Sue is a long-standing expert in the financial services industry. With a background in accounting, finance, and computer science, she took part in many WealthTech projects before recognizing her biggest strength. Sue says that her strength is understanding advisory firms’ needs, ensuring that firms can express their needs properly, and finding the IT areas needed to satisfy them. After 12 years working for an RIA firm, and consulting with corporate and large-scale companies such as HSBC and Allstate, Sue realized that she could start her own firm.
“Advisory firms didn’t have anyone to advocate for them. The vendor’s job is to get the data from A to B. What was missing was how to define the needs so that advisory firms can communicate properly with vendors, and how to manage the project. Once the data got from A to B, advisory firms needed help with user acceptance testing, firmwide adoption, and client rollout. That’s where my niche is and how I serve my clients.”
Usually, Sue works with clients who have legacy systems and want to migrate but don’t know how to go about the process. She helps throughout the process, starting with a needs assessment and conducting a thorough valuation of the products. Once a selection is made, she comes in as the project manager for the advisor.
“A lot of what I’ve read about younger firms spending more money on FinTech than older established firms – it is not true. However, when you are spending six figures on new software and the migration project, you want to make sure it is done right.”
Sue didn’t share which tech solutions and companies she advises, as this is under NDA. Nevertheless, she shared general considerations and examples.
Custom vs. out-of-the-box solutions; All-in-one vs. best-in-breed
According to Sue, 90% of her clients are not going to build a custom solution. Unless the firm is very large, and has its own staff, bandwidth, knowledge, and IT resources, it’s very difficult to develop anything in-house. At the same time, existing vendor solutions don’t meet all of her clients’ needs.
Sue claims that aggregation systems like Quovo are great for advisors to see a client’s whole picture, but they are limited by the financial institutions providing the data.
“Not all financial institutions provide account data in an automated fashion. In this case, advisors can get 80%-90% of a client’s accounts aggregated. But advisors still have to wrestle with what do about the other 10-20% of the client’s data.”
When evaluating software with clients, Sue emphasizes what needs won’t be met by the software so that advisors have a chance to reject the software or develop alternative solutions. This process avoids some of the frustration of implementing Fin Tech solutions – it’s best to know beforehand that a need won’t be met rather than after the software is implemented. Knowing upfront which financial institutions won’t provide data in the aggregation software tells advisors how many clients will be impacted and may require manual efforts.
The all-in-one versus best-in-breed debate has been a hot topic for advisors and vendors. According to Sue, many Fin Tech solutions that position themselves as all-in-one focus on certain areas such as portfolio accounting, billing, and basic CRM, but omit other areas such as rebal or planning. Others provide in-depth features in one particular area with basic features in the other modules. This is why companies should take their priorities into account when choosing a solution. She feels that there is great value for young companies to use all-in-one solutions.
“I find that younger firms are just breaking away. All-in-one software will serve their needs, and make it easier for them while getting started. They can manage more of their business with an all-in-one solution.”
Regarding the best-in-breed option, Sue mentions that it now comes with a twist. One of the benefits of best-in-breed was that advisors could select the best technology tools for their firm. The only drawback was integration. Now, integration capabilities exist but with selected software, of which the desired software may not be included. Fin Tech has evolved from advisors being in control to vendors determining the best-in-breed options. Advisors who want to implement a best-in-breed approach should focus first on the core of their tech-stack.
“What I focus on is to select the core. If portfolio accounting (PAS) is your core, then let’s focus on it and build the tech-stack around the PAS. You’ll go crazy trying to figure out the combination of best-in-breed choices.”
Data and tech gaps
Sue appreciates the idea of advisory firms wanting to build a unified database, where all of a firm’s data and information is stored in one place. However, she doesn’t think there is a solution yet that can make this possible due to the difficulties in defining the data across multiple systems.
“Defining data fields is challenging at the advisor and vendor software levels. It’s difficult to maintain consistent definitions across the board. For advisors, data fields such as AUM and household are not defined consistently across all clients. The definitions are also not consistent across applications – household may be defined differently in a PAS than in a CRM or financial planning tool. For vendors, data fields are also not used consistently across advisory firms. This creates a challenge in an industry where firms would love to develop that one amazing database.”
On the tech side, Sue points out that performance calculations remain an issue. Advisors don’t ask enough questions about performance, instead assuming that it’s calculated the way they are intuitively calculating it in their mind. Another issue pertains to building solutions around messy historical data, which causes problems as firms move forward with upgraded technology.
“It’s part of the GIGO problem and is a gap on the advisor’s side. It’s an issue because you can’t go back and rewrite history. You can’t change the historical transactions and recalculate the performance. It’s a gap for me because during a migration, clients want to believe their data is clean and are surprised when we find issues with historical data.”
The future of human advisors
Sue doesn’t see any danger for human financial advisors in such solutions as Betterment or Wealthfront. Supported by her experience and observations that none of her clients have shifted roles or are concerned about robo-advisors, she is sure the human aspect is still in focus.
“My clients provide a holistic service to high net worth individuals. These firms have been around for 10-25+ years. I don’t see them going away due to robo-advisors. My clients understand that technology doesn’t talk, can’t answer questions, and can’t look at a client’s face to ensure understanding of the reports – humans do that.”
According to Sue, many companies can’t rely on just software, but need human interaction and advice.
“This year, we’ve been in interesting times in the market and economically. Now clients want to know how rising interest rates will impact their portfolio. Clients want to identify different economic what-if scenarios and see the impact on their investments. It’s hard when you are under robo-advisors to get that kind of advice, and we haven’t needed it until now.”
Considerations on risk-tolerance evaluation
Sue points out an interesting issue concerning risk-tolerance questionnaires. People can only access the results of these surveys, while the mechanism remains behind the scenes. Sue is concerned with whether an advisor’s client really understands the results that get to their asset-allocation model. For instance, if a client enters that same questionnaire in a different software, will they get the same result or a different asset allocation? If they change one answer to a question, will the advisor be able explain to the client why the model changed?
“It seems that the focus is on the results and not the factors behind them. I don’t know if advisors and investors are curious enough about what caused the results to be as displayed. So it’s hard for me to answer if there is a better way, a better technology.”
Is artificial intelligence a buzzword?
According to Sue, the whole business intelligence trend is definitely improving, though advisory firms aren’t there yet.
Firms are thinking about and trying to get through client tasks today, tomorrow, and next week. They are not thinking on a macro level about how they could do more for clients based on AI. They seem to not even know what questions to ask.”
Sue says she loves where the technology is going—AI, predictive analysis, and business intelligence. She would like to see more education for advisors on how to use it, what to use it for, and how to make sure the pool of data in the results are accurate.
“I see a disconnect between what vendors are developing and what advisors understand. Advisors need to start asking ‘How can the data/information in our Fin Tech be used to better service our clients? What additional data/information do we need to pro-actively manage our clients financial well-being?’ The answers will help advisors define their BI/AI needs”
Trends and future uptake
One of the trends Sue outlined is that advisors now have a great ability to move away from performance reports.
“Many advisors still heavily report on performance and benchmark comparisons. Now they have a great opportunity to move away from that and into more client engaging discussions.”
According to Sue, today’s FinTech including aggregation, rebal, planning, risk management, and other financial modeling tools, has enabled advisors to manage their clients holistically. Advisors can even branch out into quarterbacking other areas, such as insurance and estate planning; the technology has allowed all that to take place.
“Years ago, I found that advisors focused on being wealth managers. Now financial planning has entered into the picture. In determining the core of an advisor’s tech-stack, I ask ‘are you an investment management firm providing financial planning services or a financial planning firm providing investment management services?’ The answer will lead to the right technology solution.”
Nevertheless, a lot of advisors are still stuck on rolling out quarterly performance reports because they’ve done this for the last 20 years.
In Sue’s opinion, advisors who are serving high-net-worth clients are serving a lot of older clients and customizing their offerings for them. Over the next 10 years, she says, we’ll see the next generation of older clients. We don’t know what their needs will be or how the role of robo-advisors will fit in. How will technology and AI meet those needs?
“I don’t know what the answers are or whether we are prepared, I just know it will change.”
Seeing the whole implementation process from the customer’s point of view is critical—Sue took pains to remind us of this. She also provided many ideas on choosing the tech, integrating with user bases, and the stability of the human component to which companies should pay attention.
Interviewed by Vasyl Soloshchuk, CEO and co-owner at INSART, FinTech & Java engineering company. Vasyl is also the author of WealthTech Club, which conducts research into Fortune and Startup Robo-advisor and Wealth Management companies in terms of the technology ecosystem.