The Pillars of the RIA Technology Stack

The financial services market is evolving. Client demographics are changing; millennials—primed to inherit an immense sum in liquid assets from their parents generation—are quickly gaining investment power and bringing with them vastly different needs and preferences for advisors to adapt to. And with stagnant interest rates and an under-performing IPO market, advisors are suddenly presented with a low-yield investment environment.

Luckily, these changes have coincided with massive growth in the financial technology sector. As younger generations begin demanding the newest technology and digital tools for investing, advisors will have to be smart about how they implement these changes. It is not enough to have each of the requisite pieces. Advisors need to have a clear vision of what they want their technology to achieve, and each piece needs to work in concert with the others. That being said, a good place to start is simply knowing what those pieces are.

Duncan Rolph, Owner and Managing Partner of Miracle Mile Advisors, a technology-heavy RIA firm from California, suggests that there are 3 main pillars to an RIA’s software stack.

1. Portfolio Management – Comprehensive portfolio management not only offers a digital solution to its namesake activity, but also allows for account rebalancing, automated billing, and reporting tools to measure and present clients’ investment performance.
   
   While portfolio management systems have traditionally been designed for enterprise level firms with multifaceted needs, simpler, and less expensive, options have emerged to address the needs of smaller firms.
   
   49% of investment advisory firms in the US utilize a digital portfolio management system.

2. Financial Planning Software – Financial planning software is all about the client. A good program enables you to collect or input client data and project their financial future through a number of different scenarios. These scenarios are easily adjustable to account for unexpected events like market crashes or early death. The result is a comprehensive financial plan for the client with much less effort on the part of the advisor.
   
   66% of firms utilize financial planning software.

3. Customer Relationship Management (CRM) – Advisors’ time is best spent actually advising clients rather than trying to find new ones. But anyone who has ever worked at a small business knows that attracting new clients is imperative to keeping the lights on. Unfortunately, it is also time consuming. A customer relationship management system allows advisors to spend less time on sales, and more time with their clients.
   
   A well-integrated CRM can help a firm organize all clients and prospects along with every interaction they have with the company. It will also allow for the automation of everyday tasks and improved analytics and reporting.
   
   44% of firms utilize a customer relationship management system.

While each of these technologies is essential to addressing the modern investor’s needs and easing the administrative burden on the firm, we believe there is a critical tool missing to complete the stack:

4. Alternative Investment Sourcing and Execution – The investment landscape is not limited to listed products. There is a plethora of opportunities that exist outside of exchanges. With a sharp decline in IPO activity, private markets have been able to pick up the slack and are gaining in popularity. Alternatives deserve to be a part of the investment conversation.
   
   However, if investing in a private alternative were as easy for advisors as an allocation to an ETF, there likely would be wider adoption of the asset class in retail investment portfolios. Higher investment minimums, investment committee approval, additional compliance considerations, and an inefficient subscription process are just a few of the hindrances that keep unlisted alternative products from finding their way into high net worth, retail client portfolios.
   
   Technology, along with recent changes in regulation, is opening doors to make alternative investments more accessible to advisors and their clients. Advisors that limit their service to allocating between indexed ETFs are at risk. Traditionally, if advisors or investors wanted to find alternative investments, it was all about who you knew and how much money you had. Alternative investments were largely marketed via word-of mouth, since “general solicitation,” along with just about any form of online marketing, was forbidden. That has changed with the JOBS Act of 2013, allowing many private offering types to take advantage of broader distribution channels. Platforms such as WealthForge allow advisors to browse a showcase of alternative investments online, and search via various criteria filters for those that best fit the needs of their clients. A good investment sourcing platform should also have offering diligence and compliance built in to ensure integrity and oversight of each investment.
   
   But easily finding investments has not been the only hassle advisors have faced in including alternative investments in their clients’ portfolios. Alternative investments and private placements require the signature of the investor. Historically, this has meant emailing or faxing over offering documents for clients to review, followed by clients signing on the dotted line and returning the executed paperwork via fax or express mail. This is yet another pothole that technology can help fill. With encrypted electronic signature technology and digital transaction management, platforms like WealthForge allow advisors to share the offering material with a qualified investor, provide balanced communication about the offering’s merits and compliance materials through an online interface, and execute the investment securely and electronically.

DRIVING COMPETITIVE ADVANTAGE:
Alternative Investments and Technology Adoption for RIAs

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Disclaimer: WealthForge provides this information to our clients and other friends for educational purposes only. It should not be construed or relied upon as legal advice. Private securities offerings may have a long holding period, be illiquid, and contain a high degree of risk. Investors must be able to afford the loss of all of their principal. Illustrative proforma results may significantly differ from actual outcomes. Past performance does not indicate future results. Potential investors should consult with a knowledgeable tax advisor prior making an investment. The WealthForge Network is intended to be a wholesale model where only members are allowed to view and participate in network offerings. The Network is not open to retail investors and investor information will not be shared across network participants.