Category Archives: Challenges

The Challenges Of Building Technology For Financial Advisors

Financial Advisor Risk ProfilingHeadlines like Michael Kitces’ “The Sorry State Of Risk Tolerance Questionnaires” disappoint me but they also motivate. Criticism is how we improve and a new version of Pocket Risk is launching soon. Advisor technology has its challenges. Yet I rarely hear voices from the other side. The founders, CEOs and CTOs of advisor tech companies giving their perspective. This is an honest post about building technology for financial advisors from an advisor tech CEO.

1. Advisors vs Clients – Most advisor tech is designed to benefit the client, but occasionally, the interests of the advisor and the client conflict.

A simple example is disclosures. Should technology providers put them at the top of the page with a large font or bury them at the bottom, just meeting the minimally regulated font size? Technology providers walk a tightrope between what is best for the client and what the advisor requests.

I’ve had to make dozens of these decisions over the years and since advisors “pay the salaries” there is no pretending they have a loud voice. But first we have ethics and refuse to work with advisors who seek to maximally manipulate features to their advantage.

99.9% of the time advisors just want to be efficient and regulations have them contorted in the most uncomfortable ways.

As a technology provider, having to constantly think about advisors AND clients, makes for slower technology development. Just imagine trying to build a product that simultaneously satisfies an advanced practitioner and a complete novice.

2. Data Security and Integrations – After the defense industry, financial services firms host the most private data. This makes companies reluctant to share and integrate. Most integrations happen because a relationship has developed between CEOs of two companies (usually beginning at Technology Tools For Today). But that relationship can take years, while advisors sit and wait. Very few companies have open APIs. Redtail is one of the exceptions.

3. Fractured Industry – The term “financial advisor” is too broad. We routinely find that broker-dealers want something different from independent RIAs. Not to mention the issues involved serving advisors internationally. 

Creating advisor tech to satisfy all advisors is impossible, because the constituents want many different things. Using Pocket Risk as example, we have demands to turn our product into a sales tool, a compliance check, a client behavioral management tool and sundry other services.


So looking forward, I see a few things have to happen for advisors to get better tech. Firstly, tech firms will have to specialize and only serve certain parts of the market (e.g. broker-dealers vs independent RIAs). Whether this can be done profitably remains to be seen. Secondly, advisor tech firms need to establish a security standard so they can easily share data. Orion has done some work in this area. Lastly, ultimately all advisors will be working in a client’s best interest and that will make technology development simpler.

4 Ways To Deal With Clients During Market Volatility

Volatility RollercoasterHow do you deal with your clients during market volatility? I was recently reading a post on the anonymous advisor forum Advisorheads, where the community was trading ideas.  The question is, do you lay low and wait for the storm to pass or reach out to your clients and risk the chance of waking the “angry bear” as one advisor noted. Below are four strategies based on the discussion of about a dozen advisors.

1. “Leave them alone” and don’t do anything – The upside of this approach is clear. You minimize the threat of waking the “angry bear”. Pointing out volatility could lead to a client leaving your practice. On the other hand keeping quiet could result in your clients feeling you aren’t communicating properly. A Financial Advisor magazine study cited “failure to communicate on a timely basis” as the number one reason advisors loose clients.

I don’t believe any advisor wants to hide from their clients but they may want to hide from their past mistakes. Maybe you recruited a client who wasn’t an ideal fit for your business or possibly you failed to sufficiently educate them about the possibility of market declines. Reaching out now, will expose your past mistakes and could result in lost business. However, how can you build a successful business by burying your head in the sand? Leaving your clients alone is unlikely to be the best long-term approach but communicating differently with different clients could have the dual benefit of recovering from past mistakes and minimizing any market fears in your client base.

2. “Send out frequent emails when things get hairy” – It’s generally better to say something than nothing but this approach seems very reactive. The advisor on the forum says, “Clients and prospects love it. They know you are watching and have a plan”. I expect this is the least an advisor should do to deal with clients during market volatility. However, as another advisor says the “past year I have told pretty [much] everyone we will see a market correction soon, curious who will remember”. The bottom line is that you should be regularly making your clients aware that the market can go up and it can go down. At the moment it appears “going down” is more likely.

3. “I called/emailed most of my clients over the past two days. All were happy to hear from me, and I used it as my quarterly touch”.  For this advisor reaching out to all of his clients worked well (it also resulted in more AUM) but it was clearly part of his regular quarterly pattern. His clients were not getting a call out of the blue. However, his approach is very time consuming. Another advisor says “I used to get on the phone and call everyone, but found it to be counterproductive since many would then want to make unwise changes.” I wonder if the desire to make changes is the result of a lack of trust in the advisor’s advice or poorly recruited clients.  A client that is well educated, well recruited and trusts you would probably not demand to make “unwise changes”.

4. “You have to know your clients” – Here is a great quote from one of the forum advisors…. “You have to know your clients. I know which one’s need a phone call, and those are the one’s I call proactively to talk about the market when things get crazy. I have been preparing for a client appreciation dinner, which was tonight, but I did call 4-5 “sensitive” clients today. I only got one incoming call today, and it wasn’t a panic call, it was just a question, the conversation was…

Him: Should we be doing anything?

Me: No, this is just noise and while it might not feel good while it’s happening, it will pass, and you will be better off doing nothing. Less is more.

Him: Ok, thanks, that’s all I needed to hear.”


Throughout the post the general conclusion is that you should know your clients and phone the ones most likely to react to the volatility.  At the same time you should have some sort of newsletter or quarterly touch point with all your clients so they know you are watching and have a plan.  Lastly, you need to make a bigger effort to recruit the right sort of clients. Either clients that our willing to be educated about markets and risk or clients that trust your judgment.

What other good ways are there to deal with clients during market volatility? Give me your thoughts in the comments below.

Image source – Techyzone

Educate Your Clients About Risk. Free 6-Part Email Course.

How well do your clients understand risk? How well do you communicate with them about it? Get our free actionable 6-part email course on educating your clients about risk – based off interviews with 126 advisors.

We will not share your email address.

3 Challenges Financial Advisors Face When Discovering Their Client’s Risk Tolerance

I just spent the last 10 weeks interviewing 76 financial advisors across the U.S. I asked them about their risk tolerance process. Specifically, how they discover the right level of investment risk for their clients.  The results were varied but the challenges were the same.

Firstly, advisors were struggling to balance the investment needs of their clients with their risk tolerance. Secondly, they were often happy with their discussion process but thought it could have more rigor. Finally, compliance was a common complaint but not in the way you would expect.  Let’s dig in and unpack some of these challenges.

1. Balancing Your Client’s Financial Needs With Their Risk Tolerance.

7272% of the advisors I spoke to first calculated their client’s financial needs before considering their client’s risk tolerance. Their role was often to ensure a client had enough money for retirement. This could necessitate an asset allocation with more volatility than a client could stomach but was necessary to ensure they met their future income goals.

At this point some advisors would say to me…“What is the point of a risk tolerance questionnaire if I am just going to invest based on need? Isn’t this simply a case of CYA (covering your ass)?” At which point I would draw on the experience of other advisors I had spoken to who had lost clients during the 2008 financial crisis. They regretted not having a thorough understanding of a client’s risk tolerance before the crisis. Since they didn’t know their clients intimately, they were unable to set expectations and manage them through the downturn.

As has been well documented, investment risk is a mix of tolerance, need and capacity and all of these have to be considered when developing an investment portfolio. Getting the balance right is a challenge for advisors but ignoring one of these factors does not solve the financial planning process.

2. Face-to-Face Client Discussion

A risk tolerance questionnaire alone cannot solve the investment process. Even if it could clients don’t want to feel like a widget on the production line. Advisors are wise to this and enjoy the process of an open-ended discussion with their clients. This is where you can build a relationship and capture details boilerplate questionnaires cannot.

However, an open-ended discussion process in a firm of multiple advisors can often lead to a lack of consistency and objectivity. One advisor admitted to me that if one of his employees left the company they would loose detailed knowledge about their client’s investment preferences because it was all in his head. A scary thought.

78% of the advisors I spoke to admitted that they could probably improve their record keeping and make it more systematic. A few advisors recorded their discussions on a dictaphone or used mind mapping software but the majority resorted to scribbling notes on paper while their client did the talking.

3. Compliance

Given the litigious culture we find ourselves in, it’s not a surprise that advisors are afraid of lawsuits. Amazingly, I found 9 of the 76 advisors were afraid of too much documentation in case it was used against them in a lawsuit. Sure, they wanted to understand their client’s risk tolerance but they didn’t want too much evidence of it!

The majority however, appreciated that meeting regulatory demands and keeping accurate records would most likely protect them from lawsuits and not the other way around.

Solving These Challenges

At first thought there are clearly a few things that can be done.  For example using a robust risk tolerance questionnaire, having a clear and consistent on boarding process for new clients and keeping full and accurate records. But this is just the start. Over the next few days, weeks and months I will be tackling these challenges on this blog. Please subscribe on the right for future email updates and share this blog with your friends if you liked it.