Last month, Motif Investing, a tech-enabled thematic investing platform catering to both registered investment advisors and individuals, announced that it was shutting its doors. The decision shocked many industry watchers, especially considering the staggering amount of money Motif had raised in recent years.
Since then, it has emerged that the company’s intellectual property and other various assets will be acquired by other businesses, and for investors, Motif’s fate will likely have a negligible impact. Indeed, in this era of financial services consolidation, this is probably not the first time an account has ended up in the hands of another company. And without providing commentary on whether that should happen as often as it does, it looks like former Motif users could get some cost savings out of it.
For RIAs, however, the disruptions caused by this sort of announcement are more significant. Anytime assets switch hands, it represents yet another piece to manage in an increasingly complex technology puzzle. Finding the right technology, in fact, is often a top pain point for RIAs and family offices.
Such firms need to streamline and scale up any number of crucial tasks, including everything from creating investment policy statements to conducting risk management. Yet after all these years, it's still tough to find a single, integrated offering that can do everything they need and, more importantly, do it well.
The Perils of Add-Ons
To that end, there are any number of longtime players that have mastered one and sometimes two or three important functions. But in trying to demonstrate that they have an end-to-end solution capable of serving every advisor need, many will roll out new capabilities (e.g., an established risk management provider launching a trading and rebalancing tool).
In theory, there's nothing wrong with that. Every company, no matter the industry, should try to continually improve.
What often happens in these instances, however, is that the new additions end up being inadequate—which is hardly surprising since they typically fall outside the company's core competency. That's the danger of swim-lane hopping: Firms end up with technology that's great in a couple of areas but just OK in others.
RIA and family office executives are busy people, and the business challenges created by the COVID-19 outbreak put even more strain on their time. Normally, most tend to focus on tasks they are good at and which generate revenue, like meeting with clients and pursuing growth opportunities.
Overall, conducting due diligence on technology providers and trying to figure out how each one fits together falls into neither category. While many executives have exceptional business and relationship-building skills, they are not fintech specialists.
So, what happens? Firms wind up with patchwork solutions that are neither easy to work with nor intuitive. Or they hire someone to oversee and manage their technology stack—which is self-defeating because one of the rationales for investing in technology in the first place is to reduce open-ended spending on internal resources.
Contracts are another major issue associated with having multiple technology providers. No two agreements will have the same terms, nor will they expire at the same time. Managing these details can create significant burdens for firm leaders because once they get through negotiating with one provider, it could be time to engage with another one.
This dynamic also increases the chance that firms could have obsolete or antiquated support. Indeed, what happens if after signing a long-term agreement with a service, one of their competitors introduces a much better offering?
Add it all up and an integrated, advisor-facing solution is not only more intuitive, efficient and easier to use, but it also increases the likelihood that firms have access to the latest bells and whistles.
Build From the Ground Up
Sometimes when people go looking for a house, they can't find one that has everything they want. It may have a pool but not enough bedrooms. Or it has a home office, but the kitchen is too small.
In these instances, buyers will often settle and try to make the best of it, believing that they can easily build an extra bedroom or knock down a wall to create a bigger space. But this approach often fails to produce the desired outcome, with the additions not meshing well with the rest of the home. There's little flow, and no two rooms feel connected.
That same thing happens when advisory firms try to cobble together a tech stack from multiple providers. And it’s why building from the ground up is typically the best way for RIAs and family offices to ensure integration, streamline operations and improve productivity.
A ‘Frankenstein’ tech stack made up of disparate add-ons will always have drawbacks, especially during periods of significant market disruption, as we’re seeing now, when wealth advisory firms are under more pressure than ever before to significantly elevate the client service experience and align the multiple parts of their tech stack to operate smoothly and seamlessly.
Kian Rafia is managing director, head of U.S. distribution for d1g1t (www.d1g1t.com), a Toronto-based enterprise wealth management platform powered by institutional-grade analytics and risk management tools.