How Leveraging Tech Supports Advisors’ Books

Wealth management has traditionally lagged other industries in terms of digital adoption, with most investments focused on the back office. The pandemic altered this trend, but is tech acceleration fast enough? When Canadian financial services professionals were asked to grade their firms’ digital transformation efforts in 2021, 53% of respondents gave their firms an A or B, down from 66% in 2020, an annual Broadridge survey found.

Another trend that’s equally important to highlight is client migration. According to a study by London, U.K.–based Compeer, a provider of wealth management benchmarking data, the traditional statistic that 10%–15% of clients switch advisors annually shot up to 38% during the pandemic.

This alarming increase in client attrition was largely attributable to increased expectations of digitally savvy clients. The modern client expects increased “flow of news, information and updates that may impact their portfolio,” Compeer said in a report last year.

In Canada one in five investors planned to switch wealth management firms in the next three years, citing reasons such as changes arising from the pandemic and investment performance, according to a 2021 EY report. While only 4% of respondents gave a firm’s digital capabilities as the reason for switching, one-quarter of investors wanted a digital component in their existing provider’s service offerings.

That sentiment was greater among millennials: 42% preferred a hybrid advisory relationship (advisor plus digital), and 40% preferred a digital platform–led relationship. About one-third of millennials (35%) preferred an advisor-led relationship. Digital offerings will thus be increasingly important, especially with millennials positioned to inherit baby boomers’ wealth.

The good news for advisors is that clients aren’t migrating to robo platforms at the rate originally forecast. Tech-savvy clients still value personal advice but expect that advice to be wrapped in a compelling digital experience.

As our industry grappled with the challenges of the pandemic, the regulatory environment also heated up. The client-focused reforms — considered to be the most significant advisory reform in decades — have added a huge challenge to the advisor-client relationship. Advisors are spending a larger proportion of their time on compliance-related activities, and those who attempt to comply using manual processes will be stymied. According to Wealth Dynamix, some advisors spend less than 50% of their time engaged with clients and the rest focused on things like compliance and administrative matters.

When we consider the intersection of digital adoption, client attrition trends and the continued pace of regulatory reform, the business case for action is compelling. Clients seek hybrid advisors: those who balance digital capabilities with personal advice and planning. They also value certain behaviours from their advisors: adherence to formal ethical codes or professional standards; transparency in business practices, fees and potential conflicts of interest; and responsible action during a crisis. These client expectations are highly aligned with the goals of recent regulations.

Technology automates many of these tasks, freeing advisors to spend time serving their clients and better understanding their needs. For the wave of new data-intensive compliance requirements, technology unlocks the value of data, dramatically reducing the time committed to compliance and increasing facetime with all clients, not just the highest value ones.

From a return-on-investment perspective, the justification of technology investment is compelling both from a productivity and client retention standpoint. Imagine the economic value of recapturing 50% of an advisor’s time that’s lost in compliance and administration.

Further returns are realized by reducing or eliminating client churn. In a Kitces Research survey of more than 800 U.S. financial advisors, the average total cost for an advisor to acquire a new client (or replace a departing client) was US$3,119.

Advisor technology that addresses digitization, compliance and data management is a fraction of this cost, creating a compelling business case to automate.


By: David Reeve, CEO of InvestorCOM, Published February 28, 2022
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