Insights from a New Pershing/Aite Digital Advisor Study

Insights from a New Pershing/Aite Digital Advisor Study

Pershing just released a new study entitled “The Emerging Digital Advisor” in collaboration with Aite, an independent research firm. The study highlights five things that readers need to know:

  1. Advisors have high levels of interest in digital capabilities to enhance their business.
  2. Digitally enabled advisors have experienced greater asset growth and revenue growth than traditional advisors—although they only represent a small percentage of advisors
  3. Industry-wide, digital platform capabilities vary widely—a minority of practices use digital applications to communicate with clients, and few use client portals for basic activities
  4. Practices that are very interested in a digital advisor platform want to provide a hybrid offering to existing clients
  5. Most financial advisors want to use a digital platform to acquire next gen investors and the mass affluent.

While some of the findings are similar to those found in the Fidelity eAdvisor paper, there are some notable differences.

  • The Fidelity study concluded that approximately 30% of advisors were eAdvisors
  • According to the Pershing study, only 10% of advisors were digitally enabled advisors

There is an explanation for this disparity. The Fidelity study defines eAdvisors as the 30% of the advisor population who are the most frequent users of modern technology. The Pershing study defines digitally enabled advisors as those possessing three characteristics:

  1. They will be part of a practice that provides a platform that automates operational processes, while extending services beyond what is available in traditional wealth management relationships.
  2. The platform will enable clients to perform a larger variety of tasks independently with greater ease than with a traditional advisor…this includes greater client choice of how to interact with advisors
  3. They also incorporate tools on their platform that seek to enhance returns, allowing them to manage client portfolios and their businesses more efficiently

The paper goes on to delineate eight specific criteria used to define digitally enabled advisors. The 10% number of digitally enabled advisors represents those who meet all eight criteria. Clearly, the Pershing definition is more restrictive, hence the smaller percentage of advisors who fit the Pershing description.

It is worth noting that not all digitally enabled advisors are next gen advisors. They ranged in age from 30 to 60, although 75% fell into the 30 to 50 age range.

There is a wealth of useful information contained in the Pershing study. Some key takeaways:

Client of all ages are using technology regularly. As a result, clients expect more of their advisors. They want to interact with their advisors on their own terms. Digitally enabled practices understand this. These firms are not limiting their offering to a particular age group or to clients at a particular asset level. Instead, these digital advisors offer a flexible model that can be tailored to the needs of the individual client.

The study identified three areas of digital enablement that advisory firms should be thinking about. The first is acquisition and efficiency. This includes things like real time proposal delivery, digital client onboarding and the like. The second is collaboration and self-service This could include video conferencing technology enabled meetings that include co-browsing, and client asset movement through a client portal. The third is digital portfolio management solutions that include account aggregation of held away assets, intelligent rebalancing, robo-offerings and an advisor dashboard.

The paper also identified common gaps in advisor and client digital capabilities. These include social media (over 90% of advisors spend less than 5% of their day on Twitter, LinkedIn, or email marketing), tablet usage by advisors, and smartphones (the average practice does not allow clients to use smartphones interchangeably with a web-based client portal).

Another takeaway is that most financial advisors want to use digital platforms to acquire next gen investors and the mass affluent. This finding rings true to us, at least in the independent RIA and independent B/D sectors of the e market. It is a message we hear pretty consistently when we talk to advisors.

Based upon both this study and the Fidelity eAdvisor study, it is becoming increasingly clear that digitally enabled firms are experiencing greater asset and revenue growth than their more traditional peers. One question we often get from advisors is: “How should I be thinking about incorporating a digital advice platform into my practice?” This study makes clear that those most interested in digital technology envision using it with existing clients.  Although this is where I ultimately believe we are headed, my discussions with independent RIA’s lead me to believe that many are not yet ready to make this leap. That suggests that enterprises, such as warehouses and self-clearing firms are most likely to view digital advisor technology as an answer for existing clients in the near future.

While the Pershing study does not break out the numbers with regard to existing clients, it does indicate who is most interested in rolling out digital advisor technology over the next two to three years. It should come as no surprise that self-clearing firms (29%), fully disclosed firms (25%) and wirehouses (22%) were most interested in rolling out a solution soon. By contrast, only 14% of independent RIA’s were interested or very interested. Given the fact that a significant number of their competitors will likely be rolling out digital advisor solutions soon, perhaps independent RIA firms need to rethink their digital advisor strategies.

The one inescapable conclusion of both the Pershing and earlier Fidelity study is that there are significant benefits that accrue to firms that embrace the latest technologies. They gather more assets, they generate more revenue, and they provide a better client experience. It is also clear that advisors have a relatively brief window of time to adopt a digital technology platform before they are at a competitive disadvantage. Those that fail to adopt new technologies run the risk of becoming obsolete.

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