Page 42 - Investment Advisor July/August 2021

Technologies like these return on the a target market can yield a significant In the past, investment in priority
investment by expanding the capacity valuation increase. tech came at a steep price. Today, we
of an organization’s advisors, which will Maximizing valuation. Advisory are seeing a movement to more available
enhance profit margins. firms can expand their valuation the options for advisory firms to innovate
Widening a target market. Once most by building and integrating their their own technology at a lower cost.
a firm expands its profits through own technology. This option is not for While building your own tech can be an
increasing advisor capacity, it can every advisory firm, and firms that do investment, it often does return the most
enhance revenue by widening its tar- it require a commitment to growth in valuation.
get market. In other words, more and and innovation. Whether it is micro- But there is an important caveat:
different types of clients can be served tech, such as an online workbook or An investment in building your own
when a firm has the capacity to serve risk assessment tool, or broader finan- tech takes time and money. It is quite
more clients. cial planning technology, tech built to common for advisory firms to offset
Technology can help firms that cost by licensing their in-
expand their client types to It is quite common for house technology to other firms
increase revenue. For example, to recoup these costs.
firms that focus on the high-net- advisory firms to offset And while that does cre-
worth market might find those ate added revenue, it does not
clients, over time, referring that cost by licensing maximize valuation because
friends and family members who now firms are selling their cli-
are mass-affluent or ultra-high- their in-house technology ent experience to their competi-
net-worth. tors. In these cases, advisory
By implementing software to to other firms to recoup firms selling their client experi-
cater to a wider target market ence are now competing with
across multiple segments, firms these costs. And while that other firms for clients under the
can ensure lower operating costs does create added revenue, same client experience. Many
on these smaller accounts and firms believe this is a recipe to
provide more customized service it does not maximize attract firms they can potentially
on the larger accounts. Such soft- acquire, and in some cases it
ware might include aggregation valuation because now does work.
software and financial planning But selling your own house-
software used directly by the cli- firms are selling their built tech and client experi-
ent. If a firm focuses first on client experience to their ence to attract inorganic growth
technology that enhances advi- opportunities only delays a deci-
sor capacity, as mentioned above, competitors. sion to sell. Why not keep your
we free up capacity to serve more client experience for yourself
clients and add tech that clients and your clients, and use it as
can use. accommodate and enhance a firm’s cli- a catalyst to help move forward on an
As a result, by decreasing the opera- ent experience can yield the highest acquisition? Selling tech to your compe-
tions to gather data and giving tech valuations and set the firm apart in the tition only dilutes the value of your tech
for clients to participate in their own marketplace. investment. Keeping it for the benefit
financial planning, we increase the Proprietary technology helps support of your advisors and your clients, and
client profitability. Doing so makes a unique service offering to clients and getting other firms excited about joining
serving smaller (and larger) clients allows expansion to serve all types of your firm for the benefit of your unique
profitable. clients. This kind of technology com- experience, is a more effective way of
Firms expanding to serve mass-afflu- mitment can drive scale and revenue making an acquisition happen.
ent clients might need time to increase the most, while decreasing operating When used as part of a well-thought
their scale before maximizing the prof- costs, because the tech is usually catered out strategy, technology can be a force
itability of that segment. But ultimately, specifically to the firm’s client experi- multiplier when it comes to raising your
technology investment can help raise the ence. Building your own tech eliminates firm’s valuation.
ceiling on a firm’s number of accounts, any “workarounds” a firm might have
assets under management, and revenue, to do to deliver their own client experi- Angie Herbers is an independent consultant to
thereby expanding and driving their rev- ence using technology that is purchased the advisory industry. She can be reached at
enue. Investing in technology to expand directly from a tech company. [email protected].

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