Only 36% of advice firms surveyed believed that their technology stack is being used effectively at presentAlpha FMC’s 2022 Financial Advice Survey
Alpha FMC’s 2022 Financial Advice survey identified that only 36% of advice firms surveyed believed that their technology stack is being used effectively at present. There is opportunity for financial advice firms to improve their process efficiency and enhance the client experience through implementation and integration of suitable financial planning technologies.
For firms grappling with the challenge of building their advice technology stack, there are two primary routes to consider:
- The ‘best of breed’ approach; which involves selecting the market-leading technologies in each of the areas of functionality and combining multiple vendors and applications.
- The ‘enterprise’ approach; which involves selecting a single provider who can deliver a complete solution covering all areas of functionality.
Whilst both of these approaches have potential to deliver benefits, they also have potential to detrimentally impact a firm’s operating model if implemented inadequately.
Best of Breed
Across the spectrum of financial advice capabilities, such as client profiling, risk profiling, research, report generation and compliance, we see examples of technology vendors innovating to provide firms in the industry with a competitive advantage. In theory, loading your technology stack with these applications may provide the experience of working across multiple advanced and innovative solutions, but the challenge is that these applications may not innately integrate with the wider financial advice technology solution, increasing complexity of the architectural design. Without integration, data must be manually moved to and from the various systems, eroding the benefits and efficiencies that motivated implementation of this approach. Additionally, multiple applications can induce overlapping functionality, causing confusion amongst financial advisers and support staff on how to deliver the advice process.
From a commercial perspective, procuring multiple applications from various providers limits the possibility of agreeing volume discounts, and requires an overhead to manage the relationship and roadmap of suppliers.
While there are potential inefficiencies in utilising disparate systems, enterprise solutions are fully integrated, meaning data can be input once and transferred easily as the client progresses through the advice journey. However, enterprise solutions tend to be relatively rigid by design with minimal availability to configure and customise to a firm’s specific needs, this may require firms to take “off-system” approaches to satisfy their requirements.
From a financial perspective, whilst enterprise solutions typically generate higher licensing costs, these solutions may be more economical. The cost-effectiveness of enterprise solutions can be attributed to the bulk discounts provided in exchange for utilising the providers full suite of capabilities and a reduced cost of implementation.
As the likely cost-effective solution with a potentially quicker time to implement, enterprise solutions are the obvious choice for many firms. However, the potential restrictions around customisation means it can be challenging for firms to differentiate from their competitors at the technology and process level. Firms choosing this option must leverage propositional differentiation or rely on commercial incentives to stand out from competitors.
Middle of the road
We have witnessed firms electing to take a middle of the road approach whereby they utilise an enterprise platform to support their core process whilst opting to differentiate from peers by procuring one or several ‘best of breed’ applications. In our experience, this approach can bring greater challenges by compounding the problems caused by the manual data movement associated with the best of breed approach and creating additional “off system” processes associated with the enterprise approach. However, it is important to acknowledge that for some firms, a core system enhanced with an additional set of other functionality may be the most advantageous approach for their current target operating model.
Due to the ability to deliver closer to a firms requirements, the market competitiveness it can provide, and the flexibility within the operating model, we believe that there are opportunities to adopt best of breed technologies. Investing effort into integrating these applications through a combination of typical integration tools such as API’s and webhooks and innovative RPA/BPM tooling will remove the inefficiencies that can be caused through utilising this approach. In doing so, firms can achieve process efficiency and effectiveness by reducing time wasted on manual advice processes, deeply engage and educate their clients through an enhanced client experience, and ultimately deliver better client outcomes, benefiting all in the value chain.
Ultimately to identify the right model for a firm, they need to adopt a structured and strategic approach, clearly articulate requirements, and understand the capabilities required to deliver on those requirements.