How the relationship between financial advisors and technology is changing everything

Rose kicked off the hour-long discussion by saying there is a lot of activity in the current retail wealth management space, but there are a few key trends that are particularly impactful as they relate to how advisors are constructing their tech stacks, and how they’re using technology in their practices to run operations while providing a better client experience. 

Rose said the first of those trends is something Cerulli has been tracking for more than a decade: advisor affiliation and where advisors are positioned within the broader wealth management ecosystem. 

He said from 2012 to 2022, Cerulli has seen a significant increase in advisor-identified affiliation for both hybrid RIA and independent RIA structures, largely at the expense of wirehouse affiliation, retail bank affiliation and independent broker-dealer affiliation. 

This impacts the ways in which advisors source their technology stack, which has ramifications for the entire industry. 

“But there are also a couple interesting points I’d like to add to this. And the first is that when we ask advisors that are hybrid RIAs why they retain their BD affiliation … and stay in the hybrid channel as opposed to becoming just purely independent RIAS, the third most frequently cited reason for retaining a BD affiliation is the basically the access that they get to an institutional turnkey technology platform from their BD partners.

“The technology platform that’s available to these hybrid RIAs really is one of the primary reasons we’re seeing advisors stay in the hybrid RIA channel. And what we’ve seen over time is that, 10 years ago or so, I think advisors largely saw the hybrid RIA channel as a kind of a pitstop on the way to full independent RIA affiliation,” he said. “It has shifted and increasingly become a final landing pad for advisors for a variety of reasons, not the least of which is the turnkey technology platform.”

Rose said Cerulli is also seeing more advisors preferring to tuck in to existing independent practices over launching their own independent practice. When advisors were asked why, the most frequently identified reason is access to an existing turnkey tech platform. 

“So tech really is a key driving force behind this broader trend that we’re seeing in terms of advisor affiliation decisions,” Rose said.

Another key trend Rose has noticed that is influencing the way advisors leverage technology to deliver services to their clients is a slow and steady transition away from brokerage-based business and toward advisory business delivered under a fiduciary standard of care, particularly among broker-dealer advisors.

“We’ve seen a significant shift, almost a doubling of the share of assets among BD advisors, that are held in advisory accounts. And of course, this is a very different service delivery model where instead of having a transactional based relationship with a client, advisors are providing ongoing advisory relationships,” he said.

According to Rose, advisors are providing financial planning services to an increasing range of their client base. In 2020, about 70% of advisory clients were receiving some form of financial planning services, and that is expected to increase to 78% in 2024. 

“Nothing changes overnight in this industry,” Rose said. “But we’re seeing a very consistent trend towards a broader range of ongoing advisory services, both in terms of investment management, as well as comprehensive financial planning.”