If you're in the financial services industry, financial planning should be the center of your practice, and with it you'll need a technology solution. But is the right purveyor of this solution… a product provider? This is a question that advisers should ask themselves. Our CEO, David Kaufman, wonders, "Are you truly independent if you're dependent on a product provider for technology solutions?"
Vanguard and Schwab provide their technology to advisers. Fidelity owns solutions company eMoney. And Startups like Betterment and WealthFront provide their technology directly to advisers.
While every adviser needs to have technology solutions, they need to go beyond provider software to truly remain independent. There are a few reasons why.
If a product provider is selling their own technology, it makes sense for them to prioritize buying and selling their products first. Of course, this may not be advantageous for the client. Advisers should select products after they create their clients' plans, not vice versa, and should at least have the potential to be diverse.
But most importantly, if an independent adviser is using provider software, are they okay with the implicit biases in using the transaction platform? In the UK, advisers must act in the best interests of their clients, in fact, advisers must shop around for the best transaction platform for each individual client and use several providers if necessary. In the US, platform shopping is not a norm, but a general fiduciary duty is creeping toward becoming the industry norm. Do biased solutions meet advisers' own standards and regulatory expectations?
"When you choose a platform, you have the responsibility to make sure that platform isn't biasing you to a set of pricing," Kaufman points out. "I can't imagine someone spends hundreds of millions of dollars to own a technology solution that won't promote products that are more favorable to the parent company."
Indeed, the mere act of product providers integrating with some solutions and not others means advisers are already receiving biased software. Available integrations will most likely benefit the parent organization - not the adviser, or the client.
A large product provider can certainly create its own tech. But here's the thing: the quality of the technology will never come before the company's success as a product provider. That's not to say a large company can't do many things well. A car dealership might serve delicious donuts. But their business is not in donuts, it's in cars.
For financial technology to scale and succeed in its own right, it should probably come from a technology company. Again, this isn't a hard and fast rule, it's just following logic.
Selling technology that's suitable in the moment is one thing, but software needs constant attention. Advisers must consider that product providers won't be watching their solutions with the critical eye of technology company. What happens when the parent provider of the financial solution decides it's not profitable to add the changes advisers need? Will they be able to move as nimbly to fix bugs and keep technological operations sharp? By relying on a product provider, advisers may be left with dated technology.
As more financial companies race to put out B2B financial solutions, it will be interesting to see who eventually ends up leaning on third party tech to get the job done. Because, as Kaufman puts it, "When you're receiving technology from a provider, you have to assume there are strings attached."
