clients why they left a wirehouse.
However, independent RIAs that go directly to wealthtech providers likely don’t have the same bargaining power as larger firms, meaning they might ultimately pay more for comparable technology. And while wealthtech firms may be great at innovating new technology, they may not have the same kind of expertise with the rest of an advisor’s needs, such as practice management or investment strategy design.
There is also some risk inherent to partnering with a startup. Some,
2. Custodian workstations
Many RIAs can get most of, if not all, of what they need directly from a custodian, especially if they agree to keep assets exclusively at one firm. If advisors want a specific tool not provided, custodians also support integrations with many of the leading third-party wealthtechs.
“There is built-in trading, reporting, software for keeping books and records, and a lot of economic benefits that can come with the custodian,” Alderman said.
Some of the latest-and-greatest startups may not be supported, but custodians’ digital marketplaces of wealthtech vendors allow advisors nearly the same flexibility as going directly to vendors while helping to limit to menu somewhat. Pricing is often better and custodians can provide conveniences such as single sign-on, client-facing portals, and a digital workstation for advisors to access all of their technology in a unified dashboard. For example, for advisors who keep all client assets with Charles Schwab, the custodian
The main downside is custodians can be limited in their support of certain technologies and integrate best with the same few wealthtechs, said Berkowitz: “Access to the same partnerships limits the competitive advantage of being able to partner with a new fintech that offers differentiated technology.” There’s also the matter of competing directly with your custodian — some of which maintain direct-to-retail businesses or support advisor networks and broker-dealers. Relying on a custodian for technology also means exposing more of your client’s financial data to those firms, Berkowitz said.
3. Turnkey asset management platforms (TAMPs)
Companies like Envestnet, SEI and AssetMark that began as providers of outsourced investment management now also offer comprehensive technology to the wealth management industry. TAMPs can support RIAs that custody assets across multiple custodians, and automate many of an advisor’s workflows by bundling technology together with third-party investment management.
TAMPs are a great solution for independent advisors focusing on holistic financial wellness, said Berkowitz. By automating many of the traditional workflows associated with managing money, TAMPs can increase productivity, helping advisors offer a greater number of services, focus on growing their business and spend more time with clients.
“TAMPs have incorporated financial planning applications and tools to provide investment advice to meet the clients’ ever-changing goals and objectives,” Berkowitz said.
TAMPs can be expensive, especially when a small number of players own most of the market share. As younger generations accumulate wealth, advisors will have to accommodate for shifting client preferences, such as low-cost robo advisors.
4. Affiliate networks
These include both RIA aggregators like Hightower, Dynasty Financial Partners and Advisor Network Services, as well as RIA platforms at broker-dealers such as LPL Financial and Commonwealth. There is usually a cost associated with joining one — or they require the outright acquisition of the RIA — but they provide access to everything a firm needs to go independent, said Alderman.
The biggest advantage for joining one of these networks is access to technology, operational efficiencies and the economies of scale that simply isn’t possible for a smaller independent firm.
“It can be clunky sometimes, depending on if there is a dual registration, but a rollup can help you get off the ground; help put all your options in front of you,” she said. “They have the infrastructure built.”
Many of these platforms can support additional third-party tools to give firms the flexibility they require, added Berkowitz. Others have a list of preferred vendors that will offer additional resources and discounted pricing.
However, some are more limited in the available technology, offering a single integrated platform with little to no room for customization or additional wealthtech, he said. The cost of affiliate networks can limit the financial upside for RIAs and impinge on the very reason the advisor is leaving a wirehouse in the first place: independence.
“While advisor networks promote autonomy, advisors are likely to have limited control of certain aspects of their business, such as branding and marketing,” Berkowitz said. “Advisors often leave larger wirehouses because they want autonomy and control over their own business.”
