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Tech Tools Help Advisers Study Investors


Financial advisers generally prefer to manage a small number of high-net-worth clients rather than a large number of small accounts, but recent advances in automation technology could change this dynamic.

Thanks to online banking and social networks like Facebook and Twitter, consumers are becoming much more comfortable interacting with customizable web interfaces, and are even sharing information about their investing strategies. Advisers are discovering new ways to use these technological tools to improve economies of scale and learn more about what customers really want.

"If advisers are using the right systems, the cost of doing business will go down in the future due to technological improvements," said Eric Clarke, president of the Omaha, Neb.-based Orion Advisor Services. "Because of technology, they can handle more requests."

In the one-year period ending in May, advisers have seen a 4% decrease in the number of assets under management, but they have seen a 22% increase in the number of accounts they are servicing, Clarke said.

"Advisers are feeling the squeeze of the pressing need to be more efficient," he said. "They are looking for business metrics and intelligence that can help them run a better business."

The challenge for advisers is to find automated technology solutions that can help them usher their clients into more suitable financial products by utilizing data from clients' personalized investment profiles and surveys, comparing that with investment choices of investors with similar goals and risk tolerance, and then tailoring a customized portfolio. There are a number of programs that can do certain aspects of this, but getting these programs to work together and keep up with the fickle and rapidly changing consumer demand has been very challenging.

Consumers are becoming more comfortable with online automation, and in many cases, their comfort with areas like online banking and social networking is driving product innovation. In fact, social media has been the genesis of a lot of ideas in personal financial management, said Neal Ringquist, president and chief operating officer of the Lafayette, Calif.-based Advisor Software Inc.

"Consumers have adopted social media to communicate," he said. "This is a trend we are seeing extend into the personal financial management space. Facebook in particular has been very successful in the way it has helped people communicate and compare themselves with other people."

Financial services firms have been stretching their brains to figure out how to engage and communicate with customers on a personal level, he said, but they have been challenged by the concept of simultaneously automating and personalizing a product. "It's amazing how much data you can collect" online, Ringquist said. "You can track how people spend their money and where they click on your website. This can give you a picture of a person's interests and their spending habits."

For some people, the definition of a personalized banking website means never having to interact with that bank in person, he said.

Advisers can use social networking to their advantage as well. Not only can they use websites like Facebook, LinkedIn and Twitter to build legions of followers and "fans," they can also use them to communicate with other advisers and see what customers are saying about their products and services.

"Advisers are increasingly looking to the community of other professionals to help them stay on top of industry trends, as opposed to relying on wholesalers for information," said Lee Kowarski, a principal at kasina.

According to a recent survey by kasina and Horsemouth, 42.9% of financial intermediaries said they access Facebook occasionally, and 18.3% said they access the site at least once per day. The same survey found that 47.8% of financial people use the site LinkedIn occasionally, while 13.3% of financial intermediaries said they occasionally access Twitter.

Kowarski said there has been such a positive investor response to social networks that many leading fund companies-including Vanguard, TIAA-CREF, American Century Investments, Natixis Global Associates and Putnam Investments-have official Facebook accounts.

Vanguard has more than 3,500 fans on its Facebook site, Kowarski said, evidence that more people are taking an active interest and getting involved in the management of their finances.

"Up until the world changed last year, the focus in the market was on technology that enabled efficiency," Ringquist said. "In the last 12 months, there has been a complete upheaval, but I think things will pick up along those lines again."

Due to mergers and consolidations, he said many companies are trying to rationalize programs from different systems that came together.

Clarke said Orion Advisor Services helps advisory firms manage client relationships by using the Your Silver Bullet community of software providers to make sure technology applications "play well together" and integrate core applications with each other.

He said Orion provides advisers with a monthly business metrics "report card" that allows them to see net assets under management, trends over the past year and performance data verses their benchmark indices. It also shows them how they are doing compared to other Orion clients.

"There are not a lot of ways for advisers to benchmark themselves against other firms," Clarke said. "Our customers ask for specific reports and ways to report that information to their clients."

Ringquist said there will be a fundamental change in the way financial services firms interact with their customers.

"Financial products are primarily sold, not bought," he said. "Products are heavily advertised based on their performance and Morningstar ratings. People should be asking questions like 'Am I able to retire on time?' not 'Am I holding five-star funds?'"

 

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