Bridge over ocean
8 March 2017 Multimedia

Fintech for Financial Advisers

Industry Trends, Challenges, and Opportunities

  1. Joel Bruckenstein

Joel Bruckenstein, an expert on applied technology for financial professionals and publisher of Technology Tools for Today (T3), discusses cyber-security, improving the client experience, the rise of robo-advisers, what’s in store for financial technology in the near future, and more.

The Take 15 Series is a series of short interviews with leading practitioners on timely topics focused on the investment profession.


[MUSIC PLAYING] LAUREN FOSTER: Hello, and a very warm welcome to this episode of "Take 15." I'm Lauren Foster, content director with CFA Institute. And joining me today to talk about FEN-TECH and wealth management is a broken city. Joel is an expert on applied technology for financial professionals and publisher of technology tools for today, or T-3 as it's known. He's also the producer of the annual T-3 advisor conference, a technology conference for independent financial advisors. Welcome, Joel.


LAUREN FOSTER: Thank you very much for being here. Let's start with a topic that is the top of mind for many financial advisors and that is the Department of Labor's fiduciary rule. I've heard you say even if it's killed, you can't put the genie back in the bottle. What impact has the proposed rule had on firms to date, and what do you think will happen going forward?

JOEL BRUCKENSTEIN: Well to date, I think the biggest impact has been on some of the enterprise firms, primarily the independent broker dealers and the warehouses because their commission business on the retirements side obviously is going to be greatly affected if the rule ever does go into effect. But I think the point is even if the rule never goes into effect, what's happened is there's been a tremendous amount of technology investment in order to comply with the rule. And the firms that have made that investment are not going to back out now, they're going to continue to move forward and they'll use that as a marketing opportunity to say they are acting as a fiduciary.

And I would say the other impact it had is it sort of disrupted the technology spending plans of many of those firms because before it was on the radar screen, perhaps they were intending to spend those dollars elsewhere. And it was such a big investment for some firms that it actually took up the vast majority, if not all of their technology budget for 2016 and a good chunk of it for '17. I talked to one CTO of one of the big broker dealers just last week, and he told me they've already spent millions of dollars on this and they're not done yet.

LAUREN FOSTER: Last year, TD Ameritrade and the FPA did a cyber security study, which seemed to show a lot of cyber insecurity. And that while the advisors are aware of the risks, they're not fully confident in their ability to handle the challenges. Now something I've heard you say is that the clients may be the weakest link. Why is that?

JOEL BRUCKENSTEIN: Well, because clients are even less aware of the problems, quite frankly. A lot of clients when they interact with their advisors are using email systems, such as g-mail or what have you. And they're not very good at taking care of their password security. Most of them are either not aware of two factor authentication, or they're aware of it and they're not using it because it creates a little more friction in the transaction. And so as a result of that, it's fairly easy for cyber criminals to crack those passwords. And once they get into somebody's email account, over time if you've stored your email there for years odds are they can find out a lot about you. And then the cyber crooks can then use that information to try and spoof your financial accounts.

LAUREN FOSTER: So a follow up question then is should firms be doing more to mitigate cyber risk and should they be proactively educating their clients about cyber risk?

JOEL BRUCKENSTEIN: Absolutely. I mean, what we've found from the survey is only about 40% of firms are proactively educating their clients. And of those that are, most of them say they're doing it in one on one quarterly meetings, annual meetings, what have you. That causes me concern for a number of reasons. Number one is who's actually giving that education and what do they know. And is it being given consistently across the firm. I personally think you need to have one person who is sort of the chief cyber educator, if you will, and you could do it through webinars or live group meetings. I think it would be much more effective than trying to do it on one on one meetings where you may have multiple people in the firm, some more skilled, some less skilled, and you don't know if there's a consistent message getting out there to the clients.

LAUREN FOSTER: Let's talk a bit about efficiency, which is critical for the advisor of the future. What technologies are having the greatest impact, and what can advisors do to drive down the costs?

JOEL BRUCKENSTEIN: Well I mean, traditionally, and we've seen this over a number of years, that advisors say the greatest ROI comes from financial planning software and from CRM software. And I think it's for two different reasons. I would say you get probably more efficiency from CRM in one sense, but in another sense you could make the argument for financial planning as well. I think the real ROI from financial planning comes from the fact that you create a better, deeper relationship with the client that's more aligned with the client's goals and objectives. Clients aren't interested in beating the benchmark by a percent or something. They are interested in meeting their life goals. And financial planning shows them what you're doing to help them meet their goals. So that's where the ROI comes from.

On an efficiency standpoint, years ago-- but it's coming becoming less relevant today. But years ago, a lot of firms were building their own financial planning spreadsheets. Aside from the fact that they are error prone, it's not very efficient and it's not scalable. So financial planning software has gotten better at becoming scalable and enabling greater efficiency and even workflows. So if you have a workflow built into financial planning software, even somebody who may be a less skilled advisor knows exactly what to do. It guides them through the process and it can also save time.

The other part of it is the scalable part. So before you needed to collect a lot of information before you could get any kind of plan out there. But now, financial planning software is smarter, so it only asks for the data that it needs for that particular plan. So if you have somebody with a very simple case, let's say someone who has a salary and a 401K and maybe a mortgage, you don't need to collect a lot of data. You only collect what you need, some of that data can be automated through account aggregation, and you can create a plan in very little time. Whereas before, that plan might have taken you five or six times the amount of time it used to take.

LAUREN FOSTER: You do a lot of writing, and recently you like wrote an article about what is wrong with advisor tech and how to fix some of it. You divide the challenges into two camps, problems that advisors is can easily control internally, and then external technology challenges. Let's focus on the latter. What are you seeing there?

JOEL BRUCKENSTEIN: Well, I think there's a couple. One external challenge is that consumer expectations are growing daily. Clients read about what's going on out there. The typical advisory client or potential client is somebody of above average wealth. So they have the latest gadgets, right? They're buying the latest computers, they're buying the latest phones, they're buying drones, they have Alexa. You know, they have all kinds of new technology. And if their advisors are not embracing these technologies and still using paper reports for example, don't have white boards, are not doing electronic delivery, cannot communicate with them over Skype or some sort of web conferencing facility, that doesn't give a good impression. And it's not going to be acceptable to the next generation of investors.

LAUREN FOSTER: Let's talk a bit about client experience. It's well known that most advisors have an aging book of business. So the big question is, how do we serve the next generation? What's your advice for improving the client experience, and what to clients today expect from their advisors?

JOEL BRUCKENSTEIN: Well, I think what they expect is to be able to contact their advisor any time, from anywhere, from any device. So that's number one. And if you don't have a technology stack that allows you to do that, right away you'll lose in the game. What can they do? I think every advisor needs at least once a year to review their technology and say, "First of all, are we getting as much as we can out of our current technology?" Because many times we find that advisors have paid for good technology, but they're not using it correctly.

And if you have antiquated technology, or your provider is not keeping up with the times, it doesn't give a great digital experience for example, doesn't have digital reporting, doesn't have a responsive design of the web pages that they put out to your clients. Well, that's a problem. And then you need to change your providers. But if you're not educating yourself on what the current state of the industry is and what's possible and what's available to you, you're never going to know. And most advisors spend almost no time educating themselves on what the current state of technology industry is.

LAUREN FOSTER: So let us talk about the other tech mistakes that you see advisors make that they should be avoiding.

JOEL BRUCKENSTEIN: I would say one that we see all the time is not thinking holistically. So what they'll do is they'll go out and they'll buy one application because they heard it's good, like this is supposed to be quote, unquote, "The best CRM." But they don't really think about how it fits into their system. It may be a great system, but it may not be the right system for them. It may not be the right system for their client base. There are financial planning software applications for example, that are more geared to millennials and more geared to a lower net worth. And there are some that are geared to an ultra high net worth.

So first, you have to understand who your client base is, who your users are, both your external users your clients and your internal users, and then think about how everything fits into your ecosystem. You have to think holistically and strategically.

LAUREN FOSTER: I was interested to learn that the number one request from many advisors over the past year was help with marketing. Why is that?

JOEL BRUCKENSTEIN: Well, because I think some of the traditional sources of marketing of prospects are drying up. When I started in this business, the statistic I saw was that 90% of independent RIA business came through referrals. That's not happening as much anymore. There's much more competition. Some of the referral sources, like CPAs and attorneys who used to refer business, now are starting their own wealth management arms. There's external competition from the ROBOs. And even though I would argue that a ROBO is nothing like a true wealth manager and doesn't have the capabilities of manager, what I found from talking to a number of Silicon Valley millionaires is that they can't differentiate between the two. So even though we can, the general public may not be able to.

And so, I think there's a lot of challenges there and advisors need to find new ways to market themselves. And because they're not strong technologically, they're not strong digitally online. And I think using things like YouTube, for example as a marketing tool, other social media applications that have some sort of consumer facing aspect to them that draw clients in or potential clients in. Even a ROBO platform are all technologies that will be the pipeline of the future, if you will.

LAUREN FOSTER: I'd like to pick up a bit on the ROBO theme. How are the income and wealth management firm responding to the rise of ROBO advisor platforms.

JOEL BRUCKENSTEIN: Well, I think you know as recently as two years ago they weren't responding. Now they are. I think everybody in the industry that I deal with anyway is aware of what the ROBOs are and what they can and can't do. And I think everybody, almost everybody realizes that they need to have some sort of digital response to the ROBOs. I think what advisors are struggling with is what that response should be. It's like how do I differentiate between the B to B platforms that are available to me. Should I buy one of those or should I build? Do they integrate with my custodian? Do they integrate with my current business model and my current technology stack? All of those are questions that need to be answered. And unfortunately, it's taken advisors much longer to get the answers to those questions than I would like.

LAUREN FOSTER: So final question with the look to the future, what's next for FEN-TECH.

JOEL BRUCKENSTEIN: Well, I mean, there's always new things. And some of them I think will have a big impact, and some of them I think the impact is still unknown. I personally believe that Block Chain will have a tremendous impact on the industry. But most of our advisors aren't even aware of what it is yet. I think ones that they may be more aware of that will have an impact are voice technologies, like Amazon's Alexa. Augmented reality, virtual reality, advisors look at those technologies and think in terms of games, I think in terms of applicability in their offices and how they can be used to create a better client experience. And we're already starting to see firms develop those type of tools. And as advisors become familiar with them, and as they become comfortable with them, I think you'll see them get wide distribution throughout the industry.

LAUREN FOSTER: John, thank you for your insights today. And thank you for watching.

SPEAKER 1: Copyright 2017, CFA Institute, all rights reserved. This program is designed to give accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that CFA Institute is not engaged in rendering legal, accounting, tax, investment, or other expert advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought.

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