MAKING THE RIGHT
Anderson says, and not enough effort is focusing on developing software that has the complexity to truly provide value. It’s
going to take quite a bit of costly programming time to beat the
grandmaster of IRA strategies or the charitable-planning guru.
“A lot of what the technology is trying to do is focusing on
creating sustainable, repeatable output that makes the client
feel good. Not all … fintech is focused on how to create the best
possible answer,” explains Anderson.
Why do software companies spend so much effort on producing pretty output for end users? The answer might be related
to compensation and the inability of most clients to evaluate
whether they are, in fact, receiving the most sophisticated advice. If the primary objective is to onboard a client, there’s no
value in producing software that continually works to eke out
an additional 10 basis points of net return.
This is especially apparent among financial software programs that help advisors and their clients plan for retirement.
The primary transaction occurs when a client moves their IRA
money to an advisor, and they are able either to reap the immediate rewards of commissions or of ongoing fees.
Since managed client dollars are sticky and commissions
are frontloaded, advisors care most about providing clients
with a solution that motivates the client to move their assets.
If pretty graphs and a sophisticated-sounding Monte Carlo
analysis are the best way to make the sale, then that’s what
the software company will provide.
The real payday is done, though the client really needs the
software to manage their retirement assets after the point of
sale. This is where the real value is provided, but where software has generally failed to deliver the goods.
According to Anderson, “I haven’t seen a single strong example of a tool that can help advisors make more informed
recommendations to clients. The financial software is focused
on the sale, but not necessarily on providing value after the
sale. [It’s] deep on user experience and design, but not deep
on how it calculates its results.”
Advisors’ Real Needs
Do advisors want software that helps them make the sale or
software that helps them make more sophisticated recommen-
dations that the client might not even appreciate? Anderson
believes that software developers think advisors are looking
for “a thing that will look really cool and make my clients nod
‘yes.’ I feel like many advisors underestimate the value clients
place on more sophisticated advice.”
If software providers are going to invest in building bet-
ter technology, are advisors going to buy it? First, clients
need to appreciate the substance. The average client may not
know the difference between a highly
sophisticated planning strategy and
one that looks good on paper. At least,
they won’t appreciate it until they visit
with a competing advisor who points
out that their old advisor could have
done a better job.
How does software help an advisor do a better job? It
should be sophisticated enough to evaluate multiple aspects
of a financial plan. The programming should be powerful
enough to rival the quality of recommendations made by
Plus, advisors need to be able to easily demonstrate the
value software provides to gain an advantage over their com-
petition. Anderson believes that the “best in class will see a
merger between CRM tools, client-facing resources, digital
media/marketing, financial analysis and financial plans, com-
pliance, client-facing output, user interface for the back office,
client-facing digital output and the academic rigor applied to
‘answers’ all combined into one power tool.”
Of course, one reason to consider buying sophisticated fin-
tech is to prevent a lawsuit. If you’ve made a recommendation
to a wealthy client and the recommendation turns out to cost
the client millions in taxes or penalties, could you have pre-
vented the potential lawsuit by running the recommendation
through financial software first?
Will lawyers start scrutinizing the recommendations made
by advisors who aren’t using software to make sophisticated
tax-planning recommendations? This remains to be seen, but
could eventually be a game changer.
While the planning industry is focused on developing software solutions to help advisors, most of the fintech industry
is acting as if human advisors no longer need to be part of the
equation. Robos haven’t proven to be the existential threat
that some in the industry feared, but that doesn’t mean the
advances in software won’t eventually start impacting the
The biggest problem for advisors is that they’re faced
with an array of software programs. Each one tries to
solve a specific aspect of planning, but the programs
aren’t easy to use and to integrate with one another.