InvestmentNews 2015 Adviser Technology

StudyTop-line Results and Key Findings

Study Overview• Survey fielded from November 20, 2014 – January 12, 2015

• Responses from over 300 firms

• Requested top-line financials for 2013 and estimated 2014

• Seeks to identify how financial advisers align their technology needs and investments with their firm goals.

• Benchmarks the practices of the best-performing firms, as well as among those with the most innovative use of technology

Participating Firms: Affiliations and Service modelsThe 2015 study is InvestmentNews Research’s third adviser technology benchmarking survey. The first iteration, published in 2011, looked exclusively at the RIA channel. In 2013, the survey was opened up to the broker-dealer population.

RIA IBD Dually Registered

64.4%

11.7%

23.9%

Financial planning Investment advisoryInvestment management Wealth management

61.9%

16.0%

10.0%

12.1%

Participating Firm Financials(values are averages) 2013 2014 % change

AUM $331,412,116 $374,121,217 12.9%

Revenue $1,959,902 $2,306,977 17.7%

No. of Clients 544 627 15.3%

Professionals - 4.0 -

Total Staff - 9.0 -

Total Technology Spending $66,289 $80,507 22.4%

Total Operating Expenses $1,025,444 $1,150,571 12.2%

Tech Spend as % of Revenue 4.2% 4.2% -

Tech Spend as % of Expenses 9.6% 9.8% -

Operating Profit Margin 46.4% 49.0% -

Revenue per Staff - $248,222 -

Revenue per Professional - $714,409 -

Source: InvestmentNews 2015 Adviser Compensation & Staffing Study

Common-Size Income StatementValue Amount % of Revenue % of Overhead

Total Revenue $3,241,255 100.0% -

Total Direct Expense $1,297,141 40.0%

GROSS PROFIT $1,944,115 60.0% -

Staffing Expenses $570,686 17.6% 49.7%

Occupancy Cost (Rent, Utilities, etc.) $108,531 3.3% 9.4%

Technology Cost $79,971 2.5% 7.0%

Marketing and Business Development $64,142 2.0% 5.6%

Professional Services $61,024 1.9% 5.3%

Office Expenses $47,435 1.5% 4.1%

Travel $30,994 1.0% 2.7%

Other Expenses (Taxes, Licenses etc.) $186,732 5.8% 16.2%

Total Overhead Expenses $1,149,379 35.5% 100.0%

OPERATING INCOME $794,736 24.5% -

Sharp uptick in Technology SpendingAdvisory firms raised their technology spending 22.5% in 2014. While overhead grew by 12.2%, technology spending grew twice as fast as overall operating expenses, making it likely among the fastest growing expenses in 2014 for most firms.

2013 2014$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$66,291

$80,613

Total Tech Spend

Software Technology-related consulting or out-

sourcing

All other technology expenses

Hardware$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

-5.0%

15.0%

35.0%

55.0%

75.0%

95.0%

$32,985

$17,784

$4,771

$10,751

$38,666

$21,280

$9,822$10,84417.2% 19.7%

105.9%

0.9%

2013 2014 % Change

2015 Tech Spending OutlookOver half of advisory firms anticipate increasing the amount they spend on technology in 2015 – just 6% said they would decrease. In 2013, 50% of participants said they would increase spending, and 9% said they would decrease.

In which areas do you plan to invest? Average Ranking

Software 1.6

Hardware 2.8

Technology training 2.8

IT consulting or outsourcing 2.9

55%

6%

39%We will increase spendingWe will decrease spendingWe will keep spending the same

Technology investments: Top considerations “Expected benefit to client” gained significant ground as a response to this question, up from 22% in our 2013 survey.

Expected cost

More time to focus on business development activities

Increased profitability

Expected benefit to staff

Expected benefit to client

Productivity gains

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

3%

5%

6%

6%

33%

45%

Client Experience or Productivity Gains?Invest to reap Expected Benefit to Client Invest to boost Productivity Gains

Increased their tech spend by 53% year-over-year, and are more likely to increase spending in 2015 (59%)

Increased their tech spend at a slower rate (12%) year-over-year, and are less likely to spend more in 2015 (48% said they plan to increase tech budget)

Less likely to rely on partners for technology investment decisions (69%) Rely more heavily on firm partners (81%), rather than committees, dedicated staff, or outsiders to make tech decisions

Increasing capacity more likely to enact change in tech systems Improving workflows much more likely to prompt firms to consider a change in tech systems

Far more likely to weigh client satisfaction when evaluating tech (21% vs. 2%) and integration (14% vs. 1%)

More likely to weigh productivity measures (33% vs. 22%)

Has fewer software solutions, but is more likely to access them all regularly (at least 1/week) from a mobile device.

Has more software solutions, integrated software and mobile applications.

More likely to have fully automated integration between software systems (30% vs. 20%)

Is less likely to have fully automated integration.

More likely to offer robo-advice now (6%) or plan to in the future (12%) Much less likely to offer robo-advice now (1%) or in the future (7%)

Have bigger clients (average AUM of $5M) Have smaller clients (average AUM of $1.5M)

Questions to consider:

Where is your firm in its technology lifecycle?

What are your primary firm-wide objectives?

How will your plan to increase/decrease technology spending change in the coming

years?

Technology & Staffing - Consultants are now the leading source of tech support services, a shift from two years ago, when “knowledgeable staff” was the most popular response. - When it comes to decision-making, however, firm management retains tight control, with 90% of firms saying partners or partner-led committees are the primary decision-maker for technology investments.

0.0%

10.0%

20.0%

30.0%

40.0% 37.1%30.9%

21.1%

7.2%

Primary source for installation, implementation, training and support

Partners

or dedica

ted management s

uch as C

EO, COO

Committee (multiple departm

ents)

Dedicated IT

staff

Consultant(s

) or t

hird parti

es0.0%

10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0% 78.9%

10.8%3.1% 2.1%

Decision-maker regarding technology investments

Software solutions usedThe popularity of software solutions has only increased, with all but two product categories showing strong increases in overall usage among our current study sample vs. our 2013 study – Portfolio Rebalancing software in particular saw a massive spike in use, up to 54% of advisers using, from 37%. The average participant in our study utilizes 5 (4.6) software solutions at their firm – up from 4 (4.2) in our 2013 study.

Compliance

Portfolio

rebalancin

g

Document m

anagement

Account a

ggregation

Portfolio

management

Financia

l planning

CRM0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

30.3%36.9%

62.5%53.3%

66.6%75.7%

85.5%

28.6%

53.7%58.6% 62.1%

74.9%80.6%

89.9%

2013 2015

Product Satisfaction

Portfolio management

Compliance

Account aggregation

Document management

CRM

Portfolio rebalancing

Financial planning

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

3.7

3.8

3.9

3.9

3.9

4.0

4.2

5 = Very satisfied4 = Satisfied3 = Indifferent2 = Dissatisfied1 = Very dissatisfied

How do you envision technology-driven growth taking place at your firm?

Fully utilizing my firm’s currently technology

Investing in new and emerging technologies

Technology will not play a significant role in my firm’s ability to grow

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

55.6%

26.5%

18.0%

Which of the following would be the most critical to achieving your goals for growth?

Section IIITechnology challenges

Integration remains elusive21% of respondents say that they’re systems are fully integrated, up slightly from 2013, when 19% of participants said the same. 53% have some level of integration, and 26% report zero integrated systems.

*respondents could select all choices that apply

Improved response times with clients

Increased accuracy

Improved client satisfaction

Reduced manual input time

Improved productivity in general

Greater efficiency of our process

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

2.3%

5.2%

5.2%

10.5%

18.0%

56.4%

What is your primary reason for integrating systems?

Inability to get real-time data feeds

Lack of support from our custodian or broker-dealer

Can’t keep up with the pace of new technology

Low return on investment

Lack of software vendor support

Lack of internal resources for investing in, and maintaining, a solution

One or more systems that we would like to integrate are currently manual

Unable to identify an appropriate solution

Insufficient staff time for developing a plan or implementing fully integrated systems

0.0% 10.0% 20.0% 30.0% 40.0%

7.0%

10.7%

11.8%

12.8%

16.6%

17.6%

26.2%

27.8%

38.0%

What are the main obstacles limiting integration?*

Does your firm have a mobile strategy?

Yes No Not sure0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

25.4%

68.1%

6.5%

Does your firm have a mobile strategy in place for more effectively using smartphone and tablet technologies over the next 1-3 years?

Mobile & Cloud: changing the face of advice• 73% utilize the cloud• 56% of firms have a mobile-accessible client-facing portal• 82% of respondents use a tablet, up from 62% in 2013.• 45% access core applications via their mobile device, up from 43% in

2013.• 69% access their CRM via mobile application, most of all core apps• 38% said improved client communications will rival enhanced productivity

(40%) for having the most significant impact as a result of mobile usage over next 1-2 years. (just 24% said same of client communications in 2013)

Section IVTop Performers and Innovators

Proof Points: Top PerformersAt firms that rated highest in adviser and staff productivity, profit margins, and levels of product integration, technology is an established means of improving efficiency and adding value for clients.

• Believe fully utilizing tech will be critical to achieving growth (69% vs. 51%), and only 7% (vs. 22% of all others) say tech will NOT play a significant role in firm growth.

• Top Performers more likely to increase their tech spend in the coming year – and much less likely (2% vs. 7%) to decrease.

• Top Performers are more likely to evaluate their firm technology based on efficiency than all others.

• Advisers at top performers spend 85% of their time on “core” activities, versus 73% for all others.

• Not a single Top Performer cited cost as a primary concern when investing in technology.

• Top Performers are overwhelmingly more likely to have a mobile strategy in place at their firm (38% vs. 21%)

0.0%

20.0%

40.0%

60.0%

80.0% 68.9%

24.4%6.7%

51.4%

27.1% 21.5%

Which of the following would be most critical to achieving your goals for growth?

Top Performers All Others

Proof Points: the InnovatorsInnovators are firms who use the most software, mobile and cloud solutions, have the most integrated technology systems, and have an expressed mission to embrace new technology. These are our innovators: firms with the deepest commitment to leveraging adviser technology, and they experienced nearly twice the growth of all others in 2014, increasing their revenue by 36% in 2014 (all others grew revenue by 19%).

• Spent 5.5% of revenue on technology (all others: 3.9%)

• Achieve higher profit margins – 48% vs. 45%

• Generally have smaller clients ($1M vs. $3M in AUM), but post equal or better productivity ratios in Rev. per Staff and Rev. per Professional

• Their advisers have more time for core activities (81% vs. 73% of their time spend)

• Are much more likely to invest in technology training than all others

• Are much more likely to evaluate their current technology twice per year or more (62%) than all others (39%)

Compliance

Document management

Portfolio rebalancing

Account aggregation

Portfolio management

Financial planning

CRM

0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0%

21.1%

51.4%

43.0%

52.1%

71.8%

78.9%

90.1%

54.0%

74.0%

88.0%

96.0%

96.0%

98.0%

100.0%

Software Solutions Used

Innovators All Others