Back-Office Technology Mistakes RIAs Should Avoid

Back-office technology mistakes come at a cost: time, money, and your reputation. Use the tech wisely and take measures to prevent problems from happening.

Back-office systems are a big deal.

Wealth and asset managers rely on the  technology for effective management of investment portfolio data and reports, and the right systems will lead to gains in productivity and ultimately profitability.

However, technology missteps come at a cost. One study found that 77% percent of North American advisors lost business because they lacked the appropriate technology tools to interact with clients.

And depending on the situation, it’s easy to rush into a decision or even do nothing when action should’ve been taken.

With those risks in mind, see below how to identify and avoid those situations.

6 RIA Back-Office Technology Mistakes to Avoid

1. Under-Investing in Technology

Keeping back-office costs down is obviously a good idea, but stinginess comes at a price.

Many firms look at purchases in pure dollar signs, failing to recognize the future benefits a smart investment will bring.

It could be a custom dashboard that offers better data and reporting views, allowing advisors to make more informed decisions and serve clients better.

It could also be automation tools to streamline performance or accounting processes.  

Many wealth and asset managers overlook these solutions because  they’ve managed so far without them.

They’ve done the work manually, it didn’t take a lot of time, and their existing systems were serviceable.

But as their business grows and workloads increase, they’ll have less time for the work, they can’t rely on a manual approach, and as the work is more complex, they’ll need a more robust system in place.

Firms will regret not acting sooner in those moments when things get tough.

2. Over-Investing

On the opposite end is another extreme: paying too much.

Investing in technology is certainly important, and according to the Boston Consulting Group, the average share of technology in total operating expenses for wealth and asset managers in 2022 was over 15%, up from 13% five years prior.

While there is a rationale to increase spending, unnecessary spending must be stopped.

  • Avoid purchasing multiple systems that overlap in features.
  • Don’t pay for features in the software you don’t use.
  • Find a platform that has consolidated functionality.
  • Make sure you know clearly what you want to get out of the technology before purchasing.

3. Purchasing Too Soon

Some solutions look so good you can't wait to sign on the dotted line.

Reality then kicks in after the purchase.

Reaping the full benefits of the new technology is harder than expected:

  • The team has to be trained on the new systems
  • There is internal pushback with the new tech
  • The technology does not integrate well with other systems
  • It works well in some areas, but worse in others.

Before purchasing, do the research. Talk with your team. Determine if the technology serves long-term interests.

4. Underutilizing Existing Technology

Similar to over-investing and the need for consolidation, investment firms can be more efficient in their technology spending by looking at what they already have.

Are advisory firms fully leveraging their technology?

For example, how much reporting, data management, and integration functionality can the current setup handle?

If it can handle more, try that before making a costly purchase.

Sometimes RIAs just don't have the time or capability to fully leverage their systems. That is why they come to Empaxis.

We help investment firms streamline, and automate the reports and workflows in their setup, integrate systems, and ensuring quality data.

5. Doubling Down On Legacy Systems

Sometimes RIAs continue their commitment to legacy back-office systems, begrudgingly or stubbornly.

In one scenario, companies know that legacy technology is expensive and inefficient, but the IT infrastructure is so entrenched in an old setup that it's hard and painful to break free completely.

When that happens, investment advisory firms should find providers that can help move them out of legacy with ease, like Empaxis can.

In another scenario, the legacy technology is cheaper at face value. Despite its inefficiency, the upfront low cost is attractive.

Still, as it relates to under-investing, a good-looking price can come at a cost, albeit "hidden", especially when work volumes increase and you need a better setup.

6. Lack of Focus on Security

The technology runs well, the company is operating efficiently, and clients are happy. Everything seems to be humming… until there's a cyberattack.

Phishing attacks, malware, and ransomware can be disastrous for an advisory firm. The SEC has even issued alerts to financial firms on the severity of these threats.

With passwords, proprietary information, and sensitive client data exposed, the result is a loss of trust and even a loss of business.

If the security breach is serious enough, your firm could face legal repercussions.

Needless to say, invest in cybersecurity; it's a good insurance policy.

Similarly, train the staff on proper technology usage. After all, cybersecurity isn't just an IT problem.

Avoid the Pitfalls and Proceed with Confidence

Technology mistakes in the back-office are most definitely costly.

Over- and under-investing in technology are two extremes to avoid.

Don't purchase until fully informed. Make sure existing technology is being properly utilized before rushing to get more. Think hard about legacy systems, and pay attention to security.

Some organizations are "guilty" of making mistakes, but they can learn their lessons and avoid repeat occurrences.

Other firms, particularly new ones, have the privilege of learning from others' missteps and not fall in the same trap.

Mistakes are in the past, and the future offers an opportunity to apply what RIAs learned from the past. Thus, RIAs can proceed with confidence.

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