Have Financial Advisors Gotten Off Track With Client Vaults?

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Strategic Wealth, which provides an evidence-based approach to private wealth management for near- and current retirees, and Buckingham Strategic Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors through the scaling phase of growth.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

Read all of Michael’s articles here.

The inspiration for today's blog post comes from a presentation I saw last year from technology consultant Bill Winterberg called "Transformative Technology You Can Implement Today". In the presentation, Winterberg highlights the remarkable inefficiency of client vaults when advisors use them as collaborative tools.

For instance, the graphic below from Winterberg's presentation highlights how a typical advisor and client might use a vault. The advisor wants to share a new report or financial planning document with the client, which entails the following steps:

1) Go to the client vault website
2) Log in to the website
3) Navigate to the client's file folder
4) Upload the file to the client's file folder
5) Send an email to the client notifying them that the file is available

In turn, this advisor process then leads the client to:

1) Receive the email
2) Go to the advisor's vault website
3a) Log in to the website
3b) Forget the password, have it emailed
3c) Go back to email, get the password
3d) Go back to log in to the website
4) Navigate to the correct file folder
5) Download the file

And of course, if the client is truly working collaboratively with advisor, and any changes are made to the file, then the entire 10-step(!) process repeats in reverse, with the client executing the steps to log in and upload the file and email the advisor it's there, and the advisor logging in to retrieve the file. Simply put, this is a painful client experience, made worse by the detour many clients will go through with steps 3b, 3c, and 3d. In the end, most firms that I know, when pressed, will admit that no more than 10%-25% of their clients use the vault with any regularity, and often more than half the clients have never logged into it once.

So what's the alternative? Winterberg suggests that the ideal solution should look more like Dropbox than a client vault. For those who aren't familiar, Dropbox is a file synchronization service, where your files may be stored in a central "vault" on the cloud, but you interact with them via the normal file folders on your desktop, which are continuously updated. Multiple computers can be connected to a single central Dropbox, and as a result any changes to a file that occur on one computer are automatically updated and synchronized across all computers.

Imagine the client experience. When you finish working on a financial plan update, or have a report to deliver to the client, you simply save the file in the client's folder on your computer or server, the way you already do. And that's it. Having already done the setup once to the client's own home computer, the new file automatically updates and propagates across all computers that share the Dropbox. When the client gets home and looks in the folder on their own computer, there's the file, ready and waiting. If the client makes any changes and saves the file, it's automatically updated back to the advisor's computer. No 3rd party website to log in to with passwords to remember (or forget), no interface where you have to remember how to navigate to the right place and how to upload and download files, no worries about whether everyone is working from the latest version of the file. It all happens automatically, without any effort beyond the steps you already take to save your files in a folder on your computer.

So far, there have been two caveats to implementing this process. The first is about security. Dropbox in particular has had some criticism of its security, especially an incident last June where accounts were accessible without a password for a brief period of time (although it's not clear if any users actually experienced a material breach of personal information, and the company was very proactive in addressing the problem). However, more robust and secure (albeit also more expensive) options are coming forth, such as ShareFile, which incorporates both a client vault feature and the ability to synchronize local computer folders to the vault. Ultimately, as more cloud services take shape, expect to see more offerings in this space (which I'm sure experts like Bill Winterberg will highlight when available).

The second challenge is "merely" operational, but difficult for mid- to large-sized practices, which is the complexity of managing a folder-sharing synchronization service across what could be 5-10 or more advisors and 500-1000 or more clients. Although this challenge is not insurmountable, it does create additional complexity in ensuring that the right folders are shared with the right clients, that files don't end out in the wrong place, and developing batch programs to automate repetitive processes in the firm (for instance, generating reports for 500 clients and making sure that each report ends out in the right client folder, without manually dragging-and-dropping hundreds of files). Ultimately, though, this too can be addressed, likely with a combination of effective features from service providers, and perhaps a little bit of custom technology programming for the firm based on its own processes and procedures.

Notwithstanding these short-term challenges, though, the bottom line is this: vaults should be for storing stuff, not for collaboration. Proactive and client-friendly collaboration tools that lead to a good client experience have to allow the client to interact with them the way he/she is accustomed and comfortable. There are a few technology options out there already, and more will be coming soon.

So what do you think? Do you use a client vault service with your clients? How many of your clients really use it? Would a file synchronization service work better? Would you adopt this with your clients?