Catch 22: Advice firms want better tech but can’t (or won’t) pay for it

Businessman in suit, turning his pockets inside out to show that he has no money.

By AdviceBridge

The speed at which the financial services industry had to adapt and adopt new digital ways of working during the pandemic has been much discussed. From holding client meetings through video calls to getting documents signed using digital signatures, there’s no doubting the fact that advice firms have come a long way in integrating tech into their everyday business processes and systems.

And yet, with all the advances we’ve all been forced to make, many advice firms who are actively pursuing tech solutions appear to be unable or reluctant to pay for business advancement.

Seeing the bigger picture of Value versus Cost

All firms need certain systems while other tech is specific for certain needs and can be viewed as “nice to haves”. Most firms will have a back office, use platforms, factfinds, risk profiling, and so on. 

Charging models for these are typically on a per user basis, yet the advantage some have in holding assets is that they can keep these costs down as opposed to those providing standalone systems. 

So, looking at the advice market, we see a plethora of systems from various companies that provide solutions where assets are concerned.

Where there are no fees to be earned from assets, we see very little adoption (even though advisers are calling out for it) other than for simple solutions like factfinds and risk profiling as these aren’t complex and costs are reasonable. 

Once greater complexity and functionality come into play, the advice journey, for example, there are very few firms that provide this solution – in fact, you can count them on one hand. 

Also, since the costs are higher, these tend to be adopted by those with deeper pockets (typically wealth managers and national IFA firms). 

This is where the Catch 22 situation arises.

Firms who don’t just see the “cost” of implementing an “Advice Journey System” but are able to see the “value” are making greater efficiency gains and, in turn, improving profitability. 

Instead of seeing an advice journey system as an additional cost over what they currently use, those that are able to see a cost saving of 70% of a paraplanners salary coming from adopting this technology are benefitting over those who are unable to see the opportunity just yet. 

In their report, titled ‘A fragmented world’, in September 2022, the lang cat revealed that: 

  • Firms could be up to 100% more efficient if their systems spoke to one another
  • It would take 18 point-to-point integrations to improve the life of one firm using a single platform
  • 85% of firms agreed that lack of integration was a major cause of inefficiency.

A breakdown of how advice firms are deploying their revenue

According to research from NextWealth, the largest cost for many advice firms is salary, on which most firms spend an average of 42% of their revenue.

Two of the biggest challenges facing advice firms – regulatory change and compliance – consume around 18% of revenue. Larger firms, with 10 or more advisers, generally get this cost down to 14% of revenue.

Still, when it comes to tech spend, the average amount of revenue being put towards technology is 9% – regardless of the size of the firm.

The chart below breaks down the proportion of advice firms’ revenue across five key areas of business (including salary, compliance costs, technology, and marketing) by size of firm/number of advisers.

Source: Next Wealth – Financial Advice Business Benchmarks Report 2022

What does 9% of revenue represent in actual pounds spent?

Advice firms spend an average of 9% of their annual revenue on tech to run their businesses and deliver advice to clients. For approximately 33% of survey respondents, this equates to up to £5,000 a year. Meanwhile, 20% of firms spend more than £25,000 a year.

The chart below details advice firms’ tech spend in relation to their size.

Source: Next Wealth – Financial Advice Business Benchmarks Report 2022

How spending more on tech could help firms make cost savings in other areas 

When you stop to consider that the largest cost to many advice firms is on their people and salary bill, it makes sense to question whether investing in better technology could help you make cost savings in other areas of your business.

Salary is, of course, a classic example of where this may be possible. If you are employing multiple people to manage the heavy admin associated with running a financial advice practice, you may find that tech can help save some of this spend.

For example, AdviceBridge can help a business run more efficiently and with lower risk. The intelligent platform increases efficiency and speeds up the process of onboarding and servicing clients, thereby increasing profitability.

If you employ a team of paraplanners or outsource your paraplanning work, you may find that introducing the right technology can help you save and allow you to deploy funds elsewhere in your business. AdviceBridge cuts the time paraplanners spend on client onboarding and annual reviews by some 70%.

Further, the right tech could increase profit on your less profitable and smaller clients while putting you in a far stronger position to expand and take on a wider variety of new clients. 

Including AdviceBridge in your tech stack can help your business, and your clients 

Through automation, AdviceBridge enables you to effortlessly deliver compliant-ready financial plans to a far wider range of clients profitably. The system helps gather information, analyse what is held and how it should be structured before it automatically produces a recommendation report ready to present to your client.

The intelligent software replaces the unengaging, complicated, and time-consuming tasks with engaging, insightful, and meaningful information and recommendations, meaning you’ll need fewer costly administrators.

Offering seamless integration with other elements of your business technology, AdviceBridge frees up more of your time to focus on the all-important client relationship.

Get in touch

To find out how AdviceBridge can benefit your business and help you service more clients profitably, please get in touch. Email, book a demo, or call us on 020 3925 3850.