Adviser tech adoption drives higher profitability

Adviser Ratings technology profitability practice management iress

21 June 2024
| By Jasmine Siljic |
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Over seven in 10 financial advice practices that embrace technology are enjoying profits above 10 per cent, new Adviser Ratings data shows.

Technological adoption has become a vital tool for advice firms looking to drive and sustain their profitability. Customer relationship management (CRM) systems, statement of advice (SOA) production, and workflow management are key ways advisers are embracing digital tools.

Research from Adviser Ratings revealed the direct correlation between adoption of technology and higher profitability.

The majority (73 per cent) of advice businesses that use technology tools in their processes report profits of 10 per cent and above. Some 12 per cent of these firms have profits below 10 per cent, and 15 per cent have reported no profit.

For firms which haven’t widely adopted technology, 43 per cent enjoy profits at 10 per cent and above. Three in 10 report profits under 10 per cent and 26 per cent have no profit.

“Practices that leverage these technologies tend to experience significantly higher profitability compared to those that rely on traditional methods,” Adviser Ratings stated.

This is largely due to the reduction in operational costs born from automation and the greater efficiencies achieved.

“For instance, a firm that utilises a robust CRM system can reduce the need for administrative staff, as the system can handle client communications, schedule management, and data analysis.”

As a result, a decrease in staffing costs directly translates to higher profit margins, improved data accuracy, and enhanced client satisfaction.

Contrastingly, advisers that resist technological adoption can find themselves burdened with lower productivity and higher operational costs.

“These firms face slimmer profit margins and struggle to keep pace with their tech-savvy competitors. Recent case studies highlight the stark difference in profitability between tech-adopting firms and their traditional counterparts.”

Adviser Ratings described the use of digital tools in advice firms as a “strategic necessity” for achieving higher profitability, otherwise those who fail to do so risk falling behind.

“The clear advantage lies with those who integrate technology into their core operations, positioning themselves for sustained growth and profitability in the competitive investment sector.”

Embrace existing tools

A recent webinar hosted by Advisely, Iress’ advice community platform, also underscored the importance of optimising existing digital solutions.

While advisers may be tempted to add new solutions to their technology stack, Tamara Morey, director at TNT Group, encouraged firms to re-examine their usage of existing tools and appoint a dedicated employee to oversee technology usage.

“Tech is a huge cost to advice practices. It’s almost always the case that the software a practice is already paying for is heavily underutilised. By appointing a tech champion that can carve out a part of their week purely just to look at the software that you already have, it can be better utilised in the business,” she said on the webinar.

Rod Bertino, principal of Business Health, echoed Morey’s words: “We see practices considering bringing in a new app or adding to their tech stack for a specific need, when in fact their existing technology probably has the capability to do it.

“Invest heavily in training your staff to make sure you’re getting the maximum return and efficiency gains from your tech investment,” he explained.

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