See Table of Contents for Tiburon's Financial Advisor Technology Research Report

Tiburon Strategic Advisors, a market research & strategy consulting firm serving a wide variety of financial institutions and investment managers, is pleased to announce the release of its new research report on Financial Advisor Technology. This research release summarizes some of the report's key findings.

The purpose of this report is to provide readers with an initial understanding of financial advisor technology & outsourcing strategies, including sales enabling technology, financial planning technology, asset allocation technology, trade order management systems, data & research services, data download technology, portfolio management technology, account aggregation technology, contact management systems, & financial advisor workstations. The report begins by addressing the four phases of technology evolution in the investment advice market. This historical account is followed by a category-by-category description of current technologies and their related issues. The report concludes with Tiburon’s predictions for the future evolution of financial advisor technology. This is the third draft of Tiburon’s research on this topic.

Tiburon’s first draft of this report was published in 2006; that draft consolidated prior Tiburon research into one report.

Tiburon’s second draft of this report was published in 2008; that draft reorganized the report to better integrate with Tiburon’s equally thorough online tools & advice report, acknowledging the increasing overlapping nature of traditional software products and new online tools.

This is Tiburon's third draft of this report.

Key Findings
This report has a long list of interesting facts to share:

Market History

  • Between 1995 and 2000, the internet penetration in the United States tripled from less than 15% to almost half of households
  • Personal computers began outselling televisions in 1995
  • Full-service brokerages enter the online world in 1997
  • America was clearly the internet growth leader, with its near 50% penetration in 2000 dwarfing those of other countries
  • Specifically, by 2000 over one-quarter of US individual tax returns were filed via tax software alone
  • By 2000, over one-third of affluent consumers used the internet for financial purposes
  • In 2000, over half of affluent internet users were using it for investment research
  • Day traders generated the lion’s share of online brokerage trades before 2000 – they accounted for only 5% of assets, but a third of trades
  • Personal computer ownership eclipsed 50% household penetration by 2001
  • Online investors were almost twice as likely to be interested in buying stocks as opposed to mutual funds, and almost fifteen times as opposed to bonds
  • Insurance companies were driven into the online distribution business due to its low cost as compared to the high cost of its traditional distribution systems
  • Breaking it down differently, Americans making over $75,000 in income made up less than 25% of the population, but accounted for 40% of households with internet access
  • Internet stock trades accounted for only 15% of all volume in the US stock markets in 2002, half the share of 2000
  • Nearly two-thirds of online investors rate it important or very important to be able to speak with a broker in person

Sales Enabling Technology

  • The number of standalone sales enabling technology products on the market is very low
  • Independent reps most often mention using tools provided by their financial planning software and broker/dealer for their sailes enabling technology
  • Morningstar’s Ibbotson Associates leads all standalone sales enabling technologies in terms of users

Financial Planning Software

  • Traditional financial planning software began as comprehensive; in other words, it was hard to use, and effectively began as a more organized way to sell insurance products
  • In response, several comprehensive financial planning software vendors have unbundled their offerings and allowed advisors to purchase one or all of the modules that make up their products
  • At last count, the number of financial planning software products on the market is just shy of 60, an astronomical figure
  • Financial planning software still has a long way to go in advisor usage; at leading broker/dealers, usage is still well below half of advisors, and when counting only those that use it on a majority of clients, the number falls off dramatically
  • Morningstar and, to a lesser extent, Financial Profiles are the leading financial planning software products used by independent reps according to the Tiburon tools survey
  • Morningstar is the most popular financial planning software product across revenue ranges

Asset Allocation Software

  • Most asset allocation programs are built upon the ideas of Harry Markowitz, the father of modern portfolio theory
  • The client profiling area has seen substantial innovation; the model has moved from a paper-intensive manual process to an interactive online process
  • Only one-third of mutual fund wrap account providers mandate that their advisors use one of their asset allocation models in building clients’ portfolios
  • Morningstar’s Ibbotson Associates is a leader in asset allocated, with a reported 70,000 users
  • The most popular delivery method of asset allocation software is still software, but ASP models have gained some footing
  • Morningstar is the leading asset allocation software product used by independent reps
  • Morningstar is the most popular asset allocation software in every size segment of advisors but use declines amongst larger advisors
  • Tax professionals at the independent broker/dealers use significantly more asset allocation software products than their peers who use other financial planning models

Portfolio Management Systems

  • Account aggregation is becoming more important in the investments business and may ultimately be integrated into portfolio management software
  • Advent Software has 4,000 firms using its AXYS portfolio management software, which leads the industry for fee-only financial advisors
  • Portfolio management software sales are led by Advent Software, dbCams+, & Schwab
  • The portfolio management software business among advisors is led by Portfolio Center & Advent Software’s AXYS, both heavily used by fee-only financial advisors; other advisors do not use much software at all
  • A third of fee-only financial advisors believe more than one-fifth of advisors will move to an ASP model within five years
  • Fee-based financial advisors are willing to pay an average of over $110,000 per year for a superior ASP model, with a median of $100,000

Data & Research Services

  • Real-time data sales are led by the big three: Bloomberg, Reuters, and Dow Jones
  • Manager & mutual fund data sales are led by far by Morningstar, which did a fantastic job throughout the 1990s overcoming former dominator Lipper
  • A wide variety of technology resources are used to screen separate account managers, with the competition in this field still tight
  • Morningstar is the dominant data & research service used by independent reps
  • There are few widely used data & research services amongst fee-only financial advisors due to concentration
  • The IPO category of stock research & quotes is led by 123 Jump IPO Center, EDGAR Online IPO, Hoover’s Online IPO Central, IPO Home, IPO Monitor, and Yahoo! IPOs
  • The stock valuations & ratings web site arena is led by Business Week Online, Morningstar, MSN Money, Reuters, Stockworm, ValuEngine, and Value Pro
  • REIT specific fixed income research leaders include Invest in REIs, NAREIT Online, and REIT Net
  • Morningstar Advisor is the most widely visited web site by independent reps, with almost half of all reps visiting it regularly

Data Download Software

  • Data download software is provided by major custodians to their fee-only financial advisor clients custodied with them; the major providers are Intuitively Charles Schwab & Company, Fidelity Investments, TD Waterhouse, and a group of other custodians
  • Data download software users are dominated by Charles Schwab & Company, with about half of all fee-only financial advisors using its software
  • All three major custodians are working towards implementing straight through processing in the future

Account Aggregation

  • Account aggregation has long been considered a killer app, but as of recently only four million households – or less than 5% – actually used it
  • About 15% of smaller regional banks had aggregation offers in the past, with 60% of them planning such, but things never really panned out

Contact Management Software

  • There is a glaring lack of dependence on advisor specific contact management software; the leading two products built by advisors for advisors combine for only 2,000 users
  • Most contact management software users still rely on software packages for delivery, as opposed to working within an ASP relationship
  • The most popular delivery method of contact management software is still software, but ASP models have gained some footing
  • The most common contact management software products utilized are ACT and ProTracker, with each having about a quarter of the market

Other Key Technologies

  • Production time for cell phones is shorter than ever, as low as one-fifth the time necessary in 2000
  • VoIP connections are predicted to be used by three-quarters of all US corporate phone systems by 2009
  • Data mining and predictive analysis will be an important marketing application of technology in the future
  • Fee-based financial advisors surveyed are also the most likely to use the internet to research their target markets
  • Further, fee-based financial advisors surveyed are also the most likely to use the internet to download articles to give to clients
  • Google has clearly become the winner amongst web search engines, and can help advisors with filling in their research on financial methodology and concepts
  • Nearly half of internet users at work have access to instant messaging technology
  • Amazingly, instant messaging has been adopted faster than even the internet, not to mention all other media of the twentieth century

Future Predictions for Financial Advisor Technology
This section outlines future predictions for financial advisor technology.

Blurring of Line Between Advisor & Consumer Technology Solutions

  • The line between advisor & consumer technologies will blur as advisor technology gains more client interface options

Improved Integration of Various Technology Components

  • Broadly, the proliferation of integrated tools will largely come in the form of web based models, and replace the fragmented nonintegrated software suites used today

Increased Spending on Technology & Shift in View of Technology

  • Financial services industry technology spending is expected to grow steadily at 4% a year until 2013
  • Fidelity Investments, The Charles Schwab Corporation, & Merrill Lynch will continue to lead the way in technology spending
  • Most companies focus their technology spending on ongoing operation & maintenance, with only about one-third of it spend on new developments
  • Financial services companies seem ready to embrace technology development; nearly three-quarters of bank senior executives feel it is essential for growth
  • Industry estimates suggest that financial advisory firms that focus on streamlining processes through technology can expect more than 10% in profit margin increases
  • Amongst fee-based financial advisor firms, operational inefficiency costs on average about 8% of total revenues, exemplifying the need for technology to be fully embraced on the front lines

Growing Dependence of Application Service Providers (ASP) Models

  • Application service provider model companies believe that their technology will not be adopted by large software companies like Oracle, due to a lack of nimbleness and other reasons
  • Implementing document management systems in the front office tend to add to the bottom line; for instance, banks that have made document management investments have seen returns on investments of between 20% and 40%

Rapid Growth in Outsourcing

  • Financial advisors are most likely to outsource classic operating activities such as web site hosting and disaster recovery
  • Outsourcing will likely grow across the financial services industry because of growing variety of client demands as they retire, increasing investment product sophistication, escalating labor costs, increasing compliance demands, & rapidly changing technology
  • Three-quarters of financial advisors believe that portfolio management is getting more complex
  • Financial advisors consider various ways to ease their portfolio construction burdens, including seeking home office support, building teams, & outsourcing
  • Outsourcing is likely to grow dramatically in the next few years as measured by number of financial advisors using such models, their clients, accounts, & assets under management, as well as the revenues & net profits of the firms taking on the tasks

Continued Financial Advisor Technology Consolidation

  • Payment software/hardware and payment processing/outsourcing firms lead the public financial technology sector in price/earnings multiples

Financial Advisor Technology Venture Capital Opportunities

  • Nearly half of financial services firms expect to increase automation of corporate actions
  • Most financial services technology buyers will look to buy the solutions as opposed to building them in house
  • Compliance costs should eventually peak and then taper off in a couple of years due to the implementation of enterprise-wide risk architecture solutions, which will be driven primarily by technology developments yet to be developed in full

To better understand the developments for Financial Advisor Technology, executives can purchase Tiburon's Financial Advisor Technology: Implementing Leading Edge Technology & Outsourcing Strategies for Captive & Independent Financial Advisors research report where the key findings highlighted above are covered in greater detail. Please contact Sarah Sage at SSage@TiburonAdvisors.Com or 415-789-2540.