People Are the Key to Driving Business Results Through Technology
National Financial Services
Description
People Are the Key to Driving Business
Results through Technology
Insights from The 2013 Fidelity RIA Benchmarking Study
In today’s world, harnessing technology effectively is imperative
for most businesses. RIA firms are no exception. As more
members of Generations X and Y join the ranks of the advised
and the advising, having a robust technology environment will
become even more important.1 Consider this:
Inside:
I. High-Performing Firms
3
II.
Technology Landscape 6 • 87% of Gen X/Y millionaires in a recent Fidelity survey said that technology enhanced their relationship with their financial advisor (vs. 32% of Baby Boomers+ surveyed).1, 2 III. Business Processes V.
Conclusions 17 • 92% of Gen Y advisors in a recent Fidelity survey considered themselves to be technology savvy (vs. 51% of Baby Boomers+ VI. Appendix 19 surveyed).3 The 2013 Fidelity RIA Benchmarking Study (the “study”) takes a deep dive into the issues of RIA technology strategy, usage, and integration.
In addition, the study examines key business performance metrics and business processes to help RIAs understand how they compare with their peers and gain insights to help them grow and improve their businesses. For purposes of this report and the recent Fidelity studies cited on this page, Gen Y refers to those born from 1980 to 1992, Gen X refers to those born from 1965 to 1979, and Baby Boomers+ refers to those born in 1964 or earlier. 2 2013 Fidelity Millionaire Outlook Study — A primary research study (Fidelity not identified) among 542 U.S. millionaire investors conducted via an online survey during the period of May 15–23, 2013. Qualified respondents had investable assets of at least $1 million, excluding workplace retirement accounts and any real estate holdings. 3 2013 Fidelity Advisor Insights Study — ​ online, blind survey (Fidelity not identified) fielded during An the period of August 8–21, 2013. Participants included 813 advisors from across multiple firm types who work primarily with individual investors and manage a minimum of $10M in individual or household investable assets.
Firm types included a mix of large and small IBDs, regional broker-dealers, RIAs, insurance companies, wirehouses, and banks, with findings weighted to reflect industry composition. 1 © 2014 FMR LLC. All rights reserved. 13 IV. Growth and Outlook 16 .
This year’s report highlights two groups of firms worth watching: HighPerforming Firms (those RIA firms that outperformed peers financially and may have some lessons to share with the rest of the industry)4 and Aggressive Technology Adopters (firms that have made a conscious decision to be on the cutting edge of technology and who could shine a light on the road ahead).5 About the Research and Respondents 5. While a fair number of business processes at RIAs are standardized, many are not documented or automated — ​which may be hampering efficiency. The 2013 Fidelity RIA Benchmarking Study was conducted by Fidelity Institutional Wealth Services as part of its Practice Management and Consulting Program to give RIA firms insight into how their firms compare with others in the industry. The objectives of the study were to understand the behaviors of RIA firms in order to determine best practices in the industry and, in turn, to share these learnings with the RIA community. Respondent firms were primarily RIA firms that custody some portion of their assets with Fidelity Institutional Wealth Services.6 Fidelity was identified as the study sponsor. The online survey was conducted from May 1 through June 28, 2013, and administered by an independent thirdparty research firm. More than 500 RIA firms participated in the study, of which 324 completed it and form the basis for the findings in this report.
In this report, the terms “RIAs,” “RIA firms,” and “firms” refer only to those RIA firms that participated in the study. 6. Marketing and prospecting are the business processes that RIAs are least satisfied with and most want to improve — ​ imperative given the an importance of growth. Key Study Findings 7. Outsourcing of key processes is more aspirational than actual — ​ RIAs are conceptually open to outsourcing, but many are not doing it today. 1. RIAs recognize the strategic importance of technology, using it to improve efficiency and profitability, enhance their clients’ experiences, and enable scalable organic growth. 8. High-Performing Firms appear to take a pragmatic approach to technology, reporting strong, but not cutting-edge, technology environments. 2. Firms are primarily focused on optimizing their current systems — ​ vs. investing in new systems — ​ driving by initiatives related to integration, workflows, and training. 9. Aggressive Technology Adopters, however, embrace cutting-edge technology and are reaping benefits in system utilization, integration, and satisfaction. 3. System utilization is a key driver of satisfaction — ​unfortunately, both measures are relatively low, particularly for key systems like CRM. 4. Internal staffing issues, rather than system limitations or budget, present the greatest challenge to technology optimization. Figure 1: Highlights of the study sample AUM CATEGORIES 69 firms <$50M 45 84 firms $50M to $99M firms $100M to $249M 47 firms $250M to $499M 35 firms $500M to $999M 44 firms $1B+ OTHER KEY CATEGORIES 43 70 HIGH-PERFORMING FIRMS AGGRESSIVE TECHNOLOGY ADOPTERS Source: The 2013 Fidelity RIA Benchmarking Study. The term “High-Performing Firms” refers to the subset of participating firms with business results that meet the criteria defined in this report. Reference to the concept of “performing” in the name of this group is not intended to connote investment returns.
Past performance is no guarantee of future results. 4 Aggressive Technology Adopters = Firms that identified their overall technology approach to be investing aggressively in their technology, and their technology environment as cutting edge in many areas. 6 Clearing and custody provided by National Financial Services LLC. 5 2 © 2014 FMR LLC. All rights reserved. . HI A Section I: HighPerforming Firms As in past studies, a group of HighPerforming Firms has been identified as having outperformed other firms in terms of their financial results (see Figure 2 for definitions and qualifying criteria). These firms are examined to see what makes them different and what other RIA firms can learn from them. High-Performing Firms Come in All Sizes, and Significantly Outperform Their Peers Based on the definition, we know that High-Performing Firms have demonstrated excellence in the areas of growth, profitability, and productivity. But, by how much have they outdistanced their peers? Is the gap large or small? The figures to the right show just how much HighPerforming Firms outperform All Other Eligible Firms7 in terms of these three areas. Figure 3: Growth comparison, 2009–2012 AUM CAGR* (median) 15% Second Criterion Pass eligibility screen Rank in the top 25% of eligible survey respondents, based on a composite ranking across three areas 15% 10% 10% What types of firms are HighPerforming Firms? The definition is carefully constructed so that firm size is not necessarily a factor. In fact, HighALL OTHER HIGH-PERFORMING ELIGIBLE FIRMS FIRMS Performing Firms come in all sizes. ALL OTHER HIGH-PERFORMING ELIGIBLE FIRMS FIRMS See Figure 6 for a comparison of basic *CAGR = Compound Annual Growth Rate business metrics for High-Performing Source: The 2013 Fidelity RIA Benchmarking Study. Firms vs.
All Other Eligible Firms. Figure 4: Profitability comparison, 2012 EBOC margin* (median) 67% 67% Figure 2: Qualifying criteria for High-Performing Firms First Criterion 0 50% • Practice established prior to December 31, 2009 • Assets under management (AUM) of $50M or more as of December 31, 2009 • Two or more full-time employees as of December 31, 2012 • erger or acquisition activities contributed no more M than 25% of the change in AUM from 2010 to 2012 • Three-year AUM compound annual growth rate (CAGR) as of December 31, 2012 • Earnings before owners’ compensation (EBOC) margin for the calendar year ending December 31, 2012 • Revenue per full-time equivalent (FTE) for the calendar year ending December 31, 2012 Source: The 2013 Fidelity RIA Benchmarking Study. 5 ALL OTHER HIGH-PERFORMING ELIGIBLE FIRMS FIRMS ALL OTHER HIGH-PERFORMING ELIGIBLE FIRMS FIRMS *EBOC = Earnings Before Owners’ Compensation Source: The 2013 Fidelity RIA Benchmarking Study. $ Figure 5: Productivity comparison, 2012 Revenue per FTE* (median) HIGH-PERFORMING FIRMS $333,000 ALL OTHER ELIGIBLE FIRMS $219,000 0 50000 100000 150000 200000 250000 300000 35000 *FTE = Full-Time Equivalent Source: The 2013 Fidelity RIA Benchmarking Study. 7 15% Based on the criteria in Figure 2, All Other Eligible Firms = all study respondents who passed the eligibility screen in the first criterion, but did not rank in the top 25% of the composite ranking in the second criterion. 10% 100 90 80 70 © 2014 FMR LLC.60 rights reserved. All 50 3 . Figure 6: Comparison of attributes (median 2012 data) High-Performing Firms All Other Eligible Firms Number of clients 299 295 Number of FTEs 7 9 Number of owners 3 2 Assets under management $360M $261M Revenue $2.4M $1.8M Revenue per advisor $910K $542K Revenue per client $9,310 $7,369 Total clients per advisor 93 68 Source: The 2013 Fidelity RIA Benchmarking Study. High-Performing Firms Are Technology Pragmatists analyzed to identify key differences in terms of their technology approach. While several specific differences are highlighted on the following pages, an overall theme of technology pragmatism clearly emerged. What makes High-Performing Firms stand out? Given that the focus of the study was on technology, this group was specifically Figure 7: Strong, but not cutting-edge technology environments Survey Question: Which of the following best characterizes your firm’s overall technology approach? 1 Strong Technology Environments. High-Performing Firms are more likely than All Other Eligible Firms to describe their technology environments as strong but not cutting edge (see Figure 7). These High-Performing Firms appear to recognize the importance of investing in technology — ​but not to the point of investing in the “latest and greatest” technologies. This may be seen as favoring proven technologies over newer, not-yet-proven systems. (In the next section on technology, we will take a closer look at Aggressive Technology Adopters, those RIA firms that are investing aggressively in cuttingedge technology, and delve into the benefits they are seeing.) 2 Stable Support Resources.
HighPerforming Firms appear to be more satisfied with the amount of technology and operations support that they currently have. They view changing the amount of resources allocated to technology and operational support as less of an opportunity than All Other Eligible Firms (see Figure 8). Percent of firms who chose “We invest significantly in technology and our technology environment is strong, but not typically cutting edge” 74% High-Performing Firms All Other Eligible Firms 53% Source: The significantlyRIA technology and We invest 2013 Fidelity in Benchmarking Study. our technology environment is strong, but not typically cutting edge Figure 8: Changing support resources as a top opportunity Survey Question: Where do you see the biggest overall opportunities to optimize the technology and operations environment in your firm? Percent of firms who ranked “Changing amount of resources allocated to technology and operations support” as 1st, 2nd or 3rd 5% High-Performing Firms 20% All Other Eligible Firms Source: The amount of resources allocated Changing 2013 Fidelity RIA Benchmarking Study. to technology and operations support Figure 9: Client experience as a goal for using technology Survey Question: What are your firm’s goals in using technology? Percent of firms who ranked “Enhance client experience and satisfaction” as 1st, 2nd or 3rd 77% High-Performing Firms All Other Eligible Firms 61% Source: The 2013 experience and satisfaction Enhance client Fidelity RIA Benchmarking Study. 4 © 2014 FMR LLC. All rights reserved. 3 More Focused on Client Experience.
When asked about their goals for using technology, High-Performing Firms were more likely than All Other Eligible Firms to cite improving their clients’ experience and satisfaction as a top goal (see Figure 9). This year’s study found that a top strategic priority across all firms was new client acquisition. Given that client referrals are the biggest source of new clients for most .
firms, High-Performing Firms may recognize to a greater degree that delivering a positive client experience can help generate referrals that could eventually lead to new business. As a result, they appear to be aligning technology with their strategic growth goals. 4 More Focused on Technology Integration.8 When asked about their biggest technology opportunities, 67% of HighPerforming Firms ranked integrating existing systems in their top three opportunities vs. 56% of All Other Eligible Firms (see Figure 10). While High-Performing Firms are no more or less likely to have integrated systems, their focus on integration as the top opportunity implies that they recognize the potential benefits — ​ p rimarily more streamlined workflow — ​ a greater degree. to 5 More Concerned about Business Disruption. As noted above, High-Performing Firms are more focused on technology integration. But when asked what stops them from integrating systems, HighPerforming Firms are more likely than All Other Eligible Firms to say disruption to their business is the biggest challenge (see Figure 11) — ​ and are less likely to cite cost or skill set of staff.
This may be linked to High-Performing Firms’ greater focus on client experience, as referenced earlier. If a system integration project is viewed as 8 Figure 10: System integration as an opportunity for using technology Survey Question: Where do you see the biggest overall opportunities to optimize the technology and operations environment in your firm? Percent of firms who ranked “Integrating existing systems” as 1st, 2nd or 3rd 67% High-Performing Firms 56% All Other Eligible Firms Source: The 2013 Fidelity RIA Benchmarking Study. Integrating existing systems Figure 11: Worried about business disruption Survey Question: What are the biggest challenges when integrating your systems? Percent of firms who ranked “Business disruption given time required” 1st 60% High-Performing Firms All Other Eligible Firms 43% Source: The 2013 Fidelity RIA Benchmarking Study. Business disruption given time required disruptive to business processes or the client experience, HighPerforming Firms may weigh this risk more heavily. 6 Other Differences. Aside from differences in their technology approach, High-Performing Firms close new business in fewer meetings, and drive higher rates of AUM growth by retaining client assets and generating higher levels of contributions from existing clients.
These and other differentiating factors will be examined more closely in future studies. Key Takeaways from High-Performing Firms: Like many RIAs, even High-Performing Firms have room for improvement when it comes to technology. However, their approach yields several insights: • hile it may not be necessary to have W “cutting-edge” technology to achieve superior business results, a strong technology environment may be a key enabler. • riving increased levels of system D integration to accrue potential benefits such as streamlined workflows is a top priority for High-Performing Firms. • ever lose sight of the impact N technology has on your clients — ​ i mproving the client experience and avoiding business disruption are critical for High-Performing Firms. It should be noted that there are various definitions and levels of integration. For purposes of the study, integration was defined in terms of three levels: Limited integration (e.g., systems updated via a file delivery process), Moderate integration (e.g., automated data synchronization), or Full integration (e.g., automated synchronization with single sign-on and seamless user interface). © 2014 FMR LLC.
All rights reserved. 5 . Section II: Technology Landscape Technology Is a Strategic Priority There is broad consensus across RIA firms on the top three goals for technology in their firms: RIA firms recognize that technology is important, and they have articulated clear goals for how they want technology to benefit their firms. However, adoption, implementation, and utilization will need to improve for many firms to unlock the full benefits of technology. One group of firms — ​Aggressive Technology Adopters — ​ appears to be aggressively investing in technology and is experiencing benefits in system utilization, integration, and satisfaction. 1. Increase efficiency, staff capacity, and firm profitability 2. Enhance client experience and satisfaction 3. Facilitate and support scalable organic growth These top three goals are all strategic in nature and outdistance other possible goals explored by a wide margin (see Figure 12). Figure 12: Goals for technology Percent of firms who ranked each as 1st, 2nd or 3rd 86% Reduce risk/errors To achieve their goals, RIA firms have been investing and will continue to invest in technology based on the results from the study. In the period from 2010 through 2012, firms said that their median annual technology spend ranged from 2.7% to 3.1% of firm revenue.9 They projected their spend as a percent of revenue would drop slightly from 2.9% in 2013 to 2.7% in 2014. By the end of 2014, firms expect that their technology spend will have increased at a CAGR of approximately 14% since 2010.
They expect their comparable revenue growth rate to be 13% — which implies that technology spend will grow at a slightly higher rate. The continued rise in technology Increase efficiency, staff capacity, spend is driven largely by a desire to and firm profitability 68% Enhance client experience and satisfaction 65% Facilitate and support scalable organic growth 36% Significant Technology Investment Will Continue keep pace with business growth (see Figure 13), and to maintain what most firms (75%) describe as strong or cutting-edge technology environments (see Figure 14). 21% Create competitive advantage 14% Enhance employee experience and satisfaction 10% Facilitate and support scalable inorganic growth (M&A) Source: The 2013 Fidelity RIA Benchmarking Study. 9 For purposes of this study, technology spend includes all hardware, software, license fees, IT consulting costs, and disaster recovery costs. It does not include the compensation costs associated with people supporting the firm’s technology. 6 © 2014 FMR LLC. All rights reserved. .
Figure 13: Plan for technology spend next five years Figure 14: State of technology environments Percent of firms Percent of firms 9% 17% 24% Not sure. Haven’t given it much thought. 100.000000 We plan to keep growing 66.666667 our firm’s technology spend consistently over the next five years. 50.000000 49% We want to plan our firm’s 33.333333 technology spend such that it always keeps pace with our business growth. 16.666667 22% 53% 1% We do not plan to increase our We technology spend significantly 83.333333 will be reducing over the next five years, neither our firm’s technology spend compared do we intend to reduce spend. with current levels. We invest aggressively in technology, and our technology environment is cutting edge in many areas. We invest significantly in technology, and our technology environment is strong but not typically cutting edge. 24% We invest as necessary in technology, and our technology environment is serviceable but not strong. little as possible in 2% We invest asand our technology technology, 0.000000 environment is minimalist. Source: The 2013 Fidelity RIA Benchmarking Study. Technology Plans Are Focused on Optimizing Current Systems Note: Figures do not sum to 100% due to rounding. Source: The 2013 Fidelity RIA Benchmarking Study. Figure 15: Biggest technology opportunities Percent of firms who ranked each as 1st, 2nd or 3rd 68% Implementing automated business process workflows RIA firms have a good sense about what they feel the top technology opportunities are: 58% Training staff on existing systems to increase utilization 58% Integrating existing systems new technology 52% Investing infunctionality to add key 1. Implementing automated business process workflows 2. Training staff on existing systems to increase utilization 23% Dedicating resources to technology management and vision Increasing outsourcing of technology 20% or business processes allocated 16% Changing amount of resourcessupport to technology and operations 3. Integrating existing systems Taken together, these top three opportunities seem to indicate that RIAs are focused on getting the most out of their existing technologies before investing in new systems (see Figure 15). 6% Increasing executive sponsorship Source: The 2013 Fidelity RIA Benchmarking Study. © 2014 FMR LLC. All rights reserved. 7 . RIA firms also appear to be putting resources behind these top initiatives. A majority of firms currently are, or in the next 12 months will be, devoting resources to optimize their current systems through training and customization, or creating process workflows and automation (see Figure 16). Satisfaction with Technology Systems Is Relatively Low Although there is a large degree of focus and investment in technology, technology nirvana is still somewhat elusive. In particular, satisfaction with key systems remains relatively low — ​ p articularly for CRM (see Figure 17). On average across the four top systems, only about 50% of RIA firms rate their satisfaction as an 8, 9, or 10 (out of 10). Relatively low levels of system utilization (Figure 18) may be a contributing factor to these rates of satisfaction, especially in the case of CRM. Why aren’t the utilization numbers higher? The top three reasons selected (for Portfolio Management and CRM systems) were: 1. Not enough initial or ongoing training 2. Poor understanding of functionality/ benefits of using 3. Lack of clear incentives for staff to use As one might expect, those most satisfied with their systems are firms who are utilizing more of the functionality in their systems (see Figure 19). Figure 16: Top tech initiatives for devoting resources Percent of firms Currently devoting resources 75% Will start devoting resources in the next 12 months 71% 33% 64% 11% 27% 60% 51% 29% 53% 44% 43% 31% Significant effort Significant effort to optimize to create current systems process (e.g., training, workflows and customization) automation Shift to cloud-based or outsourced solutions 35% Significant increase in integration across technologies Implementation of mobile technologies across the firm 23% 8% 27% Implementation of social media strategy 15% Hiring technology or operations management or staff Figure 17: Satisfaction with systems used Percent of firms who rated each an 8, 9 or 10* 59% 49% 49% 41% Fee Billing Client Reporting Portfolio Management and Reporting CRM 21% 14% Figure10%Percent of system functionality utilized (mean) 18: *On a scale where 10 = extremely satisfied and 0 = not at all satisfied. Source: The 2013 Fidelity RIA Benchmarking Study. 86% Fee Billing 75% Client Reporting 73% Portfolio Management and Reporting 36% CRM 52% 21% 14% Figure 19: Utilization for highly satisfied firms vs.
less satisfied firms Percent10% of system functionality utilized (mean) Source: The 2013 Fidelity RIA Benchmarking Study. Highly Satisfied (8, 9, 10)* 89% 81% 82% 77% 66% 69% 75% 70% 75% All Others (0–7)* 67% 71% 63% 60% 47% Document Management Trade Order Management Portfolio Management Financial Planning *On a scale where 10 = extremely satisfied and 0 = not at all satisfied. Source: The 2013 Fidelity RIA Benchmarking Study. © 2014 FMR LLC. All rights reserved. 19% Source: The 2013 Fidelity RIA Benchmarking Study. Note: Figures may not total 100% due to rounding. Fee Billing 8 46% 16% Portfolio Risk and Analysis CRM . People-Related Issues Create Barriers to Technology Optimization 1. Internal resource constraints The top barriers to optimizing technology in RIA firms are all related to people (see Figure 22). From a list of possible barriers, the top three selected were: Relatively low levels of system integration, again for CRM in particular, may also be contributing to lower levels of satisfaction (see Figure 20). In many cases, higher levels of integration make it easier for firms to utilize a higher percent of system functionality. Firms most often cited the risk of business disruption as the biggest barrier to integration (see Figure 21). 3. Implementation skill Figure 20: System integration Percent of firms that have integrated each system to some degree with other systems 77% Portfolio Management and Reporting 56% CRM 55% Client Reporting 49% Fee Billing Source: The 2013 Fidelity RIA Benchmarking Study. Figure 21: Integration challenges Percent of firms who ranked each as their biggest challenge when integrating systems 46% Business Disruption Given Time Required 22% System Limitations 17% Cost of External Consultants 15% Technical Skill Set of Staff Source: The 2013 Fidelity RIA Benchmarking Study. Figure 22: Biggest technology optimization barriers Percent of firms who ranked each 1st, 2nd or 3rd 56% Internal resource constraints the technology) (available people to support Training discipline (lack of regular staff training 50% to drive adoption of new or existing systems) 49% Implementation skill (lack of ability to manage change and disruption) 2. Training discipline In other words, the technology may be in place, but firms appear to lack the right resources to implement it effectively and to train the rest of the organization to utilize it.
As a result, satisfaction suffers and opportunity is missed. Given that people-related issues are a top barrier to technology success, one might think that hiring new resources or outsourcing these functions might be potential solutions. However, study results appear to indicate that firms are not necessarily embracing these options: • More than half of firms (55%) do not plan to devote resources to hiring technical or operations staff at all, and another 14% do not plan to devote resources to this for at least two years. • Outsourcing seems to be more attractive in concept than in practice. While three in four RIA firms are either proponents of outsourcing (19%) or are open to outsourcing (56%), almost 40% of firms do not currently outsource any part of their business and only 22% of firms are currently outsourcing three or more processes. 37% System limitations 37% Ability to measure impact or success 36% Prioritization or decision-making process (lack of agreement that doing more is desirable) 30% Willingness to invest (lack of available budget) 5% Lack of quality candidates to hire (talent in the marketplace) Source: The 2013 Fidelity RIA Benchmarking Study. © 2014 FMR LLC. All rights reserved. 9 .
Aggressive Technology Adopters May Show a Path Forward Despite the challenges just described, there may be a group of firms who is leading the way when it comes to technology. Over one-fifth of firms (22%) say they invest aggressively in technology and that their technology environments are cutting edge in many areas. This group of Aggressive Technology Adopters stands out in a number of ways: 1 Higher Levels of System Usage — ​and Utilization. Aggressive Technology Adopters are more likely to use systems in general (see Figure 23), which can lead to immediate time savings. The average amount of time that was saved by implementing key systems is substantial — ​ from 20% to 30%+ of staff time, depending on the system. Aggressive Technology Adopters also utilize more of the functionality of their systems.
As we saw earlier, utilization is a key driver of satisfaction. 2 More Use of Vendor-Hosted Systems. Aggressive Technology Adopters are less likely to have systems locally installed, and are thus more likely to use vendorhosted systems. This is likely to relieve the burden of supporting locally installed systems (see Figure 24). Figure 23: System usage and utilization Percent of firms that use the system 100% 93% Aggressive Technology Adopters 91% 89% 71% 73% 81% 70% Not Aggressive Technology Adopters 76% 73% 65% 56% 45% Portfolio Management and Reporting Client Reporting CRM Fee Billing Financial Planning Document Management Trade Order Management/ Rebalancing Source: The 2013 Fidelity RIA Benchmarking Study. Percent of system functionality used (mean) Aggressive Technology Adopters 91% 76% 72% 81% Not Aggressive Technology Adopters 84% 74% 71% 70% 78% 71% 79% 69% 54% 52% Portfolio Management and Reporting Client Reporting CRM Fee Billing Financial Planning Document Management Trade Order Management/ Rebalancing Source: The 2013 Fidelity RIA Benchmarking Study. Figure 24: Use of vendor-hosted systems Percent of firms with vendor-hosted systems Aggressive Technology Adopters 60% 47% Not Aggressive Technology Adopters 66% 59% Portfolio Management and Reporting 46% Client Reporting 49% CRM Source: The 2013 Fidelity RIA Benchmarking Study. 10 © 2014 FMR LLC.
All rights reserved. 80% 59% 58% 42% Fee Billing 59% 58% 51% 40% Financial Planning 32% Document Management Trade Order Management/ Rebalancing . 3 Higher Levels of Integration. Aggressive Technology Adopters are more likely to have achieved system integration in key areas. In particular, CRM systems and Document Management systems are much more likely to be integrated with other systems (see Figure 25). Across all firms, the most commonly integrated pairs of systems are: – rade Order Management/ T Rebalancing with Portfolio Management and Reporting – RM with Document C Management 4 Higher Levels of Outsourcing. Aggressive Technology Adopters are bigger proponents of outsourcing in general (see Figure 26). And for key processes, including data reconciliation and client reporting, Aggressive Technology Adopters are significantly more likely to be outsourcing (see Figure 27). Figure 25: System integration Percent of firms that have integrated each system to some degree with other systems 81% 76% Aggressive Technology Adopters 70% 61% 53% Not Aggressive Technology Adopters 52% 50% 49% 49% 43% 39% 42% 31% 22% Portfolio Management and Reporting Client Reporting CRM Fee Billing Financial Planning Document Management Trade Order Management/ Rebalancing Source: The 2013 Fidelity RIA Benchmarking Study. Figure 26: Attitude toward outsourcing Percent of firms who chose “Proponent of outsourcing — We see tremendous value in it, are doing it today, and will outsource as much as we can in the future” 37% Aggressive Technology Adopters 14% Not Aggressive Technology Adopters Source: The 2013 Fidelity RIA Benchmarking Study. Proponent of outsourcing — we see tremendous value in it, are doing it today and will outsource as much as we can in the future Figure 27: Level of business process outsourcing Percent of firms that outsource at least some of this work 61% 40% Aggressive Technology Adopters 39% 22% Data Reporting Reconciliation Not Aggressive Technology Adopters 23% 14% Client Communications 20% 21% Marketing and Prospecting 17% 14% Fee Billing 13% 6% Asset Allocation 10% 7% Trading/ Rebalancing 4% 7% Financial Planning 4% 1% Client Onboarding Source: The 2013 Fidelity RIA Benchmarking Study. © 2014 FMR LLC. All rights reserved.
11 . 5 More Immediate Focus on Initiatives to Optimize Their Infrastructure. Aggressive Technology Adopters are more likely to be devoting resources — ​ currently — ​to initiatives that will streamline or optimize their technology environment, such as shifting to cloudbased or outsourced solutions, creating process workflows and automation, and implementing mobile technologies (see Figure 28). 6 Higher Levels of Satisfaction with Systems. Perhaps most importantly, and likely as a result of all the drivers just described, Aggressive Technology Adopters are often more satisfied with their systems (see Figure 29). Interestingly, there is little overlap between Aggressive Technology Adopters and High-Performing Firms. In fact, Aggressive Technology Adopters are no more likely to be high performing than other firms are.
It is worth noting that given the broader definition of what it means to be a High-Performing Firm, RIAs with strength across the board, not just in technology, will rise to the top. While Aggressive Technology Adopters may be strong when it comes to technology, they may not be quite as strong in other areas of the business. This is a group that bears watching, however, because their investments in optimizing their operations and technology should enable them to dedicate more resources to other areas of their business down the road. 12 © 2014 FMR LLC.
All rights reserved. Figure 28: Allocation of resources to technology initiatives Percent of firms currently devoting resources 76% Aggressive Technology Adopters 47% Not Aggressive Technology Adopters 56% 51% 49% 41% 41% 47% 30% 26% 33% 25% 24% 12% Shift to cloud-based or outsourced solutions Significant effort to create process workflows and automation Implementation of mobile technologies across the firm Significant effort to optimize current systems (e.g., training, customization) Significant increase in integration across technologies Implementation of a social media strategy Hiring technology or operations management or staff Source: The 2013 Fidelity RIA Benchmarking Study. Figure 29: Satisfaction levels with systems Percent of firms that rated their satisfaction 8, 9, or 10* Aggressive Technology Adopters 71% 72% 67% 43% Portfolio Management and Reporting 43% Client Reporting Not Aggressive Technology Adopters 55% 50% 54% 47% 38% CRM Fee Billing Financial Planning 59% 53% 43% Document Management 39% Trade Order Management/ Rebalancing *On a scale where 10 = extremely satisfied and 0 = not at all satisfied. Source: The 2013 Fidelity RIA Benchmarking Study. Key Takeaways on the Technology Landscape: • echnology is a strategic priority, and firms will continue investing to drive growth, T efficiency, profitability, and improvements in the client experience. • ptimizing current systems is the top priority — ​ integration, development of O via workflows, training, and utilization. • atisfaction is consistently driven by higher levels of utilization — ​ S but training and adoption require commitment. • ey barriers to success are all about people — ​ K lack of resources, expertise, and discipline — ​ and are not being addressed via hiring or outsourcing. • ggressive Technology Adopters take a far more progressive approach to technology A (higher levels of integration, outsourcing, utilization, and satisfaction) and as a result may be better positioned for future growth than other firms. . Section III: Business Processes Figure 30: Satisfaction with business processes and priority for improving Percent of firms Efficient business processes are important to every enterprise. Study findings indicate that more effort is needed in this area to help RIAs manage their businesses more effectively. In particular, although client acquisition was the top strategic goal for RIA firms, the vast majority are unsatisfied with their marketing and prospecting processes. Results also show that while many firms have standardized processes, most firms have not documented these processes for training, contingency, or other purposes, and many are not outsourcing processes to others. Satisfaction with Business Processes Is Relatively Low Data reconciliation (61%) and fee billing (59%) garnered the highest satisfaction ratings among the nine business processes investigated, although those rates are not that high on an absolute basis. 61% Satisfaction (Rated 8, 9, or 10)* Priority for improving (Rated 8, 9, or 10)* 59% 16% 52% 23% 18% Data Fee Billing Reconciliation 54% 51% Asset Allocation 43% 29% Reporting 39% 31% 38% 34% 21% Financial Planning 35% 28% 15% Trading/ Rebalancing Client Communications Client Onboarding Marketing and Prospecting *On a scale from 0 to 10, where 0 is low and 10 is high. Source: The 2013 Fidelity RIA Benchmarking Study. The marketing and prospecting process received the lowest satisfaction rating at 15%.
Because client acquisition is the number-one strategic imperative, low satisfaction with this process is a significant disconnect. More than half of firms reported that this process is a high priority to be improved. This trumped the need to improve all other processes explored by a significant margin (see Figure 30).
The largest firms ($1B+ AUM), however, do place a high priority on reporting (48%) and fee billing (41%) improvements. Documentation of Key Processes Remains an Opportunity Approximately 80%–100% of firms have standardized each of the business processes studied. The notable exception is for marketing and prospecting for which only 47% have a standardized process (see Figure 31). However, far fewer firms have taken the critical step to document their processes — ​only two processes have a significant percent of firms Figure 31: Standardization and documentation of business processes Percent of firms We do not have a standardized process We have a standardized, undocumented, process We have a standardized, documented, process We have an automated process Marketing and prospecting 53% 25% 21%  1% Client communications 21% 38% 38%  3% Client onboarding 17% 24% 55%  4% Financial planning 17% 38% 42%  3% Trading/rebalancing 14% 29% 49%  8% Asset allocation 13% 26% 56%  5% Data reconciliation  7% 26% 52% 15% Reporting  4% 24% 57% 15% Fee billing  2% 19% 66% 13% Source: The 2013 Fidelity RIA Benchmarking Study. © 2014 FMR LLC. All rights reserved.
13 . with documentation or automation. (Reporting at 72% and Fee billing at 79%). Again, marketing and prospecting is the lowest, with only 22% of firms having documented or automated processes. While levels of documentation were somewhat higher at larger firms, it remains an opportunity at firms of all sizes. Figure 32: Client customization requirements Percent of firms 23% Virtually all client relationships require customization or manual work 30% A majority of client relationships require customization or manual work 42% Some client relationships require customization or manual work Even among firms with standardized, documented processes, very few have automated processes (15% or fewer firms for any process). Customization and Complexity Are Biggest Obstacles to Standardization More than half of RIA firms say virtually all or a majority of their client relationships require customization or manual work, which complicates the implementation of common standards and practices (see Figure 32). The biggest driver of complexity is the client experience delivered (see Figure 33). Customization to this degree makes it very difficult to implement standard processes, and in turn to implement any form of segmented service delivery model, which helps explain why only about half of firms do so. 5% Almost no client relationships require customization or manual work Source: The 2013 Fidelity RIA Benchmarking Study. Figure 33: Drivers of operational complexity Percent of firms 67% 54% Comprehensive nature of services delivered 44% Client complexity and portfolio sophistication 21% 7% Investment products utilized Geographical dispersion of clients and/or branch offices Source: The 2013 Fidelity RIA Benchmarking Study. 14 © 2014 FMR LLC.
All rights reserved. Client experience delivered (e.g., high-touch model, customized reporting) . Outsourcing Does Not Have a Strong Foothold in RIA Firms Despite the fact that a majority of firms indicate they are at least open to outsourcing, if not a proponent, almost 40% of firms do not currently outsource any part of their business. Given the low satisfaction with many business processes, and the lack of internal expertise at many firms, this is clearly an underutilized solution. When firms do outsource, the top three outsourced business processes are: data reconciliation, reporting, and marketing and prospecting (see Figure 34). Figure 34: Level of business process outsourcing Percent of firms that outsource at least some of this work 44% Data Reconciliation 25% Reporting 21% Marketing and Prospecting 16% Client Communications 15% Fee Billing 8% Trading/Rebalancing 8% Asset Allocation 6% Financial Planning 2% Client Onboarding Source: The 2013 Fidelity RIA Benchmarking Study. Key Takeaways on Business Processes: • ignificant opportunity exists to improve satisfaction with many business processes — ​ S e specially marketing and business development, given the importance of client acquisition and low levels of satisfaction with current processes. Implementing automated workflows can be a powerful way to drive process efficiency and satisfaction. • idespread customization, given client complexity, is a key barrier to process W standardization — ​ but one that can be overcome with increased focus on segmentation. • ven when processes are standardized, many firms fail to document these processes, E making automation difficult or impossible. • utsourcing remains an underutilized solution — ​ O despite being open to the practice, many firms are not pursuing this option. © 2014 FMR LLC. All rights reserved. 15 .
Section IV: Growth and Outlook Historical Growth Has Been Strong Figure 35: Projected client growth Total AUM All Firms <$50M $50M– $99M $100M –$249M $250M –$499M $500M –$999M $1B+ Targeted number of new clients (Median) Overall, RIAs experienced strong client, asset, and revenue growth rates over the last several years (median compound annual growth rates): 2013 18 9 15 15 35 50 60 2014 20 10 20 15 40 50 75 2015 25 12 20 20 50 51 84 • Annual client growth was 7.3% from 2009 to 2012 2016 25 12 20 20 50 55 91 Source: The 2013 Fidelity RIA Benchmarking Study. • Annual AUM growth was 13.8% from 2009 to 2012 Figure 36: Projected AUM growth Total AUM • Annual revenue growth was 13.1% from 2010 to 2012 Future Growth Is Expected To Be Similarly Strong Firms also anticipate solid growth in clients, assets, and revenue looking forward through 2016 (see Figures 35–37). All Firms <$50M $50M –$99M $100M –$249M $250M –$499M $500M –$999M $1B+ Projected AUM growth rates (median) 2013 10% 11% 10% 10% 12% 12% 12% 2014 12% 14% 12% 11% 12% 10% 12% 2015 10% 10% 12% 10% 10% 10% 12% 2016 10% 10% 12% 10% 10% 10% 13% Source: The 2013 Fidelity RIA Benchmarking Study. Figure 37: Projected revenue growth Total AUM All Firms <$50M $50M –$99M $100M –$249M $250M –$499M $500M –$999M $1B+ PROJECTED REVENUE GROWTH RATES (MEDIAN) 2013 10% 14% 10% 10% 10% 10% 12% 2014 11% 14% 12% 11% 10% 10% 12% 2015 10% 13% 12% 11% 10% 10% 12% 2016 10% 10% 12% 11% 10% 10% 12% Source: The 2013 Fidelity RIA Benchmarking Study. 16 © 2014 FMR LLC. All rights reserved. . Section V: Conclusions The year 2012 was a strong year for the RIA industry, with revenue and assets showing significant positive gains. High-Performing Firms continued to lead the way by outperforming their peers financially. To continue their growth trajectories, however, harnessing technology more effectively and streamlining business processes will be fundamental to sustaining growth and improving business performance for all RIAs. There is substantial consensus that technology is a key strategic priority for RIAs, and that the role of technology is to support business strategy by creating efficiencies, increasing client satisfaction, and making scalable organic growth possible. Firms are aware that driving utilization, enabling integration, and implementing business process workflows are keys to getting the most out of their technology. However, the study indicates that most RIAs can still significantly improve the benefits they receive from their technology infrastructure and operational processes.
RIA firms reported using less than optimal functionality, having less than optimal integration across systems, and experiencing relatively low satisfaction with technology systems and business processes. Possible solutions like outsourcing are not being pursued by all firms. Why might this be happening? Several reasons stand out, many of them related to people: 1. There are not enough people — ​ or not the right people — ​ support to technological change. 2. There is not enough ongoing training to drive adoption of technology systems. 3. Firms struggle to manage technology changes and the disruption that such changes might engender. Key drivers reported include internal resource constraints or lack of implementation skill. 4. Less than two-thirds of RIAs outsource any aspect of their business today, thereby limiting the functions and roles that employees can perform. There is a group of firms that are investing aggressively in technology and seemingly overcoming some of the above challenges.
These firms may serve as an example for their peers, because they are using more system functionality, have more widespread system integration, employ vendorhosted systems to a greater degree, outsource more of their processes, and are more satisfied with their technology. While many of these firms do not currently meet the definition of being a High-Performing Firm, they may be positioning themselves to achieve outsized financial results in the future by creating technology environments that enhance the client experience and free resources to focus on growth. 5. Customization based on client complexity is widespread — ​ a nd limits opportunities to standardize processes. 6. The fear of business disruption prohibits some firms from optimizing technology. 7. Most firms are not very proficient when it comes to measuring the success of their technology and operational initiatives. © 2014 FMR LLC. All rights reserved.
17 . Additional Fidelity Resources: • Enabling the Next Wave of Growth with Workflows: A Technology and Operations Toolkit • Harnessing Technology to Drive Your Business: A Technology and Operations Guide • Time for Technology: Fostering Smarter and Stronger Relationships white paper • Embracing Mobile Technology: The Next Game Changer for Financial Advisors white paper • Vendor Due Diligence: Evaluating the Security of Hosted Solutions white paper • Building an Action Plan to Drive Growth Within Your Practice: A Business Development and Marketing Planning Toolkit 18 © 2014 FMR LLC. All rights reserved. . Appendix Figure 38: Business process metrics (median) Total AUM All Firms <$50M $50M –$99M $100M –$249M $250M –$499M $500M –$999M $1B+ 93% 91% 89% 89% 93% 100% 98% Weeks from period end to mailing of bills — ​ median 2 1 1 1.5 2 2 3 Staff hours spent each billing cycle — ​ median 10 5 8 8 12 25 40 80% 84% 69% 80% 82% 77% 84% Weeks from period end to report completion — ​ median 2 2 2 2 2 2 2 Per week, staff hours spent on reporting — ​ median 10 9 6 5.5 10 15 27.5 % rebalance on regular basis 52% 49% 51% 61% 56% 54% 36% % rebalance quarterly 22% 21% 27% 23% 16% 26% 23% 3 2 5 3 2 3 3 Billing % quarterly billing Client Reporting % quarterly reporting Rebalancing Days to rebalance all portfolios — ​ median Source: The 2013 Fidelity RIA Benchmarking Study. Figure 39: Key financial ratios (median) Total AUM All Firms <$50M $50M –$99M $100M –$249M $250M –$499M $500M –$999M $1B+ Total revenue (in thousands) $1,116 $231 $524 $1,092 $2,164 $4,660 $8,515 Total expenses (in thousands) $931 $218 $426 $891 $1,599 $4,148 $7,319 Earnings before owners’ compensation (EBOC) (in thousands) $619 $138.0 $301.5 $623.3 $1,275 $2,324 $3,803 EBOC as a percent of revenue (EBOC margin) 57% 68% 60% 57% 61% 51% 49% All clients year-end 2012 175 58 110 163 343 437 593 Revenue per client (in thousands) $6.2 $3.8 $4.5 $6.6 $7.3 $11.6 $16.3 Expense per client (in thousands) $5.0 $3.3 $3.7 $5.0 $6.3 $8.4 $11.7 Source: The 2013 Fidelity RIA Benchmarking Study. © 2014 FMR LLC. All rights reserved. 19 . Figure 40: Key technology system metrics (median values, except where noted) Total AUM All Firms $50M –$99M $100M –$249M $250M –$499M $500M –$999M $1B+ $31,910 Spend <$50M $6,999 $10,914 $15,601 $27,466 $55,980 $103,966 # people using 4.0 2.0 3.0 4.0 7.0 12.0 20.0 % utilization 75% 75% 65% 75% 75% 80% 85% Satisfaction* Portfolio Management and Reporting 7.1 7.3 7.4 7.3 7.0 7.1 6.6 $12,301 $2,194 $2,668 $4,206 $11,425 $18,681 $39,288 Spend # people using 6.0 2.0 3.0 5.0 9.0 15.0 30.0 % utilization 50% 50% 50% 50% 60% 50% 58% Satisfaction* CRM 6.4 6.7 6.4 6.5 6.4 6.7 6.1 $8,739 $1,560 $2,792 $3,456 $5,417 $21,294 $31,066 Spend # people using 4.0 1.0 3.0 3.0 5.0 10.0 18.5 % utilization 80% 75% 75% 80% 80% 80% 85% Satisfaction* Client Reporting 7.0 7.1 7.5 7.0 6.8 7.3 6.7 $14,696 Spend $755 $1,403 $1,971 $5,170 $7,309 2.0 1.0 1.5 2.0 2.0 2.0 3.0 % utilization 95% 100% 93% 95% 90% 90% 85% Satisfaction* Fee Billing $4,208 # people using 7.3 7.8 7.6 7.4 7.1 7.4 6.3 Spend $1,182 $1,974 $2,253 $5,632 $8,413 $11,311 5.0 2.0 3.5 5.0 6.5 20.0 29.0 % utilization 80% 80% 83% 80% 85% 75% 80% Satisfaction* Document Management $4,298 # people using 6.9 7.1 7.3 7.1 7.0 6.6 6.1 Spend $1,692 $2,497 $2,749 $5,225 $6,526 $13,918 3.0 2.0 2.0 2.0 3.0 4.5 10.0 % utilization 75% 80% 78% 75% 75% 73% 80% Satisfaction* Financial Planning $4,709 # people using 7.2 7.3 7.5 7.5 7.4 6.4 7.0 *Figures represent mean values for firms that use each system. Source: The 2013 Fidelity RIA Benchmarking Study. Figure 41: Vendors used for systems Portfolio Management and Reporting CRM All Firms Fee Billing All Firms All Firms Morningstar Office 20% Salesforce 18% Proprietary/Built Internally 18% Portfolio Center 20% RedTail 17% Advent Revenue Center 11% Advent Axys 13% Junxure 16% Client Reporting Advent Black Diamond 12% Oracle 8% Advent APX 10% MS Dynamics 7% Portfolio Management System 25% Orion 3% Outlook 5% Proprietary/Built Internally 11% Tamarac 3% Act4Advisors 4% Advent Packager 10% Source: The 2013 Fidelity RIA Benchmarking Study. 20 © 2014 FMR LLC. All rights reserved. All Firms . Notes © 2014 FMR LLC. All rights reserved. 21 . For more information, please contact your Fidelity Sales or Relationship Manager. For investment professional use only. Not for distribution to the public as sales material in any form. The information contained herein is as of the date of its publication, is subject to change, and is general in nature. Such information is provided for informational purposes only and should not be considered legal, tax, or compliance advice. Fidelity does not provide legal, tax, or compliance advice.
Fidelity cannot guarantee that such information is accurate, complete, or timely. Federal and state laws and regulations are complex and are subject to change. Laws of a specific state or laws that may be applicable to a particular situation may affect the applicability, accuracy, or completeness of this information. This information is not individualized and is not intended to serve as the primary or sole basis for your decisions, as there may be other factors you should consider, and may not be inclusive of everything that a firm should consider in this type of planning decision.
Some of the concepts may not be applicable to all firms. Always consult an attorney, tax professional, or compliance advisor regarding your specific legal or tax situation. The 2013 Fidelity RIA Benchmarking Study was conducted between May 1 and June 28, 2013, in collaboration with an independent third-party research firm unaffiliated with Fidelity Investments. The experiences of the RIAs who responded to the study may not be representative of other RIAs and are not an indication of future success. Registering for, completing, and accessing the survey required access to and use of a third-party Web site, operated by an independent third-party research firm unaffiliated with Fidelity Investments.
The third-party providers listed herein are neither affiliated with nor an agent of Fidelity, and are not authorized to make representations on behalf of Fidelity. Their input herein does not suggest a recommendation or endorsement by Fidelity. This information was provided by the third-party providers and is subject to change. There is no form of legal partnership, agency, affiliation, or similar relationship among an investment professional, the third-party service providers, and Fidelity Investments, nor is such a relationship created or implied by the information herein. The Fidelity Investments and pyramid design logo is a registered service mark of FMR LLC. Fidelity Family Office Services is a division of Fidelity Brokerage Services LLC, Member NYSE, SIPC. Fidelity Institutional Wealth Services provides brokerage products and services and is a division of Fidelity Brokerage Services LLC.
National Financial is a division of National Financial Services LLC, through which clearing, custody, and other brokerage services may be provided. Both are members of NYSE and SIPC. The material in this report is copyrighted by Fidelity Investments. No portion of these materials may be reproduced, distributed, or otherwise used in any form without the express written consent of Fidelity Investments. Fidelity Investments Institutional Services Company, Inc., 500 Salem Street, Smithfield, RI 02917 © 2014 FMR LLC.
All rights reserved. 675126.4.01.9585425.102 0114 .
Technology Landscape 6 • 87% of Gen X/Y millionaires in a recent Fidelity survey said that technology enhanced their relationship with their financial advisor (vs. 32% of Baby Boomers+ surveyed).1, 2 III. Business Processes V.
Conclusions 17 • 92% of Gen Y advisors in a recent Fidelity survey considered themselves to be technology savvy (vs. 51% of Baby Boomers+ VI. Appendix 19 surveyed).3 The 2013 Fidelity RIA Benchmarking Study (the “study”) takes a deep dive into the issues of RIA technology strategy, usage, and integration.
In addition, the study examines key business performance metrics and business processes to help RIAs understand how they compare with their peers and gain insights to help them grow and improve their businesses. For purposes of this report and the recent Fidelity studies cited on this page, Gen Y refers to those born from 1980 to 1992, Gen X refers to those born from 1965 to 1979, and Baby Boomers+ refers to those born in 1964 or earlier. 2 2013 Fidelity Millionaire Outlook Study — A primary research study (Fidelity not identified) among 542 U.S. millionaire investors conducted via an online survey during the period of May 15–23, 2013. Qualified respondents had investable assets of at least $1 million, excluding workplace retirement accounts and any real estate holdings. 3 2013 Fidelity Advisor Insights Study — ​ online, blind survey (Fidelity not identified) fielded during An the period of August 8–21, 2013. Participants included 813 advisors from across multiple firm types who work primarily with individual investors and manage a minimum of $10M in individual or household investable assets.
Firm types included a mix of large and small IBDs, regional broker-dealers, RIAs, insurance companies, wirehouses, and banks, with findings weighted to reflect industry composition. 1 © 2014 FMR LLC. All rights reserved. 13 IV. Growth and Outlook 16 .
This year’s report highlights two groups of firms worth watching: HighPerforming Firms (those RIA firms that outperformed peers financially and may have some lessons to share with the rest of the industry)4 and Aggressive Technology Adopters (firms that have made a conscious decision to be on the cutting edge of technology and who could shine a light on the road ahead).5 About the Research and Respondents 5. While a fair number of business processes at RIAs are standardized, many are not documented or automated — ​which may be hampering efficiency. The 2013 Fidelity RIA Benchmarking Study was conducted by Fidelity Institutional Wealth Services as part of its Practice Management and Consulting Program to give RIA firms insight into how their firms compare with others in the industry. The objectives of the study were to understand the behaviors of RIA firms in order to determine best practices in the industry and, in turn, to share these learnings with the RIA community. Respondent firms were primarily RIA firms that custody some portion of their assets with Fidelity Institutional Wealth Services.6 Fidelity was identified as the study sponsor. The online survey was conducted from May 1 through June 28, 2013, and administered by an independent thirdparty research firm. More than 500 RIA firms participated in the study, of which 324 completed it and form the basis for the findings in this report.
In this report, the terms “RIAs,” “RIA firms,” and “firms” refer only to those RIA firms that participated in the study. 6. Marketing and prospecting are the business processes that RIAs are least satisfied with and most want to improve — ​ imperative given the an importance of growth. Key Study Findings 7. Outsourcing of key processes is more aspirational than actual — ​ RIAs are conceptually open to outsourcing, but many are not doing it today. 1. RIAs recognize the strategic importance of technology, using it to improve efficiency and profitability, enhance their clients’ experiences, and enable scalable organic growth. 8. High-Performing Firms appear to take a pragmatic approach to technology, reporting strong, but not cutting-edge, technology environments. 2. Firms are primarily focused on optimizing their current systems — ​ vs. investing in new systems — ​ driving by initiatives related to integration, workflows, and training. 9. Aggressive Technology Adopters, however, embrace cutting-edge technology and are reaping benefits in system utilization, integration, and satisfaction. 3. System utilization is a key driver of satisfaction — ​unfortunately, both measures are relatively low, particularly for key systems like CRM. 4. Internal staffing issues, rather than system limitations or budget, present the greatest challenge to technology optimization. Figure 1: Highlights of the study sample AUM CATEGORIES 69 firms <$50M 45 84 firms $50M to $99M firms $100M to $249M 47 firms $250M to $499M 35 firms $500M to $999M 44 firms $1B+ OTHER KEY CATEGORIES 43 70 HIGH-PERFORMING FIRMS AGGRESSIVE TECHNOLOGY ADOPTERS Source: The 2013 Fidelity RIA Benchmarking Study. The term “High-Performing Firms” refers to the subset of participating firms with business results that meet the criteria defined in this report. Reference to the concept of “performing” in the name of this group is not intended to connote investment returns.
Past performance is no guarantee of future results. 4 Aggressive Technology Adopters = Firms that identified their overall technology approach to be investing aggressively in their technology, and their technology environment as cutting edge in many areas. 6 Clearing and custody provided by National Financial Services LLC. 5 2 © 2014 FMR LLC. All rights reserved. . HI A Section I: HighPerforming Firms As in past studies, a group of HighPerforming Firms has been identified as having outperformed other firms in terms of their financial results (see Figure 2 for definitions and qualifying criteria). These firms are examined to see what makes them different and what other RIA firms can learn from them. High-Performing Firms Come in All Sizes, and Significantly Outperform Their Peers Based on the definition, we know that High-Performing Firms have demonstrated excellence in the areas of growth, profitability, and productivity. But, by how much have they outdistanced their peers? Is the gap large or small? The figures to the right show just how much HighPerforming Firms outperform All Other Eligible Firms7 in terms of these three areas. Figure 3: Growth comparison, 2009–2012 AUM CAGR* (median) 15% Second Criterion Pass eligibility screen Rank in the top 25% of eligible survey respondents, based on a composite ranking across three areas 15% 10% 10% What types of firms are HighPerforming Firms? The definition is carefully constructed so that firm size is not necessarily a factor. In fact, HighALL OTHER HIGH-PERFORMING ELIGIBLE FIRMS FIRMS Performing Firms come in all sizes. ALL OTHER HIGH-PERFORMING ELIGIBLE FIRMS FIRMS See Figure 6 for a comparison of basic *CAGR = Compound Annual Growth Rate business metrics for High-Performing Source: The 2013 Fidelity RIA Benchmarking Study. Firms vs.
All Other Eligible Firms. Figure 4: Profitability comparison, 2012 EBOC margin* (median) 67% 67% Figure 2: Qualifying criteria for High-Performing Firms First Criterion 0 50% • Practice established prior to December 31, 2009 • Assets under management (AUM) of $50M or more as of December 31, 2009 • Two or more full-time employees as of December 31, 2012 • erger or acquisition activities contributed no more M than 25% of the change in AUM from 2010 to 2012 • Three-year AUM compound annual growth rate (CAGR) as of December 31, 2012 • Earnings before owners’ compensation (EBOC) margin for the calendar year ending December 31, 2012 • Revenue per full-time equivalent (FTE) for the calendar year ending December 31, 2012 Source: The 2013 Fidelity RIA Benchmarking Study. 5 ALL OTHER HIGH-PERFORMING ELIGIBLE FIRMS FIRMS ALL OTHER HIGH-PERFORMING ELIGIBLE FIRMS FIRMS *EBOC = Earnings Before Owners’ Compensation Source: The 2013 Fidelity RIA Benchmarking Study. $ Figure 5: Productivity comparison, 2012 Revenue per FTE* (median) HIGH-PERFORMING FIRMS $333,000 ALL OTHER ELIGIBLE FIRMS $219,000 0 50000 100000 150000 200000 250000 300000 35000 *FTE = Full-Time Equivalent Source: The 2013 Fidelity RIA Benchmarking Study. 7 15% Based on the criteria in Figure 2, All Other Eligible Firms = all study respondents who passed the eligibility screen in the first criterion, but did not rank in the top 25% of the composite ranking in the second criterion. 10% 100 90 80 70 © 2014 FMR LLC.60 rights reserved. All 50 3 . Figure 6: Comparison of attributes (median 2012 data) High-Performing Firms All Other Eligible Firms Number of clients 299 295 Number of FTEs 7 9 Number of owners 3 2 Assets under management $360M $261M Revenue $2.4M $1.8M Revenue per advisor $910K $542K Revenue per client $9,310 $7,369 Total clients per advisor 93 68 Source: The 2013 Fidelity RIA Benchmarking Study. High-Performing Firms Are Technology Pragmatists analyzed to identify key differences in terms of their technology approach. While several specific differences are highlighted on the following pages, an overall theme of technology pragmatism clearly emerged. What makes High-Performing Firms stand out? Given that the focus of the study was on technology, this group was specifically Figure 7: Strong, but not cutting-edge technology environments Survey Question: Which of the following best characterizes your firm’s overall technology approach? 1 Strong Technology Environments. High-Performing Firms are more likely than All Other Eligible Firms to describe their technology environments as strong but not cutting edge (see Figure 7). These High-Performing Firms appear to recognize the importance of investing in technology — ​but not to the point of investing in the “latest and greatest” technologies. This may be seen as favoring proven technologies over newer, not-yet-proven systems. (In the next section on technology, we will take a closer look at Aggressive Technology Adopters, those RIA firms that are investing aggressively in cuttingedge technology, and delve into the benefits they are seeing.) 2 Stable Support Resources.
HighPerforming Firms appear to be more satisfied with the amount of technology and operations support that they currently have. They view changing the amount of resources allocated to technology and operational support as less of an opportunity than All Other Eligible Firms (see Figure 8). Percent of firms who chose “We invest significantly in technology and our technology environment is strong, but not typically cutting edge” 74% High-Performing Firms All Other Eligible Firms 53% Source: The significantlyRIA technology and We invest 2013 Fidelity in Benchmarking Study. our technology environment is strong, but not typically cutting edge Figure 8: Changing support resources as a top opportunity Survey Question: Where do you see the biggest overall opportunities to optimize the technology and operations environment in your firm? Percent of firms who ranked “Changing amount of resources allocated to technology and operations support” as 1st, 2nd or 3rd 5% High-Performing Firms 20% All Other Eligible Firms Source: The amount of resources allocated Changing 2013 Fidelity RIA Benchmarking Study. to technology and operations support Figure 9: Client experience as a goal for using technology Survey Question: What are your firm’s goals in using technology? Percent of firms who ranked “Enhance client experience and satisfaction” as 1st, 2nd or 3rd 77% High-Performing Firms All Other Eligible Firms 61% Source: The 2013 experience and satisfaction Enhance client Fidelity RIA Benchmarking Study. 4 © 2014 FMR LLC. All rights reserved. 3 More Focused on Client Experience.
When asked about their goals for using technology, High-Performing Firms were more likely than All Other Eligible Firms to cite improving their clients’ experience and satisfaction as a top goal (see Figure 9). This year’s study found that a top strategic priority across all firms was new client acquisition. Given that client referrals are the biggest source of new clients for most .
firms, High-Performing Firms may recognize to a greater degree that delivering a positive client experience can help generate referrals that could eventually lead to new business. As a result, they appear to be aligning technology with their strategic growth goals. 4 More Focused on Technology Integration.8 When asked about their biggest technology opportunities, 67% of HighPerforming Firms ranked integrating existing systems in their top three opportunities vs. 56% of All Other Eligible Firms (see Figure 10). While High-Performing Firms are no more or less likely to have integrated systems, their focus on integration as the top opportunity implies that they recognize the potential benefits — ​ p rimarily more streamlined workflow — ​ a greater degree. to 5 More Concerned about Business Disruption. As noted above, High-Performing Firms are more focused on technology integration. But when asked what stops them from integrating systems, HighPerforming Firms are more likely than All Other Eligible Firms to say disruption to their business is the biggest challenge (see Figure 11) — ​ and are less likely to cite cost or skill set of staff.
This may be linked to High-Performing Firms’ greater focus on client experience, as referenced earlier. If a system integration project is viewed as 8 Figure 10: System integration as an opportunity for using technology Survey Question: Where do you see the biggest overall opportunities to optimize the technology and operations environment in your firm? Percent of firms who ranked “Integrating existing systems” as 1st, 2nd or 3rd 67% High-Performing Firms 56% All Other Eligible Firms Source: The 2013 Fidelity RIA Benchmarking Study. Integrating existing systems Figure 11: Worried about business disruption Survey Question: What are the biggest challenges when integrating your systems? Percent of firms who ranked “Business disruption given time required” 1st 60% High-Performing Firms All Other Eligible Firms 43% Source: The 2013 Fidelity RIA Benchmarking Study. Business disruption given time required disruptive to business processes or the client experience, HighPerforming Firms may weigh this risk more heavily. 6 Other Differences. Aside from differences in their technology approach, High-Performing Firms close new business in fewer meetings, and drive higher rates of AUM growth by retaining client assets and generating higher levels of contributions from existing clients.
These and other differentiating factors will be examined more closely in future studies. Key Takeaways from High-Performing Firms: Like many RIAs, even High-Performing Firms have room for improvement when it comes to technology. However, their approach yields several insights: • hile it may not be necessary to have W “cutting-edge” technology to achieve superior business results, a strong technology environment may be a key enabler. • riving increased levels of system D integration to accrue potential benefits such as streamlined workflows is a top priority for High-Performing Firms. • ever lose sight of the impact N technology has on your clients — ​ i mproving the client experience and avoiding business disruption are critical for High-Performing Firms. It should be noted that there are various definitions and levels of integration. For purposes of the study, integration was defined in terms of three levels: Limited integration (e.g., systems updated via a file delivery process), Moderate integration (e.g., automated data synchronization), or Full integration (e.g., automated synchronization with single sign-on and seamless user interface). © 2014 FMR LLC.
All rights reserved. 5 . Section II: Technology Landscape Technology Is a Strategic Priority There is broad consensus across RIA firms on the top three goals for technology in their firms: RIA firms recognize that technology is important, and they have articulated clear goals for how they want technology to benefit their firms. However, adoption, implementation, and utilization will need to improve for many firms to unlock the full benefits of technology. One group of firms — ​Aggressive Technology Adopters — ​ appears to be aggressively investing in technology and is experiencing benefits in system utilization, integration, and satisfaction. 1. Increase efficiency, staff capacity, and firm profitability 2. Enhance client experience and satisfaction 3. Facilitate and support scalable organic growth These top three goals are all strategic in nature and outdistance other possible goals explored by a wide margin (see Figure 12). Figure 12: Goals for technology Percent of firms who ranked each as 1st, 2nd or 3rd 86% Reduce risk/errors To achieve their goals, RIA firms have been investing and will continue to invest in technology based on the results from the study. In the period from 2010 through 2012, firms said that their median annual technology spend ranged from 2.7% to 3.1% of firm revenue.9 They projected their spend as a percent of revenue would drop slightly from 2.9% in 2013 to 2.7% in 2014. By the end of 2014, firms expect that their technology spend will have increased at a CAGR of approximately 14% since 2010.
They expect their comparable revenue growth rate to be 13% — which implies that technology spend will grow at a slightly higher rate. The continued rise in technology Increase efficiency, staff capacity, spend is driven largely by a desire to and firm profitability 68% Enhance client experience and satisfaction 65% Facilitate and support scalable organic growth 36% Significant Technology Investment Will Continue keep pace with business growth (see Figure 13), and to maintain what most firms (75%) describe as strong or cutting-edge technology environments (see Figure 14). 21% Create competitive advantage 14% Enhance employee experience and satisfaction 10% Facilitate and support scalable inorganic growth (M&A) Source: The 2013 Fidelity RIA Benchmarking Study. 9 For purposes of this study, technology spend includes all hardware, software, license fees, IT consulting costs, and disaster recovery costs. It does not include the compensation costs associated with people supporting the firm’s technology. 6 © 2014 FMR LLC. All rights reserved. .
Figure 13: Plan for technology spend next five years Figure 14: State of technology environments Percent of firms Percent of firms 9% 17% 24% Not sure. Haven’t given it much thought. 100.000000 We plan to keep growing 66.666667 our firm’s technology spend consistently over the next five years. 50.000000 49% We want to plan our firm’s 33.333333 technology spend such that it always keeps pace with our business growth. 16.666667 22% 53% 1% We do not plan to increase our We technology spend significantly 83.333333 will be reducing over the next five years, neither our firm’s technology spend compared do we intend to reduce spend. with current levels. We invest aggressively in technology, and our technology environment is cutting edge in many areas. We invest significantly in technology, and our technology environment is strong but not typically cutting edge. 24% We invest as necessary in technology, and our technology environment is serviceable but not strong. little as possible in 2% We invest asand our technology technology, 0.000000 environment is minimalist. Source: The 2013 Fidelity RIA Benchmarking Study. Technology Plans Are Focused on Optimizing Current Systems Note: Figures do not sum to 100% due to rounding. Source: The 2013 Fidelity RIA Benchmarking Study. Figure 15: Biggest technology opportunities Percent of firms who ranked each as 1st, 2nd or 3rd 68% Implementing automated business process workflows RIA firms have a good sense about what they feel the top technology opportunities are: 58% Training staff on existing systems to increase utilization 58% Integrating existing systems new technology 52% Investing infunctionality to add key 1. Implementing automated business process workflows 2. Training staff on existing systems to increase utilization 23% Dedicating resources to technology management and vision Increasing outsourcing of technology 20% or business processes allocated 16% Changing amount of resourcessupport to technology and operations 3. Integrating existing systems Taken together, these top three opportunities seem to indicate that RIAs are focused on getting the most out of their existing technologies before investing in new systems (see Figure 15). 6% Increasing executive sponsorship Source: The 2013 Fidelity RIA Benchmarking Study. © 2014 FMR LLC. All rights reserved. 7 . RIA firms also appear to be putting resources behind these top initiatives. A majority of firms currently are, or in the next 12 months will be, devoting resources to optimize their current systems through training and customization, or creating process workflows and automation (see Figure 16). Satisfaction with Technology Systems Is Relatively Low Although there is a large degree of focus and investment in technology, technology nirvana is still somewhat elusive. In particular, satisfaction with key systems remains relatively low — ​ p articularly for CRM (see Figure 17). On average across the four top systems, only about 50% of RIA firms rate their satisfaction as an 8, 9, or 10 (out of 10). Relatively low levels of system utilization (Figure 18) may be a contributing factor to these rates of satisfaction, especially in the case of CRM. Why aren’t the utilization numbers higher? The top three reasons selected (for Portfolio Management and CRM systems) were: 1. Not enough initial or ongoing training 2. Poor understanding of functionality/ benefits of using 3. Lack of clear incentives for staff to use As one might expect, those most satisfied with their systems are firms who are utilizing more of the functionality in their systems (see Figure 19). Figure 16: Top tech initiatives for devoting resources Percent of firms Currently devoting resources 75% Will start devoting resources in the next 12 months 71% 33% 64% 11% 27% 60% 51% 29% 53% 44% 43% 31% Significant effort Significant effort to optimize to create current systems process (e.g., training, workflows and customization) automation Shift to cloud-based or outsourced solutions 35% Significant increase in integration across technologies Implementation of mobile technologies across the firm 23% 8% 27% Implementation of social media strategy 15% Hiring technology or operations management or staff Figure 17: Satisfaction with systems used Percent of firms who rated each an 8, 9 or 10* 59% 49% 49% 41% Fee Billing Client Reporting Portfolio Management and Reporting CRM 21% 14% Figure10%Percent of system functionality utilized (mean) 18: *On a scale where 10 = extremely satisfied and 0 = not at all satisfied. Source: The 2013 Fidelity RIA Benchmarking Study. 86% Fee Billing 75% Client Reporting 73% Portfolio Management and Reporting 36% CRM 52% 21% 14% Figure 19: Utilization for highly satisfied firms vs.
less satisfied firms Percent10% of system functionality utilized (mean) Source: The 2013 Fidelity RIA Benchmarking Study. Highly Satisfied (8, 9, 10)* 89% 81% 82% 77% 66% 69% 75% 70% 75% All Others (0–7)* 67% 71% 63% 60% 47% Document Management Trade Order Management Portfolio Management Financial Planning *On a scale where 10 = extremely satisfied and 0 = not at all satisfied. Source: The 2013 Fidelity RIA Benchmarking Study. © 2014 FMR LLC. All rights reserved. 19% Source: The 2013 Fidelity RIA Benchmarking Study. Note: Figures may not total 100% due to rounding. Fee Billing 8 46% 16% Portfolio Risk and Analysis CRM . People-Related Issues Create Barriers to Technology Optimization 1. Internal resource constraints The top barriers to optimizing technology in RIA firms are all related to people (see Figure 22). From a list of possible barriers, the top three selected were: Relatively low levels of system integration, again for CRM in particular, may also be contributing to lower levels of satisfaction (see Figure 20). In many cases, higher levels of integration make it easier for firms to utilize a higher percent of system functionality. Firms most often cited the risk of business disruption as the biggest barrier to integration (see Figure 21). 3. Implementation skill Figure 20: System integration Percent of firms that have integrated each system to some degree with other systems 77% Portfolio Management and Reporting 56% CRM 55% Client Reporting 49% Fee Billing Source: The 2013 Fidelity RIA Benchmarking Study. Figure 21: Integration challenges Percent of firms who ranked each as their biggest challenge when integrating systems 46% Business Disruption Given Time Required 22% System Limitations 17% Cost of External Consultants 15% Technical Skill Set of Staff Source: The 2013 Fidelity RIA Benchmarking Study. Figure 22: Biggest technology optimization barriers Percent of firms who ranked each 1st, 2nd or 3rd 56% Internal resource constraints the technology) (available people to support Training discipline (lack of regular staff training 50% to drive adoption of new or existing systems) 49% Implementation skill (lack of ability to manage change and disruption) 2. Training discipline In other words, the technology may be in place, but firms appear to lack the right resources to implement it effectively and to train the rest of the organization to utilize it.
As a result, satisfaction suffers and opportunity is missed. Given that people-related issues are a top barrier to technology success, one might think that hiring new resources or outsourcing these functions might be potential solutions. However, study results appear to indicate that firms are not necessarily embracing these options: • More than half of firms (55%) do not plan to devote resources to hiring technical or operations staff at all, and another 14% do not plan to devote resources to this for at least two years. • Outsourcing seems to be more attractive in concept than in practice. While three in four RIA firms are either proponents of outsourcing (19%) or are open to outsourcing (56%), almost 40% of firms do not currently outsource any part of their business and only 22% of firms are currently outsourcing three or more processes. 37% System limitations 37% Ability to measure impact or success 36% Prioritization or decision-making process (lack of agreement that doing more is desirable) 30% Willingness to invest (lack of available budget) 5% Lack of quality candidates to hire (talent in the marketplace) Source: The 2013 Fidelity RIA Benchmarking Study. © 2014 FMR LLC. All rights reserved. 9 .
Aggressive Technology Adopters May Show a Path Forward Despite the challenges just described, there may be a group of firms who is leading the way when it comes to technology. Over one-fifth of firms (22%) say they invest aggressively in technology and that their technology environments are cutting edge in many areas. This group of Aggressive Technology Adopters stands out in a number of ways: 1 Higher Levels of System Usage — ​and Utilization. Aggressive Technology Adopters are more likely to use systems in general (see Figure 23), which can lead to immediate time savings. The average amount of time that was saved by implementing key systems is substantial — ​ from 20% to 30%+ of staff time, depending on the system. Aggressive Technology Adopters also utilize more of the functionality of their systems.
As we saw earlier, utilization is a key driver of satisfaction. 2 More Use of Vendor-Hosted Systems. Aggressive Technology Adopters are less likely to have systems locally installed, and are thus more likely to use vendorhosted systems. This is likely to relieve the burden of supporting locally installed systems (see Figure 24). Figure 23: System usage and utilization Percent of firms that use the system 100% 93% Aggressive Technology Adopters 91% 89% 71% 73% 81% 70% Not Aggressive Technology Adopters 76% 73% 65% 56% 45% Portfolio Management and Reporting Client Reporting CRM Fee Billing Financial Planning Document Management Trade Order Management/ Rebalancing Source: The 2013 Fidelity RIA Benchmarking Study. Percent of system functionality used (mean) Aggressive Technology Adopters 91% 76% 72% 81% Not Aggressive Technology Adopters 84% 74% 71% 70% 78% 71% 79% 69% 54% 52% Portfolio Management and Reporting Client Reporting CRM Fee Billing Financial Planning Document Management Trade Order Management/ Rebalancing Source: The 2013 Fidelity RIA Benchmarking Study. Figure 24: Use of vendor-hosted systems Percent of firms with vendor-hosted systems Aggressive Technology Adopters 60% 47% Not Aggressive Technology Adopters 66% 59% Portfolio Management and Reporting 46% Client Reporting 49% CRM Source: The 2013 Fidelity RIA Benchmarking Study. 10 © 2014 FMR LLC.
All rights reserved. 80% 59% 58% 42% Fee Billing 59% 58% 51% 40% Financial Planning 32% Document Management Trade Order Management/ Rebalancing . 3 Higher Levels of Integration. Aggressive Technology Adopters are more likely to have achieved system integration in key areas. In particular, CRM systems and Document Management systems are much more likely to be integrated with other systems (see Figure 25). Across all firms, the most commonly integrated pairs of systems are: – rade Order Management/ T Rebalancing with Portfolio Management and Reporting – RM with Document C Management 4 Higher Levels of Outsourcing. Aggressive Technology Adopters are bigger proponents of outsourcing in general (see Figure 26). And for key processes, including data reconciliation and client reporting, Aggressive Technology Adopters are significantly more likely to be outsourcing (see Figure 27). Figure 25: System integration Percent of firms that have integrated each system to some degree with other systems 81% 76% Aggressive Technology Adopters 70% 61% 53% Not Aggressive Technology Adopters 52% 50% 49% 49% 43% 39% 42% 31% 22% Portfolio Management and Reporting Client Reporting CRM Fee Billing Financial Planning Document Management Trade Order Management/ Rebalancing Source: The 2013 Fidelity RIA Benchmarking Study. Figure 26: Attitude toward outsourcing Percent of firms who chose “Proponent of outsourcing — We see tremendous value in it, are doing it today, and will outsource as much as we can in the future” 37% Aggressive Technology Adopters 14% Not Aggressive Technology Adopters Source: The 2013 Fidelity RIA Benchmarking Study. Proponent of outsourcing — we see tremendous value in it, are doing it today and will outsource as much as we can in the future Figure 27: Level of business process outsourcing Percent of firms that outsource at least some of this work 61% 40% Aggressive Technology Adopters 39% 22% Data Reporting Reconciliation Not Aggressive Technology Adopters 23% 14% Client Communications 20% 21% Marketing and Prospecting 17% 14% Fee Billing 13% 6% Asset Allocation 10% 7% Trading/ Rebalancing 4% 7% Financial Planning 4% 1% Client Onboarding Source: The 2013 Fidelity RIA Benchmarking Study. © 2014 FMR LLC. All rights reserved.
11 . 5 More Immediate Focus on Initiatives to Optimize Their Infrastructure. Aggressive Technology Adopters are more likely to be devoting resources — ​ currently — ​to initiatives that will streamline or optimize their technology environment, such as shifting to cloudbased or outsourced solutions, creating process workflows and automation, and implementing mobile technologies (see Figure 28). 6 Higher Levels of Satisfaction with Systems. Perhaps most importantly, and likely as a result of all the drivers just described, Aggressive Technology Adopters are often more satisfied with their systems (see Figure 29). Interestingly, there is little overlap between Aggressive Technology Adopters and High-Performing Firms. In fact, Aggressive Technology Adopters are no more likely to be high performing than other firms are.
It is worth noting that given the broader definition of what it means to be a High-Performing Firm, RIAs with strength across the board, not just in technology, will rise to the top. While Aggressive Technology Adopters may be strong when it comes to technology, they may not be quite as strong in other areas of the business. This is a group that bears watching, however, because their investments in optimizing their operations and technology should enable them to dedicate more resources to other areas of their business down the road. 12 © 2014 FMR LLC.
All rights reserved. Figure 28: Allocation of resources to technology initiatives Percent of firms currently devoting resources 76% Aggressive Technology Adopters 47% Not Aggressive Technology Adopters 56% 51% 49% 41% 41% 47% 30% 26% 33% 25% 24% 12% Shift to cloud-based or outsourced solutions Significant effort to create process workflows and automation Implementation of mobile technologies across the firm Significant effort to optimize current systems (e.g., training, customization) Significant increase in integration across technologies Implementation of a social media strategy Hiring technology or operations management or staff Source: The 2013 Fidelity RIA Benchmarking Study. Figure 29: Satisfaction levels with systems Percent of firms that rated their satisfaction 8, 9, or 10* Aggressive Technology Adopters 71% 72% 67% 43% Portfolio Management and Reporting 43% Client Reporting Not Aggressive Technology Adopters 55% 50% 54% 47% 38% CRM Fee Billing Financial Planning 59% 53% 43% Document Management 39% Trade Order Management/ Rebalancing *On a scale where 10 = extremely satisfied and 0 = not at all satisfied. Source: The 2013 Fidelity RIA Benchmarking Study. Key Takeaways on the Technology Landscape: • echnology is a strategic priority, and firms will continue investing to drive growth, T efficiency, profitability, and improvements in the client experience. • ptimizing current systems is the top priority — ​ integration, development of O via workflows, training, and utilization. • atisfaction is consistently driven by higher levels of utilization — ​ S but training and adoption require commitment. • ey barriers to success are all about people — ​ K lack of resources, expertise, and discipline — ​ and are not being addressed via hiring or outsourcing. • ggressive Technology Adopters take a far more progressive approach to technology A (higher levels of integration, outsourcing, utilization, and satisfaction) and as a result may be better positioned for future growth than other firms. . Section III: Business Processes Figure 30: Satisfaction with business processes and priority for improving Percent of firms Efficient business processes are important to every enterprise. Study findings indicate that more effort is needed in this area to help RIAs manage their businesses more effectively. In particular, although client acquisition was the top strategic goal for RIA firms, the vast majority are unsatisfied with their marketing and prospecting processes. Results also show that while many firms have standardized processes, most firms have not documented these processes for training, contingency, or other purposes, and many are not outsourcing processes to others. Satisfaction with Business Processes Is Relatively Low Data reconciliation (61%) and fee billing (59%) garnered the highest satisfaction ratings among the nine business processes investigated, although those rates are not that high on an absolute basis. 61% Satisfaction (Rated 8, 9, or 10)* Priority for improving (Rated 8, 9, or 10)* 59% 16% 52% 23% 18% Data Fee Billing Reconciliation 54% 51% Asset Allocation 43% 29% Reporting 39% 31% 38% 34% 21% Financial Planning 35% 28% 15% Trading/ Rebalancing Client Communications Client Onboarding Marketing and Prospecting *On a scale from 0 to 10, where 0 is low and 10 is high. Source: The 2013 Fidelity RIA Benchmarking Study. The marketing and prospecting process received the lowest satisfaction rating at 15%.
Because client acquisition is the number-one strategic imperative, low satisfaction with this process is a significant disconnect. More than half of firms reported that this process is a high priority to be improved. This trumped the need to improve all other processes explored by a significant margin (see Figure 30).
The largest firms ($1B+ AUM), however, do place a high priority on reporting (48%) and fee billing (41%) improvements. Documentation of Key Processes Remains an Opportunity Approximately 80%–100% of firms have standardized each of the business processes studied. The notable exception is for marketing and prospecting for which only 47% have a standardized process (see Figure 31). However, far fewer firms have taken the critical step to document their processes — ​only two processes have a significant percent of firms Figure 31: Standardization and documentation of business processes Percent of firms We do not have a standardized process We have a standardized, undocumented, process We have a standardized, documented, process We have an automated process Marketing and prospecting 53% 25% 21%  1% Client communications 21% 38% 38%  3% Client onboarding 17% 24% 55%  4% Financial planning 17% 38% 42%  3% Trading/rebalancing 14% 29% 49%  8% Asset allocation 13% 26% 56%  5% Data reconciliation  7% 26% 52% 15% Reporting  4% 24% 57% 15% Fee billing  2% 19% 66% 13% Source: The 2013 Fidelity RIA Benchmarking Study. © 2014 FMR LLC. All rights reserved.
13 . with documentation or automation. (Reporting at 72% and Fee billing at 79%). Again, marketing and prospecting is the lowest, with only 22% of firms having documented or automated processes. While levels of documentation were somewhat higher at larger firms, it remains an opportunity at firms of all sizes. Figure 32: Client customization requirements Percent of firms 23% Virtually all client relationships require customization or manual work 30% A majority of client relationships require customization or manual work 42% Some client relationships require customization or manual work Even among firms with standardized, documented processes, very few have automated processes (15% or fewer firms for any process). Customization and Complexity Are Biggest Obstacles to Standardization More than half of RIA firms say virtually all or a majority of their client relationships require customization or manual work, which complicates the implementation of common standards and practices (see Figure 32). The biggest driver of complexity is the client experience delivered (see Figure 33). Customization to this degree makes it very difficult to implement standard processes, and in turn to implement any form of segmented service delivery model, which helps explain why only about half of firms do so. 5% Almost no client relationships require customization or manual work Source: The 2013 Fidelity RIA Benchmarking Study. Figure 33: Drivers of operational complexity Percent of firms 67% 54% Comprehensive nature of services delivered 44% Client complexity and portfolio sophistication 21% 7% Investment products utilized Geographical dispersion of clients and/or branch offices Source: The 2013 Fidelity RIA Benchmarking Study. 14 © 2014 FMR LLC.
All rights reserved. Client experience delivered (e.g., high-touch model, customized reporting) . Outsourcing Does Not Have a Strong Foothold in RIA Firms Despite the fact that a majority of firms indicate they are at least open to outsourcing, if not a proponent, almost 40% of firms do not currently outsource any part of their business. Given the low satisfaction with many business processes, and the lack of internal expertise at many firms, this is clearly an underutilized solution. When firms do outsource, the top three outsourced business processes are: data reconciliation, reporting, and marketing and prospecting (see Figure 34). Figure 34: Level of business process outsourcing Percent of firms that outsource at least some of this work 44% Data Reconciliation 25% Reporting 21% Marketing and Prospecting 16% Client Communications 15% Fee Billing 8% Trading/Rebalancing 8% Asset Allocation 6% Financial Planning 2% Client Onboarding Source: The 2013 Fidelity RIA Benchmarking Study. Key Takeaways on Business Processes: • ignificant opportunity exists to improve satisfaction with many business processes — ​ S e specially marketing and business development, given the importance of client acquisition and low levels of satisfaction with current processes. Implementing automated workflows can be a powerful way to drive process efficiency and satisfaction. • idespread customization, given client complexity, is a key barrier to process W standardization — ​ but one that can be overcome with increased focus on segmentation. • ven when processes are standardized, many firms fail to document these processes, E making automation difficult or impossible. • utsourcing remains an underutilized solution — ​ O despite being open to the practice, many firms are not pursuing this option. © 2014 FMR LLC. All rights reserved. 15 .
Section IV: Growth and Outlook Historical Growth Has Been Strong Figure 35: Projected client growth Total AUM All Firms <$50M $50M– $99M $100M –$249M $250M –$499M $500M –$999M $1B+ Targeted number of new clients (Median) Overall, RIAs experienced strong client, asset, and revenue growth rates over the last several years (median compound annual growth rates): 2013 18 9 15 15 35 50 60 2014 20 10 20 15 40 50 75 2015 25 12 20 20 50 51 84 • Annual client growth was 7.3% from 2009 to 2012 2016 25 12 20 20 50 55 91 Source: The 2013 Fidelity RIA Benchmarking Study. • Annual AUM growth was 13.8% from 2009 to 2012 Figure 36: Projected AUM growth Total AUM • Annual revenue growth was 13.1% from 2010 to 2012 Future Growth Is Expected To Be Similarly Strong Firms also anticipate solid growth in clients, assets, and revenue looking forward through 2016 (see Figures 35–37). All Firms <$50M $50M –$99M $100M –$249M $250M –$499M $500M –$999M $1B+ Projected AUM growth rates (median) 2013 10% 11% 10% 10% 12% 12% 12% 2014 12% 14% 12% 11% 12% 10% 12% 2015 10% 10% 12% 10% 10% 10% 12% 2016 10% 10% 12% 10% 10% 10% 13% Source: The 2013 Fidelity RIA Benchmarking Study. Figure 37: Projected revenue growth Total AUM All Firms <$50M $50M –$99M $100M –$249M $250M –$499M $500M –$999M $1B+ PROJECTED REVENUE GROWTH RATES (MEDIAN) 2013 10% 14% 10% 10% 10% 10% 12% 2014 11% 14% 12% 11% 10% 10% 12% 2015 10% 13% 12% 11% 10% 10% 12% 2016 10% 10% 12% 11% 10% 10% 12% Source: The 2013 Fidelity RIA Benchmarking Study. 16 © 2014 FMR LLC. All rights reserved. . Section V: Conclusions The year 2012 was a strong year for the RIA industry, with revenue and assets showing significant positive gains. High-Performing Firms continued to lead the way by outperforming their peers financially. To continue their growth trajectories, however, harnessing technology more effectively and streamlining business processes will be fundamental to sustaining growth and improving business performance for all RIAs. There is substantial consensus that technology is a key strategic priority for RIAs, and that the role of technology is to support business strategy by creating efficiencies, increasing client satisfaction, and making scalable organic growth possible. Firms are aware that driving utilization, enabling integration, and implementing business process workflows are keys to getting the most out of their technology. However, the study indicates that most RIAs can still significantly improve the benefits they receive from their technology infrastructure and operational processes.
RIA firms reported using less than optimal functionality, having less than optimal integration across systems, and experiencing relatively low satisfaction with technology systems and business processes. Possible solutions like outsourcing are not being pursued by all firms. Why might this be happening? Several reasons stand out, many of them related to people: 1. There are not enough people — ​ or not the right people — ​ support to technological change. 2. There is not enough ongoing training to drive adoption of technology systems. 3. Firms struggle to manage technology changes and the disruption that such changes might engender. Key drivers reported include internal resource constraints or lack of implementation skill. 4. Less than two-thirds of RIAs outsource any aspect of their business today, thereby limiting the functions and roles that employees can perform. There is a group of firms that are investing aggressively in technology and seemingly overcoming some of the above challenges.
These firms may serve as an example for their peers, because they are using more system functionality, have more widespread system integration, employ vendorhosted systems to a greater degree, outsource more of their processes, and are more satisfied with their technology. While many of these firms do not currently meet the definition of being a High-Performing Firm, they may be positioning themselves to achieve outsized financial results in the future by creating technology environments that enhance the client experience and free resources to focus on growth. 5. Customization based on client complexity is widespread — ​ a nd limits opportunities to standardize processes. 6. The fear of business disruption prohibits some firms from optimizing technology. 7. Most firms are not very proficient when it comes to measuring the success of their technology and operational initiatives. © 2014 FMR LLC. All rights reserved.
17 . Additional Fidelity Resources: • Enabling the Next Wave of Growth with Workflows: A Technology and Operations Toolkit • Harnessing Technology to Drive Your Business: A Technology and Operations Guide • Time for Technology: Fostering Smarter and Stronger Relationships white paper • Embracing Mobile Technology: The Next Game Changer for Financial Advisors white paper • Vendor Due Diligence: Evaluating the Security of Hosted Solutions white paper • Building an Action Plan to Drive Growth Within Your Practice: A Business Development and Marketing Planning Toolkit 18 © 2014 FMR LLC. All rights reserved. . Appendix Figure 38: Business process metrics (median) Total AUM All Firms <$50M $50M –$99M $100M –$249M $250M –$499M $500M –$999M $1B+ 93% 91% 89% 89% 93% 100% 98% Weeks from period end to mailing of bills — ​ median 2 1 1 1.5 2 2 3 Staff hours spent each billing cycle — ​ median 10 5 8 8 12 25 40 80% 84% 69% 80% 82% 77% 84% Weeks from period end to report completion — ​ median 2 2 2 2 2 2 2 Per week, staff hours spent on reporting — ​ median 10 9 6 5.5 10 15 27.5 % rebalance on regular basis 52% 49% 51% 61% 56% 54% 36% % rebalance quarterly 22% 21% 27% 23% 16% 26% 23% 3 2 5 3 2 3 3 Billing % quarterly billing Client Reporting % quarterly reporting Rebalancing Days to rebalance all portfolios — ​ median Source: The 2013 Fidelity RIA Benchmarking Study. Figure 39: Key financial ratios (median) Total AUM All Firms <$50M $50M –$99M $100M –$249M $250M –$499M $500M –$999M $1B+ Total revenue (in thousands) $1,116 $231 $524 $1,092 $2,164 $4,660 $8,515 Total expenses (in thousands) $931 $218 $426 $891 $1,599 $4,148 $7,319 Earnings before owners’ compensation (EBOC) (in thousands) $619 $138.0 $301.5 $623.3 $1,275 $2,324 $3,803 EBOC as a percent of revenue (EBOC margin) 57% 68% 60% 57% 61% 51% 49% All clients year-end 2012 175 58 110 163 343 437 593 Revenue per client (in thousands) $6.2 $3.8 $4.5 $6.6 $7.3 $11.6 $16.3 Expense per client (in thousands) $5.0 $3.3 $3.7 $5.0 $6.3 $8.4 $11.7 Source: The 2013 Fidelity RIA Benchmarking Study. © 2014 FMR LLC. All rights reserved. 19 . Figure 40: Key technology system metrics (median values, except where noted) Total AUM All Firms $50M –$99M $100M –$249M $250M –$499M $500M –$999M $1B+ $31,910 Spend <$50M $6,999 $10,914 $15,601 $27,466 $55,980 $103,966 # people using 4.0 2.0 3.0 4.0 7.0 12.0 20.0 % utilization 75% 75% 65% 75% 75% 80% 85% Satisfaction* Portfolio Management and Reporting 7.1 7.3 7.4 7.3 7.0 7.1 6.6 $12,301 $2,194 $2,668 $4,206 $11,425 $18,681 $39,288 Spend # people using 6.0 2.0 3.0 5.0 9.0 15.0 30.0 % utilization 50% 50% 50% 50% 60% 50% 58% Satisfaction* CRM 6.4 6.7 6.4 6.5 6.4 6.7 6.1 $8,739 $1,560 $2,792 $3,456 $5,417 $21,294 $31,066 Spend # people using 4.0 1.0 3.0 3.0 5.0 10.0 18.5 % utilization 80% 75% 75% 80% 80% 80% 85% Satisfaction* Client Reporting 7.0 7.1 7.5 7.0 6.8 7.3 6.7 $14,696 Spend $755 $1,403 $1,971 $5,170 $7,309 2.0 1.0 1.5 2.0 2.0 2.0 3.0 % utilization 95% 100% 93% 95% 90% 90% 85% Satisfaction* Fee Billing $4,208 # people using 7.3 7.8 7.6 7.4 7.1 7.4 6.3 Spend $1,182 $1,974 $2,253 $5,632 $8,413 $11,311 5.0 2.0 3.5 5.0 6.5 20.0 29.0 % utilization 80% 80% 83% 80% 85% 75% 80% Satisfaction* Document Management $4,298 # people using 6.9 7.1 7.3 7.1 7.0 6.6 6.1 Spend $1,692 $2,497 $2,749 $5,225 $6,526 $13,918 3.0 2.0 2.0 2.0 3.0 4.5 10.0 % utilization 75% 80% 78% 75% 75% 73% 80% Satisfaction* Financial Planning $4,709 # people using 7.2 7.3 7.5 7.5 7.4 6.4 7.0 *Figures represent mean values for firms that use each system. Source: The 2013 Fidelity RIA Benchmarking Study. Figure 41: Vendors used for systems Portfolio Management and Reporting CRM All Firms Fee Billing All Firms All Firms Morningstar Office 20% Salesforce 18% Proprietary/Built Internally 18% Portfolio Center 20% RedTail 17% Advent Revenue Center 11% Advent Axys 13% Junxure 16% Client Reporting Advent Black Diamond 12% Oracle 8% Advent APX 10% MS Dynamics 7% Portfolio Management System 25% Orion 3% Outlook 5% Proprietary/Built Internally 11% Tamarac 3% Act4Advisors 4% Advent Packager 10% Source: The 2013 Fidelity RIA Benchmarking Study. 20 © 2014 FMR LLC. All rights reserved. All Firms . Notes © 2014 FMR LLC. All rights reserved. 21 . For more information, please contact your Fidelity Sales or Relationship Manager. For investment professional use only. Not for distribution to the public as sales material in any form. The information contained herein is as of the date of its publication, is subject to change, and is general in nature. Such information is provided for informational purposes only and should not be considered legal, tax, or compliance advice. Fidelity does not provide legal, tax, or compliance advice.
Fidelity cannot guarantee that such information is accurate, complete, or timely. Federal and state laws and regulations are complex and are subject to change. Laws of a specific state or laws that may be applicable to a particular situation may affect the applicability, accuracy, or completeness of this information. This information is not individualized and is not intended to serve as the primary or sole basis for your decisions, as there may be other factors you should consider, and may not be inclusive of everything that a firm should consider in this type of planning decision.
Some of the concepts may not be applicable to all firms. Always consult an attorney, tax professional, or compliance advisor regarding your specific legal or tax situation. The 2013 Fidelity RIA Benchmarking Study was conducted between May 1 and June 28, 2013, in collaboration with an independent third-party research firm unaffiliated with Fidelity Investments. The experiences of the RIAs who responded to the study may not be representative of other RIAs and are not an indication of future success. Registering for, completing, and accessing the survey required access to and use of a third-party Web site, operated by an independent third-party research firm unaffiliated with Fidelity Investments.
The third-party providers listed herein are neither affiliated with nor an agent of Fidelity, and are not authorized to make representations on behalf of Fidelity. Their input herein does not suggest a recommendation or endorsement by Fidelity. This information was provided by the third-party providers and is subject to change. There is no form of legal partnership, agency, affiliation, or similar relationship among an investment professional, the third-party service providers, and Fidelity Investments, nor is such a relationship created or implied by the information herein. The Fidelity Investments and pyramid design logo is a registered service mark of FMR LLC. Fidelity Family Office Services is a division of Fidelity Brokerage Services LLC, Member NYSE, SIPC. Fidelity Institutional Wealth Services provides brokerage products and services and is a division of Fidelity Brokerage Services LLC.
National Financial is a division of National Financial Services LLC, through which clearing, custody, and other brokerage services may be provided. Both are members of NYSE and SIPC. The material in this report is copyrighted by Fidelity Investments. No portion of these materials may be reproduced, distributed, or otherwise used in any form without the express written consent of Fidelity Investments. Fidelity Investments Institutional Services Company, Inc., 500 Salem Street, Smithfield, RI 02917 © 2014 FMR LLC.
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