In the first part of this post, we discussed the dramatically shifting technology landscape fueled by two major trends. The first is the rise of the Internet and an ever-growing amount of bandwidth that has made it possible to interact with software primarily through digital connectivity. The second has been the emergence of application programming interfaces (APIs).
So how will these trends play out for financial planners and impact their use of software in the coming years? There are several powerful implications.
The first is that the center of gravity for industry software is shifting, from proprietary solutions within companies to independent companies that can serve a wide range of advisors across companies. After all, from the software company's perspective, when advisors can access any software from any place—without needing to rely upon the software produced by the firm they work for—the potential base of advisors that can use the software grows.
As a result, the number of advisors who use independent software solutions can become greater than the number of advisors using a proprietary solution… which means the independent software companies become the largest, and it's no longer good business strategy for firms to create their own proprietary software. In practice, this trend is already under way; for instance, financial planning software MoneyGuide Pro now has far more users than even the largest of the major wirehouses or insurance companies, as does Redtail CRM.
In fact, now even major firms with a significant number of advisors and hefty resources typically don't build their own proprietary solutions from the ground up; instead, they use (or private label) an independent provider's solution, and at the most simply adapt and partially customize it from there to fit their company's and advisors' own specific needs. The reason this really matters? With a larger pool of potential advisor customers in play, the business opportunities for technology startup firms serving the advisory industry is far greater, and the pace of software innovation and entirely new solutions for advisors is accelerating, after being relatively stagnant for years.
Another consequence of the shift from proprietary to external (or private-labeled) independent solutions is that advisors now have more flexibility than ever to change which firms they affiliate with, confident that a similar (or exactly identical) software solution will be available on the other side.
In other words, if you're used to a certain financial planning and CRM software solution within one firm, there's a good chance you can use the same software at another firm as well (albeit perhaps without quite the same customizations). In addition, key client data is more accessible than ever, as the API connections are built between various software companies. The end result: advisors have more flexibility to affiliate with whatever company is the best fit for their business and client needs, and have a newfound freedom and flexibility to make changes without being shackled to their current firm because their client and business data is held hostage. In fact, the explosion of quality independent software solutions has likely done a great deal to grease the wheels of the breakaway broker trend.
The rise of the software API also bodes well for another eternal challenge of advisors: finding the software "Holy Grail"—that integrated solution of CRM, portfolio management and reporting, and financial planning software with communication and business management tools, all on one central platform. Over the years, a high quality software "holy grail" has been forever out of reach. Most software providers only know how to program their software niche, not a holistic solution, and those who have tried often end out producing a solution that sacrifices quality and flexibility on the altar of integration; the end result is that the integrated software may have all the different components talking to each other on one centralized platform, but each part of the software is inferior to standalone best-in-class solutions in each category.
