Executive Summary
Choosing what technology to first adopt as a solo advisor can be a challenge, particularly for those who are not technology-inclined in the first place. In addition to being solely responsible for making the decision, solo advisors now have to choose from an ever-expanding universe of options, as while 10 years ago the primary criticism for both independent RIAs and independent broker-dealers was that there just weren’t many technology choices, now arguably the problem is that there are so many choices it can be overwhelming to figure out what to even use in each category! Not to mention figuring out which category or type of software to tackle and try to adopt first!
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the best technology to adopt first as a solo advisor, and why a key factor in that decision is whether you are trying to grow a large advisory business or operate an efficient lifestyle practice to begin with.
The first question to ask yourself when trying to determine what technology you should adopt first is what kind of firm you are really trying to create. At a high level, you can break advisory firms into two categories: Practices and Businesses. A practice is built around you as the advisor and the founder and the owner, and the capacity of the business is your personal capacity (perhaps with a few support staff) to serve clients. By contrast, an advisory business is something that’s meant to grow beyond just you as the advisor and your personal capacity to serve clients, where you anticipate having multiple advisors and potentially multiple partners someday. This distinction isn’t necessarily about income or financial wherewithal to buy fancy technology versus cheaper technology (as benchmarking studies show the most successful solo practice owners take home as much as partners in advisory businesses); instead, the distinction is important because advisory businesses tend to be most focused on scalability (as they most grow from one to many advisors and handle the challenges that come with that), while practices tend to be most focused on personal efficiency (particularly time efficiency) of the firm owner.
With that in mind, the technology that growing advisory firms must adopt first is straightforward: a good CRM solution. In a growing advisory firm, the CRM is the hub of the entire business. Not just to keep track of clients like a big rolodex, but to track tasks and activities, and workflows to ensure that everything is being done properly. This isn't as important when a firm is just a solo advisor, but when you hire your first staff member, suddenly a CRM system becomes more important. And it really becomes important when you add your second staff member, as there are more process hand-offs between staff members, and the odds that someone has a conversation with the client that neither of the two other team members is privy to increases substantially. Fortunately, for independent advisors, there are a few good CRM options. Wealthbox and Redtail are common among solo advisors, while very process-centric firms may use Junxure. You hear a lot about Salesforce in this category too, but it's fairly expensive and really needs a lot of customization (or at least an overly system like XLR7, Skience, or Financial Services Cloud) before it is a viable option, which makes it impractical for most smaller advisory firms.
When it comes to a lifestyle practice, the best technology to adopt isn’t so straightforward, because it really depends on the size and nature of the firm. If you have a staff member (and especially if you have two staff members), CRM is a “must” once again. You still need someplace to capture key client information, but you may be able to get by using some other system. And because lifestyle practices are so a reflection of the individual advisor and what they do, the “best” technology for you is really whatever solves a pain point for you. If you don’t like how much time it takes to trade and implement their portfolios, consider rebalancing software (e.g., RedBlack or iRebal). If you’re finding it takes a lot of time to produce individual financial plans by hand, look at some of the various financial planning software solutions (e.g., eMoney Advisor, MoneyGuidePro, or RightCapital). And for a lot of solo advisors in lifestyle practices, the truth is that the best technology to implement is not “industry” software, but simply tools that make you personally more productive and efficient, such as a better internal communication tool (e.g., Slack) or scheduling software to cut down on back-and-forth emails setting meeting times with clients.
But ultimately, the key point is to acknowledge that the best software to adopt first as a solo advisor really depends on what type of firm you are trying to grow. The needs of a solo advisor aiming to grow an advisory business are going to be different than the needs of a solo advisor aiming to grow a lifestyle practice (and among lifestyle practices, needs are going to vary depending on the specific advisor and their preferences for gaining personal efficiency). You can go about the process of prioritizing yourself or look to technology consultants for assistance (either in choosing technology, or implementing it), but the reality is that your practice can be tremendously more efficient by just implementing the right technology!
(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter, so you get the announcement when the broadcast is starting, at/around 1PM EST every Tuesday! You can also submit your question in advance through our Contact page!)
#OfficeHours with @MichaelKitces Video Transcript
Welcome, everyone. Welcome to Office Hours with Michael Kitces.
For today's Office Hours, I want to talk about advisor technology, and specifically for those who have maybe not adopted so much technology in their firm about what they should be adopting, or at least what they should be adopting first. Because one of the questions I hear a lot, particularly from solo advisors who are either entirely on their own or maybe have one or two staff members supporting them is that they're already so busy in their own firms and haven't adopted much technology in the past and now don't even know what to try to adopt and to focus on first.
Unfortunately, 10 years ago, the primary criticism for both independent RIAs and even independent broker-dealers was that there just weren't many technology choices. Now, arguably, the problem is that there are so many technology choices, it can be overwhelming to try to figure out what to use in each category, much less which category to adopt and tackle and try to dig into first. And so I thought for today's discussion, it would be good just to talk about what technology really matters or not, especially in a solo advisor's firm, which as it turns out, depends in no small part on what your vision is for your advisory firm in the first place.
Best Advisor Technology For Growing Firms Vs Lifestyle Practices [Time - 1:28]
The first question you really need to ask when you're trying to figure out what technology to adopt is what kind of firm you're trying to create for yourself in the first place. At a high level, I break this into two categories: practices and businesses. A practice is something that's built around you as the advisor and the founder or owner. The capacity of the business is your personal capacity to serve your clients. And while you might grow by hiring a staff member or two over time, eventually, you're going to get to the maximum number of clients you can handle, you're going to stop growing, and you're just going to enjoy the lifestyle and the really good income that you can generate as a solo successful practice.
By contrast, an advisory business is something that's meant to grow beyond just you as the advisor and your personal capacity to serve clients. It's a firm where you anticipate having multiple advisors, possibly multiple partners someday. It also means you're ultimately going to have a lot more staff because you need more staff and infrastructure if you're going to have a lot more advisors and clients. If it's only ever meant to be you, you usually will never need more than one or two staff members at the most.
Now, this distinction isn't necessarily about income or financial wherewithal to buy fancy technology versus cheaper technology. As industry benchmarking studies show, the most successful solo advisory firms take home as much income as the partners in AUM firms with $1 billion of assets under management. The reason why this distinction matters, is that growing firms have to focus on scalability and managing this ever-growing infrastructure, which means their technology choices tend to focus on what can it best accomplish that scalability goal.
By contrast, practices built around successful lifestyles and maximizing income are much more focused around personal efficiency of the advisor. What saves us time, or the need to hire another support staff member. But you don't need to scale across multiple advisors and a dozen staff, nor do you plan to, you just want to incrementally save a little more time over time, and that changes the technology that you want to use.
First Technology To Adopt In A Growing Advisory Business [Time - 3:28]
All of that being said, if you're a growing advisory business, where should you adopt first? To me, the answer here is pretty straightforward. You need to implement a good advisor CRM solution first. Because in a growing advisory firm and any sizable advisory firm, CRM is the core, it's the hub. It's the foundation of the entire business, not just to keep track of all the client names and contact information like a giant rolodex, the way that people used CRM in the past, but to track tasks and activities and entire workflows to make sure that all the steps for servicing clients are being done properly.
When you're an individual advisor on your own, CRM may be helpful just to keep track of everything that you're doing, but if you're really organized around your own tasks and activities, you may not need much of a CRM. Or if you do, it basically is just a big rolodex, tracking key client information and maybe notes about client meetings and phone calls. But if you're a growing business, once you hire your first staff member, suddenly CRM becomes much more important. Because it's possible now that your staff member is going to take a call from a client when you're not there, and that staff member or a client service manager or assistant, whoever it is, needs to know what was said to the client last, understand the context of the call, and suddenly CRM becomes more important.
Often when it's just an advisor and an assistant, there's enough communication that CRM may not be crucial because you tend to have a lot of conversations about the clients anyway. So then I can just say to my assistant, "Hey, Betty just called the office today, she's wondering the status of her account transfer." And now my assistant knows that if Betty calls tomorrow, it's probably what it's going to be about.
But the moment you add a second staff member and there are now three of you, and there's this triangle of communication, all the potential for complexity begins to amplify. Because the odds now dramatically increase that someone is going to have a conversation with a client that neither of the other two staff members were privy to. And tasks on behalf of clients are now going to start crisscrossing on all three people, which really increases the risk that a ball gets dropped along the way or something slips through the cracks with all the handoffs that have to start occurring with three people.
And that's why CRM is so important for a growth-minded firm. If you know you're going to grow and add staff members and eventually other advisors, you must have a real CRM system in place to keep track of not just the clients themselves, but the communication to clients that happens from multiple staff member sources and all the tasks on behalf of clients that get handed off across multiple team members.
For independent advisors, you have a few good choices here. The most common for solo firms is either Wealthbox or Redtail, with some very financial planning-centric and process-centric firms also using Junxure. You may hear a lot about Salesforce, but frankly, Salesforce is fairly expensive for a solo advisory firm, at least compared to the others, and often requires a lot more customization, or at least industry specialized, what are called overlay systems and templates like XLR8 or Skience and Salesforce's own Financial Services Cloud to really make Salesforce work.
So with larger advisory firms that have a couple million dollars of revenue or more, Salesforce is very popular, rapidly gaining market share, because all those customization and integration capabilities are worthwhile and cost-effective to invest in at their size. For most solo advisory firms, even growth-minded, I think Wealthbox or Redtail are better places to start, and you can decide down the road if you're going to do a CRM migration five years down.
Once you have CRM in place, realistically as a growing advisory business, you're also going to want to round out the rest of your advisor tech stack, which means getting a financial planning software solution and a portfolio management solution, either as rebalancing tools built-in or a separate rebalancing platform. Those three are really the core stack, and virtually every large, growing firm has to put all of them in place eventually. But the starting point is CRM. That's the foundation, that's the core of a growing advisory business. And if you are adding staff and you don't have CRM, you have to get there. That is the priority.
Best Advisor Technology To Adopt In A Lifestyle Practice [Time - 7:22]
When it comes to lifestyle practices, on the other hand, the best technology to adopt isn't so straightforward because it really depends on the size and nature and the focus of the firm. If you have a staff member or especially if you have two staff members, CRM still becomes the must-have once again. And most popular options are still the same, Wealthbox or Redtail choices, because Salesforce is overkill here. And I think you'll just find it cuts down on how often you have to repeat communication of, "The client said this or that," to your team members, or how often something accidentally slips through the cracks for a client.
Now, if you have a staff member that works by your side all the time, though, or especially if it's just you, I know this is kind of blasphemy for the industry, but the truth is you don't necessarily need a CRM system. You do absolutely need some place that you capture key client information: names, addresses, phone numbers, emails, and you need to capture client notes as well, but if you just have a dozen or a few clients and you only ever plan to have that many and you aren't looking to grow and add a lot more clients and staff, and you already know them well, you may not need a CRM. You'll have to judge for yourself if you're good at just remembering and being organized enough to file folders for clients, and in each folder have a Word doc that has key client information and notes, one for each client. It's not the most beautifully efficient system, but if it's just you and you're building around yourself, it is feasible. And I know a lot of advisors that have done this successfully without trouble.
In fact, because lifestyle practices are so a reflection of the individual advisor and what they do, really the best technology for you if you're in a lifestyle practice is whatever solves a pain point for you. So if you do struggle with keeping it all organized, CRM is a great system to adopt, even if you're a solo, and a lot of those solutions like Wealthbox and Redtail are very affordable. If you're good at keeping track of clients but you don't like how much time it takes to trade and implement their portfolios, look at rebalancing software. There are some low -cost solutions for solo firms, including RedBlack and the free version of iRebal if you use TD Ameritrade, that can save you dozens of hours every year in time just to trade and monitor client portfolios. And if you really value your time at $200 or more as a professional advisor, you basically only need to save 1 hour per month to get a good return on investment for rebalancing software.
Similarly, if you're finding that it takes a lot of time to produce your financial plans because you do it mostly by hand with Word docs and Excel spreadsheets, look at some of the various financial planning software solutions. The most popular right now are eMoney Advisor, MoneyGuidePro, and the hot newcomer, RightCapital. And again, if it saves you just an hour or two a month in plan creation or plan updates for clients, you're generating a positive ROI on the software.
Alternatively, you might just invest to get some software that's better at something specialized for you. Maybe it's a Social Security analysis tool because you work a lot with retirees. Maybe it's a risk tolerance software like Riskalyze or a stress testing tool like HiddenLevers to get better at talking to clients and prospects about risk in their portfolio. Maybe you want to do more mind-mapping with clients so you want to look at an industry tool like Asset-Map or a third party solution like MindMeister or MindGenius.
For a lot of advisors in solo practices, though, the truth is the best technology to implement is actually not industry software, it's just personal productivity tools to make you more efficient. Maybe that's using Slack as a communication tool with your assistant to cut down on the number of emails. Maybe that's a scheduling software so that clients can set up meetings and calls directly on your calendar with all that back and forth emails that, you know, advisor tech guru Bill Winterberg calls the battleship game, where, you know, "Can you do Tuesday at 3?" "No." "Can you do Wednesday at 4?" All that back and forth.
Maybe you want to use Buffer to queue up your social media sharing or Evernote just to keep track of your client notes efficiently, or PhraseExpress just to cut down the time it takes to type repetitive emails with same phrases over and over again.
As I've written in the past, I'll spend $100 a year on software that saves me literally just 1 minute a day in any kind of routine or task. Because 1 minute a day for every working day is 20 minutes a month. Twenty minutes a month is four hours a year. Which means every $200 I spend on technology, I get a whole 8-hour day back in my year. Would you like an extra day off for $200 of software?
The key point, though, is just that when you're a solo advisor or a lifestyle practice, it's not about what software gives you more scalability or profitability necessarily, it's about what software makes you personally more time-efficient, more productive, and more able to enjoy some of that lifestyle time you try to create for yourself. So figure out whatever it is that takes you time that you do repeatedly. Repeatedly is the key because that's where you can find technology that might cut out a few hours, even just a few minutes out, or potentially automate it away altogether and create real time savings.
So, sit down, make a list of the things that you're doing from day-to-day and week-to-week that are repeated, and look at that list and figure out which ones are the most time-consuming, or at least just the most aggravating for you, and find technology to help with that first. Particularly as a solo advisory firm that's focused on lifestyle, that's going to be your best ROI.
Advisor Tech Consultants To Help To Implement New Technology [Time - 12:24]
The one other thing to bear in mind if you're a solo advisor that struggles with this because maybe you are not so tech-savvy in the first place, which is why you haven't adopted a lot of these tools, to begin with, you don't have to go at it alone. There are consultants out there who work with solo advisors that can help implement technology tools in your practice. It's folks like Jennifer Goldman at Goldman Consulting, Kristen Schmidt at RIA Oasis, Dan Kellermeyer at New Heights Solutions are available to be hired to help you confirm you're buying the right technology given the huge number of choices available to advisors today, and help you to actually implement it in your firm. So if you're not a technology person, it's okay. Just get some help. You'll be amazed how much more efficient your practice can be, either to save you time in the business or to better scale it with just a little bit of help to implement technology and make sure it's done right.
But I hope that helps as a little bit of food for thought about where to start if that's where you're stuck. This is Office Hours with Michael Kitces, normally 1 p.m. East Coast time on Tuesdays. Obviously, we're a little later this week, but thanks for joining us, everyone, and have a great day!
So what do you think? What is the best technology to implement first as a solo advisor? How does that technology change depending on whether you are establishing a growing firm versus a lifestyle practice? Have you used a technology consultant to help implement new technology? Please share your thoughts in the comments below!
Is there an issue with using Evernote since there is no archiving solution from a compliance standpoint?