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I've seen dozens of RIA back offices respond to new IT challenges, giving me a special perspective on best practices and pitfalls.
When I first started in the advisory profession in the 1990s, an RIA back office was a different kind of place. The operations team had accounting-type skills to manually reconcile accounts against statements. Reconciliation “breaks” or mismatches were common and needed to be investigated and resolved. Today these processes are automated and the data is duplicated and integrated into multiple software systems providing more powerful, yet more complex, information.
But meeting the IT challenges of an RIA back office can be challenging.
My unlikely origin: Love for RIA back-office software
Every financial advisor has a personal story about their attraction to the advisory world. However, one story you’re unlikely to hear is a love of software. Yet the efficient management of a modern advisory practice now requires a suite of software that can include solutions for portfolio accounting, customer relationship management, risk assessment and trading. Oftentimes these programs need to interact in complex ways. While the management requirement of this software varies by the size of the firm, staff capabilities and business specifics, many of the challenges are universal.
Who responds well to IT challenges?
Let's start with an example of ringing success. I work with a Sunbelt advisor whose business is centered in a handful of small to mid-sized offices, each of which has its own management team and discrete approach to investing. Integrating trading software across these offices is complicated by the variety of investment disciplines and their unique requirements.
What has made the adoption of software so successful was the manner in which one person has taken on the task for all the offices. This person, one of the firm's advisors, has a deep and intuitive grasp of the software and is committed to getting the most out of it. They help to ensure that the program is correctly customized and working smoothly.
Only recently did I look at the firm's website bios and discover that our admired colleague has a masters in engineering – an unusual but welcome background for an RIA leader. Similarly, another firm with great results has a "senior analyst" dedicated to IT who holds a technical degree and work background – a senior position alongside client-facing advisors. Both of these firms have a salutary combination of a key specialist with a combination of technical skills and a deep understanding of the firm's investment approach.
Finding the right person for the job
This doesn't mean you need to have a rocket scientist on staff to achieve optimum IT results. But I've seen over and over that getting the right person on the job makes all the difference. This can be harder than it seems. Oftentimes the principals of an advisory firm lack the technical skills to take on IT tasks or to know exactly how to oversee them. This complicates hiring and assignments.
For instance, take the implementation assignment I once took on for an RIA frustrated with the lack of success with a previous software provider. I soon discovered why. The staff member assigned to the task, while well-meaning and likeable, didn't have the technical “chops” to make it happen.
Another common issue occurs when a senior advisor takes on the software adoption role but is too busy with clients and other business activities to devote the time required. The results of these mismatches can lead to lack of optimization and implementation frustrations that have significant costs. Firms with these issues fall back on old manual trading operations that are time-consuming, error-prone and subject to compliance complications.
Criteria when searching for IT talent
How do you find the right person to handle these tasks?
This is challenging, since small shops may not be able to compete in the open market for top IT talent. Yet the skills needed to efficiently handle the software needs of an RIA back office are not that rare. Here are some of the criteria to identify the right person either on your staff or as a new hire:
- A background with relatively complex software. It doesn't have to be the specific programs you are implementing. A simple example would be experience with Salesforce, the popular CRM platform, which would be a good indicator of the ability to work within an expansively customizable software product.
- A high-level capability with Microsoft Excel. Excel can go far beyond its basic spreadsheet capabilities and an ability to understand it demonstrates a technical capability that has a lot of parallels with the software used in the RIA back office.
- Preference for a technical degree over a financial planning background. It is easier to bring a candidate up to speed on the necessary finance topics than to train a finance person in software. This is especially true in a typical RIA environment where financial expertise is prevalent, while an IT mentor may not be available.
Keeping the RIA back office running smoothly
Another important issue to consider is IT continuity and succession. I recently saw the damage done when a very capable IT person left an RIA practice with two weeks' notice. The company had spent the previous year in a major revamp of its software usage, including accounting, risk assessment and trading. That transition ground to a halt, and a good deal of that investment was, at least for a significant period, for naught. While it may be beyond the capabilities of a small business to have redundancy in its IT capabilities, it does suggest the importance of staying close to your IT expert and ensuring they document their work.
When the modern software tools that are available to RIAs are humming, it's an amazingly efficient and productive process. But it takes the right people managing those tools to get to this stage of operations and to keep the machinery running smoothly. Placing your IT responsibilities in the right hands is just as vital as constructing portfolios and allocating assets.
Bryson Pouw is the founder and CEO of Blaze Portfolio. He has been implementing and developing trading solutions for over two decades. Formerly, Bryson worked as a senior consultant with Advent Software. He also co-founded Fascet LLC, a technology services organization, where he managed numerous large-scale technology and business process improvement projects as a consultant for many of the largest firms in the investment management industry.
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