By Brandon Roth,
Sr. Product Marketing Manager
“Knowing where the trap is—that's the first step in evading it.”
― Frank Herbert, Dune
In 1975, one of the co-founders of Intel, Gordon Moore, predicted that the speed and capabilities of computer technology will roughly double every two years, yet the cost will be less.
This prediction, referred to as Moore’s Law, has held true for almost 50 years as improvements in performance of PCs, tablets, smartphones, networking equipment, and other devices have enabled businesses to improve both productivity and efficiency while at the same time lowering costs.
Wealth management firms have benefited greatly from Moore’s Law as the development of scalable cloud computing and seemingly unlimited cloud storage revolutionized advisor software. But it also set off an arms race of sorts as firms compete to attract advisors with more intuitive and robust tech stacks.
According to a Deloitte study, 51% of advisors are considering leaving their firm for an organization with better software tools, and the growing sector of Millennial clients are choosing their wealth managers based on digital preferences rather than performance. Good tech choices lead to efficiency, insight, and strong relationships, while poor choices lead to frustration, lost resources, and client churn.
While building a strong tech stack may seem like a daunting task, the methodology behind making good digital decisions is quite straightforward. Once you understand the core principles and best practices, it becomes much easier to select the best software to support your firm’s unique processes.
This article breaks down five traps RIAs often fall into when building a tech stack, how to avoid them, and how to build an excellent digital culture in your company.
Trap 1: Not knowing what you don't know
The most important change you can make to improve your tech stack is changing how much you know about it. Take the time to understand what tools you already have and how they work before buying anything new.
There is no one right way to put together a tech stack. Different types of advisors have slightly different processes and can use software in different ways, which requires taking the time to understand how your firm works. The 2023 T3 Inside Information Software Survey found a 10–15% difference in utilization of applications among advisors in different industry organizations.
This differentiation should continue to trend upwards as more niche software is brought to market. The Kitces/Ezra Group AdvisorTech Map is a great tool for assessing the fintech landscape and displays the most popular software in each category. In 2017, the map showed 80 vendors across 20 categories, while it now boasts over 400 vendors in 40+ categories.
That may sound like a lot, but it's actually a limited selection compared to other sectors such as digital marketing, which have access to almost 10,000 applications! As the best advisory firms leverage technology to differentiate their offerings, the ability to select the right software to support your firm’s growth becomes essential.
When evaluating your tech stack, start with the standard categories and list the programs you use and what processes they support. We recommend creating a simple diagram of your software, including how it is organized and the data being passed between systems.
After building the software diagram, the next step is documenting who is using each application. It’s common for firms to only be using 10–20% of an application’s functionality, and that isn’t necessarily a bad thing (though there may be useful things you’re missing—we’ll talk about that later), but it’s important to know which 20% you’re engaging with.
With so many new tools exploding onto the market, which ones should you be paying attention to? One of the strongest new trends in fintech is in advice engagement tools like AssetMap, Pulse 360, and Forward Lane. Another fast-growing category is tax planning, which uses AI to analyze returns and deliver basic recommendations that replace a CPA. New advances in AI technology have led to an 11% increase in market penetration for tax planning software between 2022 and 2023 alone.
Trap 2: Not documenting your processes
One way to be sure that you’re taking full advantage of your tech stack is to build a set of detailed process documentation. The idea of documenting all your software can be intimidating, but the best place to start is at the beginning of your workflow and then going through step by step.
The documentation can be as simple as a spreadsheet of each workflow listing out what technology is involved. If you have the time and resources, it may be worthwhile to build a flowchart showing how data is moving between each application for each workflow. RIAs should document their key workflows, integrations, data sources and data consumers, and a software inventory of who your vendors are and the important contacts with each one.
It can also be valuable to document what data is coming into your firm, the sources it’s coming from, and which systems are using it. You may find that multiple vendors offer overlapping data and be able to eliminate some unnecessary software from your stack. One steadfast rule when building a tech stack is to keep the number of vendors to a minimum. The more vendors you have, the more variables there are to cause issues.
As you document your processes, highlight any manual steps in mostly automated processes or (gasp) completely manual processes. These are opportunities to improve the overall automation at your firm, which will reduce the possibility of human error and also make staff more efficient.
Trap 3: Not selecting the right software
On average, firms keep their software for an average of 7–10 years, so it’s important to make effective choices for your stack. When choosing new software, the interface and usability of the app should be considered just as much as its functionality because apps are only valuable if advisors and clients use them.
Engaging clients with a sleek, digital environment can have a big impact on their user experience, with our research finding a 14% drop in client satisfaction between those who saw their wealth manager a leader in digital technology and those who felt their firm’s technology was lagging. Efficient, easy-to-use software improves relationships and reduces client churn.
A common question asked by clients at Ezra Group is whether all-in-one or best-in-breed is a better approach for building their tech stack. The truth is that it depends.
Which solution style is better for your firm depends on a few things: what you consider to be your value add, your long-term goals, and your technology budget. All things being equal, an all-in-one solution will be the better fit for most firms; however, all things are rarely equal.
All-in-one is a better choice for firms without large budgets for technology since they generally require more support for vendor management, application integrations, and data maintenance. All-in-one means fewer vendors to deal with, fewer invoices, fewer contracts, and fewer people to contact when something goes wrong.
Best-of-breed is a tempting approach since it offers more specialized features and functionality but at a higher price. Managing many systems means coordinating between data sources and often complex integrations and paying a larger tech staff to oversee it all.
New, feature-filled fintech can be tempting, so be careful not to fall prey to shiny-object syndrome. Changing software is time consuming and expensive, so a mere 10–20% improvement in efficiency or reduction in cost isn’t enough to be worthwhile. Between the evaluation process, negotiations, implementation, data conversion, testing, and training, your hard and soft costs will be much higher than they initially appear, so be cautious before taking the dive.
To ensure you’re making the most effective choices for your firm, don’t leave the decision to just your CTO. Bring in all the relevant stakeholders—such as the heads of each department—to talk about the software. Even if they don’t work with the application directly, it will still affect them, and they may have valuable insights.
Be sure to clarify your priorities and goals as a firm, what you believe your value added is, and the client profile you’re targeting, and build an evaluation process everyone agrees on. It can be helpful to formally present the results of the evaluation back to the team to keep everyone on the same page and refine your reasoning for making the change (or not).
Trap 4: Not conducting annual technology audits
Too many firms think that once they have chosen and implemented a system, it can run on its own forever.
This is not the case!
Every piece of software in your ecosystem needs to be audited at least once a year to ensure that it is still working effectively for your firm.
Take some time every year to meet with your stakeholders—even if it’s just for an hour or two—and ask the team what they think of the software they use. Find out what the pain points are, what they like and don’t like, and what it costs. Even in a diverse team, most people will end up gravitating to the one or two things causing most of the problems.
Conditions change more than most people realize, with new staff and clients, firm growth, and a shifting market. An annual audit ensures that your technology never falls too far behind and is always worth at least a few hours of your time. Even if the final decision is to not make any changes, that should still be a consensus agreement made by the team.
Once you’ve completed your audit, document the results. Write out the reasoning behind your decisions, such as bringing in new software, and be sure to break down why. In a few years, people might not remember (or might not have been around to know) why you chose a specific application. Store the document somewhere accessible in a shared drive where everyone can find it at any point in the future.
Trap 5: Ignoring important integrations
It can be tempting to skip over integrations, but any short-term savings will be more than wiped out by the long-term costs.
There are two types of integrations: app-to-app and application programing interface (API). App-to-app integrations must be built into the application by the developers and is limited to only the specific data they defined, whereas API-based integrations enable custom code to be developed outside of the applications that can enable a wide range of opportunities.
The other main integration trend we’re seeing is the near-total shift towards cloud-based software. Between 2018 and 2023, wealth management saw an increase from 51% of the industry running purely on SaaS technology to 86%.
If you have a good interface designer and well-documented APIs in the back end, there should be no barriers to building a seamless advisor experience. But poor integrations are one of the biggest pain points reported by wealth management firms.
In a recent NASDAQ study, 57% of advisors reported that the lack of integration between core applications was their most significant technology pain point.
Building out strong integrations in your tech stack can be difficult because vendors are often opaque when it comes to the details of their capabilities. When researching vendors, try to pick those that post on their website all the integrations they have available, the features they offer, and the data they pass back and forth. This information is often difficult to find, but luckily there are always new solutions coming onto the market, including projects which assess product integrations to help your research.
A new resource which can help you make better software choices for your tech stack is the Ezra Group Wealthtech Integration Score, which assesses the integrity of a product’s integrations based on their breadth, depth, and usability. All products are given a score between 1 and 10 based on their integration capabilities, with better integrations resulting in higher scores.
Integrations may not be fun, but they’re worth putting the work into. In the end, they’ll save you time and help you better understand your software. It’s worthwhile to do an annual audit for your integrations specifically, checking with vendors to find out if they’re added any new connections or capabilities.
Don’t be afraid to ask them for features that you want or find ways to leverage the offerings they have and try to run as much as you can through APIs. It may also be worthwhile to bring in an integration expert as a consultant to help you do the heavy lifting to get your tech stack running smoothly.
While the fintech landscape is constantly expanding, building, and improving your tech stack doesn’t have to be an overwhelming experience. If you start by investing in the software you already have and learn everything you can about your firm’s digital process, you’ll ensure you have the knowledge to select the best new software.
If you only bring in new software when it’s truly required and regularly assess the applications you have, you’ll ensure that you have an efficient tech stack that can grow and change along with your processes and needs.
By paying special attention to your integration, you can transform a complicated tech stack into a single, elegant environment for advisors and clients that makes their experience easier and their relationships stronger. Recognizing that your technology is the core of your key processes will transform the way you engage with software and improve its ability to support your business.