Do you view fintech as an investment or an expense when you think about your practice? It probably depends on whether you are a wealth or retirement plan advisor.
When I was an advisor, I looked at our private wealth team like the kids in middle school whose parents bought them Air Jordans. They were the cool kids who knew it when they strutted around the hallway.
Meanwhile, I was stuck wearing Keds.
Private wealth advisors have all kinds of cool fintech, while most retirement plan advisors are still manipulating Excel spreadsheets and copying and pasting charts into PowerPoint and Word. One reason is that far more money has been invested in retail fintech than retirement fintech.
The issue is mainly for two reasons: ERISA and access to data. Venture capitalists and fintech innovators have shied away from ERISA because of its perceived complexities and regulatory scrutiny.
I’ve spoken with other fintech founders who started by focusing on the 401k space and then pivoted away.
They’ve admitted that if they knew what they were getting into, they’d have steered clear in the first place.
Data access
The other issue is access to data. The large RIA custodians such as Fidelity, Schwab, TD Ameritrade (before the acquisition by Schwab), and Pershing have openly supported the RIA community by providing data feeds for customer data. In turn, there’s been a proliferation of solutions for portfolio management, financial planning, investment data/analytics, risk tolerance, CRM, digital onboarding, and forms management (to name a few).
Meanwhile, recordkeepers who control plan data (including the aforementioned companies’ retirement business units) have been reluctant to play as nicely in the sandbox with retirement plan advisors. The result? Retirement plan tech has received far less investment, and advisors still do far too much manually and on a one-off basis.
Just look at Michael Kitces’ Financial AdvisorTech Solutions Map, and you’ll see the massive disparity in the retirement market. It’s middle school all over again. There are a total of six 401k fintech solutions–two in proposal generation (including my own platform, FiduciaryRx) and four in 401k implementation.
Because of this, most private wealth advisors view fintech as an investment in their business. They’ve seen how it enables them to solve business challenges and create efficiencies.
In turn, technology has allowed them to scale, grow and deliver a powerful and profitable client experience.
They know the value of their time.
And when technology can create capacity, they have no problem making investments because they know it will either make their life easier or make their wallets fatter.
On the other hand, retirement plan advisors tend to view technology as an expense. Many times, they will spend a dollar to save a nickel. This leads to inefficiencies, redundancies, lack of scale, and compressed margins.
And the advisors that do grow are often so focused on working in the business instead of on the business that they view the solution to capacity building as one to be solved by hiring more staff. But that’s challenging. You need to find talent, pay them, and train them–not an easy (or inexpensive) task in this current environment. Instead, retirement plan advisors need to change their focus.
Abundance over scarcity
They need to have an abundance mindset instead of a scarcity mindset. To scale, they need to think of investing in technology as their next hire.
This is even more important for smaller, independent firms. Large firms are investing money and talent in technology and practice management, with dedicated resources and subject matter experts focused on supporting their advisors and driving scale. And it’s working.
But despite what you read in the headlines, smaller shops still have a golden opportunity to win and retain business. In many cases, they can be more nimble, more responsive to client needs, and deliver a more personal touch. But to keep pace, they must be willing to invest in technology.
Here’s the good news – the tide is turning for retirement plan advisors. A slew of new solutions has come market that help retirement plan advisors work smarter, work faster, and be a hero to their clients. These include platforms that streamline the proposal process (Benetic), enroll and educate participants (Venrollment), ensure TDF and guaranteed income suitability (American Century’s Income Blueprint and Target-Date Blueprint) and visualize and gamify the fiduciary process (FiduciaryRx) just to name a few.
So, I’ll ask the question again. Do you view fintech as an investment or an expense? How you answer this question will likely determine your practice’s future.
Josh Itzoe, CFP®, AIF® is the Founder & CEO of FiduciaryWor(k)s, a tech platform that empowers advisors with modern tech to diagnose, prescribe and improve Fiduciary Wellness.