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How FAs Can Avoid Overpaying for FinTech

April 10, 2017

Financial advisors need to embrace technology to grow their business and meet ever-growing customer expectations, David Lyon writes on Wealth Management. But they’ll need to find the right partners or risk driving up their own cost of business, he writes.

Investing has been getting cheaper but some digital turnkey asset management platforms have been pushing up costs “under the smokescreen of technology,” according to Lyon, CEO and founder of Oranj, a digital advice service provider to financial advisors.

Some TAMPs, for example, tack on 10 to 15 basis points for portfolio management tools such as performance reporting functions, he writes. Other software providers charge 10 to 15 basis points for investment management features such as model portfolios, meanwhile. And some TAMPs that allow advisors to put clients into portfolios from third-party providers tack on expenses on top of the funds’ fees, according to Lyon.

There are only two ways to deal with these additional expenses, he writes: suffer the fees and earn less, or charge more to the client.

Instead, financial advisors need to seek out tech partners that don’t force them into such a trade-off, according to Lyon.

To do that, advisors need to go past the marketing pitches and grasp the tech providers’ fees and business models, he writes. This should cut out any software providers who would be simply too expensive for their practice.

Advisors need to make sure their business aligns with the tech provider’s requirements as far as the due diligence process, according to Lyon. For example, being forced into additional custodian relationships can severely disrupt business even if they don’t directly affect fees or what advisors charge clients, he writes.

By Alex Padalka
  • To read the Wealth Management article cited in this story, click here.