The 2013 InvestmentNews Technology Study suggests that top-performing firms are more likely to outsource and that most firms are interested in optimizing their existing technology versus investing in new technology.
So why are just a handful of firms (many of them top-performing, no less) investing in outsourcing and training?
My own hunch is that outsourcing in particular is often just too much of a paradigm shift for many advisers. I suspect that many advisers who are reluctant to embrace outsourcing are the principals of mature advisory firms: These advisers are well-aware of the movement by Fortune 100 and Fortune 500 companies to adopt cloud-based and outsourced technologies but have yet to see a real direct benefit.
These firm owners often have little in the way of personal experience using cloud-based or outsourced solutions — and ultimately relying on them in their businesses.
But our study has started to establish a track record for advisory firms that have embraced outsourcing: When it comes to annual average technology spending, Top Performers spend significantly more on technology-related consulting and outsourcing (by almost one-third, on average, than all other firms.)
Viewed in terms of median spending on technology, though, both Top Performers and Innovators spent twice as much on technology-related consulting and outsourcing in 2011, and respondent estimates showed that gap expanding in 2012.
There has been movement among providers, though that makes me more optimistic about increased adviser adoption of outsourced technologies. The two most popular providers of advisory customer relationship management systems are either in the cloud or will be soon.
Specifically, both CRM Software Inc.’s Junxure product and Redtail Technology Inc.’s CRM offering come out annually as the most popular products in their category among both InvestmentNews’ annual technology usage survey and that of Financial Planning magazine.
While Redtail’s CRM system has always been a cloud-based software as a service, the lion’s share of Junxure’s installations have been on-premises (a minority of firms do use a hosted version of the application over the Internet), yet the latter company has designed an entirely new offering for the cloud. It is expected to be available in late 2013 or early 2014, and anecdotally, many advisers have indicated that they are interested in trying out the offering.
Similarly, Schwab Performance Technologies is in the middle of a pilot program providing a fully hosted and managed version of its PortfolioCenter portfolio management application. Thousands of advisory firms rely on the product despite its, at best, lukewarm reputation among advisers. Being so tied to and dependent on this application, many advisers have told me they are strongly considering adoption of the hosted option when it becomes generally available.
Why? They want to get out of the business of IT support and turn that over to Schwab, which they perceive will be better able to maintain it.
And when it comes to the types of technology that can — and should — be outsourced, I believe that every core category can be included. These include CRM, document management, portfolio management (especially performance reporting) and financial planning.
Less encouraging, and certainly more confounding, is another result.
When asked which areas in which they plan to invest (1 = the highest priority and 4 = the lowest), the highest priority across the board among advisers was “investing in new software,” with the second priority being hardware.
Sadly, technology training tied with “consultants and outsourcing” for third place.
A case can be made that improved efficiency could be gained simply by shifting toward more and better training on the software that advisers already have.
In fact, another question, “Which of the following would be most critical to achieving your goals for growth?” resulted in a seemingly counterintuitive response across the board — especially considering the top priority above.
A full 70% of Innovators selected “fully utilizing my firm’s current technology.”
This does not jibe with the lack of interest in additional training discussed above. This choice (“fully utilizing my firm’s current technology”) also was selected most among both the “all participants” category and Top Performers, though to a lesser degree (58% and 59%, respectively).
I noted another surprising result among that question’s response.
Among those same Innovators, only 12% selected “investing in new and emerging technologies,” compared with almost double that percentage among “all” (22%) and Top Performers (21%), and all this despite it being selected as the highest priority among all types of firms in a previous question.
One interpretation of this is that Innovators believe they already have solid technology and think they need simply to improve their efficiency in using it, whereas other firms view their current technology as at least somewhat inferior, hence those firms place a higher priority on investing in new tech over better utilizing what they have.
This interpretation does not explain why so many firms do not invest in training their employees, which is something I have noted anecdotally for years.
My own take on this is simple: When it comes to day-to-day operations, most advisers are unwilling to allow the necessary personnel or themselves to attend such training, because they cannot draw a clear line to increased profitability.
Quite a few technology providers, in fact, offer their own user conferences where advanced training is provided, and at least anecdotally, advisers report improved efficiency.
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