Executive Summary
As financial planning has evolved over the years, better tools have become available to help advisors maximize their impact with more clients by increasing their efficiency. Financial planning technology, in particular, has allowed advisors to automate time-intensive back-office tasks and delegate routine analyses to support staff, freeing up their time to engage more personally with clients. However, as advisor technology continues to evolve, many tools have focused on helping advisors scale their financial advice to accommodate growing businesses. And while these tools are marketed as helping advisors become more efficient, advisors often wonder if technology helps them offer better financial planning or if it simply serves to systematize outreach to more clients with depersonalized and less insightful advice.
In our 100th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the evolution of advisor technology, how advisor technology has shifted the focus for many firms toward offering advice at scale by leveraging speed and efficiency, and whether advisor technology is truly helping make advisors better… or just faster.
As a starting point, it’s important to recognize that while conversations in the financial services industry over the last decade have entertained the idea that technology (e.g., robo-advisors) might someday replace human advisors, there are still many elements of financial planning that benefit from engagement with a human advisor. As while advisors certainly can leverage technology to create faster and more efficient back-office processes that help scale a growing practice, the key point is that new technology tools can also help advisors engage in better conversations through innovative presentation tools (e.g., interactive scenario modeling, data management, and visualization), helping them create more meaningful client relationships. And by aiming to scale the delivery of advice to make the process faster will not necessarily be better for clients, because the reality is that clients are humans with complicated histories and relationships with money; even though it may be more efficient to provide them with easy-to-use do-it-yourself financial technology to help them budget and track their own progress, many will still need extra time with their advisor to help them work through more complex issues preventing them from reaching their financial goals. And maintaining positive, supportive relationships with clients who are struggling to overcome emotional and behavioral challenges around money takes time.
Ultimately, advisor technology can help advisory firms scale their businesses by improving back-office efficiencies, but it does not necessarily serve to help financial advisors scale the work of actually giving financial advice… at least not yet. While the challenge of delivering advice at scale is perhaps better addressed through serving more clients by adjusting the firm’s business models instead of their chosen technology tools, there are technology tools available that can help advisors provide better advice by facilitating deeper discussions of the client’s unique situation, which can result in longer-lasting and more meaningful client relationships!
Authors:
***Editor’s Note: Can’t get enough of Kitces & Carl? Neither can we, which is why we’ve released it as a podcast as well! Check it out on all the usual podcast platforms, including Apple Podcasts (iTunes), Spotify, and Stitcher.
Show Notes
Kitces & Carl Podcast Transcript
Michael: Well, good afternoon, Carl.
Carl: Greetings, Michael Kitces.
Michael: Can you believe this is episode 100 of the “Kitces and Carl Podcast?”
Carl: I have to admit I feel a little tricked. You promised me that we’d only do 50 episodes.
Michael: I did not actually make that promise. You suggested we might only do 50 episodes and that then you would go on and do something else, and I just nodded and smiled and said, “This sounds awesome. Let’s do this.” And then I just didn’t stop and you keep showing up, so it’s awesome.
Carl: Boom! Yeah, super excited. A hundred episodes. Who would’ve known?
Michael: A hundred episodes, who would’ve known? And super cool here for today because we are broadcasting live to AdviceTech.Live. To the advisor technology, to the advice technology conference where we get to chat out both with everybody live in the audience here. Those of you who are hearing this recorded will hear it a little bit later when we get to package all of this together to send it out to everyone. So, conference attendees are getting a little live sneak peek around episode 100. And what to me was, I guess apropos, since we are talking from an advisor technology conference to talk about advisor technology, which is something we really haven’t actually chatted that much about tech in “Kitces and Carl.”
Carl: For sure. So good. So, where do you want to go? There are so many things we could talk about around advisor tech.
Michael: So, here’s where I would love to start with this and…
Carl: TikTok?
How Lead Generation Stalls Financial Technology Market Penetration [01:46]
Michael: …curious for your thoughts. So, I think you’re going to be… I think this one you might actually be similar to my sort of mindset on. So, a few years ago I was at a conference for executives of very, very, very large financial services enterprises who were talking about these huge ginormous checks that they were writing to make investments into advisor technology. And a particular firm’s executive, we’ll leave them anonymous. A particular firm’s executive stood up and said that they have estimated that with the investments they were making in the technology, they would be able to get their advisors up to 300 clients per advisor. And there was just this murmur through the room, “Oh, did he say 300?” Everyone starts doing the math of what their typical clients pay multiply by 300 clients was like, “This is mind-blowing profitability, effectiveness of the firm. What an incredible technology investment if they can pull this off.” And I was sitting there in the room listening to this, basically, description of advisor technology utopian nirvana of we’ve reached this fantastical productivity metric of 300 clients per advisor. And all I could think was, “This doesn’t sound like a utopia, this sounds like a dystopia.”
I was imagining in the chair as an advisor with 300 clients. You get two or three conversations and maybe an email or two a year in total for every single client. I have trouble keeping track of what’s going on with a dozen of my close friends, never mind 300 people that I’m supposed to have a close intimate relationship with because we may charge them thousands of dollars a year. It raised this question to me of whether there is this grand mismatch in the vision of why we invest in the technology when the idea from the perspective of a large firm enterprise is, “Someday if we make enough investments in the technology, we can get 300 clients per advisor.” And all I could think from the advisor perspective is, “This sounds off. This sounds like a dystopian nightmare to me.” So, maybe that’s just me. I guess I’m curious for you and I kind of start there. When you think about this realm where super awesome technology so enables you, you can have 300 clients that you work with, do you think, “Oh my gosh, what an amazing success of technology to give us so much productivity?” Or are you a little bit closer to me thinking that is just a ridonkulous number of people for my brain to keep track of?
Carl: Well, yeah. It’s super interesting. So, one of the questions I have though is this idea that we’ve been talking about for 20 years around serving more people, right? How are we to… And by serving more people, I’m actually more focused on serving communities that we haven’t traditionally been able to serve. So, I’m not thinking this 300 of the same clients that I’m serving now, I’m thinking, “Can I serve?” Because we’ve got to figure out. We know the only way to do real advice at scale, you’re going to have to serve more than 100 people. So, how does that change your thinking if you don’t think about doing the thing that you’ve been doing for 50 to 100 clients, but now you’ve got tools that allow you to make change at scale because we’ve got to have… We’ve all been complaining about this for 20 years, “We can’t serve more people. We can’t.” And it’s not out of a lack of desire, it’s out of a lack of either tools or business models that haven’t allowed us to do it. So, in my mind, I think, well, okay, first of all, I agree with you. If I’m going to have clients like I had when I had 87 clients, and I’m going to have 300 of them, it’s not going to work for me personally. I can see how it could work for other people maybe, right? But what really gets me excited is the idea, “Well, wait, maybe I could serve a different group of people. And maybe I could serve 500 of them because their needs are different.” It’s not planning light, it’s purpose-built planning, right? So, how does that change the way you’re thinking about this?
Michael: I think it’s an interesting framing. So, on the one hand, I will admit, the particular executive in question, this was not like, “Hey, we can serve different markets with the different business model.” This was like, “How many half-millionaire to millionaire clients can we stack on top of one advisor and see if we can get three million per advisor revenue?” So, just worth knowing. I don’t think that’s where this particular executive was going. But I think it’s an interesting framing for what you’re raising. Although just I would note in that regard, we went down the road of a version like this to me with robo-advisors over the past 10 years. And to me, just part of the outcome of that call like the robo-advisor exercise was this idea of if only the technology was more efficient, we could crack the market to serve the public more broadly. And at the end of the day, that actually broke the model of most of the global advisors because the problem was not actually, we have this operational efficiency… inefficiencies that make it impossible to serve clients at scale, the problem was it’s really, really hard to get clients at any level of any wealth level.
The latest study we did on the Kitces platform was the average established advisor has a client acquisition cost of over $4,000 per client that it takes them to get a client. When you add up the marketing expenses, the team time, their personal time to do all the networking meetings and the sales meeting, and all the different things that we do and you put a value on the time and you add it all together, it literally costs us north of $4,000 per advisor for an established advisor to get one client. And so, if it costs you thousands of dollars of your time, it gets really, really hard to go down market. Not because of a technology limitation around operational efficiencies, because it’s just so darn time-consuming to get even one client, much less like…
Carl: Let me ask you real quick.
Michael: …clients at scale, but then I need hundreds of clients.
Carl: I think for the benefit of everybody listening, what is built into that cost? And do that quickly. Why does it cost $4,000?
Michael: So, why does it cost $4,000 for most advisors? Because by the time you’re established, the value of your time is a few hundred dollars per hour. And the average advisor ends out spending 10, 20-plus hours of time doing all their different marketing projects…writing the articles, doing the social media posts, going to the networking meetings, doing the lunch with the COIs, doing the approach talks with prospects who don’t work out to find the few that do. Going through your whole pitch process. Maybe even doing that initial planning value offering you do with your prospects to show them that you’re valuable enough to get them as a client. All the things that we do. We found for the average advisor, 80% of that cost is their time and barely 20% of it is the hard dollar cost of marketing.
So, I mean, it’s mostly a time expense for us because prospecting and finding clients is time-consuming, even if we do it online and digital means versus the traditional local chamber of commerce networking meetings. It takes a lot of time and efforts to get clients. That was the same problem ultimately most of the Robo-Advisors had as well, it was the client acquisition costs that buried them. It wasn’t that they couldn’t serve a bajillion clients at scale with technology, it’s that they couldn’t get a bajillion clients to serve at scale with technology. It’s like bringing a knife to a gunfight to bring an operational technology solution to what is, I think, largely an acquisition challenge of how do we get…just how do we get enough clients? Hand me 300 clients and say, “Can you figure out a model to serve them at scale?” I can come up with something.
Carl: Yeah. Yeah.
Michael: Give me 300 clients though, it’s like, “Whoa, I don’t have it in me to do all of that.”
Carl: Yeah. I know. That’s always been…that’s always…right? We both know that you want to solve any advisors all of their problems. Their problems at home, their problems with their health, give them a list of qualified clients, right? Qualified prospective clients. That’s always been the problem. But I don’t think…
Michael: And I think that’s why you’re seeing… Just one of the hottest segments of the advisor tech space, the area with the most new bubbles on the landscape map that we publish every month is that lead generation…
Carl: For sure.
Michael: …solutions area, right? SmartAsset and Zoe and Harness and all the different companies that are cropping up and trying to play in that space because, on the one end, lead generation is really challenging, on the other end, because it’s so expensive for us, you could charge $1,000 dollars per client. For a lot of us, we’d actually profit. We would be more profitable off that, and that’s a heck of a business opportunity. So, lots of folks coming into that space, but that’s still a challenge.
The Power (And Limitations) Of Automation In Advisory Firms [11:37]
Carl: Let me back up too, because I think it’d be interesting to chat for a minute about the Robo-advisor sort of… It’s not quite a straw man, but I think one thing that I think all of this conversation around technology has been really valuable because it has… I think of it as a forcing function to force us to get more clear about what we can uniquely do. And by we, I mean the human advisor. And I remember thinking this.
Michael: So, what does the human do versus what do you hand to the technology and say technology do automatic technology?
Carl: Yeah. Do the thing, right? And I remember talking about this 10 years ago around just the idea that the solution to any perceived threat of technology eating your business is not to become more like the technology, it’s to become more human and get more clear about what just you can do. Because I don’t think largely real advice… Technology is super good. Algorithms are super good at solving what fits into an algorithm. But a complex adaptive environment like humans and their money often doesn’t fit into an algorithm, right? And so, I think this watching all of the technology tools come available and especially the attempt to remove the human advisor. I’ve been asked to be involved in…as you have, right? Every cute little toy startup that comes around with the goal…that has the goal of removing the most expensive part of the equation, the human, right? And it always feels to me like we’re creating tools to…cute or faster, cheaper ways to cut our own fingers off. And I’m convinced that what still sits in the middle of that problem is the human advisor.
Now, can tech enable us to serve more people? That’s the question I’m more interested in. And if there is indeed a problem… because it doesn’t seem like we’re winning this game. And when I say we, I mean industrywide, people aren’t happier with their money, right? If our goal as an industry and even for those of you who are going to send me emails about using the word industry, even the profession within the industry, right? If our goal is to reduce anxiety and help people have a better relationship with money, then we’re not winning that game, right? And we’re also not trusted very well. The latest research I saw was we rank below used car sales and just only above Facebook in terms of how little we’re trusted. And I shouldn’t pick on Facebook specifically, it was actually social media, but fine, Facebook. So, my question is how do we use this tech? How do we use technology to do what only a human advisor can do, but do it at scale? That’s the question I’m interested in.
Michael: Well, so to me, the first thing that does is starts to force. Well, I guess, as you said, versus that forcing function. It starts to create the divide of what are the things that the human advisor uniquely still does and needs to do, and what do they not need to do. Because look, anything I don’t need to do, I don’t want to do. And as a business owner, I’d rather not hire people to do the things I’m not doing, I’d rather just have technology automate the things that I don’t need to do as the advisor. So, in the classic split of services companies, there’s the front office, which is what happens with all the client-facing things and there’s the back office of all the things that happens behind the scenes.
The moment I get into the back office end, my brain just immediately goes, “Automate, automate, automate, automate. Give me all the technology that automates everything in the back office.” This is why even I think when you… When Robo-Advisors first came out and said, “Hey, you can open your investment account from your smartphone and have it fully funded in less than three minutes,” back in 2012 when many of us were literally still faxing paperwork and then following it up with a wedding signature, and Robo-Advisor is doing this on your phone in less than five minutes. I think a lot of us were also saying, “I want that too.” I don’t want to be automated out of my business for what I do as an advisor, but like, “Oh my Lord, I don’t want to be doing faxes and wedding signatures when you can do it on a smartphone in a couple of minutes.” In a lot of states, I could sell my house, I could sell a physical piece of real estate electronically, but I couldn’t open an IRA at many custodians at a time.
Carl: Wait. Hold on. Ladies and gentlemen, this is where we always hope to get to, is if we can just ask the right question, we can get Michael riled up, and I think we’re there. So, keep going.
Michael: So, look, the moment you get the technology that automates the back office, amen. I’m totally there, I’m totally on board, right? And there’s a lot of people that are doing cool stuff in how do we automate more in account opening, onboarding, trading, rebalancing, reporting, right? There’s a whole bunch of investment functions there. I think we’re seeing some similar domains start to crop up on the financial planning side. How do we automate that data and keep it flowing? But, the big but, the moment I get out to, we’ll call it the front office, right? What I’m doing with the clients, I know still to me I…
Carl: Let’s push on that for a minute. Let’s push on that because I think everybody thinks back office and the back office and back office.
Michael: Yeah.
Carl: But whereas the old days when you and I both were starting, security selection was…security selection and access to information was front office, right? It was my job.
Michael: Sure.
Carl: You had to call me to get a quote.
Michael: Yes.
How ‘Back Office’ Technology Automation Compliments Advisors’ ‘Front Office’ Empathy and Responsiveness [17:53]
Carl: So, security selection, no longer, right? Automated. Okay. What about portfolio design? Portfolio design is that still a front office function? Is it not? What about… And then the other question I have too is around the tools we use for planning, generally speaking. Are the tools built for the environment we live in today?
Michael: So, lots of good stuff there. In the investment context, look, I would view it this way. There will always be a subset of consumers who are willing to pay for the opportunity to outperform markets. It’s just a human reality. We can have the broad debate around passive versus active and how effective anybody is going to be in achieving that, but…
Carl: Boring.
Michael: …but there is a human nature thing. There will always be a segment of consumers that are willing to pay for the opportunity to do better, right? In the purest sense, they are risk tolerant and are willing to take the risk of a worse outcome in exchange for pursuing a better outcome. And they’re going to pursue that, which means there’s always going to be a place. Truly, I believe there will always be a place for advisors that believe they can add value in the portfolio. I don’t want to get into the debate of whether they will be able to do so successfully, we can do that one another day. But just for a consumer marketplace end, there will always be some segment of consumers willing to pay for that service. I do think the broader opportunity, and frankly, the untapped giant blue ocean opportunity that we’ve all been gravitating or most of us have been gravitating into is…but they’ve got all these other questions outside the portfolio. And frankly, I can do a lot with technology to make the investment stuff super efficient. Making human conversations and relationships with money more efficient doesn’t happen very quickly nor with technology. So, off we keep gravitating in the financial planning direction, but in part, to me, that’s the point of why that original executive’s vision of hundreds of clients per advisor to me was so dystopian.
Look, if I’m going to sit down across from a client and try to help them change their relationship with money to make better decisions that are maybe a little less self-destructive and self-sabotaging because they finally understand the history with money that they had and some awkward lessons they learned from their parents that gave them some really bad money scripts that they basically have been sabotaging themselves with for the past 20 or 30 years, and we’re going to try to get them through that to get them to a better place with more clarity about their goals and what’s actually possible and take them down that path, that ain’t happening because we had a 17-minute conversation, this super awesome piece of technology. That takes time and work and meaningful powerful conversations to unpack for people. And you can’t speed up a conversation in a human being’s readiness to make change. We’re going to change on the timeline…
Clients are going to change on the timeline that they want to make changes on. And it takes a lot to do that, and it takes often a very meaningful relationship that you spend time building rapport in to be able to do that. And so, that, to me, is why I have this challenge. Look, you want to automate the back office so that 1 back office person can support 5 different advisors who have 1,000 clients between them? Awesome. Leverage the back office to the sky. But when you get down to the front office end and what the technology does for us as human advisors, at the most basic level, I don’t look to technology to make me faster with clients, I look to technology to make me better with clients.
Carl: Look…
Michael: Let me have better analysis, let me have better conversations, let me show better visuals, let me more effectively engage them in this thought process that they’re going through to change the way they handle their money and the decisions that they make. And there’s all sorts of stuff there where the technology can help. It’s a lot better than scribbling out on yellow pad the way I would doing…
Carl: Hey, careful about scribbling things on yellow pads. Easy, tiger.
Michael: I know there are still yellow pad folks still out there. Look, just…
Carl: Sharpies and card stock are just fine.
Michael: Sharpies and card. Look, I’m not trying to bash the yellow pad, truly. I could not try to bash the yellow pad. The point is just technology can create some really meaningful ways to engage clients differently, literally to see things differently because we can present information differently, we can create better visualizations, we can then have tools that let us manage and manipulate the data more effectively. And you know what? Companies to me like MoneyGuide was out there early with this with the Play Zone 10-plus years ago to say let’s create an interactive tool where clients can move the sliders and see how their future changes because I couldn’t do that drawing it out on yellow pad. But that idea of… Maybe my technology makes my back office more efficient, but when it gets to me as the human advisor, and again, maybe this is just me, I’m not looking for tech that makes me faster so I can serve more clients than my brain can handle. I’m excited about tech that makes me better. And when you think about tech that makes you better rather than tech that makes you faster, you build different technology.
Changing Business Models To Leverage FinTech To Offer Advice At Scale [23:13]
Carl: Yeah. Here’s my question. We don’t have a ton of time for this, but one of my questions is, okay, if we go back to, I still want to… I didn’t get into this business to calculate the best way to deduct the private jet, right? But I quickly, literally, found myself doing that. That’s not why I got into this business. And I would imagine a lot of people listening, that resonates. I got in this business to help people that needed help. And so, if we’re going to solve that problem, then it’s going to involve serving more people. We’re going to have to do what we do at scale. And my question is…because I…and I said this the other day on Twitter and I got a lot of pushback, and so I went back and thought about it carefully. I don’t think in 25 years I ever had anybody ask me for a financial plan. Nobody came to me and said, “I want a financial plan.” And certainly, nobody ever said I want a wealth management plan. And then nobody, nobody ever said I want a mini family office. What they said was, “I have a financial question.” And they didn’t even use those words, they just asked a question, “Should I refinance from a 30-year to a 15-year?” How should I deduct the jet? If we want to go to that. But if there’s a way… I’m just wondering if the tech we’ve built was designed to solve the problems of a few people. And is there a way for us to focus more on engaging at the level of the question? Is there a way for us to focus more so that we can…
So, instead of having the perfect answer for a select group of people, and I think this goes into…you and I have talked about this endlessly, the complexity theory and complex adaptive environment and selling certainty and the false sense of precision that we sometimes have, this perfect solution for a small group of people who we’ve traditionally served. What if, instead, we were thinking good enough solutions? Can we be a little less? Can we view planning as, instead of being precisely correct today, can we view planning as being a little less wrong tomorrow? And can tech enable me to quickly orient myself around where you are and then adapt quickly? How do we start? Because look, that’s my offer of how do we start thinking about ways to use tech to help more people. Not ways to use tech so I can help 300 people calculate the tax deduction on the jet, but ways to help more people that need help. How do you think about that in our last four minutes?
Michael: Well, I think that… Honestly, just what comes to mind, to me, what you’re describing to me isn’t a technology problem. Look, there are other professions that have started to figure this out. It’s things like… Therapists have a group therapy model. How do you do this if you want to help more people?
Carl: It’s a business model, not a tool.
Michael: You put six people in a room and you help them as a group all at once. So, you still have to spend an hour or two as the advisor in the meeting. But it’s not a meeting with one person, it’s a meeting with six people. And how you do that as an advisor is different, how you do that as a business model is different. There’s a lot of cool stuff that comes from that, but what strikes me about it is therapists have…they figured out how to scale themselves up to work in groups to help more people. And you know what they didn’t use to make that happen? Technology.
Carl: Well, unless you call Zoom technology, unless you call a content library technology, unless you call the ability to communicate real quickly technology. But you’re not talking specifically around planning tools.
Michael: Yeah. But it wasn’t because they had better therapy tools embodied into technology to automate the therapy process for 172 therapy clients at once, it was, how do we take human interactions and just make them one-to-many human interactions by putting more people into the room when you have those very human interactions? And so, to me, just the… Look, I love the idea of how do we bring advice to scale more meaningfully? But to me, I think we’ve gotten a little bit twisted up in where the technology focuses. I feel like, “Automate my back office. Heck, if I’m going to do a group model with a large volume of clients, by all means, automate the scheduling, automate the contracts, automate the invoicing, automate the payments.” Everything that’s a back office and support function absolutely needs some help there. But when it comes to in the meeting, look, if I could have a great interactive technology where I can share a little educational lesson up on the big screen, people can put their numbers in and find out how it relates to them, there could be utilizations of technology that make the experience more engaging in the moment, but not because I’m trying to figure out how to get down to the point where I can solve a client’s financial problems in seven minutes and then move on to the next client.
As most of us know, I can give most of the clients the answer that they need to their financial problems on an index card. I write out the recommendations. That’s not why we do the rest of what we do, it’s because it takes a lot to get them there. And to me, those are human problems. And so, put the tech in the back office. Maybe keep it in the front office because it makes the advice engaging, but not because we’re trying to get to a world of a bajillion clients per advisor. At least to me, that doesn’t scratch the itch. I’d love to help more, but not at the point that technology makes each relationship meaningless.
Carl: Yeah. Well, I guess we’re out of time. So, amen to that. And here’s my last plug. And…
Michael: And?
Carl: And let’s not give up on the idea that there are solutions we have not yet thought of that will allow us to deliver real financial advice at scale. Because that’s all I’m here for. I’m not here for… I’m done with the tax deduction on the jet. I made that clear at this point, right? We need to figure out. And everybody listening, I know 90% of the people listening say amen to this. You got into this business because you want to help people. So, I think you’re… I would just put an and at the end of that, which is, let’s not give up on the idea that technology can help us do real financial advice at scale.
Michael: Amen. Let the tech make me better, make my conversations more meaningful, and automate everything in the back office behind me.
Carl: Amen, Michael Kitces.
Michael: Awesome. Thank you very much, Carl. Have a good afternoon. Thank you for episode 100.
Carl: Yeah. Amen, everybody. Thank you.
Michael: Thank you.
