Roundtable moderated by Michael E. Kitces, CFP®, CLU, ChFC, RHU, REBC
Participants: Joel Bruckenstein, CFP®, Davis Janowski, Spenser Segal, and Bill Winterberg, CFP®
Joel Bruckenstein, CFP®, is a technology journalist. He writes regularly for Financial Planning magazine, Financial Advisor magazine, and the T3 newsletter. He also serves as co-chair of the annual Technology Tools for Today conference and is co-author of the books Technology Tools for Today’s High-Margin Practice, Virtual-Office Tools for a High-Margin Practice, and Tools and Techniques of Practice Management.
Davis Janowski is the technology columnist and reporter for InvestmentNews, where he covers technology and its use by financial advisers including applications, cloud computing, software, mobile apps, social media, and compliance. Prior to InvestmentNews, he spent almost a decade covering various facets of technology for PC Magazine.
Spenser Segal is CEO of ActiFi, a provider of scalable, technology-enabled productivity solutions for the financial services industry. He is focused on practice management solutions for advisers and the institutions that serve them. Prior to his position at ActiFi, he served as vice president of e-commerce strategy and development for American Express Financial Advisors and held management positions at Dain Rauscher, Barrington Capital Management, and BigCharts.
Bill Winterberg, CFP®, is a technology and practice management consultant to financial services organizations. Prior to entering financial services, he was a software engineer for Hewlett Packard Co. and Leap Frog Technologies. He writes about technology for the Journal of Financial Planning and MorningstarAdvisor. He also publishes video and podcast information about technology issues on his website, FPPad.com.
From the hardware and software you use to run your practice, to mobile and tablet devices that shape the very nature of your client relationships, technology is affecting the financial planning profession in profound ways. The Journal’s practitioner editor, Michael Kitces, recently moderated a roundtable discussion with some of today’s foremost technology experts, including Joel Bruckenstein, CFP®, Davis Janowski, Spenser Segal, and Bill Winterberg, CFP®.
Kitces: What is the biggest technology trend you see impacting financial planners over the next one to three years or so?
Bruckenstein: I think it’s primarily a continuation of the same three major trends we’ve seen over the last two or three years, which are mobile, the cloud, and integration. And if I had to put a fourth one in there for the coming year, I would say it’s transitioning from your current operating system and Microsoft Office version to the next version of Windows 8 and Office 2013.
Segal: I would echo those. I might add that social media is becoming increasingly important. Hopefully some of the compliance stuff will catch up a little bit to reality. But I think the integration trend and the cloud trend are all really important and are accelerating.
Winterberg: The trend I see really accelerating in the next three years is touch screens playing a much more active role in the financial planning process. Planning has historically been very passive, very one directional where the planner imparts his or her wisdom of the financial plan. Embracing and adopting touch screens really allows that financial planning process to be much more interactive. Clients can now have a tactile experience with their plan. They can discover things in their plan. They can explore their plan. Using touch screens and including interactivity into plans by being able to touch and swipe and pinch and zoom I think really is going to engage very effectively with a client of the future, or the client of the now, as the case may be.
Kitces: Are we really going to be heading down this road where we’re all touching our plans with touch screens, and tablets, and other devices? What kinds of transitions do we have to make to do that? How do you see some of this playing out?
Janowski: I got to see something [recently], but I’m not at liberty to say from what provider yet, that provides enhanced abilities even beyond what Bill was just describing; something where the client is more interactive and able to jump into the midst of [the planning] process. You’re going to have a segment of your advisory client population that’s going to be interested in [planning like] that. Not all of them—some will want you just to do your magic behind the scenes. But if you’re not able to provide [an interactive client experience], and it’s something some clients are very hot for, it could be an issue for you.
Bruckenstein: I think some of these capabilities already exist. You see things in financial planning software, or financial products—things like [what] Finance Logix has developed and MoneyGuidePro—that allow certain client interaction, and I think you’re going to see a lot more of that. I also think it’s a generational issue.
Typical financial advisory clients who are already in retirement, not all of them are going to adapt as readily, let’s say, to touch screens. And not all advisers who are 65, 70 years old are going to adapt as rapidly to touch screens and mobile. But I think our kids and the new generation of adviser clients who are just coming online today are technology natives. They grew up with this stuff. It’s natural to them, and they expect to interact in very different ways.
I think there’s an awareness among a portion of the core financial planning client population that these things exist, and they’re starting to ask about them. Maybe they read about them in the paper, or they’ve seen something that’s client-facing and they’re saying, “Why can’t we use these kinds of things?” But I think the point is, for the next generation, it’s just a given that they expect it.
Segal: I’ll make two points that I think are really relevant.
One is that you’ve got to have a little bit different skill level to be able to interact on a real-time basis with clients than if you go off to the back room, think about it, and analyze things. So I think something that’s interesting is just the comfort level of the adviser to be able to deal with various contingencies and what-if scenarios where the client and adviser are interacting together.
The other point is the blurring of the lines. Where does the client do-it-yourself planning end and the adviser counsel begin? There are a lot of younger clients who have very simple financial situations. If their entire investable net worth is $50,000, do they really need a $10,000 comprehensive financial plan? Not when they’re 22, but perhaps over time.
I know advisers who are beginning to give their clients these tools to do more do-it-yourself [planning] so they are able to lower their fees. For the larger clients, they’re doing the comprehensive wealth management. The kids of those clients don’t need that. They just need a nice portfolio. Where do those lines cross, and where does the adviser come in and pick up where the client [left off]? I think that’s a whole other set of issues.
Janowski: I think Personal Capital is a good example of [an advisory firm] ahead of its time in that they offer the [online and tablet] tools with the hope that soon you’ll outgrow those tools and need a real, live human RIA to start helping you. [This concept] is something I think is a potential sweet spot for especially younger advisers. I don’t know the right business model to recommend, but some sort of retainer model where advisers can offer those [do-it-yourself] tools until things get more complex. And we’re talking years down the road, but keeping those relationships open. Young advisers can do that in a low-cost way, and they’ll really be helping themselves out down the road.
Bruckenstein: I think one of the things that’s changed with technology is it’s not a $10,000 plan anymore. What we’ve seen over the last few years is technology has really automated some of the financial planning tasks. In studies we did at Technology Tools for Today, we estimated that somewhere between 40 and 50 percent of the total cost of a traditional financial plan was just a data entry portion. To the extent you can minimize or eliminate that—that right there knocks down the cost of the plan.
And there’s no reason why a young adviser can’t deliver a very affordable plan to those beginner investors and then create a pipeline for the future. I think a lot of mature firms are looking at that. They’re looking to open up either a separate practice or a feeder practice that allows them to have some interaction with [younger clients], create a pipeline for the future, and contact those clients later on in their financial lives. The challenge the mature firm faces today is that clients aren’t getting any younger, and you’re going to need to replace them at some point with younger clients. And those clients are going to demand a different type of service and different kinds of technology tools than their parents do.
Kitces: How do you see the distinction between the interactive things we may do in the office— perhaps working with our clients collaboratively using iPads or by putting their plan up on a big screen—versus mobile, where clients are using mobile devices to engage planners or their plan? Is mobile just about websites? Is it about communication? Will planning itself be mobile? What kinds of issues do you see, and do you see some pieces gaining more traction than others?
Bruckenstein: Mobile web is probably one of the fastest-growing segments in the technology world. Advisers sometimes think that if they have a website, and they can look at it in their Internet Explorer browser, that that’s good enough. If you have a website and you can’t read it in Chrome, you can’t read it in Safari, you can’t read it on a mobile [device], you have a major problem, because for many high-net-worth people—at least 40 to 50 percent, if not more—their first interaction with you is going to be on your website through a mobile browser. And most advisers don’t get that.
I don’t envision everybody doing heavy-duty financial planning on an iPhone or a Windows 8 phone, though, just because they check out your website that way. There’s a distinction between what you do on a phone, what you do on a tablet, and what you do on a laptop. So the task has to fit the device.
You also have to train your clients. I remember Dave Drucker and I both doing this with our clients with email. We had clients who didn’t have email, or didn’t know how to use it, and we actually went out—in some cases to their homes—set them up with an account, and showed them how to use it because we thought it was beneficial to our practices. So it’s the same thing. A lot of clients already have iPads, but maybe they don’t know how to use them for a video conference using FaceTime, for example. Why not show them the benefits of it? Then they’ll use it.
Kitces: I’ve heard that a few advisers do things like go to the client’s house and install Skype, set up the webcam, and show them how to do it with a test call to their children to see their grandchildren. Once it’s set up, why not do a video call for your next meeting? Some advisers are training clients how to do this and getting them over the initial-use barrier, and once the clients do it, they often find that they like it because it’s just more convenient. And you’ve also given them the gift of teaching them how to video chat with children or grandchildren, which they may value even more.
Janowski: For advisers who are sometimes a bit conservative and not as versed in the latest technology, an intern can be your best friend, helping you rather painlessly get an understanding of some of these technologies. And I would very much suggest, if you hire that intern, you think about hiring someone like Bill [Winterberg] to go over the security ramifications, too, after that intern leaves.
Winterberg: I think in the next several years, you’re going to see that advisers will no longer control the planning experience. It’s relatively controlled today. Clients go into an office, the adviser delivers the formal plan, the clients may have some moderate changes, but the adviser effectively controls the information, controls the document, and controls the delivery. That’s going to change because as a consumer, I don’t have to go to my bank anymore to deposit checks. I can do it right on my phone. I can watch TV on my tablet; I don’t have to be at home. I can learn everything I want on YouTube; I don’t have to go to a university. These are formal, traditional institutions where the experience was largely controlled by the institution, and we’re seeing mobile devices and broadband access disrupt the delivery mechanism across all these industries. Financial planning will not be excluded.
Kitces: Are you seeing planners go to the cloud, and what can you say about the security of client data in the cloud?
Segal: As an adviser, you really get no credit whatsoever for doing a flawless job maintaining a server infrastructure. And that’s typically a skill that you’re not any good at. So you’re probably already paying a bunch of money to outsource some tech guy to come in and patch your servers and maintain them.
As a result, I definitely see a movement to the cloud. However, the security issues will continue to be significant. Not all clouds are created equal.
On the other hand, from a security point of view, I can probably kick down your door, grab a server out of the server room, and walk out of your office a lot easier than I can go into a tier 1 datacenter that has mantraps, and in the case of something like Amazon, they literally have folks with machine guns. So security is at a number of different levels.
I’d say in most cases, the sophisticated tier 1 clouds do a much better job than any adviser I’ve seen in terms of securing the servers. With that said, they’re also much bigger targets from a hacker’s point of view.
Bruckenstein: I’ve said for years that advisers overemphasize the threat of the cloud and under-emphasize the threat of their current system. I would not argue that the cloud is totally secure, although I agree with Spenser that there are different qualities of clouds and you can get pretty damn secure. But the other thing is, just in general, how secure is the average adviser office? I’ve been in hundreds of them, and I can tell you they’re not secure. And I can tell you that there are Internet threats. Even if advisers have their own servers, there are easy ways of tunneling into their network because they’re not protected properly.
Kitces: Indeed, I’ve often wondered if advisers think their systems are more secure than they really are, simply because their tools for monitoring are so poor they wouldn’t even know if their servers had been compromised in the first place. I suspect it’s probably already happened to many advisers who are unaware that their client information was stolen months ago. After all, hackers don’t exactly leave a calling card when they steal information; in fact, they usually try to keep it a secret so the clients won’t know they need to lock down their credit until after the identity theft has already begun.
Bruckenstein: The single-biggest problem I’ve dealt with over the years as a consultant to advisory firms is their own internal IT infrastructure. And by that I mean their inability to manage their servers, their inability to manage their network, and their inability to manage their internal software.
For years, and probably until very recently, it was the No. 1 request we got for help. In my mind, there’s only one way of really tackling that, and it’s going to the cloud. So I would make a bold statement and say that the vast majority of boutique RIA firms—and by that I mean probably firms with under $1 billion in assets under management or under 15 employees—will be totally cloud based within the next three to five years.
Winterberg: Sometimes I trip over the semantics of cloud. If you think about it, advisers purchased a bunch of desktop computers, or maybe laptops, in the last 10 years, and they had one or maybe two servers if they were getting big.
The only difference with the cloud is the length of the cable that connects to that server. It used to be a local area network cable from your desktop to your server in the closet. Well, now that cable is getting replaced and augmented with an Internet connection. The length is a little bit longer, but you’re essentially still tied to some physical box that has most of your hardware and your processing power, and that’s where your software is installed.
To that point, look at where the hackers are focused. They’re focused on the low-hanging fruit. We talk a lot about cloud security and vendor security. That’s all well and good, but hackers are attacking human beings. Human beings are much more vulnerable than hardened servers and these server farms. So the huge threat to advisers is often through the current set of employees, or even themselves, of falling victim to spoofing attacks, phishing attacks, and social engineering.
There’s a lot of training that needs to take place with all financial advisers, because this is where attackers are going. It’s easier to fool a person than hack a cloud server. Advisers need to step up their game to protect the information they have to make sure it doesn’t get into the wrong hands.
Kitces: Where should advisers focus: Apple, Google, or Microsoft? Or said another way: iPad, Android, or Surface?
Winterberg: Advisers should focus on iPad. There’s no user manual needed to work it. It’s got a tight app store in terms of security. There’s less malware in that environment, and there’s a huge app marketplace for it. That’s where advisers need to focus their energy.
Janowski: I agree with Bill. And you can forget about the Surface for now.
Bruckenstein: I’ll be the minority candidate then. I think not so much Surface, per se, but the Windows 8 environment is going to do much better over time than people predict, particularly with the financial services industry, for a couple of reasons. It’s secure. It integrates with what advisers already use. And still, no matter how we look at it, 90 to 95 percent of the computers today in the world are running on Microsoft Windows.
I think people are going to have to choose an ecosystem to exist in, whether it’s the iCloud/iPad/iPhone ecosystem, or the Windows/tablets/traditional desktop/laptop system. Advisers, I think, are going to be prone to the Windows system. But it remains to be seen.
Just to clarify a little bit, I think there’s a big distinction when you’re talking about the population at large and financial services firms. With the population at large, definitely the iPad has the appeal of ease-of-use, simplicity, and a tremendous app store. For advisers, really what’s relevant is the apps you have for your work. Obviously, for Windows to be successful, there will need to be the Windows apps for the tablet and the Windows phones. But assuming that happens, I think advisers will find that environment superior.
Segal: I’ll take another contrarian view. I certainly agree that over the next one to three years from a tablet standpoint, the iPad will do well. But longer-term, I see a movement toward the open development environment, which means Google/Android.
I think right now, people are willing to pay a premium for the walled garden of Apple because it is a superior user experience. As that user experience gap narrows and there’s more available much cheaper, and much more widely, and much more openly through a Google/Android-type operating system, people will not be willing to pay the premium for the walled garden. So three to five, maybe seven years out, I actually see the open development environment in the open source Google route overtaking some of these other environments.
Winterberg: I’m on board with what Joel says about Windows 8. I think in the traditional office setting, there’s just far too much momentum in the Windows operating system. There are 300 to 400 million desktop and laptop computers out there that run Windows. You can’t just wholeheartedly migrate that to a different OS, so they’re going to go into Windows 8. And an issue I see with these other platforms like Android and Apple OS is that custodians just don’t support it.
Until custodians release tools and update their web-based browser utilities to support Chrome and the Apple OS, you’re not going to see a lot of advisers migrate away from their Windows environment into some of these other smaller, but arguably potentially more productive environments.
Kitces: How do you see custodians and broker-dealers playing a role in technology and software going forward?
Janowski: For the time being, the custodians remain the guardians; they are the owners of the data, and they are rightfully concerned about what happens when that data gets out to malicious parties and it can be traced back to them. That’s the biggest single point: if they can ensure that the data will be safe going to work with a third-party vendor, okay. That’s fine. And if it has wide appeal, even better. So they’re going to remain the guardians just by virtue of that’s how the whole system has evolved. That said, it behooves most developers to have a secure environment to offer those third-party apps. Security is the single-largest influence on all of this.
Segal: I think the role of custodians and broker-dealers is significant, although I think among various segments, it’s quite different. There’s not one answer that applies across all advisers.
Among the most sophisticated advisers, especially on the RIA side, the desire for custodial independence of their technological platform is high, and they’re willing to spend the time and money to get there. I think as you go down the path where you have a much smaller adviser with no budget, skill, or wherewithal to manage an environment, they’re almost wholly dependent upon their broker-dealer partner.
One of the biggest issues, I think, is being able to leverage the innovation that’s occurring in the independent software space where you’re getting 27 full-time developers on one element. Let’s say it’s a portfolio management package, or a financial planning package, where you don’t have to pay a dime for that beyond the licensing costs. And you’ve got motivated entrepreneurs who are constantly asking their clients for feedback, and some of their most important clients are these larger broker-dealers. So these broker-dealers have a massive cost advantage if they’re able to leverage that and build out an ecosystem using themselves as the core, custodial data component.
Frankly, the real differentiation is not going to be at the technological level; it’s going to be the broker-dealer or custodians’ ability to support the adviser in better leveraging the technology that already exists and creating real wins at the adviser-process and behavioral-change [to implement the technology] level.
And the assumption that simply providing a robust set of choices will translate into tangible business benefit is a terrible assumption. [Broker-dealers] need to take a little bit more proactive role in helping that adviser succeed and claiming some credit for that success.
Kitces: Will we eventually get the proverbial holy grail software that integrates CRM, financial planning, and portfolio management into one package solution? If so, will we even know how to use it, if as Spenser suggests, most advisers are not good at implementing technology?
Segal: There have been some holy grails built. You can see examples where firms have put together in a reasonably robust way a stack of technology between the CRM, the portfolio management system, the document management system, the planning system, and they all have a common look to the interface.
I think what those firms have learned is that that’s nice but totally insufficient relative to driving real business value. The adviser’s ability to take advantage of that technology is really the gap, not the fact that we can wire different pieces of technology together. But it is being done.
Bruckenstein: I could say the same thing about workflows. I’ve seen millions of systems that have really good workflows that are also useless because nobody uses them.
Regarding the holy grail, I think we’re kind of somewhere in the middle. I think while there have been some technology work stations built, obviously, a lot of them have been faulty for one reason or another. They haven’t been as integrated as one would like, or perhaps not as intuitive.
And if you have something that has all the technological capabilities but is so difficult to use that it requires extensive training, that’s going to be a fail as well. As we all know, trying to migrate people from one technology to another—unless you have buy-in from them—is a very difficult thing.
That being said, while I agree with Spenser in that just having technology in and of itself won’t solve the problem, I think having good intuitive technology that truly is integrated gets you a long way. Then supplement that with workflows and other intellectual property to further add value.
I just don’t want to leave the impression in the minds of readers to devalue the technology side of it and give the impression that all that matters is what you add onto the technology, because if the technological foundation that you build is no good, whatever you add on top of it isn’t going to make it that much better.
Janowski: I’m beholden to none, so I can name some names here. On the RIA side, I think the whole reason [the holy grail] exists is for those who can afford it. It’s not cheap, but Tamarac is a perfect example. I know a number of advisers who swear by it. It provides everything they need. Granted, it’s for a certain sized firm—a couple of hundred million in assets under management and multiple employees so you can actually make use of the various features. And it’s not perfect yet.
On the broker-dealer side, it’s not open technology, it’s proprietary, something like what Commonwealth Financial Network offers. It, too, has legions of advisers who swear by it. Year after year Commonwealth scores No. 1 on the Financial Planning [magazine] survey in terms of technology satisfaction among all the broker-dealers.
Winterberg: Will there be a holy grail integrated option with wide adoption? I believe the answer is no. In fact, we’ll go in the opposite direction. What we’re seeing today is hyper personalization of all the devices we use. I love my iPhone, but my iPhone is different from your iPhone because I use it for different purposes.
Where I see the holy grail coming in the next couple of years is with middleware providers, API (application programming interface) providers. They’re going to be the glue between everything, and they’re going to work magic behind the scenes where all these advisers can choose the best in breed, and it’s glued together with this high-functioning, high-throughput middleware solution.
That’s what’s really going to move the industry forward, where you can begin to just plug and play all these industry-leading components—your CRM, financial planning, portfolio software— because they essentially speak the same language. Like copying and pasting an address in my iPhone. I just tap it, and it opens up maps, and opens up my GPS, and I go. The planning experience will be like that in a few short years.
Kitces: It sounds like basically, strong APIs and the companies that build on the APIs will actually be the ones that drive these holy grail solutions, because they know how to build custom solutions where everything talks to each other.
Janowski: And let’s give props to the custodian that’s sort of leading the charge, TDAmeritrade and their open API initiative. There are sure to be mistakes along the way, but they have the most progressive approach, so I’ve got to give them credit there. And the sooner that Fidelity and Schwab start to go down a similar road in a secure way, the happier the everyman adviser is going to be.
Bruckenstein: The custodians do have a critical role to play because they are sort of the warehouse of the data. In order for all of this to work, it really does have to start with the custodians. They have to make the data available through their own APIs in a robust and secure manner to be able to feed it to all the other programs.
And while TD has done a very good job and others are making attempts to catch up with them, it still needs to go further, because I don’t think even they expected this to take off as rapidly as it has. And they need more robust tools, more data highways, to be able to go back and forth between their servers to service all the third parties that want to do business with them.
Janowski: A standard supported by all the custodians would be the ideal that could advance the entire industry.
Kitces: What is the biggest technology concern that planners aren’t thinking about right now but should?
Segal: I think the biggest one is how they’re going to use the technology itself. How are they going to change their processes? And one big prediction I have is that there’s going to be automated workflow where there’s 100 percent reduction in work for some tasks, taking what is a $30 process and turning it into a zero-dollar process. That’s going to start to occur.
Janowski: One thing I would think, especially for mid-career advisers is, what they’re going to do when they want to retire. If you don’t have a practice that has at least started to look to the future, embracing technology, with a young adviser on board, you’re not going to be able to sell your practice.
Winterberg: Advisers are making too many assumptions regarding technology. They don’t measure their assumptions. They don’t prove it with facts and statistics.
We’re seeing other services, other industries, take advantage of big data, and they’re using sophisticated analysis to interpolate trends and apply that to real-world statistics. Financial plans are not silos. Planners service hundreds of individuals. There’s so much to be gained by aggregating all of that plan information rather than work on plans one by one in a piecemeal fashion.
Bruckenstein: The biggest problem I think advisers have with technology is they have no technology plan. I mean, they call themselves planners. They do a great job of planning for their clients. The more successful ones have an overall business plan, and some even have a marketing plan. But our research shows that at least four out of five advisers do not have a technology plan. They make ad hoc decisions. There’s no strategy behind them. There are no goals and objectives laid out. And often times, they’re disappointed with their technology because they don’t have a strategic technology plan.
Kitces: What is something on your radar screen that maybe we haven’t even heard of yet, but we’re going to notice in a big way soon?
Segal: I would say ifttt.com and zapier.com, and then the other one would be InStream [Solutions], although I think Joel and Bill and Davis have done a pretty good job publicizing that.
Bruckenstein: I would say the one thing that people don’t see, that I think all of us will see a lot more of soon, are these middleware firms. Most of them are not known to people today, but they will be in the future. We had one or two at the T3 conference last year. We’ll have more of them this year, third-party integrators that can pull these things together and present it as a total platform for the adviser. That’s one, big, positive trend that we’re going to see develop over the next few years.
Winterberg: I concur. These guys [middleware firms] are in stealth mode right now. They’re flying under the radar. They will give credit to TDAmeritrade, Beowulf, and others, but they will [provide] open access with alternative solutions that planners employ.
Janowski: I think there are lots of third-party apps out there you can add to your toolkit, that you may not be aware of, that can add a lot of richness to your planning. For example, HiddenLevers.com or MacroRisk Analytics allows you to look at some of the trends going on in the world, say another oil embargo. How is that going to affect your client’s portfolio? You can generate a report on that.
There is a growing array of tools out there you can add, even if it’s for specific clients or client segments, that will allow you to do additional things for your clients.
Michael E. Kitces, CFP®, CLU, ChFC, RHU, REBC, is a partner and the director of research for Pinnacle Advisory Group, a private wealth management firm located in Columbia, Maryland, that oversees approximately $1 billion of client assets. He is the publisher of the e-newsletter The Kitces Report and the financial planning industry blog Nerd’s Eye View through his website www.Kitces.com. He is a 2010 recipient of FPA’s Heart of Financial Planning award for his dedication to advancing the financial planning profession, and also serves as practitioner editor of the Journal of Financial Planning, Follow him on Twitter at @MichaelKitces.