A prominent private equity fintech player is betting big
that the next big development in digital financial advice will happen in the
back office.
This will be a shift from the past decade, where the most impactful
changes to advisor technology have been front-office oriented, said Robert Anderson,
partner at FTV Capital, a growth private equity firm whose portfolio includes
companies like Riskalyze and Docupace.
“Digitization has gone from a consideration to a must have,”
Anderson said. “Now it’s become table stakes for advisors to have advanced
solutions and automation across CRM, planning and reporting—all of their
competitors are doing these things. But today, you also need to be able to
support and grow advisory enterprises, so the focus is growing on moving
automation into back-office operations.”
FTV Capital’s other portfolio financial companies of note
include ETF Securities, True Potential, Swan Global Investments and Derivative
Path. Former holdings include Financial Engines, IndexIQ, PowerShares,
VelocityShares and Aspire Financial Services.
Anderson describes advisors’ back office as still dominated
by a significant amount of manual, paper-based workflows that risk becoming
more onerous amid growing demand from clients and increasing regulatory
pressures.
“In many cases, only 30% to 40% of advisors are digitizing
their back office and are embracing software to automate their workflows. In
other use cases, like CRM, there’s an 80% to 90% adoption of digitization and
automation,” he said.
Anderson believes that digitizing the back office may become
a necessity for the financial industry. Currently, the total advisor workforce
is in the midst of a prolonged decline in headcount, while the number of
consumers seeking and expecting professional financial advice continues to
increase.
In such an environment, advisors will need to find and
implement efficiency-building technology to meet the growing demand for advice
and also to provide outstanding client experiences, said Anderson.
“There’s an inherent pressure, a great tailwind for software
that helps advisors run their practice more like an enterprise so that they can
better serve clients, be more productive and handle more complex situations,”
he said.
The need for better front-office technology gave birth to a
flurry of innovative fintech start-ups aimed specifically at improving the
client experience—like better CRM to keep track of clients and avoid potential
problems when data is re-entered, client portals to enable a more hands-on
approach and co-planning, and more robust proposal generation and portfolio
reporting tools to deliver the right ideas to clients in the best possible way
and demonstrate results.
Back-office technology, on the other hand, has traditionally
come from large, incumbent financial companies like custody and clearing firms,
not fintech start-ups. Anderson believes that is going to change..
“We’re seeing this as another catalyst,” he said. “Not only
do those large providers not provide truly innovative solutions for the back
office, the tools they provide are also becoming much more legacy. They’re
putting less emphasis—and fewer resources—into software solutions for the back
office at a time when advisors are experiencing a growing need for those
capabilities.”
At the same time, most advisors use multiple custodians and
also have to maintain relationships with product manufacturers like alternative
investment providers, fintechs and insurance providers. These relationships
typically cannot be managed within one custodian’s back-office solutions, said
Anderson.
It’s become an area of emphasis for private equity investors
like FTV, said Anderson.
“We see a lot of excitement and a rapidly evolving
technology landscape around the back office because, thus far, digitization is
underserved in the back office,” he said.
FTV Capital, which has had 118 different portfolio companies
since it was founded in 1998, recently sold and exited one of its
back-office-focused holdings. InvestCloud, which builds a myriad of cloud-based
software solutions for advisors, specialized in a customizable approach to
integrating different back-office operations. It was sold to another private
equity investor, Motive Capital, which promptly merged the company with
Tegra118, the rebranded investment
services provider spun off from Fiserv and Finantix, a private-banking fintech.
After it received an investment last summer, FTV Capital
added back-office service provider Docupace to its portfolio. Docupace has
expanded far beyond its roots as a cloud-based document management platform towards
automating processes like client onboarding, advisor transitions, cybersecurity
and compliance workflows.
“We work with great, innovative management teams—like those
at InvestCloud or Docupace or Riskalyze—that understand how their end-markets
are evolving, put their customers first and build great products to serve the
customers’ changing needs,” said Anderson. “These teams are not scrambling to
find a product that fits the market. They’re connecting their products with the
customers’ pain points and growing in the right ways.”
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