To End Integration Irritation, RIAs Can Bite This Bullet

Researchers and consultants have been warning the wealth management industry to make improvements to its technology. It’s “digitize of die,” according to one recent report. 

Now, a researcher is suggesting a possible solution for RIAs, or at least a step they can take to resolve many of their problems: Get rid of the extra custodians.

Two-thirds of RIAs custody client assets with more than one custodian and having multiple arrangements exacerbates advisors’ problems, according to a new report by research and advisory firm Aite Group.

The more assets RIAs manage, the more time they spend on what Aite defines as “business applications,” such as email, financial planning tools, or their client relationship management, or CRM, software. RIAs managing less than $150 million spent a median 2.5 hours per day using business applications. Firms managing more than $150 million spent a median of four hours.

That’s a considerable amount of an advisor’s time, assuming all of those things function harmoniously. When they don’t, that irks advisors.

To see how well technology was meeting the needs of RIAs, Aite asked which technology required “major upgrades,” required “minor upgrades,” or is meeting needs and expectations. It found the integration between “business applications” was the biggest pain point, with 22% of RIAs saying it required “major upgrades.” More than 50% of respondents also said proposal generation, client data analytics, and account aggregation tools, and integrations overall, each required at least minor upgrades.

Charles Schwab, the custodian to more than 7,500 RIAs, recently analyzed 2.5 million calls the RIAs have made to its helpline and found nearly half (45%) of all call volume is related to routine tasks, including help with third-party technology. The custodian is doing away with its “generalist” service model to improve the service.

However, custodians have been focused on “long-term system enhancements to boost their value proposition” and are “overlooking the immediate problems that advisors have with existing technology,” according to Aite.

One way advisors can solve some of their own problems is by eliminating some of those integrations and choosing to keep client assets at a single custodian.

Only 7% of RIAs using a single custodian said their integration required a “major upgrade,” suggesting the increased complexity was harmful, according to Aite. “Multi-custody creates inherent issues with data normalization, data delivery, multiple native custodian platform applications, and the integration of these technologies.”

Moving any number of investor accounts from one custodian to another, or so-called repapering, isn’t a task RIAs are chomping at the bit to do. There is risk of disrupting and harming relationships with clients and tracking them down to fill out paperwork again could be a pain for all parties. Although, Altruist, a new digital, commission-free custodian for RIAs seems to have streamlined account opening and reduced the time it takes to as little as two minutes. 

There are, of course, reasons an RIA might choose to have multiple custodians. Some RIAs might prefer specific applications or resources offered by two different ones. Multiple custodians could make buying other practices or firms a little easier, since the likelihood of the seller using the same custodian would be higher. It’s possible some investors might prefer one over another, too.

Aite also notes in its report that third-party technology companies, such as Salesforce, Orion, InvestCloud, Black Diamond, Addepar and others, are well-positioned to resolve integration problems, making multiple custodial relationships less burdensome.

Still, RIAs looking for ways to save time and relieve some of technology’s headaches might want to consider a switch. It could be the medicine worth tolerating to cure other ailments.