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For registered investment advisor (RIA) or broker-dealer (BD) firms that are not tech-savvy or are working on building their tech stack, proper due diligence must be conducted before any integration. Valuable time and capital cannot be wasted.
Before you evaluate your next fintech purchase, here’s what advisors need to know.
1. Your book of business determines the number you need
An advisor with a small book of business and simplified technology stack does not need the same level or number of integrations as a larger practice. You might have completely disparate client relationship management (CRM), account management, trading, reporting and record-keeping systems. After assessing your business needs, you could find that you need a couple of integrations, or you might find that with a more complex book of business with multiple systems you need many more. For the greatest value-add, every integration should be approached with consideration of what is best from a system's point of view via an evaluation of the entire business.
2. Understand the end goal
It’s easy to be tempted to purchase the “best” fintech because you feel as if you, your firm and your clients deserve that. Ultimately, if that “best-rated” technology does not mesh seamlessly with the rest of your existing tech stack, it’s not what’s best. If you are confident with your workflow, ensure that your new technology will support that workflow. If you aren’t, reconsider what tech you need to enhance the process you already have, rather than simply buying the “best.”
3. Bidirectional isn’t always important
The industry buzz over “bidirectional” integration (where data can be sent back and forth between two applications) can make advisors act out of fear of missing out. There are certainly times when it is prudent for fintech solutions to communicate with each other bidirectionally. But, before you begin hours of development work, step back, look at your processes and your data, and consider which application “owns” the data. Ownership matters – if one system is the source of truth, then allowing other applications to accept updates to that data and feed it back into the source system will destroy your governance model and your data.
4. Connectivity reality
While fintech applications can appear to be black boxes, any piece of fintech can connect to another application; it just may not have the advertised out-of-the-box integration. On the other hand, given that each advisor may want different workflows and desire different capabilities from their fintech platform, sometimes those out-of-the-box integrations are merely a step in the right direction. For anyone who is working on their first tech-stack integration, do not anticipate that you will simply plug and play your fintech after purchase. You’ve been warned.
5. Evaluate the complexity of out-of-the-box integration
Don’t be fooled by advertising. A fintech firm might advertise that it offers integration with other applications, but what exactly does that mean? Integration is a loaded word in our world. It could mean something as basic as single-sign-on (SSO) privileges so that you don’t have to experience the inconvenience of opening a new browser page. Or it could mean that these two pieces of technology work together cohesively. Or it could mean something in between. As you are making your selection, explore the degree of integration that exists so that if you are expecting a large-scale integration, you do not receive a SSO one.
As you think about integrations and the efficiencies they can provide, keep these points in mind so you make the best decision and find the right fit for you, your firm and your clients. A key part of the tech stack decision-making process is performing a journey-mapping process to ensure that each step of an operation and each piece of technology is performing optimally and in collaboration. I will discuss that next month.
Scott Lamont is director of consulting services for F2 Strategy, a wealthtech management consulting firm serving complex wealth advisory firms.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
