In today's environment, making wealthtech spending decisions has become a high-pressure situation.
Get it right, and you may just be
That's an exciting opportunity for wealth managers. The right tech can allow firms to not only drive greater efficiency, but differentiate themselves in a market still navigating a pandemic-fueled shift from
That reality is likely why advisory firms say they'll continue to allocate funds to wealthtech in 2023, despite concerns over economic headwinds and coming off of a year that was
"It's clear that advisors recognize the role of technology in saving time and money, introducing operational efficiencies and elevating the client experience," Eric Clarke, the founder and CEO of Orion, said in a statement as the wealthtech firm released the results of its
According to Orion's analysis, wealthtech spending will stay healthy over the next 12 months with 47% of advisors saying they expect to invest more in technology in 2023, and just 1 in 10 advisors saying their firm already has all the technology it needs. Sixty percent said they have "most" of what they need.
The survey also revealed that technology spending across the board is expected to grow by 7%, revealing where firms look to improve. Six in 10 advisors surveyed by Orion indicated that lack of time is the biggest barrier to technology adoption at their firm.
"Our survey confirmed that the majority of advisors who integrated their tech effectively were also growing more rapidly," Clarke said. "The fact is that integration ultimately frees resources to be reallocated toward growth efforts. More than half (57%) of advisors say the lack of integration between their core applications is the biggest pain point with technology."
The commitment to continue investing in wealthtech exhibited by advisors in the Orion study mirrors the findings of the
Arizent's research found that 56% of surveyed wealth managers expect their tech budgets to see a net percent increase in 2023, while just 11% expect to see a net percent decrease. Remaining respondents expect the tech budget to hold steady.
The research, which polled 525 respondents with knowledge of or involvement in their organization's tech initiatives across financial services and included 191 respondents from the wealth management industry, also found that wealth managers were doing more with less.
When asked about their firm's 2023 tech budgets, responding wealth managers came in the lowest, with a mean spending budget of just $7.9 million. Banks, meanwhile, had a mean budget of $255 million. Insurance companies came in at $71 million, and mortgage firms at $68 million.
While economic concerns aren't stopping spending, they are changing the focus of it. Seventy percent of all respondents in the Arizent research said concerns regarding economic headwinds are causing a reshuffling of priorities for 2023, but only 10% expect a significant reshuffling, while 59% predict a moderate or minimal amount of reshuffling.
Where the rain is falling
For Josh Schwaber, the head of customer experience at the California-based
Before joining the firm, which creates solutions to support financial advisors and investment managers with prospect conversion, client retention and model management, Schwaber was a Kwanti user while working as an advisory firm associate.
He said that advisors work in a unique industry in which much of their revenue is often tied to the market itself. That external pressure, combined with an abundance of fintech options, can make narrowing down what matters and where to spend feel like drowning in a sea of choice.
"So when trying to determine what to include in their tech stack with a market that's been struggling, I think we've seen this past year and probably we'll see into next year that advisors are much more price conscious than they've been in the past three, four or five years," Schwaber said. "And they're really evaluating their tech stack in a different way to eliminate inefficiencies and control cost."
As far as where the cash is expected to flow, both studies indicate that the customer is always right. The Orion research found that technology to meet higher client expectations and personalized asset management rounds out the top areas advisors plan to invest in, and 67% of respondents indicated a clear priority would be investing in technology to help deliver a more personalized client experience.
The Arizent study revealed that wealth managers identify customer experience as one of the top three active projects on wealth management's 2023 tech agenda alongside compliance and cybersecurity. In addition, real-time financial activity reporting and advanced risk-profiling software match well with wealth management emphasis on enhanced security and fraud mitigation.
Other areas explored in Orion's survey, conducted by
When looking at AI, advisors showed curiosity, with 33% admitting that it's the most disruptive technology trend facing the financial services industry. But they're not quite ready to invest in it just yet. Just 18% of respondents said they will make exploratory investments in AI and machine learning over the next three years.
Portfolio management emerged as a key concern for advisors and was cited as the top headache for 26% of respondents. And when asked what technology-driven superpower they'd like to acquire, 38% indicated they'd welcome the ability to predict the market.
Schwaber said a big trend is customization, noting that much of that has to do with advisory firms revamping the way they connect with clients.
"No longer are advisors OK with just white-labeled reports that are static and don't allow them to make any changes to it," he said. "Customization is much more important so they're not feeding certain types of end users too much information or overloading them with things they don't want.
"There's so many different investment strategies and advisors strategies with how they communicate with their clients, so having the ability to customize how they're presenting their material to their end users is really important to advisors … the cookie cutter stuff is no longer sufficient."
No other way to do it
Robert K. Steinberg, the founder and CEO of the Farmington Hills, Michigan-based
But solving it doesn't necessarily mean you're becoming more efficient. It simply means you're doing what you've got to do in an operating environment that moves as quickly as wealthtech innovation.
He noted that his firm — which has grown from about 12 to 25 employees in the past 18 months and includes a 10-person advisory team — made its biggest tech investment in recent memory with a "do what you've got to do" tool. It was the Fi360 software from Broadridge to comply with new SEC and Department of Labor
The goal of PTE 2020-02 is that "investment advice fiduciaries who rely on the exemption must render advice that is in their plan and IRA customers' best interest in order to receive compensation that would otherwise be prohibited in the absence of an exemption."
"For a firm our size, it ends up being a pretty substantial investment … but it was just one of those things where we're not sure how we're going to do it," Steinberg said. "It brings you efficiency for new rules, but it really doesn't improve your overall practice. But you've got a new rule, so we've got to figure out how to make sure we follow it."
Necessities aside, Steinberg said his organization is always keeping an eye on what's next, and what can make their lives a little easier.
"We're just always willing to make digital investments," he said. "When I explain it, we're playing the long game. We've actually hired a number of people in the last 18 months … so as we look to merge in other firms, we're definitely investing."
He added that technology, with its ability to solve problems without hiring scores of new staff members, allows him to keep his firm's culture firmly intact.
"You don't want to become a big firm because that's part of the reason why people like working in our firm. It's smaller," he said. "But now it's all these different processes. And they're all focused on the backside to client experience, you know."
An exciting time
While the possibility to do more with tech is energizing for advisors, it's also fires up those tasked with creating the solutions.
John Mackowiak, the chief business development officer at Advyzon, a cloud-based wealthtech platform and one of Financial Planning's
"As I look at trends that are going to continue not just in 2023 but long term, it is the idea that consolidating technology is a maybe even a preferred outcome at this point in time versus the fragmented tech stack," he said. "It's always just kind of been the de facto in the wealth management space."
He also spoke with great optimism about wealth management's ability to embrace and leverage automation tools in the long term, despite not always being ahead of the curve.
"I've been in this industry for 20 years now. So I say this from a place of love. But we're not exactly the most cutting edge technology industry. And no one holds on to legacy platforms and legacy technologies like ours. It's incredible some of the stuff that out there that people are just dealing with because it saves a couple bucks or they're just attached to it," Mackowiak said. "But when you look at automation, like 15 years ago, the reporting and billing process was able to be automated for the most part. There are still firms that don't."
Mackowiak added that automation will help advisors lead instead of follow when unexpected changes happen either in the market or in the lives of their clients.
"The other thing that we look at around automation is the different pieces. And this is going to be unique to Advyzon because we're comprehensive. But it can be something that happens on the accounting end of things that affects the CRM end of things that down the road will affect the financial planning end of things," he said. "And we'll be able to kind of weave all of those items together, proactively versus the reactive nature of where most things stand today in advisor technology.
"I think for us, it's really all about that advisor experience and making them more efficient with their time through automation."
