Choosing what technology to first adopt as a solo advisor can be a challenge, particularly for those who are not technology-inclined in the first place. In addition to being solely responsible for making the decision, solo advisors now have to choose from an ever-expanding universe of options, as while 10 years ago the primary criticism for both independent RIAs and independent broker-dealers was that there just weren’t many technology choices, now arguably the problem is that there are so many choices it can be overwhelming to figure out what to even use in each category! Not to mention figuring out which category or type of software to tackle and try to adopt first!
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the best technology to adopt first as a solo advisor, and why a key factor in that decision is whether you are trying to grow a large advisory business or operate an efficient lifestyle practice to begin with.
The first question to ask yourself when trying to determine what technology you should adopt first is what kind of firm you are really trying to create. At a high level, you can break advisory firms into two categories: Practices and Businesses. A practice is built around you as the advisor and the founder and the owner, and the capacity of the business is your personal capacity (perhaps with a few support staff) to serve clients. By contrast, an advisory business is something that’s meant to grow beyond just you as the advisor and your personal capacity to serve clients, where you anticipate having multiple advisors and potentially multiple partners someday. This distinction isn’t necessarily about income or financial wherewithal to buy fancy technology versus cheaper technology (as benchmarking studies show the most successful solo practice owners take home as much as partners in advisory businesses); instead, the distinction is important because advisory businesses tend to be most focused on scalability (as they most grow from one to many advisors and handle the challenges that come with that), while practices tend to be most focused on personal efficiency (particularly time efficiency) of the firm owner.
With that in mind, the technology that growing advisory firms must adopt first is straightforward: a good CRM solution. In a growing advisory firm, the CRM is the hub of the entire business. Not just to keep track of clients like a big rolodex, but to track tasks and activities, and workflows to ensure that everything is being done properly. This isn’t as important when a firm is just a solo advisor, but when you hire your first staff member, suddenly a CRM system becomes more important. And it really becomes important when you add your second staff member, as there are more process hand-offs between staff members, and the odds that someone has a conversation with the client that neither of the two other team members is privy to increases substantially. Fortunately, for independent advisors, there are a few good CRM options. Wealthbox and Redtail are common among solo advisors, while very process-centric firms may use Junxure. You hear a lot about Salesforce in this category too, but it’s fairly expensive and really needs a lot of customization (or at least an overly system like XLR7, Skience, or Financial Services Cloud) before it is a viable option, which makes it impractical for most smaller advisory firms.
When it comes to a lifestyle practice, the best technology to adopt isn’t so straightforward, because it really depends on the size and nature of the firm. If you have a staff member (and especially if you have two staff members), CRM is a “must” once again. You still need someplace to capture key client information, but you may be able to get by using some other system. And because lifestyle practices are so a reflection of the individual advisor and what they do, the “best” technology for you is really whatever solves a pain point for you. If you don’t like how much time it takes to trade and implement their portfolios, consider rebalancing software (e.g., RedBlack or iRebal). If you’re finding it takes a lot of time to produce individual financial plans by hand, look at some of the various financial planning software solutions (e.g., eMoney Advisor, MoneyGuidePro, or RightCapital). And for a lot of solo advisors in lifestyle practices, the truth is that the best technology to implement is not “industry” software, but simply tools that make you personally more productive and efficient, such as a better internal communication tool (e.g., Slack) or scheduling software to cut down on back-and-forth emails setting meeting times with clients.
But ultimately, the key point is to acknowledge that the best software to adopt first as a solo advisor really depends on what type of firm you are trying to grow. The needs of a solo advisor aiming to grow an advisory business are going to be different than the needs of a solo advisor aiming to grow a lifestyle practice (and among lifestyle practices, needs are going to vary depending on the specific advisor and their preferences for gaining personal efficiency). You can go about the process of prioritizing yourself or look to technology consultants for assistance (either in choosing technology, or implementing it), but the reality is that your practice can be tremendously more efficient by just implementing the right technology!