Kitces: Crowded tech map could generate more indy advisors

There's a growing concern among advisors that if they don't adopt AI soon, they will be left behind. 

A new Financial Planning report found a quarter of the 270 advisors surveyed said they felt "significant" to "high" pressure by their firm to adopt AI to keep pace with competitors. And many tech leaders in wealth management have long warned that advisors who don't adopt AI will eventually lose out on client growth compared to early adopters. 

READ MORE: AI for wealth client growth? Slowly but surely

But XY Planning Network co-founders Michael Kitces and Alan Moore challenge that notion, arguing that clients won't just leave their advisors en masse for not rapidly adopting AI. 

"What does it mean to be left behind as an advisor? They make it sound like there's like an RIA killer, that if you don't adopt, your firm's going to get killed," Moore said in a sit-down with Kitces and Financial Planning at the XYPN Live annual conference on Oct. 16 in Minneapolis. "It's not like they're going to put you out of business. Could you lose a client or a prospect to that platform? Sure, but we don't see that. We still have 95% to 97% client retention rates." 

READ MORE: How AI is changing financial advisors' jobs

Kitces agreed, noting it's more so the tech vendor who does not adopt AI that will be left behind. 

"There are still advisors that run successful, in-person practices with yellow pads, meeting with their local clients. And they basically skipped the internet," Kitces said.

From an advisor's perspective, the "worst, worst case scenario is you're just going to serve the clients you serve for the next 30 years because they're not leaving you regardless of anything you adopt," he said. "Growth might get harder. Scaling might get a little bit harder. But these things happen really slowly when most advisory firms grow by single-digit organic growth rates in the first place."

What new tech developers and AI providers have changed, Kitces said, is the ability for more advisors to go independent. Kitces' widely known fintech map is a prime example of the rapid expansion of tech providers in the space, which has grown by hundreds of firms in roughly six years. 

"New tech is coming faster than it can be consolidated by a long shot, with more and more new vendors that you can choose from," Kitces said. "It's now such a broad, rich ecosystem of technology that in reality, it has never been cheaper and easier, more cost-effective to be a solo practitioner."

Even XYPN — a service, technology and compliance platform for independent, fee-only financial planners — recently reached 1,900 members in a decade, far surpassing Kitces' goal of 200 at this time. 

"When you're building and starting a practice, you just flat out have exponentially more choices about technology to help automate than you ever had in the past," he said. 

During the conference, XYPN officially launched a secondary affiliation option for corporate RIAs, called Sapphire, which handles more administrative and compliance-related tasks for advisors. XYPN launched a Sapphire pilot earlier this year with about eight advisory firms and then opened it to the broader market on Oct. 16. 

Moore said the goal of Sapphire is to handle 70% to 80% of the administrative tasks so advisors can focus more on their clients. 

"In five years, they can look at it and say, 'maybe I'm ready to try independence and go see what that's like,' and we'll support that," he said. 

However, both Kitces and Moore caution that RIAs don't have to stick with every new tool XYPN suggests, nor do they need to chase after new tech because it's "shiny." 

"You don't need to pick the best solution. You just need to pick a solution that's good enough," Moore said. Advisors "get this paralysis by analysis where you're going to look at all 20 of the new AI note-taking tools. Just pick one that meets your compliance requirements, it meets the basic needs, and use it. You can always come back in a year and change that system."