6 Technology Mistakes Every RIA Should Avoid

November 20, 2020 - Doug Moromisato

Technology mistakes are costly in terms of time, money, and energy. Advisory firms should do everything to avoid such mistakes and not repeat them in the future.

Technology is a big deal. The ongoing pandemic has further proven so.

Remote work and virtual meetings are here to stay. Future RIA success will in large part be determined by technology adoption.

Making the right technology decisions can lead to gains in productivity and profitability, among other benefits as mentioned in Roubini ThoughtLab’s Wealth and Asset Management Report 2022: The Path to Digital Leadership.

However, technology missteps come at a cost. As one example, a Broadridge survey revealed that 77% percent of North American advisors lost business because they lacked the appropriate technology tools to interact with clients.

RIA technology mistakes boil down to poor decision-making and lack of foresight. At the beginning, the road ahead looks straight and clear, but around the corner are hazardous roadblocks and windy roads along steep mountain slopes.

Going forward, advisories can avoid the pitfalls.

6 RIA Technology Mistakes to Avoid

Under-investing in Technology

Keeping costs down is a good idea. Mentioning something so basic sounds a bit ridiculous, too.

But if cost-cutting comes at the expense of something that provides long-term benefits, then it’s worth reconsidering.

Some organizations look at purchases and expenses in pure dollar signs. They see low-cost technology satisfying financial concerns, but what they miss are the hidden costs:

Over-investing

On the opposite end is another extreme: paying for more than is needed.

Investing in technology is certainly important, and the wealth management industry recognizes that. A Celent report predicts that wealth managers will collectively spend up to $24 billion annually on technology by 2023, up from $21.4 billion by the end of 2020.

That said, RIAs must make smart investments in tech.

You shouldn’t purchase multiple systems that overlap in features. Invest in those that provides consolidated functionality,

Our TAMP1 platform is one that provides consolidation. It comes with a portfolio accounting and performance reporting engine, a client and advisor portal, a CRM system, and a single place to view all data and reports, integrating with thousands of systems.

When advisories do the proper research, they’ll find systems that meet all requirements and the optimal amount of investment.

Purchasing Too Soon

Some solutions look so good one 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:

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

Underutilizing Existing Technology

Similar to over-investing and the need for consolidation, RIAs could 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.

If the systems can do more but RIAs just don’t have time or capability to do it, they can leverage third parties like Empaxis.

Doubling Down On Legacy Systems

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

In one scenario, companies know that legacy technology is expensive and inefficient, but the IT organizational infrastructure is so entrenched in an old setup that it’s hard and would be 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”.

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, the firm could face legal repercussions.

With more people working from home due to COVID-19, cybersecurity threats increase if home networks aren’t secure. Learn about these tech mistakes to avoid when working from home.

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 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.