Unlock your independence

A Credible M&A Strategy

Welcome back to another episode of the Independence Playbook. In today’s episode, John is joined by Harris Baltch, Head of M&A and Capital Strategies, to talk about how advisors can prepare for M&A pre-launch, prepare for M&A post-launch, and create a credible and repeatable M&A strategy.

Podcast Transcript

JOHN: Hello.  I’m John Sullivan and I head up Business Development for Dynasty Financial Partners.  I’m hosting this podcast series called “The Independence Playbook Podcast.”

[00:14:00] We’ve covered a number of topics over the last several episodes, and in this episode, we’re going to focus on technology.  Our guest today is Frank Coates who’s the Chief Technology Officer for Dynasty Financial Partners.

Technology is obviously a rapidly changing area in wealth management and it’s important to be aware of the various capabilities that are available in the space as advisors think about their move to independence.

Hi, Frank.  Good to have you here today.  I know you get bombarded with a lot of questions as it relates to technology, so let’s dive right in.

FRANK COATES: Great.  Glad to be here, John.  Let’s do it.

JOHN: So advisors are hearing a lot about technology as they consider a move to the independent model.  They’re obviously used to certain technologies in their current environment.  What are some of the biggest challenges advisors face as they begin to think about their tech platform for a new firm?

FRANK: Well, you know, John, the biggest challenge really is something that usually we think is good for us, and that’s “Choice.”  And so the challenge that comes first for an independent advisor is really deciding how to choose from hundreds of different applications that they can put together to create all of the tools they’re going to need to invest their clients’ money, manage their client relationships, and now, run a business.  So choice can become a huge obstacle for these advisors.

[00:02:00] So what we like to do is think about, “How can I break that choice into components that are easier for me to figure out exactly what I need in my technology stack?”

And so we think you need a core set of tools, regardless of what business you’re in.  You’re going to need an accounting system.  You’re going to need a CRM system.  And in the investment world, you’re going to need some way to manage your clients’ investments and other types of solutions.  So that means a custodian and a TAMP, right?

So you have to have that core to just do business.  And around that core, you have to think about the three big things an advisor does — manage their business, manage their clients and manage the investments.

So they also have to add some other core technologies like reporting.  So they got to be able to show the clients how they’re doing and what they’re holding.  They need financial planning.

You know, almost every advisor now makes financial planning a core part of their business.  The financial planning tools help them figure out exactly what the clients need.  They also need a risk tolerance tool to understand how much risk the clients want to take.  And so they married the need and the desire for taking risk for their clients and come up with an investment solution.

In the client engagement tools, you need a CRM system, right, which usually is at the beginning.  You need some marketing automation — some way to engage with your clients.  And you need a client portal.

Today’s world is digital, right?  So you have to have some way for your clients to be able to have a digital experience and do things for themselves and a secure way to communicate with them and share documents and do other things.

And then the last piece is they have to decide around business.  And so on the business side, you need an accounting system, right?  So you’re now in business for yourself.  You collect fees — so you need a billing system.  You have to report your accounting.  You need to do financial statements.  You need a CPA to verify that.

So the tech stack becomes, you know, easier to understand if you really break it down into those four buckets — “What do I need to run the business?  [00:04:00] What do I need to be a business owner?  What do I need to manage investments” and then “How do I manage my clients?”  And then you can pick from best of breed technologies and start to build your tech stack.

JOHN: That is a great overview, Frank.  I think we see advisors with varying degrees of technology expertise.  So broadly speaking, what are some of the top questions advisors have when they’re thinking about making a move and how they’re going to, you know, attempt to replicate the current environment that they’re in?

FRANK: I think the big question, you know, they have, whether they’re just transitioning or they’ve been an independent advisor for a long time is, “Why isn’t there one simple, fully integrated platform that does everything — slices, dices and prepares the meal for me?”  And I think you have to think back to what it means to be independent, right?

So the independent advisor, business owner is independent because maybe they have a different business model.  They want to do things their way.  They may want to feed differently.  They may want to offer different services.  They don’t want a cookie cutter approach to technology.  And they don’t like guardrails that are built simply to control for thousands of advisors.

And so the fact that they think this way, they want to be different.  They have different business models, means that they’re really, you know, keen on customization.  “I want a technology platform that works for my business and the way I want to do things, not that works for the masses.”

And so the challenge of integrating when you want that kind of customization means that the data has to flow through lots of different systems.  And those systems have to be adaptable to a way of working by different advisors.  And so that’s their biggest question — “Why hasn’t this been built yet?”

[00:06:00] I think there’s been many attempts and there’s pieces that are tightly integrated now that are really helping advisors.  But everyone is seeking the same thing.  It’s this, you know, completely integrated one-stop shop that has best of breed technology.  So they just want it.  And the biggest question is, “Why don’t we have it yet?”

I think once they understand the complexities of the data and moving it around, I think they get it.  But that’s their biggest question — “How do I get to something that’s more integrated with really great technology?”

JOHN: Yeah.  That’s terrific, Frank.  And I think, as the advisors start to move down the path and get comfortable with the various options and how there’s a lot of people there to kind of help them put it all together, what are some of the biggest surprises that the advisors see as the technology process unfolds for their new firm?

FRANK: It’s a great question, John.  You know, there are a couple of surprises.  One that hits the advisors, you know, almost immediately is how many choices there are.  There’s just so much technology available for an advisor that they’re really surprised.

And the reason why they’re surprised is because they’re coming out of an environment where there was some central process for limiting the technology choices.

And so they just didn’t know that there was 10 financial planning systems.  They didn’t know there was estate planning tools.  There was document tools.  They just were unaware of all the choice and how much wealth tech has developed over the years.  That’s been a really big surprise.

I think the other surprise is, you know, people expect that everything is connected.  [00:08:00] You know, we’re in the internet days and well into it and we just expect that everything is going to be connected.

And then the data flows through the systems so easily.  And in our consumer life, that’s probably true.  But in the wealth space, remember, the data we’re dealing with is customer data.  It needs to be highly secured.  It needs to be protected.  And so it doesn’t move as freely across systems.

And so I think they’re surprised to know that the data doesn’t seamlessly flow from the custodial system to the performance reporting system to other systems.  There’s a lot of work that goes into that.

And I think a lot of that has to do with the security that’s required when you’re dealing with customer data.  I think it also, you know, plays a lot into–

These technologies have developed, you know, as best of breed components and not necessarily thinking about how to be part of an ecosystem and they’re a little bit surprised that it’s not more connected than it is.

JOHN: Yeah.  And I can see that frequently with the teams that we work with.

it’s been described, as, you know, “Chasing the next white hot dot” as it relates to implementing a new technology.  What are some of the best practices that you have with respect to the technology stack and the ongoing work that the business needs to achieve?

FRANK: I think one of the really important best practices is to focus on the core.  You know, I hate repeating this idea — that there’s lots of choices.  But it’s easy to get excited about new technologies and cool new tools.

[00:10:00] And advisors can sometimes get very distracted with the latest, greatest technology for interacting with clients and not get the core right — the investment platform, their accounting system, the way they’re going to provide compliance over their advisors.

So to me, the best practice is really focus on your core platforms and get those right and make sure they’re very well integrated and that the data is good.

The second big thing is you have to plan and invest in training.  And so technology is not going to get used if people don’t learn how to use the technologies the right way.

And so we really harp on making sure that you plan for a good amount of training on the technology platforms that you’re going to put in place.

And let’s face it, for transitioning advisor, those technologies are all going to be new — not just for the advisor but for their staff.  So don’t underestimate the need to train those people on the new technology.

And then I think the last best practice is pay attention to security, right?  So not just customer data security.  But now that it’s your business, pay attention to your business data, to your business’ continuity plans, to physical security.

You know, once it’s your business and your name’s on the door, it’s so easy for a security incident to tarnish that image you’ve spent decades building.  And so don’t underinvest in security and really pay as the owner.  Pay really close attention.  Make it your responsibility to be on top of security.

I think if you do those three things — get the core right, pay attention to security and invest and train your people — I think you’ll be wildly successful.

JOHN: That’s terrific guidance, Frank.  [00:12:00] Now, the evolution of FinTech… You know, Dynasty has been around, coming up on 12 years.  It’s just changed so dramatically in that time and it continues to evolve quickly.  Anything else to add just in terms of general guidelines or thoughts about technology, Frank?

FRANK: You know, I think we’re in the Metaverse world now, right?  Everything you hear is “Virtual reality” and “Avatars” and “Meta.”  It’s really hard for people who are heads down on their business to stay abreast of what’s really going on in technology and what will be useful in the next five years, not the next 50 years.

And so, you know, I think they need to pay attention to technologies that are evolving, that make it easier for clients to move money around, technologies that are evolving that make it easier for clients to be more engaged with their investments.

Maybe do some trading.  Maybe actually have the ability to chat with a portfolio manager from time to time.  Make it a more engaging experience.  There’s really good technology that’s useful now.

And be aware of where technology is going.  But really be intense about, “What are the tools that could help me in my business in the next three to five years?”

JOHN: Thanks, Frank.  Very helpful.  Let’s turn it around a little bit.  As a chief technology officer, you know, working at Dynasty Financial Partners, what are some of the top challenges that you have on a day-to-day basis?

FRANK: Well, thanks for asking, John.  You know, I have one major challenge.  I think it keeps me up at night.  [00:16:00] I’ve been doing this for 25 years.  I’ve never seen such a hard labor market.

Finding technology people, really good engineers and architects, is extremely hard right now.  We’re tapping every possible connection, network, friends, family, associates, LinkedIn, everywhere we can to try to source candidates.

And I think the challenge for all of us in the technology space is we’re all fighting for those really good, high quality people and so I don’t see that abating anytime soon.

And I think if you’re going to tackle this technology and you’re going to be a leader in technology, you have to be really great at two things — “Recruiting” and “Training.”  And so that’s what keeps me up at night.  And it’s a challenge that overwhelms all the other little challenges in the technology space.

JOHN: That’s great, Frank.  I think that’s all the time we have for today.  So we appreciate your terrific insights, Frank.  You’ve been a terrific value here to the teams that we work with at Dynasty.  And we look forward to the next episode.

FRANK: Thanks, John.  Me, too.

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