For advisors, automation and multi-custodian relationships are keys to growth

Building client relationships, cost containment, and high interest-earning cash accounts a priority for most wealth firms, reveals survey.

Independent financial advisors view robust technology and multiple custodial relationships as crucial to their firm’s growth, while business expansion is their primary challenge for 2024, according to a new survey by Interactive Brokers.

A strong majority of advisors in the 2024 Interactive Brokers Advisor Insights Survey believe automation significantly enhances their client interactions, with 79 percent of respondents agreed that automation frees up more time to build client relationships. Additionally, 60 percent mentioned that automated processes help new team members acclimate faster, and 58 percent noted that automation in account management reduces overhead costs.

“Automation in day-to-day operations makes processes more efficient, so advisors have more time for clients and cultivating new relationships,” Steve Sanders, executive vice president of marketing and product development at Interactive Brokers, said in a statement Thursday. “Advisors want robust technology that keeps costs low so they can manage their firms the way they want.”

The survey found that 65 percent of advisors seek increased automation in client account management tools, particularly in new account openings and client onboarding. They also believe that client reporting and portfolio management could benefit from more automation.

Advisors are increasingly adopting a multi-custodial model to better serve their clients. Client preferences, service availability, and diverse investment product offerings were cited as the main reasons for this approach. The survey showed 64 percent of advisors use at least two custodians, including 34 percent who employ three or more. Moreover, 60 percent of those using only one custodian expressed openness to adding more.

Cost is a significant factor when selecting custodians, with advisors prioritizing fees, operational efficiency, customer support, and trading platforms in their decisions. “It makes sense that most firms use a multi-custodial model. With a second – or even third – custodian, fiduciary advisors can access products that serve their clients best more easily,” added Sanders.

Advisors are also focusing more on high-interest rate accounts for client cash balances, with 76 percent paying closer attention to this than three years ago. Eighty percent of respondents agreed that advisors, as fiduciaries, should manage client cash balances in high-interest accounts. That issue came into clear focus in a recent class action filed against Morgan Stanley, which alleges it failed in its fiduciary duty to customers by putting their money in low interest-earning cash sweep accounts.

The survey highlighted that advisors are intensifying their marketing efforts in 2024, identifying client acquisition as their biggest operational challenge. They are also seeking more client referrals and ramping up efforts at industry networking to drive growth.

Another two-fifths (39 percent) of advisors shared long-term plans for team expansion, aiming to recruit and train young talent as part of their succession strategy.