Technology stack, or tech stack for short, is a term that appears across the journalistic and marketing materials targeted towards financial advisors, but where did it come from, what does it mean and where do you start in building one?
“When we use the term technology stack, we’re actually referring to all of the software and hardware necessary to conduct the business of a financial advisory firm,” said Adrian Johnstone, president and co-founder of Practifi in a panel discussion with WealthManagement.com.
“This is a term that a lot of people use, but I’m not sure much thought has gone into how broad that term can be,” shared Johnstone. “It’s a collective term, used casually to encompass all of the pieces of technology that exist within a firm. Everything from the first system you log into each day, to the last piece of technology you use to perform your job, no matter what your role is.”
Advisor technology has changed radically over the past three decades. In the early stages of the 1980s, the majority view was that firms should have one unified system that could do everything they needed.
Unfortunately, Johnstone said that to this day, many all-in-one systems couldn’t deliver on their promises.
Then, in the late 1990s and early 2000s, the push was towards fragmentation as advisors sought the best-in-breed of every niche technology platform, allowing a lot of small companies to carve out a space within the advisor tech landscape.
This push eventually led to over-fragmentation, said Johnstone.
“What we finished off with was lots of technology containing only pieces of the records needed to run the business and fragments of data that were not just broken up, but locked in their own silos,” he said.
Then the problem became the opposite. Advisory firms were using highly focused, highly developed pieces of technology in narrow niches that didn’t talk to each other, which led advisors to use software like Microsoft Excel or even physical paper to link their processes together.
Today, advisors and technology providers are pivoting to connect these disparate pieces of an advisor’s tech stack not with paper or third-party programs but with integrations.
“Data is the lifeline of the business; it’s what compliance needs as they track the client record and it’s the thing that drives the experience for your end investors,” said Johnstone. “So as technology has evolved, particularly with the advent of APIs and bidirectional APIs, the focus is on integrations now.”
Integration allows advisory firms to store and view all client information, from the earliest point of data collection to the consumption and analysis of the information, said Johnstone.
But what is the foundation of a good technology stack?
Traditionally, a portfolio management system has served as the hub for advisory firms, but Johnstone argues that a CRM and the client record is really the foundation of their technology.
Another panelist from the webinar discussion, Amy DeTolla, chief experience officer at Focus Financial Partners’ Connectus Group, sees the industry in a transition between building technology around a portfolio management system and a CRM.
“I think many advisors would still agree today that the hub is your portfolio system because that’s where your client information usually resides,” said DeTolla during the webinar. “We see an evolution of the fiduciary wealth space, though, where it now goes way beyond managing money and performance management. It’s really become about client engagement and whole-life planning. The CRM becomes the logical nexus of that.”
Connectus chose to use Practifi to serve as a CRM to create a hub for connected technology, allowing everything involving client engagement accessible with one click—the client, their household, investments, deliverables, client goals, milestones, their life plan and information about the network of people who surround that client.
Connectus also uses Addepar’s portfolio management capabilities—Addepar has a strong history of integrating with Practifi.
“The reality is that not every advisory practice is built the same way,” said Robin Melnick on the panel and head of partnerships and strategic alliance at Addepar. “We do find advisors who have the CRM at the center of their operational tech stack, we also see advisors who think of their portfolio management and that data at the center of their technology stack. Either is fine. The real questions we’ve seen is that due to this decentralization in this best-of-breed approach, how do systems work together in a way that provides real operational value to the client?”
Johnstone added that there really isn’t a tension or battle between CRM providers and portfolio management technology providers as to what resides in the middle of the technology stack, because ultimately, an advisor’s technology is built around something more important than one component of that technology.
“It’s really the client experience a firm wants to deliver that resides at the center of everything, and the question is how do you best fulfill that as a firm? What are the pieces of data that I need to deliver that experience for my clients? Answering those questions will ultimately drive your technology stack,” said Johnstone. “Then the key is how tightly integrated do you make it… ultimately, everyone out there wants everything integrated as tightly as possible.”
Solid integrations between technology components are needed to reduce redundancy, eliminate double data entry or the rekeying of data, to save time and eliminate key-man risk.
Unfortunately, over the years, advisory firms have often been let down by the promise of truly integrated technology, said Johnstone.
Technology is just beginning to mine the power of deep integrations. Basic integrations allow for information from a client’s portfolio to be displayed in a CRM, or information from the CRM to be displayed in a portfolio management tool.
Deep integrations, on the other hand, take the data from CRM and a client’s portfolio and synthesize workflows, analytics and notifications for advisors.