Tech Focus on Quality Boosts Productivity
If you look at the top 100 technology vendors in the wealth management industry, most are selling their products based on cost efficiency and time savings. But advisory firms that are buying tech for those reasons are 40% less productive than others, according to a new report by Kitces.com.
Michael Kitces, chief financial planning nerd at Kitces.com, said cost and time efficiency benefits only show up for about one in five advisory firms.
“Four out of five advisors, in practice, are not trying to use technology to get faster and cheaper,” Kitces said, speaking at the Future Proof Festival in Huntington Beach, Calif. “We’re doing it to get better—deeper relationships with clients, higher touch, better experience, new areas where we want to do advice and planning work.”
Rather, about half (51%) of firms are using technology for quality optimization, while 28% are using it to improve the client experience. That’s a huge misalignment between advisors and tech vendors.
And firms that focus on quality optimization and client experience are actually more productive, Kitces found. That’s because they go deeper with their clients. They may go from 100 to 60 clients, but they’re 60 really good clients. “That works much better.”
Firms focused on time savings drag themselves down market, whereas firms focused on adding services to help them serve more complex clients lift them into a higher net worth. Kitces said that advisors who focus on the mass affluent, for example, earn $200 to $300 an hour. That compares to those working with $3 million to $5 million clients, who make $700 to $1,000 an hour.
It’s much easier to average up, he said, than to “efficiency-up.” Gaining efficiencies through tech may make time in between meetings faster, but it can’t make the actual client meetings go faster.
There’s no question that we get incremental improvements from technology, he said. But being a tech-driven firm doesn’t necessarily give you a productivity lift. Rather, firms with high levels of staff leverage see productivity improvements of four times.
“You’re not four-xing your client count because you saved five minutes on the email that drives you nuts or seven minutes on the data entry you can’t stand or even an hour on the onboarding process that’s aggravating you for the half dozen new clients that come in,” Kitces said. “What saves you time and lifts your productivity is when you just don’t do any of that stuff because it’s someone else’s problem in your firm.”
Delegation obliterates efficiency from tech in advisory firms by a massive difference.
“The tech that makes me less frustrated and have here at my firm every day is different than the tech that actually lifts my productivity because the answer is, it’s usually not the tech that materially lifts productivity. It’s being able to work with higher-value clients and being able to delegate more.”
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