Build, buy or bolt-on: The biggest tech question for advisory firms

Most leaders of advisory firms acknowledge that winning the technology arms race is a non-negotiable key to growth and sustainability. Everything is at stake when you invest in new cornerstone technology: client satisfaction, advisor retention and firmwide productivity. Firms can't afford to get it wrong. 

To scale for success, leaders need to decide whether it's better to build, buy or bolt-on to their existing technology stacks. 

In my experience, there's no one right answer — but there are best practices to each option that make the difference between success and stagnation. 

Build — or actually rebuild

Firms that grow faster than their peers often use integrated technology to drive efficient workflows and keep clients and advisors connected. 

But building your own tech solution that connects seamlessly across your tech stack is, to put it mildly, hard, and requires considerable investment and technical expertise. Firms on this path should plan like they're doing a major home renovation or even a rebuild. Add at least 30% to initial estimates and expect annual maintenance costs to exceed 20% of the original investment.

The upside to building it yourself is that it can create a legitimate — or even unassailable — competitive advantage. I had some experience with the build-it-yourself model at a previous employer, where we created a proprietary technology platform that, I would argue, became the best in the industry. Ultimately, we spun it out as a separate business. That's unusual; most firms don't have a decade and a billion-plus dollars to spare.

READ MORE: What most financial advisors are using fintech for

Before building a solution, it's important for firms to do their due diligence in the technology marketplace. Really consider whether the project will be better than existing solutions, and if it has potential to be a material differentiator or revenue-generator for the firm eventually.

Buy via acquisition

Firms that don't want the heavy lift of a DIY build but like the idea of a custom, proprietary solution may consider acquiring a technology provider outright. 

But acquirer beware — you'll need to do due diligence to determine if the purchase is a sound financial investment and whether you have the know-how to stick the landing post-close.

The most common misstep in buying is around human capital, not financial capital. Will the massive investment be worthwhile when the founders inevitably exit? According to Harvard Business Review, the challenges of retaining startup talent post-acquisition are often underestimated, with markedly higher turnover among acquired staff compared to regular hires. I've seen firsthand that some of the dispersion of that talent will head directly to your competition.

READ MORE: Is your firm's tech stack driving away financial advisors?

The "buy" path can yield a ready-made tech solution, but it requires a flawless integration strategy — both with culture and technology — to avoid disruptions and maximize the value of the acquisition. Firm leaders need to assess whether the expertise to manage the acquired technology exists in-house, or if they will need to add headcount when incumbents decamp.

Bolt-on — partnering or licensing

Given the complexities of building and buying technology solutions, it's no surprise that many growing wealth management firms ultimately conclude that partnering, or licensing software from a trusted specialist, is the best route. 

According to PwC, more firms are choosing partnerships to accelerate enterprise performance around critical technology capabilities that can differentiate them from the competition. 

Before signing any agreements, firm leadership should consider a few fundamentals. 

First, is the solution plug-and-play? Find out if firms that license the software share the same code base, or if it's a custom development play. The more custom work involved, the higher the risk of future legacy software issues. 

READ MORE: All-in-one tech trend changing how financial advisors do business

Next, make sure your proposed partner is financially stable. Reviewing summarized financials under an NDA can help you assess whether this vendor will be around for the long term. And, of course, the quality of the solution itself is a variable — this industry is full of failed technology implementations. Check references and request metrics that validate productivity claims. 

Last but not least, are you getting a trusted partner or simply a vendor? True partners will support you whenever service or technical issues arise, not just during the sales pitch. In general, it never hurts to interview a good cross-section of their users to ask if the solution has made them more productive.

It can feel like the path of digital transformation is littered with risks — and it is! 

No matter which option your firm chooses, one thing is clear: The time to act is now. The risk of inaction is far greater than the risk of action. The compounding effects of inaction will drag your firm further behind its peers, while a decisive move may propel your advisors ahead.