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Having worked with many wealth management firms on transformation initiatives and implementing technology solutions, my experience has been that their evaluation criteria focus too much on the cost of the initiative.
Growth-oriented firms and their leadership take a more data-informed approach in their evaluation. While costs are important, they view them in the context of the benefits and are likely to refer to them as investments.
I recently worked with a large firm on a client onboarding transformation where my firm collaborated on a cost/benefit analysis (CBA). The CBA showed that for every dollar they invested, the initiative would return five dollars in benefits back to them almost immediately. We worked directly with this firm’s business and finance teams to ensure that the benefits articulated in the CBA could be supported with data. In other words, the benefits were not fuzzy. The projected benefits were in the millions of dollars and continued to accrue as the firm continued to grow, and the financial metrics (NPV and IRR) the finance team used were overwhelmingly positive. When it came time for its executive committee to review and approve the initiative, it was less a question of,“Should we do this?” and more, “How quickly can we do this?” Given the efficiencies and scale this transformation was projected to deliver, this initiative quickly moved to the top of the priorities for this firm to execute.
A properly constructed CBA will show the one-time and ongoing costs against the one-time and ongoing benefits, factoring in the time value of money. While the costs in terms of dollars are easy to depict, the benefits need to be able to be quantifiable and translate into a dollar value. Dimensions like time savings, the ability to avoid having to hire more people, and the retirement of legacy solutions can easily be quantified and translated into a dollar value. Fuzzy benefits, like “cool technology” that many solution providers will claim in their sales pitches cannot be measured. Most CFOs will not sign six and seven figure contracts based on a solution delivering the “cool” factor or the promise of something that isn’t tangible or measurable.
This raises a historic challenge in the wealth management technology space – many solution providers do not drive a conversation and engagement that produces a properly constructed CBA capable of getting approval from a CFO. They very often find themselves in a conversation focused on price, instead of one focused on benefits and value. Most firms I have worked with want to use technology solutions that will enable their businesses and that of their advisors to become more efficient, not because of the “cool factor.” Price is only an issue in the absence of value!
Below is a simple CBA framework to help firms think about potential investments in transformation initiatives and in implementing technology solutions. This is a framework that can be used by firms of all sizes. The example I provided earlier in the article was for a firm that had thousands of users, but this framework is just as relevant and useful for firms with 10, 15, and 50 users.
Costs
1. One-time implementation costs – What will the solution provider charge initially for the implementation of the solution and what will it cost to implement from an internal perspective?
2. Ongoing costs – What will the solution provider charge on an ongoing basis? For many wealth management technology solutions, this is per-user per-month license fees, annual support fees, etc.
Benefits
1. Time savings – By implementing a particular solution, how much time will your user personas (advisors, sales assistants, operations, and compliance personnel, etc.) save and what is the value of this time savings in terms of $/hour. In the real-life example mentioned above, this was the largest component of the benefit in the CBA.
2. Cost savings from system replacements – Many firms spend a lot of money and resources to support legacy solutions that are outdated and expensive to maintain relative to more modern-day solutions.
3. Headcount reduction or repurposing –The implementation of a solution can immediately result in a firm needing less people. This provides the option of reducing their headcount and having their people focus on other things or avoiding having to hire more people in the future.
4. Ability to attract advisors – Though this can be one of the fuzzier benefits to quantify, some firms we have worked with have made the argument that a transformational solution can contribute to them attracting more and better advisors (some other firms have factored in the fact they will lose advisors without having a particular solution). In the example I mentioned above, this was not included as a benefit in the CBA.
5. Other cost savings – Some firms may realize other benefits that fall outside of the first four categories, and which can be included in this general bucket.
As I shared in a previous article, growth-oriented firms think differently. These are the firms making smart investments in their future to enable growth, efficiency, and to deliver on better user experiences. These firms and their leaders talk more in terms of “making investments” rather than “incurring costs.” The simple CBA framework will help firms articulate the value of implementing a transformational technology initiative or solution and get past the fuzziness. Consultative solution providers should facilitate a conversation that results in the creation of a CBA that helps firms, and their executive sponsors, get to “yes” versus being stuck.
Marc Butler is president and chief operating officer of Skience, a leading financial services solution and consulting provider.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
