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How to evaluate new technology solutions

16 April 2019 | Practice management

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Does it seem like technology assumes a bigger role in our lives every day?

In our industry, it's undoubtedly changing the way advisors do business. Now, numerous vendors pitch products they claim will save advisors time and money. Many advisors I talk to tell me that they understand the need to adopt technology but that the sea of products is confusing and causes many to throw up their hands.

Adapt to new tech or fade away

Inaction can have a price. The consequences for not adapting your business to incorporate the latest technology could prove dire. We've seen that advice firms that are ahead of the tech curve gain efficiencies with time and money and a competitive advantage in the market.

From time to time, I've called out firms that do a great job with some particular industry best practice.

One firm that effectively uses technology is Unison Advisors, a Washington, D.C., firm led by Nir Kaissar, who is also a columnist for Bloomberg. Nir has a great feel for what tech is worth an advisor's time and what's just noise. Please note that even though Unison Advisors is based in Washington, D.C., the examples below apply to both U.S. and Canadian investors.

"Investors want someone to help them plan their financial future, but they also want an easy way to track their financial life and transact online," Nir told me. "Firms of the future will provide both a great online user experience and the advice investors are seeking. Firms that don't embrace tech aren't going to be long for this world."

When investors size up an advice firm, they aren't always comparing their experience to what other advisors are offering. They're often comparing the firm to companies outside our industry. Tech giants, such as Amazon and Apple, are showing consumers what a world-class online experience looks like, and consumers are demanding a similar experience from other businesses.

Incorporate technology into your business

So how do you successfully integrate technology into your business? And with so much technology on the market, how do you make sense of what may work for your firm?

Look at technology as a way to scale your business, so you can automate such tasks as asset allocation and use the time and money saved to focus on strengthening client relationships. With the time saved, think about offering additional services, such as estate planning, that directly appeal to high-net-worth (HNW) clients.

Adding services that appeal to HNW clients can help expand your client base and differentiate you from your competition. Households with more than $1 million in investable assets represent a majority of the investable U.S. assets but account for only 5.4% of the population—meaning there's lots of competition for this small segment of investors.*

Model portfolios are but one example of an innovation many advisors use to offload a task that would otherwise occupy a significant amount of time. Nir says you should narrow your focus when deciding to incorporate technology into your business.

"There's no magic technology that will increase your assets. Be very sober about the role you're asking technology to play. Ask yourself, 'Does it reduce my costs/increase my profit margin? Does it improve the user experience for my clients?' If the answer is no, move on to technology that does," Kaissar says.

Make it work

Here are four ways Nir recommends evaluating whether a piece of technology will work for your firm.

Make sure the technology has an exit strategy. "Whatever technology you're using today, it shouldn't prevent you from using technology that comes along tomorrow that's better and cheaper. I've seen it happen many times where a firm is using a technology that doesn't work with anything else, and they're stuck with it because they believe it's too costly to scrap it," Kaissar says.

The price of technology needs to be scalable. Make sure the price of the technology you're using won't dramatically increase as your business grows.

Diversify your technology providers. Don't lock in to one technology provider for all your needs. If the firm goes out of business or isn't able to keep up with your needs, you'll be scrambling.

Finally, when evaluating how well your technology is working, ask your clients for their opinion.

"I find that when clients are paying you, they aren't shy about telling you what they think," Kaissar says. "Ultimately, your success will hinge on their satisfaction. Clients appreciate that you're interested in making their user experience the best it can possibly be."

Firms that succeed in creating a world-class user experience, that reduce their overhead by using technology to automate tasks, and that invest their time in building true connections with their clients are the firms that will thrive. At the end of the day, there really isn't a choice.

* Federal Reserve, U.S. Census Bureau and Cerulli Associates. Data estimated as of December 31, 2016.

Important information:

The views expressed in this material are based on the author's assessment as of the first publication date (February 2019), are subject to change without notice and may not represent the views and/or opinions of Vanguard Investments Canada Inc. The authors may not necessarily update or supplement their views and opinions whether as a result of new information, changing circumstances, future events or otherwise. Any "forward-looking" information contained in this material should be construed as general investment or market information and no representation is being made that any investor will, or is likely to achieve, returns similar to those mentioned in this material or anticipated in this material.

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Please consult your financial and/or tax advisor for financial and/or tax information applicable to your specific situation.

While this information has been compiled from sources believed to be reliable, Vanguard Investments Canada Inc. does not guarantee the accuracy, completeness, timeliness or reliability of this information or any results from its use.

Information, figures and charts are summarized for illustrative purposes only and are subject to change without notice.

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