By Kyle Hiatt
When it comes to fintech, keeping up with the latest innovations is difficult enough for advisors without having to filter through false claims. Unfortunately, such tactics have become increasingly prevalent. This article addresses some of the more common questionable practices so advisors can become better educated and make smarter purchasing decisions.
Practice No. 1: Providing misleading information about the number of advisors or types of firms utilizing a given service, or the amount of AUM tied to it
Let’s say a company offers both trading software and a portfolio accounting solution. But when promoting one of the platforms, the firm provides inflated user or AUM figures that are really a combination of both services. Additionally, some vendors may promote the “average size” of a firm utilizing their platform, although this number can be greatly inflated by a single firm that’s much larger than other clients.
Advisor takeaway: When evaluating the claims of fintech vendors, ask how many advisors and assets are on the specific platform being discussed, rather than tied to a subsidiary, sister or parent company. If the company has no such affiliations, ask how many advisors and assets are involved with the full suite of services being promoted, compared to the features you’re considering. Go beyond the average size of a firm utilizing the platform and inquire about the median size instead. This will likely provide a more accurate picture of the clients that have contracted with the vendor.
Practice No. 2: Offering dynamic presentations at conferences about features or services that aren’t close to being available yet
When trying to draw attention at a conference exhibit hall, some firms might present an eye-catching mockup or screenshot of a service they supposedly offer. But in reality, it’s still early in development and could be more than six months away from launching. Although conference attendees might assume any demonstrated feature is live, that isn’t necessarily the case.
Advisor takeaway: When you see an appealing new software feature promoted at a conference, ask whether it’s currently available. If the representative says no, ask when it will be. I believe it’s misleading to demonstrate any feature that isn’t live or at least in beta testing with a planned launch during the next six months.
Practice No. 3: Declaring a software program can “convert data” without providing sufficient details about what the conversion process entails
For example, some firms only convert stored performance numbers rather than all of the transactional data from a legacy system. This method is faster and cheaper but has drawbacks. Without transactional data, advisors are limited to a subset of information that inhibits the granularity of reporting they can conduct.
Advisor takeaway: When a company claims its product can convert data, ask: “What do you mean by that? How many conversions have you done from a system like mine? Can I talk to clients that have already gone through the process and are similar in size and scope to my firm?”
Practice No. 4: Promoting the quality of technical service and support without mentioning associated limits and additional costs
Many vendors talk about the comprehensive technical service and support they provide. What they sometimes fail to mention initially is a cap on the number of hours a client can receive support via phone, email or chat without being charged additional fees. Prospective clients may not find out about this limit until it becomes an unpleasant surprise as they review proposed contract details.
Advisor takeaway: Be as specific as possible when discussing the service and support provided by a vendor. Don’t be so focused on the qualitative aspects of the service that you forget to ask if it entails any limits or additional charges.
Practice No. 5: Touting system security measures without clarifying that data is sent and stored offshore
Anytime a company transmits or stores data internationally, an abundance of complications can ensue. In moving between countries, data may become more susceptible to security breaches. Restitution to a client in the case of an offshore breach could end up in the hands of foreign legal systems.
Advisor takeaway: Specifically ask vendors where your data would be stored and sent, particularly if there’s any offshore element to the process. You want to know all the associated risks up front before committing to a product. Prospective clients should become very cognizant of the cybersecurity coverage provided by their insurance policies if they consider a vendor that transmits or stores data internationally.
Details lead to better decisions
It’s natural to be excited about the possibilities offered by advancing technology. The danger lies in becoming so entranced by your vision of what a new system could be that you don’t adequately explore its true capabilities. Take a step back and focus on the steak, not just the sizzle. Thoroughly analyze each system you’re considering, conduct due diligence and ask detailed questions in order to see the whole picture of what you’d be purchasing.
Kyle Hiatt is the executive vice president of business development at Orion Advisor Services.