What Advisors Really Want From Their (Independent) Advisor Technology: Opportunities And Threats

Technology plays a crucial role in helping financial advisors better serve their clients. From industry-specific tools (e.g., financial planning, portfolio management) to general tools (e.g., spreadsheets, e-signature solutions), technology helps advisors be more efficient in servicing clients, and can even help expand their value proposition by doing more and going deeper for their clients.

A number of industry surveys exist to help inform advisors about the technology used in their practices and advisor satisfaction with those technology solutions. However, a major limitation of most industry surveys is that they operate based on open survey links that can be taken by anyone. Even if there’s some attempt to verify that individuals taking the survey are actually advisors (which isn’t always the case), many software companies encourage their (typically most satisfied) users to participate in the open-link surveys, which ultimately turns such surveys into a sort of popularity contest with vendors incentivized to try to ‘stuff the ballot box’, rather than a genuine tool for understanding advisor usage of and experience with different technology tools.

As a result, in 2021, Kitces Research launched an invitation-only survey for the tens of thousands of advisors in our Kitces community. We created a unique URL specific to each person invited to participate in our survey, which could only be used once (preventing any sharing by advisors or the technology companies they use).

Notably, we did still encounter software companies trying to stuff the ballot box by sharing clever workarounds to our survey constraints, but given the nature of our recruitment method, we were able to identify this behavior and exclude such responses. (Note to tech companies: Don’t bother trying that again. You are just wasting your and your users’ time!)

We believe that the end result – the Kitces Independent AdvisorTech study – is the most robust representation of real-world adoption and satisfaction trends amongst independent financial advisors, thanks to our more rigorous sampling methodology.

Participants In The Kitces Independent Advisor Research Technology Study

Our Kitces community is not necessarily representative of the industry of ‘financial advisors’ as a whole. Our readers tend to be more advice-centric (i.e., less likely to be primarily selling products for commissions), fiduciary-minded, slightly younger than the average advisor, and committed enough to continuing education that they self-select into consuming our in-depth, long-form educational content.

As a result of these background psychographics, our sample is significantly more likely to have CFP certification, and is more likely to come from the independent RIA (or hybrid RIA) channel than from a standalone broker-dealer or insurance company (though our survey sample did include many advisors from each of those channels).

We characterize this group of financial advisors as ‘financial advicers’ to reflect that particular subset of advisors who are focused on delivering financial advice (and not selling financial services products) as their primary value proposition.

This lack of representation is certainly not unique to our study (most advisor studies have some bias towards their primary base of advisor participants), but we think it is worthwhile to be transparent about and mindful of the differences that exist in our sample. If you fit the Financial Advicer description above – and particularly if you are in an independent channel, whether an independent broker-dealer or RIA – then our findings will be most relevant to you. More generally, given the ongoing shift of financial advisors from products towards advice, we also believe this sample is a strong representation of where the broader financial services industry is going as well.

However, being mindful of the biases we are aware of in our sample, we have taken extra steps to adjust certain metrics to at least attempt to adjust for known differences within our sample relative to the general advisor population.

In practice, we make these sampling representative adjustments using advisor-headcount-by-channel data provided by Cerulli Associates. For instance, according to recent data from Cerulli, there were a total of 123,162 individuals within the independent industry channel (including independent broker-dealers, independent RIAs, and hybrid advisors straddling the two). Of these, 29.8% were in the independent RIA channel (36,642 advisors), 47.4% were in the independent broker-dealer channel (58,419 advisors), and 22.8% were in the hybrid channel (28,101 advisors). For the purposes of our weighting, we treat hybrids as first and foremost associated with a broker-dealer, since hybrid advisors are often constrained by the same ‘home office’ forces that impact broker-dealer selection and use of technology.

Using these Cerulli channel weights, we adjusted our top-level market adoption rates for the various software categories. As a result, even though our sample had a tilt toward independent RIAs (even within the independent channel broadly), we believe our channel adjustments to these statistics allow us to capture the broader trends of advisor technology across the entire (RIA and broker-dealer) independent channel.

Notably, these independent channels still only make up about 1/3^rd of the total 291,672 financial advisors estimated by Cerulli across all channels. However, advisors across other channels – from wirehouses and national brokerage firms to insurance companies and banks – generally have no ability to select their own technology, and instead are required to use whatever their parent company has selected on behalf of all advisors, which means market adoption rates reflect little when it comes to actual user preferences and satisfaction of advisors themselves.

As such, the independent channels (both broker-dealer and RIA) were the focus of our Kitces Independent AdvisorTech study, since it’s independent advisors who tend to have the most direct control of their software decisions in the first place – making them more likely to be early adopters and also more likely to terminate unsatisfactory software relationships – such that the trends we identify amongst independent financial advicers, in particular, more directly reflect the attitudes of the end advisors using the software.

Trends In Market Adoption Of Independent Advisor Technology

Financial advisors have an incredibly wide range of advisor technology solutions to choose from; our Kitces AdvisorTech Solutions map tracks more than 300 software solutions across nearly 30 categories, and our AdvisorTech Directory “Advisor Tech Stack Builder” supports 48 different software categories.

In our Kitces Independent AdvisorTech study, CRM software was the most widely adopted software among financial advisors, at 85.7% adoption, followed by financial planning software at 83.0% adoption. Interestingly, this was not quite the same within channels, as financial planning software was most widely adopted among independent RIAs (87.7% financial planning vs. 84.8% CRM among RIAs), but CRM software was most widely adopted among independent broker-dealers (85.7% CRM vs. 83.0% financial planning among broker-dealers). Which speaks to the reality that broker-dealers tend to have greater compliance infrastructure (that typically looks to the advisor’s CRM for compliance review, and therefore more commonly requires its use), while RIAs have a higher preponderance of small solo advisors who are their own Chief Compliance Officers (and may rely on their own email, client notes in Word documents, and similar notes-capture systems, without feeling a need to have a CRM system to ‘review themselves’).

More generally, our results reflect a continued focus on the ‘Big 3’ of advisor technology tools – CRM, financial planning, and performance reporting – that form the hub of what all advisors use to build their practices, followed by document management and investment data/analytics, in addition to two more recent categories that have gained substantial adoption in recent years: e-signature (which supports the document management/onboarding process) and account aggregation (which expands data/analytics).

Advisor Demand Vs Satisfaction With Existing Tools

In addition to asking financial advisors about what types of software they are using in their practices, our research also explored how satisfied advisors are with the various tools they are using and how important those tools are to them.

By aggregating these up into category-level totals, we can get a sense of where advisors are generally most satisfied with their software and where there is the most room for improvement.

Market Leaders And Experimental Software

Under this framework, financial planning software, CRM, trading, document management, and e-signature software all stand out as areas particularly high in both importance and advisor satisfaction, meaning advisors really want to buy solutions and are largely satisfied with what they’re getting. Accordingly, these are ‘Market Leader’ categories where any change will at best be slow and incremental.

At the other end are tools that advisors are the least satisfied with, but don’t prioritize as especially important either (or are very ‘niche’ and only important to a small subset of advisors), including student loan software, stock option analysis tools, mind mapping software, and business support systems. Illustrating a classic signal of solutions that have not yet found their product-market fit, these tools sit within an ‘Experimental’ category of trying to find the right offering that advisors really want (importance) and are happy with (satisfaction).

What’s particularly striking about the results, however, is how linear the relationship between advisor importance and satisfaction ratings is, as tools that rank highly on importance also rank highly on satisfaction (and vice versa for those with low scores). It is likely that perceived importance drives demand, and demand, in turn, has driven more competition (i.e., more providers compete to provide solutions to meet the demand because advisors deem the solution so important), which then drives more iteration and development across companies in the category, which results in a better (i.e., more satisfying) product for the advisor.

However, the relationship could also run in the other direction, and it could simply be a matter of tools improving – and proving out their valuable use cases – and then becoming more adopted and relied upon until they are viewed as essential and important to advisors.

In this context, tools that have high importance and high satisfaction may be very hard for new software providers to break into because advisors who have urgency to buy them (i.e., high importance) are already likely quite satisfied with what they have (i.e., the Market Leaders).

Conversely, those categories with low satisfaction must be mindful that if advisors don’t find the software important (i.e., Experimental), they may not buy it even if the software does improve its user ratings, until the software better shows how it adds enough value to advisors to increase demand in the first place (or alternatively, accept that they will remain ‘niche’ solutions and simply aim to thrive within the addressable market of their niche).

Fast Growers And Disruption Risk

Given the link between importance and satisfaction, already-popular categories (high importance) are generally very difficult for software providers to break into because of existing tools that already have a high satisfaction level (which makes advisors loathe to go through the hassle of switching at all, for what are perceived as minor incremental improvements at best). Though ironically, categories with low satisfaction may also be difficult to gain traction with because they tend to rank lower in importance (and thus have limited demand) in the first place.

Instead, arguably the greatest opportunities for new software providers come in the categories that are significantly above or below the ‘importance/satisfaction’ trend line. As given the relationship between the two, software that has a significantly higher satisfaction rate than its importance rate is likely to gain adoption as its positive ratings inspire other advisors to adopt the tool (making it ‘more important’).

Conversely, software that has an importance rating significantly higher than its satisfaction rating implies broad dissatisfaction in a category that has importance-driven demand, which makes it prone to disruption from a new entrant that has a substantially superior execution (to command higher satisfaction ratings) and can grow quickly due to the pent-up demand for a better solution.

In this context, advisor technology categories that have the potential for above-average growth by building awareness of their value proposition include Plan Monitoring software, Billing, and a number of more specialized planning tools – including Social Security analysis, Specialized Retirement analysis, and Tax – as these are all areas where satisfaction is noticeably higher than perceived importance. In addition, Advice Support/Engagement tools are positioned for an increase in adoption (their above-average satisfaction relative to importance suggests they will move from niche to mainstream soon), and eSignature remains positioned to become even more ubiquitous (given its high satisfaction rate as well).

Firms in these categories may want to particularly think about how they can help advisors better see the importance of their tools that makes them worth switching to or adopting for the first time (e.g., education focusing on how to leverage the tool in the advisor’s practice, rather than just core functionality of the tool), as to the extent they can learn what makes the software so valuable to their existing satisfied users implies an opportunity to teach other advisors how to similarly use the software themselves (increasing its perceived importance as the benefits and relevant Use Cases are demonstrated more widely).

On the other hand, there also appears to be some potential areas of advisor technology that are ‘prone to disruption,’ where their advisor satisfaction lags their stated importance (which signals pent-up demand for an alternative solution), including Digital Marketing, Account Aggregation, Compliance tools, Performance Reporting software, and the CRM Overlay category (with the main CRM category itself also on the border of falling out of the Market Leader category).

These categories are of significant interest to advisors – they are deemed above-average importance – but the existing providers aren’t driving the same level of satisfaction, which implies that a new offering that can deliver a superior user experience could quickly gain market share due to the advisor demand embedded in high-importance categories.

Notably, these results also suggest that the ‘Big 3’ of CRM, Performance Reporting, and Financial Planning software – notwithstanding their popularity – are all exposed to a significant level of potential new competition in the coming years, as advisor satisfaction with CRM and performance reporting is now lagging its perceived importance, while financial planning software market adoption is at risk of being chipped away by more specialized Social Security, Retirement, Tax, and other planning support and advice engagement tools beginning to emerge as advisors go deeper in their financial planning value propositions.

Advisor Demand And Technology Growth Opportunities

Given that advisor satisfaction tends to follow importance – rising demand for a software category has generally resulted in the software iterating to a higher satisfaction level – it is perhaps not surprising that perceived importance and adoption rate (i.e., how important advisors think the software is, and how often they’ve actually bought it) also follows a linear relationship.

The categories in the upper-left quadrant here – Data Gathering, Note Taking, Billing, Plan Monitoring, Tax, Compliance, Trading, and Scheduling – are all areas that may be thought of as especially high-growth-potential categories that could warrant further attention. Their high perceived importance suggests a corresponding high demand, which their market adoption hasn’t caught up to (yet?).

In fact, it’s notable that billing software actually rated as more important to an advisor’s practice than investment data, yet billing solutions as a whole are far less common in terms of adoption (though notably, given the way our survey questions were phrased, it is possible that advisors who simply rely on their RIA custodian or broker-dealer’s technology to bill on their behalf may not have indicated they ‘use’ this type of technology).

Similarly, Plan Monitoring is a software category that may be worth giving specific attention to going forward, as there is a particularly stark difference between its perceived importance (on a par with compliance software, and higher rated than risk/behavioral assessment and Social Security planning software) and its adoption rate, which is still at less than 10% overall. Moreover, this could be an area for emphasis for financial planning software companies themselves, since it appears advisors find this important but don’t seem to be overly satisfied with the existing solutions in the market.

As shown earlier, though, the real key to rapid adoption amongst financial advisors is not ‘just’ high perceived importance, but also satisfaction with the software itself, as it’s difficult to encourage adoption – even when the software is rated as important – if advisors aren’t happy with the solutions that are available. (Or alternatively, it opens the door for newcomers to disrupt the existing providers in a high-demand and low-satisfaction category.)

As a result, we can get the best perspective on what tools are especially prone to disruption competition or are especially likely to experience fast growth by looking at those that have especially low adoption despite high satisfaction (wait until the word gets out!), or those that are very high adoption with especially poor satisfaction (advisors may be eager to switch to a better solution!?).

Jointly examining satisfaction and adoption rates reveals a number of categories – including plan monitoring, billing, data gathering, scheduling, and various specialized planning tools (including Tax Planning and Specialized Retirement analyses), among others – all showing as “high adoption potential” technologies that we will likely see picking up in recent years.

Notably, a Nerd’s Eye View discussion of technology trends from 2018 observed that e-signature software was in a similar position at that time, and we have seen that wide-scale adoption occurring in the shifting of e-signature all the way over to 80% adoption in this study (from barely over 40% three years ago).

It is also worth noting that account aggregation software really stands out as a highly adopted software (over 60%) that users are not very satisfied with (at least relative to others with similar adoption). While it is reasonable to suspect that much of the frustration here relates to how unreliable account aggregation infrastructure is (i.e., constantly needing to re-establish connections, plus the challenges in categorizing flows and transactions that are aggregated into accounts), if a new entrant could step in and fix these problems, and provide ‘cleaner’ data with better categorization and less required scrubbing by advisors, there may be a significant opportunity for disruption of existing market share within this category.

Advisor Willingness To Change And Opportunities In Motion

Within our Kitces Independent AdvisorTech study, we also asked advisors about their intent to change software within the next 12 months and their intentions regarding which software they would adopt. And while advisors could indicate the particular technology they would adopt, they could also indicate that they want to change (e.g., aren’t happy with their current software) but aren’t yet sure what they would adopt instead. Which allows us to show a measure of the percentage of advisors who are looking to change but aren’t sure who they would adopt within a given category, which effectively represents advisors with a particular “Openness to New Vendors” and even entrants (rather than ‘just’ evaluating existing known providers).

The significance of this framework is that it helps to highlight categories where advisors are proactively looking for new solutions beyond the ‘known’ players in a category (scoring high in “Openness to New Vendors”), and conversely which categories advisors are generally only looking at a specific set of alternatives that already exist (and thus tend to know exactly where they’re going if they decide to leave their current vendor, making it difficult-to-impossible for new entrants to break in).

In this context, digital marketing and risk/behavioral assessment are two categories advisors scored with a high intent to change, but without a clear vendor with whom they intended to move forward. This could indicate a significant opportunity for new providers within these areas to win over advisors looking to make a change by offering them a new/different value proposition.

Other notable categories that advisors have less intent to change (but that if they do, they will be highly likely to explore new vendors) include Note Taking, Plan Monitoring, Stock Options, Business Systems Support, and Estate Planning.

For comparison purposes, we did also look at intent to change platforms (e.g., broker-dealer, RIA custodian, and TAMP) and openness to new vendors. It is notable how sticky broker-dealers, RIA custodians, and TAMPs are, with the intent to change below 3% for each. Furthermore, it is notable that there is very little openness to new RIA custodians as well.

In other words, among even the few advisors who are looking to change RIA custodians, advisors already seem to have a good idea of who they would want to move to going forward if they did make a change, suggesting that newcomers in the RIA custodial channel, in particular, may struggle to break in.

Billing software and e-signature software are the next closest to platforms in terms of “stickiness”. Looking at the major categories of financial planning software and CRM, while intent to change is pretty middle of the road, there remains little uncertainty regarding future vendors. So even if an advisor does want to make a change in these categories, they are likely already relatively confident about what that change will be, signaling an uphill battle for any new entrants considering a challenge to the existing incumbents in the market-leading categories.

Advisor Innovation And Homegrown Tools

For most of its history, advisor technology has been driven by ‘homegrown’ solutions, where an advisor has a problem that they can’t find a solution for, decides to create their own technology to address the issue in their firm, ends out selling the solution to other advisory firms, and then ‘suddenly’ ends out with a software business on the side.

In fact, this homegrown-software pathway is the origin story for a remarkably wide range of today’s popular advisor technology tools, including Redtail, Junxure, and Protracker CRMs; Orion and Tamarac for performance reporting; iRebal, TradeWarrior, tRx, and RedBlack for trading and rebalancing software; Tolerisk and RiskPro for risk tolerance software; eMoney Advisor and Advizr for financial planning software; and more.

Accordingly, we can get another perspective on where the biggest technology gaps for advisors are by looking at what advisors are self-building – as there’s a sign of a significant pain point when advisors are literally building their own solutions from scratch, potentially putting tens or hundreds of thousands of dollars towards developer costs, because they can’t find anything they’re satisfied with anywhere in the marketplace.

Consequently, an advisor’s self-building tools are an indication that there’s a value gap (between what advisors are willing to invest into for better solutions and the current solutions available) in the market, and thus a potential opportunity that some company could capitalize on.

In this context, Trading tools, Risk/Behavior Assessments, and Specialized Retirement tools were the areas with the highest percentage of advisors that were self-building tools, followed closely by Tax, Data-Gathering, and Note-Taking software.

From the technology company perspective, it is notable that not all homegrown technology tools are expensive to build, and the ones that are less expensive may be especially difficult to compete against (because it really doesn’t take much for the advisor to implement their own solution).

In this context, the self-building of risk/behavioral assessment tools may be particularly hard for firms to compete against, since this technology, at its core, is just a ‘simple’ questionnaire. Of course, the quality of the questionnaire can vary widely, along with the UI/UX in how it is presented to the client, but particularly when many advisors view risk-tolerance questionnaires as check-the-box compliance tasks and question the validity of such tools in actually informing portfolio allocations, there may simply be a limited appetite for new more full-fledged tools.

On the one hand, this helps to explain why the proliferation of Riskalyze competitors over the past decade have struggled to gain any material market share. Though at the same time, it also highlights that there is a segment of the market that is not being served by Riskalyze, and/or that wants an alternative price point to Riskalyze.

Of course, building technology is difficult, and just because advisors try to build their own tools doesn’t mean they’ll be happy with what they build. Interestingly, two of the self-built categories that stand out the most in this context are financial planning software (which advisors seem particularly dissatisfied with) and plan monitoring software (which advisors are particularly satisfied with).

Trading is another area of note, with the highest level of self-built use (and also one of the highest rates of intended changes away from their current trading tools, as reported earlier), and yet still a relatively low level of satisfaction in their self-built tools at roughly 6.0 (versus an 8.9 rating of iRebal). This suggests that while iRebal and the like are very popular amongst their users, there are specific edge cases where advisors are struggling to find viable trading software solutions anywhere in the existing marketplace… yet also struggling to build their own as well.

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Most categories of advisor technology have anywhere from 3 to 6 active competitors, and some have as many as 50, all competing for incremental market share. As a result, our Kitces Independent AdvisorTech study delved deeply into the individual ratings of each software provider across the categories.

However, even when evaluating advisor technology in the aggregate, it becomes clear that there are certain categories that stand out with advisors as having significant opportunity… or remarkably little at all due to the entrenchment of existing incumbents.

In particular, as the advisory business continues to shift from its product-sales roots to a focus on the delivery of advice as a business unto itself, there is an emerging shift in advisor software preferences, with tools attached to the advice delivery process – from plan monitoring and advice engagement to specialized tax and retirement planning to the associated paperwork and billing processes – showing both rising potential… and the potential to begin to chip away at the market share of existing market leaders with more targeted offerings.