For financial advisors, the promise of technology has always been to help advisors better leverage their time to grow their business. One possible way to do this is to use the time savings of technology to serve a higher number of clients. However, another approach advisors can take is to use their technology to do more – and better – work for the same number of clients while earning higher fees for the higher-value services they provide.
In the last 10 years, coinciding with the rise of robo-advisor technology that makes it possible to streamline and automate much of the process of investment management, advisors have leveraged the decreasing amount of time it takes to manage client portfolios by providing more and deeper planning for their clients – highlighted by the fact that, while the number of clients served by each professional at an advisory firm has actually decreased over that time, revenue earned per client has actually increased by 72%, either due to advisors increasing their fee schedules or using the same AUM fee schedule but working with more affluent clients with larger account balances (and therefore pay higher fees).
In more recent years, however, entrepreneurial software providers have picked up on advisors' demand for tools that help them broaden and deepen their planning beyond even what traditional comprehensive planning software can do. And so there has been an explosion of new tools in the AdvisorTech landscape that are not about saving time on advisors’ existing processes, but instead are geared towards adding new functions that advisors don’t already do, such as providing more in-depth and specialized planning capabilities, and engaging clients more proactively throughout the year rather than centering around 1 or 2 review meetings.
As a result, there is now a plethora of tools to choose from for advisors who want to enhance the value they provide to their clients – so much so, in fact, that there are now more of these solutions than one advisor could possibly use. Which means the challenge for advisors is not necessarily in finding new ways to improve their planning services, but in deciding which approach will deliver the most value (and which of the ever-growing number of tools available will best support it) for the cost in time and dollars that it requires.
The key point is that by digging deep into how they want to provide value for their clients, advisors can choose how to get the most out of their technology. This is particularly important at a time when most advisors are bombarded with pitches for new tools that often promise the world in terms of the features they deliver. By viewing the decision through the lens of the client’s needs and wants, advisors can have an easier time deciding which tools can best enhance their work – because ultimately, each new solution on the market is just a tool to support the advisor's 'real' work of creating a great planning experience for their clients.
For most of the history of financial advisor technology, the purpose of the technology was to allow the advisor to do the core functions of their job faster.
Arguably, the first modern piece of AdvisorTech was this:
Financial calculators such as the HP-12C made it possible to quickly run time-value-of-money calculations – and thus project future account balances, life insurance needs, and retirement income estimates, among other things – by punching a few buttons rather than going through the process of calculating everything longhand.
Later, spreadsheet-based software like Lotus 1-2-3 and Quattro Pro (and later, Microsoft Excel) allowed advisors to create templates that ran the calculations automatically, with the advisor only needing to plug in a few inputs for assumptions. The software could also easily present the data in chart form, making it faster and easier to create a visual that could be pasted into the client's report.
With the advent of financial planning software (with providers like Naviplan and MoneyTree paving the way in the 1980s and '90s, and others like eMoney, MoneyGuide, and RightCapital following in the new millennium), it suddenly became much easier and took less time to run and compare multiple scenarios, and even to make on-the-fly changes to plans during client meetings that avoided the need to revise and follow up after the fact.
The same story was true in advisors' other job functions. In portfolio management, Turnkey Asset Management Platforms (TAMPs) and rebalancing tools like iRebal streamlined the process of creating and managing model portfolios, and eventually, robo-advisors added capabilities like digital onboarding to further reduce advisors' time spent managing investments.
On the operations side, CRM software programs replaced the paper-based Rolodex, file-sharing tools like Dropbox and Sharefile and eMoney's Vault made it possible for clients to send statements and other documents without a trip to the office, and document management systems and cloud backup services enabled the archiving of documents in digital form to easily pull them for compliance purposes (without the need for physical filing cabinets).
The end result of these early generations of advisor technology was that advisors needed less time to do the same amount of work per client.
Now, there are a few things that advisors can do when their time spent on each client goes down.
First, they could simply work less by serving the same number of clients but spending less time on each – but outside a relatively small number of lifestyle practices, this clearly hasn't been the route that most advisors have taken since there's no evidence that most advisors are working materially fewer hours than they did 20-30 years ago.
Second, they could use the freed-up time to serve more clients, since, in theory, streamlining the advisor's core processes can open up additional capacity. This has arguably been the promise of many AdvisorTech providers over the years. For example, when robo-advisors came on the scene in the early 2010s, they professed that they would open up financial planning to the masses and replace human advisors by drastically reducing the time to engage an advisor and therefore the cost of advice. When that prediction failed to pass, and human advisors instead began to widely adopt robo-advisor technology themselves by the mid-2010s, the marketing pitch shifted to a promise that advisors could dramatically increase the number and type of clients they could serve by offering a digital onboarding process and strategic asset-allocated portfolios with virtually no time requirement for the advisor themselves.
But the evidence shows that, for all the promises of technology leading to higher productivity and the ability to serve a massive client base of smaller investors, most advisors have not taken on a higher number of clients during the robo-advisor era. Looking back on the last decade of benchmarking data from the InvestmentNews Adviser Benchmarking Study (previously known as the InvestmentNews/Moss Adams Pricing & Profitability Study), as shown below, the median advisory firm respondent had its highest number of clients for each professional (i.e., lead, service, and associate advisors) during fiscal year 2011 at 80 clients, dropping down to just over 50 in the middle of the decade before climbing back to 73 by 2021 (the last year for which data is available). In other words, after a decade of technology evolution, the average advisor doesn’t serve any more clients now than they did since before the “robo” efficiency era.
One possible explanation for the stark drop (and gradual recovery) of advisor productivity during this time is that advisors needed to scramble to differentiate themselves; since the rise of robo-advisors in the early 2010s came with an offering of asset-allocated portfolios with automated rebalancing at a fraction of the cost of the typical human advisor's AUM fee, human advisors felt pressured to provide more comprehensive financial planning as a way of showing their value beyond investment management and justifying their higher fees.
However, this focus on comprehensive planning led to plummeting productivity as advisors stacked on more services and planning to their offerings, subsequently squeezing their capacity down to fewer and fewer clients until advisors increasingly began to adopt robo-advisor technology themselves to streamline their investment management processes and restore their capacity to near its prior levels. But what that really meant was that, rather than creating additional net capacity for advisors to serve more clients, technology merely allowed advisors to serve the same number of clients while doing more (financial planning) work for each client in order to demonstrate their value.
Put differently, while it's unlikely that there ever was an era where most advisors were content to simply gather assets, sort clients into model portfolios, and collect a 1% fee every year while providing little additional financial planning or advice, anything that did resemble that is fully in the past now that robo advisors can provide almost exactly the same thing for as little as 0.25%.
Such is the paradox of advisor technology that 'just' saves time on the advisor's core processes: It's more likely to lead to an increase in the amount and scope of work for each client – since clients can now get the same thing elsewhere, for cheaper – than it is to actually save any of the advisor's time on the whole!
How Technology Has Made Advisors Better, Not Faster
The increase in the scope of advisors' services has shown up in a couple of different ways: First, in doing deeper and more extensive planning in the areas where advisors were already doing planning; and second, in expanding into new areas of planning that weren't previously being covered. And technology has played a significant role in this shift not only by reducing the amount of time required to complete core tasks like investment management (thereby opening up the time to do more extensive planning to begin with) but also by providing tools that would themselves begin to expand the ways that advice was created and presented.
For example, the most popular financial planning software of the early 2000s was MoneyGuide, whose goals-based methodology created financial planning projections that were calculated solely in terms of the savings that were relevant to a particular goal without delving into the time-consuming cash flow details pertaining to the rest of the client's financial picture. As, up until that point, more spreadsheet-style financial planning software 'had to' account for where every dollar went, every year – which meant inputting and reviewing every cash flow in every year to ensure all the dollars were accounted for.
By contrast, with MoneyGuide’s goals-based planning approach, advisors could 'just' plan for a client to save for their children’s college education, or a plan to save for their retirement (or a plan to do both), but only had to track the savings contributions and their impact on the intended goal, without the rest of the detail. Which resulted in substantial time savings efficiency, and quickly won market share from the more detailed (and significantly more cumbersome) cash-flow-based planning tools. As it was still ‘detailed enough’ planning pertaining to the particular goals that the advisor was helping the client to solve (and for which the advisor was typically paid to implement a solution).
The Shift From Narrow (Goals-Based) Plans To Holistic (Cash Flow-Based) Planning
But the 2010s, which brought on the widespread adoption of time-saving investment management technology, also saw a shift by advisors away from goals-based financial planning software like MoneyGuide and back towards more holistic cash flow-based tools like eMoney and relative newcomer RightCapital.
All of a sudden, it was worth the trouble to make more detailed and holistic plans, as the tools were at least incrementally more efficient – comprehensive cash flow-based plans still took more time to make than narrower goal-based plans, albeit while being slightly faster with new features like account aggregation and paperless file sharing that streamlined some of the data entry – but more importantly, because they allowed advisors to differentiate themselves with the broader and deeper planning they provided, with the newly available time they had from other parts of client service also becoming more efficient from technology. (However, there was still a limit to the amount of time advisors wanted to devote to the production of financial plans: Naviplan, which retained a reputation for being more comprehensive but also having a less intuitive interface and thus being more time-consuming to construct plans in than other tools, saw its market share decline throughout the decade even as other cash-flow-based financial planning software flourished.)
What’s notable about how financial planning software, in particular, evolved over this time is that it began to take on features that hadn't existed in previous generations of software: Monte Carlo simulations, stress testing, collaborative presentation tools, client portals, budgeting and expense tracking supported by account aggregation, and on and on.
Which meant that planning became increasingly more comprehensive not only by the use of holistic, cash flow-based software instead of narrower, goals-based tools; it also began to include more components beyond the linear cash flow projections that had made up the traditional core of a financial plan. Successive generations of software enabled new forms of analysis to allow for consideration of market and sequence of return risk, more ability to incorporate client feedback into the plan during meetings, and ways to monitor the client’s financial status during the multi-month gap in between client meetings. In other words, technology was no longer about making financial plans any faster or simpler to create – it was about making financial plans (and financial planning) deeper, more comprehensive, and better.
Of course, the reason that financial planning software shifted in the direction of more and deeper planning capabilities was that there was a market for it among the advisors who bought the software. When technology allowed advisors the choice between becoming faster (i.e., serving more clients by taking less time to do the same amount of work for each client) or better (by offering deeper and more comprehensive planning while serving the same number of, or even fewer, clients), advisors overwhelmingly chose the latter.
In the late 2010s and continuing into the early 2020s, financial planning software providers keyed in on this demand for broader and deeper planning tools and regularly rolled out new features to add to advisors’ planning toolkits. Such platforms (particularly eMoney and RightCapital) achieved high satisfaction among advisors and also saw the biggest gains in adoption, at least according to the 2022 Kitces Research Study on the Financial Planning Process.
As the chart below shows, usage of eMoney rose from 35% of advisors in 2018 to 39% in 2022 and RightCapital rose from 10% to 23%, while over the same time period the older generation of providers including MoneyGuide, NaviPlan, and MoneyTree all lost market share. (Orion Planning’s small boost from 2% to 4% likely has to do with the fact that in 2018 it was a standalone piece of software called Advizr before Orion acquired it in 2019 and began offering it for free to the users of its all-in-one software.)
Comprehensive Planning Tools Lead To Revenue Growth Without The Client Acquisition Costs
For advisors, the main attraction of going the better-and-not-faster route was that it was a more enticing business proposition for themselves and their firms. Financial planning is difficult to scale, and that difficulty increases the more in-depth the planning is. However, even a more streamlined planning process that allows for oodles of clients still requires those clients to come from someplace – they don’t just appear as soon as the advisor has capacity for them.
An advisor who wanted to use technological improvements to serve more clients would need to invest in marketing and business development to find those additional clients, and the cost of acquiring clients (both in terms of financial investments and the advisor’s own time spent marketing and meeting with prospects) could eat up any gains in time or revenue that the advisor stood to realize. It might be possible to do a higher-volume, lighter-planning approach with an efficient marketing funnel and high client retention rates, but as the struggles of robo-advisors over the last decade have shown, using technology to scale up is a harder road to travel than it might seem because of the sheer cost and other challenges of attracting a high volume of clients in the first place.
Alternatively, if an advisor instead uses their time savings from technology to improve the planning experience while serving roughly the same number of clients as before, they can charge higher fees (either by increasing their fee schedule, or using the same AUM fee schedule but working with more affluent clients who have larger account balances and therefore pay higher fees) for the extra value they're providing. Which means they can realize the same (if not a larger) boost in revenue as if they had decided to simply serve more clients, without the marketing investment required to find more and more clients to fill their capacity.
Looking at the same InvestmentNews/Moss Adams benchmarking data from the last 10 years as above, it's clear that as technology has streamlined advisors’ core processes, they have used the resulting time savings not to serve more clients overall, but to go upmarket with higher-value planning and commensurately higher revenue per client.
As noted in the graphic earlier, the median advisory firm’s number of clients served per professional has decreased from 80 in 2011 to 73 in 2021; however, as the image below shows, the median revenue per client over that same time increased from $5,700 to $9,800 – a cumulative increase of 72%, compared with just a 25% increase in the Consumer Price Increase over the same time period.
It's likely that at least some of that jump in per-client revenue is due to market growth that increased assets under management (and AUM fees). However, earning the ability to retain those assets and benefit from that market growth (as well as future market growth) without losing them to the lower-cost robo-advisors required human advisors to provide a better planning experience than the robos could.
How The Next Generation Of Financial Planning Software Is Continuing The Trend Of More Comprehensive Planning Services
The trend of providing increasingly comprehensive plans has only continued going into the 2020s. The latest Kitces Research on the Financial Planning Process saw a boost of 19 percentage points in the number of advisors giving "extensive" plans covering 13 or more different planning topics, alongside declines in the number of advisors giving "broad", "narrow", and "targeted" plans of 12%, 5%, and 2%, respectively, when comparing 2022 and 2020 survey results as shown below.
At the same time that advisors' plans have been expanding in depth and breadth, a new generation of planning technology has arisen that is specifically geared not towards streamlining advisors' existing processes, but instead to facilitating planning and advice capabilities that advisors largely weren't already doing. If the earlier iterations of advisor technology were about saving time on core functions so advisors could focus on more holistic planning, the fastest-growing part of the industry today is in tools that aim to actually facilitate that holistic planning experience.
AdvisorTech Solutions Map Offers Insights Into Trending Financial Planning Categories
Trends in AdvisorTech can be difficult to quantify given the ever-shifting nature of the industry, but one way of doing so is by looking at the evolution of the Kitces AdvisorTech Solutions Map, which debuted in April 2018 and has been updated monthly to reflect the ongoing changes in the AdvisorTech landscape. While the map may not represent a definitive listing of every single technology solution in existence, it's one of the most comprehensive inventories we have of the tools advisors can use in their practice. An analysis of how the map has changed over time can provide insights into how technology has evolved along with the makeup and techniques for advice itself.
Below, for comparison, are the respective maps from September 2018 and September 2023, representing 5 years of evolution in AdvisorTech:
The most obvious distinction between 2018 and 2023 is simply how much more crowded the map is today. In September 2018, 230 solutions were included on the map, while in 2023, that number has risen to 438 – a 90% increase! Which actually understates the number of actual new solutions that have come along in the last 5 years because the 90% increase is net of any tools that have dropped off the map over time due to acquisition, consolidation, or attrition. In numerical terms, it’s likely that well over 200 new AdvisorTech solutions have come on the market over the last 5 years.
But it gets more interesting when looking at where specifically that growth has occurred since 2018.
How AdvisorTech Tools Have Supported Faster Vs Better Planning
Although many tools have come and gone from the AdvisorTech Map in the last 5 years, the categories used to group the different tools by functionality have remained fairly consistent, save for a few instances where a category has grown into multiple directions to the extent that it made sense to branch off into a new category (as when the "Planning Light" category grew out of the "Financial Planning" category), or conversely when categories shrank or their functions evolved over time (such as B2B robo-advisors, which eventually became the Digital Onboarding category). Looking at how different categories have grown (or shrunk) over the past 5 years can help reveal where software providers have (or have not) focused their new offerings, based on the opportunity they see in each space.
In that vein, one way to divvy up the AdvisorTech map for comparison between 2018 and 2023 is to look at the different categories in terms of whether they are predominantly about doing work faster or doing it better. Tools that are about speed and efficiency aim to take a task that advisors are already doing and reduce the time and effort needed to do that task, whereas those that focus on doing better work add either new dimensions to an advisor’s planning processes, as described above regarding financial planning software, or else add new services or job functions that weren't (or were only minimally) present before, like the new generation of marketing and business development software.
These distinctions between "faster" and "better" are admittedly subjective, and all of the tools under each category might not sort neatly into "faster" or "better" labels. But the following is one attempt at assigning every category on the 2018 and 2023 maps (most of which are found on both maps, but some are only found on 1 or the other as categories were added, removed, or combined over the years) a role of helping advisors do work faster (the green category) or better (the blue category).
The first observation here is that nearly every category under the Operations and Investment Management domains falls under the "Faster" (green) label. Which makes sense, given that operations have always been about efficiency and reducing the need for back-office staff, while the gradual commoditization of investment management – first through advisors’ migration to low-fee mutual funds, and further by the rise of robo-advisors that digitized and automated much of the process of client account opening, money movement, and portfolio management – has incentivized advisors to reduce the time and cost of managing client portfolios through technology.
By contrast, most of the categories in the General Financial Planning, Specialized Financial Planning, Client Engagement, and Marketing/Business Development domains are under the "Better" label: tools that facilitated brand-new functions and filled in the gaps that remained when advisors streamlined their operations and investment management processes.
As described above, advisors have expanded their financial planning capabilities beyond the standard projections that traditional financial planning software provided, providing deeper planning on a broader number of topics to create a higher-value planning experience. At the same time, advisors hoping to maintain and build on their ongoing client relationships have also sought ways to keep clients engaged throughout the planning process and during the gaps between financial planning meetings, seeking to prove their year-round value to justify their ongoing fees.
Again, advisors may have been doing some of these things prior to the last decade, but since the beginning of the robo advisor era, the extent to which they have expanded their planning capabilities, and have sought to maintain almost a continuous connection with their clients over the course of the year, has been like nothing seen before it.
In that context, what's really striking about the evolution of the AdvisorTech map over the last 5 years – but given the evolution of the advice industry itself, not totally surprising – is how the relative proportions of 'better' and 'faster' tools have changed in that time. While 'better' tools made up 27% of the map in 2018, by 2023 they represented 52%, going from just over a quarter of the solutions on the map to over half in 5 years' time. Or put in terms of raw numbers, while the number of 'faster' tools increased healthily from 173 to 229 (a 32% increase) between 2018 and 2023, the number of new ‘better’ tools absolutely swamped the 'faster' tools, growing from 57 to 209 (a 267% increase)!
It's clear that the demand for broader and deeper planning solutions was heard by entrepreneurial software providers, who saw the gaps in functionalities that the existing platforms couldn't keep up with and stepped in to build standalone solutions for in-depth planning on topics ranging from retirement and estate planning to equity compensation, student loans, Medicare planning, and beyond. They also heard the demand for tools that would help advisors provide year-round client engagement at scale, all while seeking to ever more effectively target their ideal clients in their marketing strategies.
So the fastest growing categories on the map both reflect and reinforce the idea that advisors are looking to provide more and more value, which won't necessarily lead to more clients for any one advisor (as mentioned earlier); however, delivering higher value services can allow advisory firms to grow and scale up by increasing fees and even engaging more affluent clients, ultimately resulting in more revenue and profits for the firm as a result of leveraging both the 'faster' software that made up the core of the traditional advisor tech stack and the 'better' software that has come to fill in around it.
What The Rise Of 'Better' Software Options Mean For Advisors
The explosion of software options over the last 5 years that allow advisors to do better work for their clients has 2 primary implications. First, advisors today who are looking to provide high-value planning services – whether that's in the form of doing super-deep planning with a specific niche focus or (as implied by the Kitces Research findings on the increase of advisors giving "Extensive" plans) providing increasingly comprehensive planning in numerous topics – have never had a wider range of planning tools to choose from. There are endless combinations of how advisors could structure their services and the technology stacks that support them, making it far easier for advisors to differentiate themselves than when fewer such options were available and most advisors offered comparatively similar services.
But the other key implication of the rise of 'better' software is that there are now so many ‘better’ tools to choose from that no advisor can possibly adopt them all. This is especially true because each new tool that an advisor adopts to facilitate broader or deeper planning is more likely to increase the amount of time needed to serve each client, rather than saving them any time. At some point, the burden of managing so many different planning tools (not to mention the challenges of getting them all to work in coordination with each other) outweighs the value of providing all those extra planning services to clients. (And notably, it isn't even certain that continuing to increase the scope and breadth of financial planning beyond a certain level will actually pay off in terms of higher fees, which lowers the value proposition for each additional tool used to facilitate more planning.)
It’s important, therefore, for advisors to be intentional about which technology they adopt, and to evaluate a particular tool's potential benefits against the cost in time and dollars that it requires. For example, advisors may realistically only have room for 2 to 3 specialized planning tools on top of their traditional financial planning software, meaning that they must decide which 2 or 3 tools represent the best opportunity to enhance the value they bring to their clients. That’s likely an easier decision for advisors with a specific niche focus or a highly defined client service model than those who don’t, since the former group probably has more similar needs across their client base and can more easily see the gaps that a specific piece of software could address.
Advisors are bombarded daily with pitches for new tools promising more in-depth planning, better client engagement, and the ability for the advisor to effortlessly demonstrate their value to current and prospective clients, but the reality is that not every tool is the right choice for every advisor. It simply isn’t possible to know which tool is the right one until it’s clear how it will augment the advisor's value enough to be worth the cost.
Which ultimately makes it all the more important for advisors to dig deep and think about what value they want to provide to their clients before technology even enters the picture. Is it a retirement with the peace of mind that they will be able to maintain their current quality of life without the fear of depleting their savings? Is it being able to provide their kids with a good education with minimal debt without sacrificing their ability to save for their own future? Is it sorting through the particular tax and liability issues around owning a business so they can sleep at night while focusing on the work they're passionate about during the day?
By viewing their work through the lens of what they do to provide value for their clients, advisors can have an easier time deciding on which tools can actually enhance that work, and which ones – though perhaps perfect for some other advisor – would only create more work than the value they create.
The promise of technology since the earliest days of financial planning has been to help advisors better leverage their time into more revenue. But over time, the way that AdvisorTech has fulfilled that promise has evolved from simply allowing advisors to serve more clients to expanding the ways for them to do more for their existing clients.
The choice of options that this evolution has created for advisors is undoubtedly a good thing, since it gives advisors nearly unlimited ways to differentiate themselves and define their unique value proposition. Although it remains to be seen just how many different software options the market can support, there hasn't been any sign of slowing down yet – but ultimately each new solution, like the HP-12C and everything that came afterward, is just a tool to support the advisor’s ‘real’ work of creating a great planning experience for their clients.