January 7, 2015

The 5 Pillars of Advisory Technology

Sadique Neelgund

Been part of a platform business (since its set up phase) which pioneered a fee based model for IFAs in India, I have had the privilege to meet and understand the requirements of financial advisors (in abundance).  Truth be told, (and I have told this to many in private and public forums) the IFA industry is one of the most heterogeneous segment as far as their requirements (technology and infrastructure) are concerned.

Recall the famous quote by Steve Jobs – “people don’t know what they want until you show it to them.” It’s an analogy that you can relate to what I am referring, but the irony is, at-least by theory the requirements should be homogeneous as we are talking about just 1 segment, IFAs. But it’s not; despite the fact that the underlying business models are uniform, mostly.

This article, though at a helicopter level, will help you shape up a better perspective with respect to the technology requirements that your firm needs. And how equipped your firm is on these aspects, will be the deciding factor (one of the key) of your success, scale and sustainability.

Before I walk you through these pillars (like a Spider Man-J), let me share a common man example, thriving in the Financial Services industry for years. Yes, comparing Financial Advisor to a Doctor.

Now, for a second, I am making you a patient for this analogy. If you had (either chronic or acute illness) which of the following option would you choose for consultation? (Here the assumption is that the Doctor’s professional qualifications, competence and experience are uniform and fees not being a criterion)

1 The doctor who is running a clinic in the neighborhood and have all basic infrastructure, but lacks advanced technology systems for diagnosis.

2 The doctor in a private hospital with all state of the art technology systems.

I am moving ahead with the hypothesis that your choice is obvious. And as mentioned in the 3rd paragraph, the infrastructure to diagnose and cure your patient (the investor) will be the deciding factor (one of the key) of your success, scale and sustainability. Notwithstanding the fact that technology and systems are only a catalyst.

The 5 Pillars

1. Advisory (Pre Execution)

This deals with the decision making aspects and as a Financial Advisor, you are supposed to advice on matters related to your client’s finances. Relate this to the diagnostic process by the doctor. In our parlance, the wealth checkup. In the pre execution phase, the 4 major aspects that you will deal with are Risk Profiling, Financial Planning, Asset Allocation and Security Selection.

Risk Profiling

It’s a highly imperceptible and subjective area and that probably could be the primary reason why a majority of the financial advisors have their own proprietary risk profiling tool. While this is an encouraging sign, perhaps it’s good to re-visit the fundamentals on why and how risk profiling should be done. And for this, I wish to lead you into Michael Kitces blog, in which he brilliantly articulates some of the fundamental flaws in traditional risk profiling tools.


In a nutshell, you need to separate the scores of Risk Tolerance & Risk Capacity, while a lot of risk profiling tools have a combined score. If the tool you use doesn’t even estimate these traits, then it’s a bigger problem.

Financial Planning

The favorite technology ‘tool’ that the advisors use for planning is Excel. Financial Planning software is the alternate choice. Excel comes with a great amount of flexibility that can deal with any situation, while software certainly cannot address all.  The disadvantage of an excel model is the time taken for plan preparations and an inherent dependence of the chief planner (in a boutique firm) at every stage.  Scale, typically becomes an issue on such cases.  Software tries to address the issues of scale and sustainability, but the primary attribute which is success (read quality of a financial planning   report) is subjective based on the kind of software provider you choose. The need for a tool is largely based on the stage of growth your firm is into.

Asset Allocation

One of the key determinants of Portfolio Optimization is the Asset Allocation Policy/Strategy that you adopt for the client. Risk Tolerance, Return Objectives, Financial Goals, Time Horizon, Asset Valuations etc are factors that go in towards building an appropriate Asset Allocation.

Asset Allocation is both art and science, and it’s the scientific side that I would like to touch upon. Amid the various strategies, the most popular ones are Static, Strategic, Tactical and Dynamic Asset Allocation models. Today, most of these models are being offered by Asset Managers themselves, but in the idealistic sense, it’s a proposition that an advisor should project as unique. In the western world, asset allocation advice driven by computer algorithms (Robo-Advisors) are fast emerging and are posing serious threats to human advisory practice. If we believe in trends, then the time is not too far for us to do a catch up game. The question is how we get to a scientifically driven asset allocation model.

Security Selection

There’s a whole range of securities that fits into the Asset Allocation viz. Stocks, MFs, Bonds, FDs, NPS, ULIPs, Real Assets etc. And it’s brutally painful to swift and zero in on the portfolio. Stocks need extensive analysis, while MFs are a step below and the rest (in the financial assets category) are relatively easy. The skillset and the tools for analyzing these set of securities are different.  While open source can be a good starting point, you will certainly need more advanced tools as you scale up the practice.

If you believe that it’s `your advice’, that is being positioned as a key proposition, then probably it’s a good idea to have a check on the infrastructure (that aids you in advisory) you currently utilize. And its indeed the `advice’ that the client is seeking from you, because honestly clients have a better choice than clinging on to an advisor in the rest of the investment process. If you are not yet convinced with this view, you will be, in just a few minutes as you read on.

2. Execution

‘Ideation without Execution is Delusion’. This simply underlines the importance of having a robust technology engine for execution. Your clients will be deprived of a superior experience and portfolio performance, if the execution process is weak, even if you deploy a robust advisory process. Let’s look at the options available for execution

1 Stock Exchange (Multi Asset & MF) Platforms (B2B)

2 Multi Asset Online (commercial) Platforms (B2C & B2B)

3 Mutual Fund Online (commercial) Platforms (B2C & B2B)

4 Mutual Fund Industry Platform (B2C & B2B)

Now, read the last 2 lines of the preceding point and look at the options for the execution process. Honestly, whatever options you have is all available to your client too, perhaps at a slightly more cutting edge level.

So, what’s then the point of having a great execution process?

The point is you should have a good blend of Advisory + Execution, which makes a killing proposition. Quite an impossible one for your client to pursue directly. Let me give you an example. We all boast of maintaining Asset Allocation (Static, Strategic whatever) and it’s pretty much an easy thing to do when we are building a portfolio. But to maintain it? And that too with numerous clients? Re-Balancing is a buzz word seldom put into action. Forget integrated, standalone re-balancing software’s are big business in the US. If you have a doubt, just click the link below.


3. Reporting

This pillar is the most cemented one, of which the foundation was laid a decade ago. I can’t really think many (or for that matter, any) advisors who do not use a reporting platform these days. It’s a given. But what probably we need to reckon is the changing needs, expectations & awareness of your clients and eventually your business. When reporting infrastructure was made, it was made for date aggregation and representation. Needless to mention, we have come a long way as an Industry over the last one decade. Period prior to that on the advice front was random. Both advisors and clients didn’t have a clue about their underlying investments, folios were all offline, investments were forgotten (not forgetting the fact that forgotten investments are the best investments-J). Then came reporting engines and life became easy.

But today things have changed and clients won’t be just happy seeing their holdings online. And hence tomorrow, it will move from just data aggregation to intelligence, analytics, risk metrics, automated advice for the portfolio. I am not able to imagine further beyond this, but I am sure that phase also will evolve, it has to. Point is, look out for options which gives analytics along with data.

The other 2 pillars are Compliance & CRM. Both are grossly overlooked. I will be very brief on these 2 points, courtesy the length of the article and the regular complaints that I receive about it 🙂

4. Compliance

The need for a compliance platform was hardly felt in the past, but with regulations becoming a reality, this has become a must to have proposition.

5. CRM

And as far as CRM is concerned, there is no other word as misinterpreted as this. Many have told me that they use CRM, but when I drill down, they talk about `Reminders & Alerts’. And I spend the next 10 minutes talking about what really a CRM does.

I am summarizing this article with 2 pictorial representations of what you have read. The credit of the 1st picture goes to RIA In a Box while the 2nd is of kitces.com.

You have 3 options as far as your technology infrastructure is concerned. Choose wisely…

1 Buy IT
2 Build IT
3 Lease IT.

Technology Integration1




21 Thoughts to “The 5 Pillars of Advisory Technology”

  1. Sandip Mukherjee says:

    Really thought provoking, action-oriented and helpful article. Thank you.

  2. Great Article, Faizal. Unfortunately, there is no single platform, that covers Financial planning, Portfolio Reporting, Portfolio Execution and CRM and to link them together is difficult, since each provider has their own technology efficiency and barriers. What would you recommend?

    • Faizal Baig says:

      Thanks Dilshad. Yes, the bad news is that there’s no single platform that does all. But if I have to find a solacing view, the same is the case even in US, but they have APIs and Integration across platforms, and from a user (FA) point of view, it would be seamless and efficient.
      Technologically, its not a challenge, but just that here the Industry is nascent and evolving. Lets hope that we get there soon!


    i just registered to FP platform today & read your article.
    faizal bhai it was great feeling as i was going thru your article & relating it my work operations & advisory infrastucture.it realy added great value as well wisdom for me as an financial advisor.thanks a lot .


    please advise me for personnel financial planning

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