We all use technology, but what's the right tech strategy?

February 25, 2019

 
Noni Robison

Noni Robinson
Head of Bank and
Institutional channels
Financial Advisor Services

Bill Martin

Bill Martin
Chief Investment Officer
of INTRUST Bank

Noni Robinson, head of Bank and Institutional channels in Vanguard Financial Advisor Services™, sat down with Bill Martin, chief investment officer of INTRUST Bank, to discuss technology in the finance industry. Bill is the author of, The Smart Financial Advisor: How Financial Advisors Can Thrive by Embracing Fintech and Goals-Based Investing,1 which explains how to use technology to deliver transparent reporting and engage investors in a goals-based framework. Bill's book also covers the changing roles of the investor-advisor relationship and how fintech solutions can further enhance this partnership.

Noni: Bill, it seems no matter the industry, technology is a factor. It's revolutionized retail shopping, dating, even medicine. From your perspective, what's happening with technology in the advice space?

Bill: Primarily, the way firms structure their technology is changing. It used to be parsed into different functions—rebalancing, performance reporting, custodial platform, and so forth. Now we're starting to see all those elements pieced together instead of existing in separate silos. There's also a shift to technology executing workflow and transactions while the advisor focuses on connecting with clients. Using tech purely for investment selection is old-world.

Noni: We've certainly seen this in our research here at Vanguard. As a whole, we feel technology is not something to fear but ultimately liberates advisors to address more relationship-based needs. There are always tasks that are more susceptible to automation, but some things will remain distinctly human. In some cases, the introduction of technology actually increases jobs as it becomes necessary to have a person manage those automated pieces.

We have some interesting data in our research paper, The evolution of Vanguard Advisors’ Alpha®,2 about how more advanced skills will remain human-centric. Skills such as "persuading outcomes" will fall solely to the advisor.

Bill: I would agree. During discussions with their clients, advisors are focusing less on investment performance and more on client goals and progress toward these goals. Technology has allowed advisors to get out and engage with clients: to solve real problems for them and expand the level of advice with a more comprehensive approach. Tech enables you to look at assets and future purposes of those assets and then decide: Can clients really accomplish what they want to do with their wealth? More and more firms are moving in this direction and are taking a comprehensive view of clients' assets as a means to accomplish their objectives.

At INTRUST, we've embraced several concepts from the Vanguard Advisor's Alpha framework that have aided in transitioning our value proposition from one that is focused primarily on portfolio returns to one focused more on client outcomes, tax management, and financial planning.

Noni: Yes, while we don't know for sure everything that's driving the transition, technology reduces the time an advisor spends not just on routine administrative tasks but also on much of what advisors have traditionally defined their value propositions around.

It's important to reconsider how to validate your individual value. Is it that you're adding value through something like active tax management? That's something you can't do without technology. Tools are getting better at showing taxes saved and how to withdraw assets in a tax-smart way.

Bill: We're even seeing technology that can simulate market environments and help to validate the strategy an advisor lays out. It enables clients to see if they are on track to retire by a certain year, for example. That simulation really demonstrates how advisors help investors make good decisions.

Noni: Speaking of investors, we actually have a saying here: Treat clients as people, not portfolios. In advisor's alpha, we have some research that shows how advisors can use technology-enabled efficiencies to streamline things such as client onboarding, portfolio construction, and ongoing management. This has led to investors' feeling, in general, that they're getting better, more personalized service. Are you hearing anything different from investors' reactions to technology?

Bill: I'd say they're pretty engaged. Because tech allows for visual representation of progress on investment goals, investors are able to consider things such as how contributing to education for their grandkids may affect their ability to generate a certain level of income throughout retirement. It demonstrates that the advisor is adding value because investors are able to see personalized scenarios that help them make important life decisions with confidence.

Noni: I'd add one caution that, while the benefits seem clear, technology can't solve everything. It certainly won't build effective relationships, and it may require advisors to more strongly communicate their value or even communicate their value in a new way. We know human advisors can't be replaced by robo-advisors, but we all have to work to get that message out there broadly.

Bill: Absolutely, and on the subject of cautions, it's also really key to have an integrated, coordinated approach between systems. Not having systems that "talk" to one another could make all the benefits we discussed counterproductive. My suggestion is to have a long-term strategy and avoid jumping on the next fad.

Noni: And as new tech comes along, especially systems or apps that are marketed as a replacement for the human advisor, it will continue to shape the advice industry. It's understandable why it may seem like a threat, but advisors who embrace technology will offer even more value. It's also going to frame how clients view their relationships with advisors and their expectations for service and planning. They're going to seek out more transparency about things such as costs. What are your thoughts on what's coming next, Bill?

Bill: You'll hear a lot about artificial intelligence that enables you to see the best next action for your clients, and their investments, based on sound data. You also may see virtual reality technology that can help you visualize how the decisions you make today affect clients' future finances. I saw a fascinating demonstration of how simple choices, such as not eating out, can affect your quality of life far into the future.

Noni: No matter what comes down the line, we believe the advisor will remain the architect of the client relationship.

Bill: Absolutely. And the need for advice will only increase.

Noni: That's why we're here. Great talking to you, Bill.

Bill: You too, Noni.

1 Bill Martin, 2017. The smart financial advisor: How financial advisors can thrive by embracing fintech and goals-based investing. Hampshire, U.K.: Harriman House Ltd.

2 Donald G. Bennyhoff, Francis M. Kinniry Jr., and Michael A. DiJoseph, 2018. The evolution of Vanguard Advisor's Alpha®: From portfolios to people. Valley Forge, Pa.: The Vanguard Group.

Note:

  • All investing is subject to risk, including possible loss of principal.

Noni Robinson

Noni Robinson is head of Bank and Institutional channels in Vanguard Financial Advisor Services. She leads the sales teams as well as the distribution strategy development and execution for banks, institutional asset managers, and insurance companies. Before this role, she was head of Client Engagement in Vanguard Portfolio Review Department, where she led a team of investment analysts responsible for engaging with clients through topics on the economy, financial markets, and Vanguard funds.

Noni earned a B.A. from Temple University and an M.B.A. from Saint Joseph's University. She holds FINRA Series 6, 7, 24, and 63 licenses and the Certified Investment Management Analyst® designation.

Bill Martin

Bill Martin is the chief investment officer for INTRUST Bank. He leads investment strategy for INTRUST Wealth's practice, emphasizing goal-based client solutions and tax-aware portfolio optimization. Bill authored The Smart Financial Advisor, frequently speaks on investment strategies and industry innovation, and serves on several fintech and industry advisory boards. Bill holds an M.B.A. from the University of Kansas, is a CFA charterholder, and has more than 20 years of investment-related experience.

Bill Martin is not affiliated with Vanguard, and Vanguard does not make any representation regarding his views.

CFA® is a registered trademark owned by CFA Institute.

 

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