Technology Is a Revenue Generator, Not an Expense Item

Spending money on technology is a tricky thing. We love buying tech for personal use. Who doesn’t love the thrill of having a new gadget, whether a new iPad, Apple Watch, or a whole new home entertainment system?

Yet many of the same senior-level wealth management executives who will buy a new tech product for personal use balk at the idea of their firms spending money on financial technology (fintech). When it comes to fintech, they tend to take an “If it’s not broke, why fix it?” approach, rather than investing in a better customer relationship management (CRM) system or other tech upgrade.

The managers’ reasoning is clear and, from a myopic perspective, makes sense. They know that they have to spend money on obvious revenue generators, such as client-facing personnel, in order to make money. Meanwhile, other expenses deemed nonessential have to fall by the wayside, and new fintech, unfortunately, is usually one of them.

But what these managers do not understand is that being willing to spend money on innovative fintech is absolutely necessary for long-term revenue generation and the overall health and sustainability of their firms. Indeed, this change in perspective could net their firms millions in the long run and could keep them ahead of — rather than behind — the competition.

As Baby Boomer and Generation X investors age, younger investors are becoming increasingly important to wealth managers’ revenue. This shift means that firms have to connect with these young investors in ways that are natural to them — that is, through technology. As a 2014 InvestmentNews survey of investors under 45 found, young investors tend to want more frequent contact with their advisers than older investors do. But they want this contact to come through social media, text messaging, email, and video conferencing.

So why the disconnect between senior managers’ current attitudes toward fintech and the perspective that they should have? It’s all a matter of age. Our attitudes toward technology depend on whether we are digital immigrants or digital natives. In the digital immigrant camp, we have people like me, who were born before the existence of digital technology and thus adopted the use of email, smartphones, and other tech tools late in their careers. If you can remember what it was like to have only black-and-white television or not to have a computer in the house, you are in this group. Believe it or not, some digital immigrants still may not be using social media — not just Facebook or Twitter, but even LinkedIn, despite its importance in professional networking. Digital immigrants are easy to spot — and not just by their gray hair. They are the ones who, when faced with a potential tech-related expense for their firms, say things like, “If it’s not broke, why fix it?” and “The last thing we need is another expense.”

Meanwhile, “digital natives” are easy to spot, too. They are young and show a level of comfort and confidence with digital technology that digital immigrants can only dream of. Quite simply, that is because these young whippersnappers grew up using digital technology. They have never known a work environment without email and video conferencing, and they view Facebook, LinkedIn, and other social media as an integral part of their personal and professional lives. Their views on technology are easily recognizable, too — just listen for statements that categorize spending money on new tech as an investment rather than a waste.

So here is where the root of the problem lies: Digital immigrants — not digital natives — tend to hold the senior positions at wealth management firms, which results in the “technology is an expense” mentality infecting the entire firm. From there, the problem cascades: First, the firm is light-years behind the competition in terms of technology and operations. And second, talented, tech-savvy younger workers leave for better opportunities, which further contributes to the cycle of the company falling decades behind in technological innovation.

But a firm in which senior management is entirely composed of digital natives isn’t optimal or realistic either. They often do not have the industry-related experience that older professionals have. Fortunately, an old dog can learn new tricks, and these old dogs just need a shift in perspective — from “technology is an expense” to “technology is a revenue generator.”

The best ways to accomplish this shift are:

1. By teaching digital-immigrant senior managers how fintech can help their firms; and
2. By involving younger staff in technology-related decision making — for example, through a committee that spans staff levels.

If you are a digital immigrant and are unclear about fintech, or you are helping a digital immigrant get up to speed, here are a few examples of what technological investment (not expense!) can do:

• Buying a 3D printer leads to: (1) aesthetically pleasing client reports; (2) something new to show to clients.
• Creating client apps for smartphones and tablets fosters: (1) mobile reporting; (2) increased client satisfaction.
• Improving a firm’s website, as well as training staff on business-related social media use, helps: (1) maintain regular contact with current and prospective clients; (2) create a “web persona” for the firm.
• Updating CRM software means that a firm can have segmented and targeted marketing and client reporting. Think of the time (and money) this software will save versus the old way of painstakingly creating spreadsheets.

If, after learning what fintech can do, senior managers are still thinking, “My clients haven’t complained, so there’s no need to improve my tech and ops,” it’s time to realize that by the time clients have complained, it is already too late. At that point, the firm is already behind the competition and clients are already noting it.

The choice is clear: The “Hey, it still works” mentality results in patched-together, mismatched infrastructure, whereas the “Technology is an investment” mentality makes the firm look cutting edge.

I think it’s time for an upgrade, don’t you?

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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