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Cloud Technology Blog for RIAs and Broker-Dealers

RIA's, Boost Your Client Service With the Cloud

3/2/16 1:40 PM / by Justin Kapahi

Clients will appreciate that better tech makes them safer, and you more efficient.


All told, wirehouse brokers managed more than $6.3 trillion in client assets at the end of 2015. In the independent channel, there are more than 120 RIAs that each manage at least $1 billion in assets and nearly 300 RIAs each managing between $250 million and $1 billion in assets.

Now that retention contracts forged in the heart of the financial crisis are beginning to expire, thousands of those wirehouse brokers will have to decide whether to stay captive or strive for independence. New RIAs are coming to market virtually every month. It’s no understatement to say that growth-oriented breakaways of 2016 will be making one of the most pivotal decisions of their careers.

If you’re ready to start an RIA, it’s time to start thinking about how to make your practice as attractive as possible to current and future clients. An often-overlooked strategy involves adopting a cloud-based IT system. This unique approach positions new RIAs to act in clients’ best interests by providing better cybersecurity, greater efficiency and lower costs.


Safer Client Data

Clients entrust advisors with not only their wealth, but also their highly sensitive personal information. In the age of identity theft, hackers and thieves target any scrap of data that can jeopardize a client’s security: Names. Ages. Postal addresses. Phone numbers. Social Security numbers. Email addresses. Website passwords. Bank and brokerage account numbers. The list is as long as the perpetrator’s imagination.

Since news reports show that wirehouses themselves are vulnerable to cyber attacks, clients need to trust that a departing broker can maintain or even enhance cybersecurity at a new RIA. The proper cloud platform makes protecting client data a top priority. Moving a firm’s operating system off its local computer network and onto offsite servers helps minimize risks that commonly lead to cyber breaches. Those risks decrease further when outsourcing the work to a third-party expert that understands how to respond to threats originating both outside and inside the firm.

A superior cloud solution allows the firm to track the actions of all approved users, across all connected applications on the system. These tools can control permissions, prohibiting users from downloading and uploading files, or prohibiting users from accessing the system on unapproved devices. Moreover, if a disaster such as a flood or fire strikes the office, the system could be recovered despite damage to local equipment. Clients can take comfort in knowing their personal information would remain safe under extreme conditions.


Productivity Boost

At first glance, advisors might scoff at the idea that clients care about a firm’s efficiency. Upon deeper consideration, however, advisors starting their own RIA can see the benefit of telling clients that business will run smoother. Wirehouses restrict how brokers can access the firm’s operating system, whether by blocking certain types of mobile devices or prohibiting brokers from sharing certain documents online. An independent RIA operating on a secure cloud platform may wish to serve clients without those restrictions.

Furthermore, higher-end cloud solutions support operating systems that maintain their look and feel across different devices. That makes it easier for advisors and other staffers to work with full functionality, by using the necessary software applications on anything from laptops to tablets to smartphones. When staffers can work without hindrance, they have incentive to do all they can for clients even when out of the office.

Another aspect of efficiency stems from being able to give the SEC and FINRA the information they seek swiftly, during regulatory inspections and examinations. Top-tier cloud platforms are adept at generating internal audit logs that document the execution of its user tracking and control functions. RIAs with this ability can keep up with client demands while also accommodating regulators. RIAs lacking this ability would still be responsible for gathering documentation for regulators. Doing this manually would likely take much more time, and that time would not be spent helping clients.


Saving Money

The lower a firm’s expenses, the less it has to charge clients to make a profit. Any client could appreciate that math. Yet new RIA owners, particularly those breaking away from the vast resources of a wirehouse, often underestimate the cost of getting started and keeping up to speed. Staffing, office space, technology and compliance issues all take their toll. For example, on average a firm will dedicate 75% of its expenses to hiring people, training them and providing benefits.

Firms that commit to large in-house IT teams may spend more than average. Outsourcing IT infrastructure to a reliable cloud provider can be a more cost-effective solution. An RIA could theoretically save money by forgoing any sort of IT staff or outsourcing, but such weak infrastructure exposes the firm to inefficiencies and cyber breaches — two risks that erode the competitiveness of a new business. An outsourced IT service can cost a fraction of maintaining internal IT staff, while still providing round-the-clock troubleshooting. Moreover, advanced cloud technology can require specialized expertise that the typical IT worker lacks.

RIAs may even save money on hardware. Many desktop PCs last less than four years, and office laptops tend to survive for three years before they need to be replaced or refurbished. Cloud-based platforms, on the other hand, do not sap as much memory and storage space as local networks, since cloud processing occurs in offsite data centers. Therefore the RIA’s desktop could last between seven and ten years, effectively cutting the cost of new hardware. And, when outsourcing, RIAs avoid buying all the equipment and space needed to support massive server facilities.


Unique Approach 

Since cloud solutions offer so many advantages for new RIAs, why haven’t most independent firms adopted them already? Simply put, it is cutting-edge technology that average practitioners have yet to discover. To be sure, that hasn’t stopped wirehouses, elite aggregators with household names and billion-dollar RIAs from embracing cloud-based platforms. For new RIAs intent on standing out from the crowd, cloud solutions are an innovative and compelling way to show that the firm puts clients’ interests first.

Topics: Cloud Desktop, Software-as-a-Service, Technology

Justin Kapahi

Written by Justin Kapahi

Justin Kapahi is VP, Solutions & Security for External IT. He has over 15 years of experience in technology & finance and is the former CTO of Fairholme Capital Management.