February 2016

Financial Planning – Digital Diligence: Is Your Tech Tough Enough?


Though John DiCiaccio loves driving, and loves muscling fast cars around a test track even more, he finds himself entranced by how his new Tesla can drive itself. Letting the car’s autopilot handle some mundane aspects of his commute, especially in maddening Los Angeles traffic, makes him a better and more alert driver.

“Technology can react quicker to stop your car than you can, especially if you are tired or distracted,” he says. “Sensors don’t get tired.”

It struck DiCiaccio, a partner and managing director at Snowden Lane Partners, that fellow advisors should note the efficiency of new self-driving cars. After all, their technology is being mirrored in wealth management, even in areas as sophisticated as compliance. Robo advice and data-driven tools are becoming the norm, and it’s becoming imperative to adopt at least some of the latest tech tools, or risk losing clients.

Even more urgently, advisors risk squandering new ways to monitor increasingly sophisticated compliance requirements.

Take, for instance, the challenge of meeting clients’ demands that they be able to access their account anytime, from anywhere — while also protecting and monitoring that information.

Without the support of a custodian’s Web portal, an independent practice needs to pay for building a system capable of handling real-time data requests from clients. Separately, the firm will need data security measures in place that meet the SEC’s new cybersecurity focus, which came out only in September. If regulators knock on the door, can your firm account for any and all remote access to client data from any device?

Learning to steer through the pylons of upgrading your firm’s tech savvy, while also ensuring it can handle new digital compliance demands, is possible, even for small and midsize firms. With a few smart moves, advisors can achieve both goals without extensive costs or onerous overhauls of existing tech infrastructure.

“Upgrading our technology has allowed us to better maintain and organize our data,” says Eric Sontag, chief operating officer of Sontag Advisory in New York. Upgrades allowed the firm to “reduce operational risk and provide information quickly to the regulatory authorities when needed, all while also benefiting the business via increased efficiency and better service to clients,” he adds.

PERSPECTIVE NEEDED

First off, do not be overwhelmed by the prospect of buying new, unfamiliar technology. Understand you are not alone with your possible confusion around new digital compliance requirements.

“There’s a famous saying that you don’t know what you don’t know,” says Carl Choy, a principal at Honolulu-based CKW Financial Group. “When we’re at a big wirehouse, we think we know a lot. But once we go out on our own, there are all these technology and compliance issues to handle. We realize then that we don’t know very much. And that’s a challenge.”

But this is no excuse for turning your back on the numerous tools that can upgrade your practice. The process is an exercise in accepting that costly upgrades may be necessary for the future of the business.

“You need to find your comfort zone with technology and not be afraid of it,” says Scott Horn, president of TFOPhoenix, a fee-only firm. “You have to figure out what is the most important for your practice, what moves the meter the most for your dollar and what you’re willing to allocate.”

This year Horn’s firm will hire an outside firm to perform a cybersecurity audit, even though that measure is not required by regulators. He balances the expense of the decision with the potential cost of suffering a data breach.

“My rationale is simple,” Horn says. “At the end of the day, I don’t want that to happen, and think, ‘If I had only known X, I could’ve done something more to protect client data.’ They trust us and put faith in us, and it’s our job to continue to earn that trust.”

COST CONCERNS

In Financial Planning’s 2015 tech survey, 54% of respondents said cost was the main factor they use to evaluate the ROI of the technology they purchase. It’s a reasonable concern.

Horn estimates that his firm’s tech budget is roughly 10% of its expenses. But he doesn’t call it an expense: “I try to view it as an investment,” he says, “because you’re getting something for it, whether it’s making your practice more efficient and helps you serve your clients better, or makes the client experience more rewarding.”

Sontag says compliance is a major focus at his firm, and employees are evaluated on their use of systems to this end, which is incorporated into their incentive compensation.

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