In this session we will share the results from Financial Planning’s annual survey of financial advisors exploring the technology trends shaping the wealth management industry. More specifically the survey looks at the impact and role of technology on future practices and current/planned technology usage and investment.
Transcription:
Kerry Gross: (00:07)
He's Justin Mack.
Justin Mack: (00:10)
How you doing everybody? Everybody enjoying lunch. Yeah. Great. And, figured we show the podium's a little love because they haven't been getting a lot of TLC this conference, and they're so fancy that we figured we'd hang out with them for a little bit on this session. And if you did enjoy lunch strap in, we're gonna fill you up with a little bit of horizon research for dessert and hopefully it's gonna be a good time, so I will let Carrie kick things off.
Kerry Gross: (00:32)
Great. Thanks Justin, as Justin said, my name is Carrie gross. I'm the director of research intelligence here at horizon, arise is the parent company of invest and also financial planning magazine. I'm sure some of you have picked that magazine up on a table around, or maybe are already readers, but as Justin said, I'm really excited to share this research with you, this is a piece of research that we did on tech spending and wealth management. If you haven't seen the results yet, you can also find them on financial planning, but I'm excited to have a conversation here with Justin, just back and forth about some of the findings and what you might find in them, so first, just a little bit of background on the research, this is an annual piece of research. We do it every year. and this year we have 250 financial advisors who completed the 2022 survey. As you see here on this slide, nearly six out of 10 advisors responding to this survey are from firms with, 500 million in assets, under management or more, and as I said, you can find the full report, on the financial planning website. So Justin just jumping right in here, yeah, the research says that technology is broadly viewed as the key future of financial advisory firms. In fact, nine out of 10 advisors survey agree that it plays a critical or very important role in their firm, a two and three say that technology will key in allowing them to see more clients and drive growth while more than half feel. It will significantly change advisory practices in the future, and perhaps most notable is the fact that roughly half report that technology has helped advisors strengthen their client relationships and encourage clients to be more engaged with their financial plan, and Justin, what are you seeing as the biggest changes in advisory practices as a result of these advances in technology? What are you hearing from advisors about the practical impact of tech on their client relationships?
Justin Mack: (02:28)
Absolutely. And, that's one of the things I'm really excited. Every time I talk to advisors and we're passionate about in our coverage is that outside of the, the business benefits of technology is really how are we staying engaged with clients at a time where we can't engage with clients. And unfortunately in our previous editorial research that I authored that was published in March ahead of the, tech survey that's available now was really focused on digital transformation, future proof in your industry. What kind of decisions are you making and tech decisions are you making that is gonna make sure that you're where you need to be five, 10, even 15 years in the future. And we did that analysis by kind of looking at wealth management and where wealth managers feel they are compared to other industries. So the analysis was, I believe more than 800 total C-suite and executive level respondents from the wealth management banking insurance and mortgage industries. And by and large wealth managers were the least confident in some of the decisions they had made with tech previously, which is why the prioritization is so high now to actually increase focus spending and really allocation of manpower and resources towards technological decisions, what that has resulted in is because the pandemic has forced both management to take a look at the other industries and say, well, why are we so behind? How have we possibly allowed our confidence to slip, compared to the other industries? And our survey was really more of a question on how you feel, the lack of confidence is probably just because before, when you're meeting with your clients, it's the standard I'm gonna actually meet with you in your office. We're gonna talk about your goals. We're gonna solve your full holistic financial life. And now through tech tools, people are realizing they can actually meet with their clients more frequently than they used to in the past, and that their clients have now expected to be able to meet with their advisors at a moment's notice. It's almost because we've gotten so used to being able to log on and log off that unlike 10, 15, 20 years ago, people want the same level of responsiveness from their human advisors as they expect from their digital apps, if they can change the booking on their flight in two seconds, why can't I get my advisor on the phone in two seconds to help me because I've had a revelation or I wanted change something, or there's been a family emergency. So what we're hearing from advisors that tech has allowed them to actually do just that, that focus of the holistic financial planning, while they've gotta know more about their clients and clients are now feeling more comfortable to maybe get a little more personal on digital channels and it's strengthened relationships. And now we're kind of seeing the fruits of that play out as people are prioritizing spending, which we'll get into more, not to jump ahead in the survey, but yeah we're seeing greater connectivity despite the fact that that connection is happening through digital tools.
Kerry Gross: (05:01)
And that's a great point, Justin the investment comes from someone asked me in earlier panel, I was on if we had any data on the percentage of advisors who were using tech tools, particularly video conferencing tools with their clients before the pandemic, and we did, and it was basically zero. Most people were meeting with clients in their offices and then as the pandemic ramped up, it was at least 60% of folks were using video on a regular basis with their clients. And that's really driving, what we see here in terms of tech spending changing, what we see is that, roughly six out of 10 firms have annual technology budgets of under a million, but the one in three are spending we are expecting spending to increase over the next year, right? So like right now, tech spending budgets are relatively low, 58%, less than a million, but 62% expecting that tech increase tech spending to increase. And what we're seeing in that, or what we understand from advisors in that is that the piece that Justin just said, the being maybe behind to start with and now really needing to ramp up, and in fact, most of the advisors we talked to today are continuing to make tech investments, despite the uncertainty we're currently having in the market, one in four only one in four are delaying expenses on technology because of the, tightness we see in the market. And this survey was done in Q1. And I'm curious, Justin given the continued market shift, do you see any of this investment in technology changing?
Justin Mack: (06:30)
Absolutely not. The commitment to increased spend and focus on that investment was made long before whatever happened in Q1 and with this research was conducted in Q1. But again, when we did our editorial breakdown and, looked at our takeaways, when we were talking to advisors about what they planned to do, that was reporting, I did prior to Q1. And regardless of what's happening, this is not, a knee jerk reaction from wealth management. This is not a, we need to start spinning. And we made this decision in December, 2020. This was early on years before even almost a recognition that something needed to change. So these are well laid long term plans that people are following through with, And if you look at our research is consistent with that. So again, whatever happened in Q1 and what's probably gonna happen in Q2 because we're living in, it is not going to deter wealth management from actually upping spending and putting more focus and more, investment into that, so yeah, don't expect what's happening now to shift anything that money's as good as gone in the eyes of many of the wealth managers who are thinking about increasing spend. I'm gonna be a little unorthodox because I'm an unorthodox guy. I see a question early on from, a familiar face what's going on, man.
Speaker 3: (07:35)
Back point slide that bottom number jumped the bottom number, jumped off financial, that's the number like every Vitech try to solve do you think that 40% number is an accurate representation of clients? Or do you think that's advisor few clients? Or how would we tell?
Justin Mack: (08:01)
Yeah, I can answer that this, again is a survey of advisors. So again, this is the feeling of where advisors feel about these. So, so this is not necessarily saying this is exactly how clients are, but when as advisors have the perception of that is the percentage. And again, we had, it was four different respondents. So this was the most, completely agree there were scales, the one to five, the typical, so people at the far extreme, a high level, 40% are, were four out of fours on this. And I believe more than 70% of all respondents. If you look at categories three and four, as far as in agreement, we're also there. So advisors are seeing and feeling that yeah, we feel more connected to our clients. So again, now they're speaking for the clients, Hey, go ask the clients. If they think their advisors are lying about how they feel that is absolutely the perception. And, I think advisors that I've spoken to, have really enjoyed that, it allows them to kind of add a little bit of more personal touch to their work and that connectivity. So hopefully that number will have even more four out of fours when we do this next year, because that shows that human on human contact is not being lost during a time where we can't see face to face. It's actually getting a little stronger.
Kerry Gross: (09:09)
But Justin, I also have a follow up response to, I think you're saying it's low compared to the rest of the responses here, right? The 40% completely agree. And this is the perception of financial advisors, right? And I think the change that we see happening, and I think the change for potential financial advisors in the room is picking technologies that engage clients with the technology, right? So like Amazon or Netflix who are really the tech competitors for any of your clients in this space, any of the technology tools they use that, grab them in and pull them in have really gamified and really made tech, pull actions out of folks. And I think that that's the change, I think that's why it's low here is that I'm not sure that the whole financial advisory market sees that happening and sees that potential in tech and in picking the right technology to pull clients in, to be more engaged, right. Finding ways to really engage folks using technology and not having it always be an advisor push out but a client pull be pulled in through that technology and it not having to be an action from the advisor. That's what I see happening too happening. Great question.
Justin Mack: (10:15)
All right. Moving right along.
Kerry Gross: (10:19)
But thinking again about how the tech spending is happening, so what we see happening is that firms are investing. I'm sure every firm in here knows they're investing in more technology. But for me, what's interesting to see is how this shifting is impacting other spending pieces, what we see that some firms might be expending, their operating or CapEx budgets. Two thirds say that their firm is prioritized tech spending over other types of spending in their firm, which makes sense. And you just have a bucket of money that you can spend on anything, you have to pull it from one thing to put it in another bucket, and on the right hand side of this slide, we see the areas that have received less funding to free up resources for technology investments are most often including continuing education conferences or events followed by hiring compensation and client acquisition. And Justin, I'm looking at this and thinking about the trade offs that folks have to make, when setting their strategic priorities. but what we see here is that almost half are picking tech over other things more than half are what risks do you see that that might be introducing for financial advisory firms in the short term? Or do you see only upside in this tech.
Justin Mack: (11:26)
There's definitely some risk involved there. This was the stat from the survey that stood out to me the most, again, that technology now considered when asked more important as far as an investment decision than bringing in new talent, continuing to train that talent compensation of that talent now, Vince and, was another thing that has prioritized, but there's quite a few less events lately, so there is going to be short term risk and maybe some short term damage when you switch, investment focus that rapidly. However, what we've also heard from a lot of our respondents is that these are decisions made in a firm or in an organization among people who are all onboard. So there's almost a unified understanding that we are going to see a lack of ability to compete for talent, especially as so much movement in the industry continues. And, breakaways are so much higher that if you are competing to bring in that top talent, but you also understand that you're trying to make up for lost ground on years, that you maybe haven't allocated spending towards technology that you are going to have to kind of hold that for a little bit. However, folks we've talked to also pointed out the realization that scale that comes with smart investment in technologies like you might not be able to bring as many bodies as you would like to. And we're seeing firms through all of our quarterlies lose advisors, advisor shrink is happening everywhere, but if you make the right technology decisions, you're able to scale and keep up with the increasing demand of financial planning by having the right tech tools in place. So it it's going to be tough and it's gonna actually put some load on some advisory firms, especially smaller size firms who are trying to get their stack, up to snuff. So there is going to be maybe some growing pains over the next year or two, maybe further as we see the spending trend continue because the research also tells us that this increased focus on technology spending. Isn't again, not a new thing I expect next year to see maybe even a higher percentage of spending being prioritized over things like hiring compensation, continuing education. Because again, there's the understanding that this has to happen. It's not an option. It's a necessity, other firms firms who have, more assets to actually, invest in this are gonna have a leg up, but the smaller, more nimble firms are gonna have the freedom to actually look at what tools they need and not be beholden to as rigid of a corporate structure. So there's benefits for both big firms and small firms, but it's gonna hurt for a little bit. the goal is that long term that it's gonna hurt a little less.
Kerry Gross: (13:43)
And the strategic decision making that has to happen in that process is really evaluating the practice itself. Right? What are the goals with technology and how do we achieve that with the right technologies? Right,
Justin Mack: (13:55)
Absolutely.
Kerry Gross: (13:56)
which I think is a great transition to the thinking about what are the types of technologies that advisors think, are gonna change wealth management in the next one to three years. So this isn't folks who are currently invested in this is the folks, these are predictions about what, financial advisors think are gonna be changing the industry and so what we have here at mobile apps at the top of the list, 40% say that those are gonna change the industry followed by artificial intelligence and digital platforms, blockchain and cryptocurrencies, all at 34% each, and I'm really interested, Justin, I think these are great predictions and I'm really curious, what do you see as, predictions from what might change in the industry here?
Justin Mack: (14:37)
Yeah, absolutely. And I think, mobile apps and AI kind of being the one in two leaders are really consistent with a lot of what I've heard for folks. The mobile apps thing is, is probably a no brainer. That's gonna be your first point of contact for so many people. And as we've reported at financial planning, again that demand and, the number of first time folks working with planners for the first time and the growing level of, millennial millionaires, who are for the first time trying to okay, I wanna forge my own path. Maybe don't want to go with my parents' legacy advisor and do my own thing that's increasing. And the mobile app for better or worse is going to be your number one. Most frequent point of contact and advisors have found that in our previous research, again, that was published in March, told us that believe it or not, unfortunately, a less than ideal app experience is going to be something that might actually cause a client or to reconsider their current planning setup. Especially when you're talking about folks in the age group of maybe 45 and under who are first time folks, or maybe have very limited experience and don't have that loyalty to their planner, that's gonna be a tough thing to overcome only because outside of just financial planning or money management, people are used to having a full suite of options and being able to switch at a moment's notice. So again, if your mobile app doesn't work and that seems like a very low bar to it's a clear, but it's harder than you think, that's gonna hold you back a little bit, something else that I'm interested in and day one probably told you about it is obviously blockchain and cryptocurrency technology, which I need to check is Rick in here, Rick isn't here anymore? Is he no. Okay. Just wanna make sure, who knows, honestly it's hard to tell and we talked a little bit yesterday about blockchain technology and the benefits that unrelated to Bitcoin or cryptocurrency we're just talking about, well, this does have some interesting applications that no one has really leveraged yet, as far as interaction with clients, smart contracts and decentralization of customer or consumer data, while still being able to be verified and trusted and being able to track any transaction. So who knows what we're gonna do. And I spoke to wonderful panel yesterday. actually Jay is sitting here right here. He's a part of that panel as well. I'm not gonna get you going again because I know you'll keep rolling, but the fact is we are multiple generations from seeing, for example, blockchain technology leveraging a way that actually makes sense. And, but we are just kind of at the beginning. So years, from now, maybe when I'm, old and gray, we'll see blockchain being used daily by firm. So it'll be exciting to see how it sticks around or if it sticks around, so yeah, stay tuned. I'll be covering it and go to financial planning.com to read all about it.
Kerry Gross: (17:12)
Definitely. And I see when I look at these mobile apps definitely now are game changer across many industries, particularly. And when I think about the role of a financial advisor, that in person context still matters to folks, the consumer research that we do that in person face to face advice really does matter to folks in the banking space and the wealth management folks, people, even my age, I'm a millennial, want to talk to someone when the matter is complex and want some advice on it. But when it comes to the like routine communication type stuff, that's the type of thing that we see consumers really just like, I can do this, I can change my flight on an app. Like why do I have to call someone three different times to make sure that's actually happening? Right. So that's why I see mobile apps and artificial intelligence that next best action piece sitting in that, the top pieces. And then exactly as you were saying, Justin the blockchain, why I see crypto and blockchains hidden kind of in that next level digital platforms is it's, what's coming next, right? Like blockchain at some point, someone's tech provider's gonna really optimize that. And there's gonna be a point in a reason in wealth management, right?
Justin Mack: (18:19)
Absolutely.
Kerry Gross: (18:21)
Just changing, gears here just a little bit, if we look at overall tech readiness and circling back to where we kind of started this conversation, what we see, when we ask financial advisors, to see how prepared they think they are, to support the needs of clients or to support the needs of their employees, just one third, say they have the tech in place that puts them ready to support the needs of their clients. And only one quarter, to support the needs of employees, the next session, John from ServiceNow, and I will be talking about war for talent, and that really ties into that employee piece, but same with this advisor piece, what do you, think's happening in this disconnect with, the importance of investment, but not feeling confident that they have the right tech in place right now.
Justin Mack: (19:08)
Yeah, absolutely. So the folks I've spoken to it's almost two folded. And one on this response, again, this is a feeling perception. How do you feel about either decisions you've made in your organization have made related to tech? Are they the right ones? And again, pretty low number are saying, yes, definitely. We're making the right decisions. That means the rest. There's a level of doubt involved in decisions that have been made or are being made related to technology. If you looked at it, one of two ways when we are surveying people, there's a level of asking them, this is almost a question of, do you feel like you've got it all figured out, you are have you already solved the puzzle of future proofing, your practice and how to leverage technology in the most efficient way. Who knows to answer that a four outta four is almost a little arrogant because how could you have it all figured out as things changed so quickly. But I think it goes back to the research again, that was published in March that talks about wealth management in comparison to some of the other industries who have had to rely on maybe digital tools a little bit early on, just because of the services they provide. And the fact that wealth management and financial planning at its core is such a human thing. So I don't think this is necessarily that wealth managers think they're terrible as far as making the wrong decisions. It's just that there is an understanding that improvement there's so much room for it. And I think it's almost a great sign of self-awareness around the industry that no one is arrogant enough to feel like they've got it all figured out. We don't need help. We don't need to increase our spin. We don't need to get better. Clients are already communicating directly that they want some things changed. They want as smooth of an experience as possible. They expect that they, they demand that. And the collaboration we're seeing across wealth management is higher than ever. We're seeing instead of just solutions providers, making the tool, you using the tool and giving them feedback on what they need to change on the tool. We're seeing things developed in concert. We're seeing FinTech providers and advisory firms actually coming up with things together. So if anything, this tells me that everyone understands that we can do better than we're doing now. And they're not quick to say that we've made all the right decisions. I think that's also been amplified by the fact that the past two years have shown some folks that maybe they made the wrong decisions because the number one struggle we've seen as far as the future proof research we've done as far as what are your number one pain points for adopting new technology or making tech decisions it's been integration. It's just what I've been doing for years. Clashes a little bit with all these new cool toys at my disposal. And, oh, no there's so many options. As far as tech solutions that my head spins every time I take a look at it. So I think of anything, this is self-awareness, this is an understanding that we can do better and a willingness and eagerness to do better. So you compare this low level of confidence with the high level of commitment to spending in the same research, and you get a very clear picture of we wanna do better, and we're willing to put the money up to do that.
Kerry Gross: (21:50)
And a recognition that the bar has shifted, out I think advisory firms three or four or five years ago had done a really good job to optimizing the way that people were interacting in those moments. Right? The in person, how you met with your financial was just how you had met with your financial advisor and really the past two years, like you said, didn't change the roadmap for investment, but it really did accelerate it, right. It gave a big shock for all of us. And I think that, doing this survey in Q1, what I see happening is just like you're saying a recognition of, oh, we got a lot further to go for sure.
Justin Mack: (22:24)
Yeah, the conditions will do that. You know what we've been through, you get, clones aligned by a pandemic and then suddenly you might need to reconfigure a bit as you regain your composure. So it makes perfect sense.
Kerry Gross: (22:36)
Totally and I'd love, we have a couple minutes left in this session. I'd love to take any more questions. If folks have questions for us about this piece of research, or the future that's tax spending you were talking about.
Justin Mack: (22:47)
Yes, digital transformation, future proofing your industry. Those both of those are available now, again, go to financial planning.com. You'll be able to look at this research again in the future proof research that was all published this spring. Again, two things that are really gonna be a large part of our editorial focus for the rest of the year. As I really talk to people about the decisions they've made, because again, this was all done end of last year, early this year. So I'm really excited to talk second half of the year about how the decision making has changed, what people are seeing in the short term, especially when we talked about that trade off, that exists, we're gonna up that spin. We're gonna have to cut back on some other things. So I'm really interested in just talking about how that affects daily life, outside of just the the impact on the bottom line, but just what I'm doing. My job as an advisor, how have the decisions I've made and decisions at the industry maybe feels a little less than confident about changed my life on a daily basis? Is it harder? Is it easier? So I am ready to ride and weather the storm with everybody for the rest of the year. So
Kerry Gross: (23:45)
Great, we have question here.
Justin Mack: (23:49)
I knew Jay was gonna have a question for him. I knew it.
Audience Member 1: (23:55)
what solution Solve the technology, maybe easier. Maybe it's easier just to go to outsiders outsourcing, and then they have come developed something like a turnkey solutions and everybody, all of a sudden you're done or something. So have you, my question is, have you asked that question or just
Kerry Gross: (24:14)
Yes, So definitely outsourcing is a key way, this person just said, well, maybe outsourcing, maybe someone else has developed something. Right. And I think what, what we see in the research and what I've heard anecdotally from folks is starting to have swivel chair happening, 40, 50 programs. And how do you optimize? How do you make sure you're picking the right things. And I think that comes back into that last slide we were looking at one in four saying they have the right technology for employees, really making sure that the tech you already have is doing the job it's supposed to be doing. And also, bringing in solutions that are solving actual problems, whether it's the gap of hiring. we know that advisory is one of the hardest jobs to hire for. And so, what are the gaps you're trying to fill and how are you filling it?
Justin Mack: (25:05)
Yep.
Kerry Gross: (25:06)
Awesome. Thank you, Justin.
Justin Mack: (25:09)
And thank you guys again, check out the research, financial planning.com. Get it downloaded, read it live by it. It's great. Thank you guys for joining us for another session. Are.