Digital DNA 2.0

Since 2016, the operating environment for advisers and their firms has been extremely supportive. While all firms have tended to do well, the firms showing the greatest growth were those that made a commitment to technology — specifically in areas that improve outcomes for clients and improve firm efficiencies and internal processes.

With digital tools becoming ubiquitous in all aspects of everyday life, and with investors of all ages increasing their reliance on these tools, their use in the advisory business must keep pace. Firms that are in the forefront of developing, adopting and promoting user-friendly digital interfaces and services will be the ones who gain market share and prosper in the years ahead. Advisers seeking to do the same should seek out the firms that provide such tools and those which use them.

Advisory firm technology: Driving growth

Facing regulatory headwinds and market uncertainty in 2016, advisory firms and many of the financial institutions that support advisers, have experienced a turnaround and are now enjoying a period of robust growth. Revenues have rebounded and the future is full of promise.
Independent advisory firms saw double-digit revenue increases in 2017, after two consecutive years of declining top-line growth, as illustrated in Figure 1. The independent broker-dealer channel also saw a resurgence: The group’s top 25 institutions generated a combined $23.2 billion in revenue in 2017, a 13.1% annual increase and the best revenue performance in the 14 years that InvestmentNews has collected financial data from the largest IBDs.

Based on our research, we believe that recent performance will provide a unique opportunity for firms to re-invest in their businesses, especially in the area of technology, and make adjustments that could fuel future growth.

Technology is so important because our research found a direct correlation between technology investments and growth rates. The top-performing independent advisory firms – those in the top quartile of growth in revenues, assets and profitability – had technology budgets that were 21% greater than all other firms, on average. This contributed to average revenue growth of roughly 14.6% for top performers, vs. 10.5% for the remainder of the field.
Since it is clear that technology increasingly will drive success for advisers and their firms, this paper will detail and explore:

• Areas of recent and future technology investments
• How a new mindset surrounding technology investments and strategies will re-shape the advice industry
• What the new technology environment means for advisers

Technology spending and growth

At the core of our findings is a near consensus statement from advisers about their individual growth opportunities: Nearly nine out of ten advisers who participated in the 2018 InvestmentNews Pricing & Profitability Study indicated that their revenues will increase over the next three years – with 50% of advisers anticipating revenues to grow by at least 5%. In line with these expected revenue upticks, both operating profits and adviser compensation are anticipated to increase by 81% and 76% of advisers, respectively, in three years:

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