Originally published in Financial Advisor

By Mark Hurley

Editor’s note: This is the third in a series of interviews with thought leaders on the future of the wealth management industry.

Michael Durbin, Technologist for Wealth Managers – Over the last 25 years, Mike Durbin has served in a variety of senior executive positions supporting wealth managers while at Morgan Stanley and Fidelity. During his five-and-a-half-year tenure as the head of Fidelity Institutional Wealth Services, he oversaw a business that more than doubled its assets under administration. However, earlier this year he was handpicked to run Fidelity Wealth Technologies and charged with reinventing the firm’s value proposition for its RIA and custody clearing businesses. He is also currently serving as interim CEO of eMoney Advisor, which Fidelity acquired earlier this year. He generously agreed to share his thoughts on how he believes technology will change the wealth management industry over the next decade.

Hurley: What will the technology platform used by wealth managers look like in 10 years?

Durbin: It will finally deliver on several things. The first is easy access to aggregated, reconciled data. Consumers of the future are going to require that their advisors truly advise on everything the household has or does.

Second, technology will enable clients to be involved in what the advisor is studying, sourcing, debating and doing. Fast-dying are the days when an advisor sits across the coffee table at home, asks a thousand questions and says, “I’ll come back in six weeks with your plan.”

This is one of the principal reasons we were attracted to eMoney. Its architecture is centered on the idea of the advisor and consumer working together. They are able to jointly study multiple plans.

Third, technology will deliver on integrated solutions for wealth managers. A threaded stack—CRM, performance reporting, all of the other capabilities that are required—will be integrated and delivered efficiently to advisors, through one relationship.

Hurley: What services will advisors provide in the future?

Durbin: Good firms will become counselors instead of just financial advisors. Technology will allow advisors to wring out any excess spread or cost that their clients are paying. It will also allow advisors to offset pricing pressure on their fees. Although the mechanism of price will change, they will be able to get the same dollar amounts.

Today, most traditional wealth managers are investment managers. Most have overestimated the portion of their clients’ wealth that they actually serve. Frequently, when a client’s information is fully aggregated, advisors are stunned to see how little they manage.

Ten years from now, to be viable, advisors will have to provide holistic wealth management advice across an entire household’s set of needs and holdings, including homes, investments, liabilities, cash, 401(k), etc. For example, there is a marriage between health and wealth that’s absolutely coming. Clients need help understanding what kind of health care they can afford. They are going to ask their advisors, “What can you do to help me get the health care that I need?”

If you’re going to really be that holistic advisor-cum-financial counselor in 10 years, you better have a view of absolutely everything going on in that household. They also will have to do more for clients, and technology will allow them to do that cost-efficiently.

Hurley: Let’s get to dollars. The cost involved in creating these kinds of technologies is mind-numbing.

Durbin: For the advisor or for custodians?

Hurley: That raises an interesting question. Who will pay for all of this?

Advisors currently get a technology platform that is free because their clients, effectively, pay for it. But because advisors have systematically lowered what their clients pay for custodial services, the math, at some point, will not work for the custodians, especially if they are going to pay for all these new technologies over the next decade.

Durbin:You point to several interesting issues. The first one is integration. Custodians traditionally have provided a platform, and advisors have added technology. Today, both custodians and the independent tech vendor base are augmenting these platforms with various bells and whistles and capabilities.

If I am a principal at a wealth manager, at first, I may think, “This is phenomenal. There is so much capability out there.” But then I think quickly, “How am I supposed to stitch all of this together?” And the resulting technology stack turns out to be quite expensive and its various components do not talk to each other.

Second, because of several secular trends, the clearing and custody businesses are growing very nicely from the top and bottom line. But the marginal rate of revenue produced on the marginal dollar of asset coming in continues to fall. There is a potential future in which custodians look like utilities.

This is why we created Fidelity Wealth Technologies. You can only fix that revenue issue by positioning your own solutions or serving something up that is new and on which you can get a revenue stream.

The core capabilities that we provide, access to brokerage or some new account access servicing, that’ll continue to be free. But we also now provide wealth managers with a technology solution for an out-of-pocket, per advisor annual licensing fee.

This is a new piston in our revenue engine. Through Fidelity Wealth Technologies, we can license technology to advisors, who are very willing to pay for it because the value they perceive is being delivered.

Hurley: Today about 95% of the industry’s assets are managed by only about 5% of its firms, and within 10 years that will probably become a 98% to 2% ratio. That means that most future industry participants won’t have a lot of money to pay for technology.

Durbin: They won’t. Our goal is to build and provide technology designed to help empower advisors to remain relevant in a household no matter what’s going on in that household. If the client wants to donate to a charity, to sell a house, to downsize, to sell his or her business, to do tax planning, the first call increasingly is to the technology-empowered advisor. It’s not to the CPA, or to the attorney.

eMoney’s current technology offering is only $3,600 per year for that advisor per seat. It’s aggregated data. It is a consumer portal. It is a collaborative co-browsing technology. It integrates with all the other widgets that the advisor has: CRM system, performance reporting, et cetera.

Hurley: Because advisors control such large amounts of client assets, vendors historically have been willing to give them free technology. A great example is rebalancing software. iRebal started as a co-op funded by five wealth managers whose owners had visions of making lots of money. But today advisors get rebalancing software free as part of their custodial technology platform. Why are advisors going to have to pay for technology in the future?

Durbin: It’s an excellent question. However, as the existing pistons of revenue for clearing and custody providers continue to shift, the revenue has got to come from somewhere. Also, there is going to be a marketplace for transparent, seat-based licensed technology with demonstrable value. This is particularly true if the technology can so improve the consumer experience that advisors have a better shot at sustaining their fees.

Hurley: Part of what you’re assuming about wealth manager technology is that clients have the time and interest in becoming more adept in using the technology of the advisor. What drives that assumption?

Durbin: Our experience to date is that the most successful users of planning software position it for those households that are not technology savvy. And there are two interesting statistics. Even though they’re tech-indifferent, 20% of these advisory firm clients are on the system every single day. Eighty percent are on it once a month.

Hurley: Is this really a good thing for clients? As Dick Thaler’s research has shown, there is a direct correlation between the frequency of observation of portfolios and the possibility of too much risk-aversion.

Durbin:The technology of the future isn’t, “I’ll show you how the portfolio is doing.” It is much broader. Everything is built around, “Are you OK? Are you still on plan?”

The brilliance of this approach is that when there is a market dislocation, it helps clients understand that they are off their goals, and they have to save more, spend less or change their goals. In other words, in a frictionless way, it brings the issue back to the consumer, as opposed to the advisor being measured against a benchmark.

Hurley: There is this guy named Edward Snowden who has proven that all technology is hackable, or at least so it seems. If you’re going to put someone’s entire financial well-being onto a technology platform, how is an advisor going to get a client comfortable that they’re not going to get hacked?

Durbin: Just as advisors educate investors on how to meet their financial goals, they’ll talk to their clients about how to meet their security goals—about what they need to do to protect themselves and better understand their risks. I believe this is an important way for advisors of the future to stand out.

Hurley: Data security is a big issue for many clients, in particular identity theft.

Durbin: No doubt about it. Look, Fidelity is a large firm, and we use a lot of resources for data security. We have a range of safeguards and multiple layers of security in place to protect customer accounts and information, our sites and systems.

Hurley: This seems to suggest that a core part of an advisor’s future added value will involve helping the client keep their information secure.

Durbin: Yes. One way to mitigate the risk will be to encourage a client not to consolidate on their own. Doing so is increasingly free for consumers.

Good advisors will educate clients that they don’t want to put certain things on Instagram or pay a bill in a certain way. In other words, they will use clients’ data to provide better advice while at the same time helping them to protect its privacy.

Hurley: You are also suggesting that wealth managers—or at least the large ones—are going to have to invest in a chief technology officer to help manage all of this technology and its security.

Durbin: They will. The promise of this new technology is coming. Advisory firms will be able to give the appearance of high-touch customization, 24/7, through technology. Some advisory firms are going to invest in chief risk officers who are responsible for information security, suitability, sales practices, compliance. But, in aggregate, wealth managers are not going to have to spend the same FTE per dollar or per household through time if this technology delivers.

Hurley: You also seem to be suggesting that, because of technology, smaller firms will be able to compete with the big guys.

Durbin: We see being the financial counselor, the life coach, the validator, as the principal way any advisor will differentiate and demonstrate value. By and large, the top 5% of the market all do that, but it tends to be sparked by an event rather than a core service.

We see a world over the next 10 years in which advisors will have to change their business model. They won’t be able to justify their fees based on the value-added they create relative to a benchmark. Instead this model will be turned upside down and advisors will look after the clients’ entire lives. So while they will run money, they also are going to be complete in the advice that they provide.

Hurley: You are suggesting that advisors will have to rely more on a la carte pricing as opposed to fixed fee?

Durbin: Yes. They will have an investment management fee separate from a wealth management services fee, and if that part is not charged a la carte, it may instead be, “I’m charging you a fixed fee for my time and advice.”

Hurley: How will technology change client recruitment?

Durbin: Wealth management has largely remained a one-referral-at-a-time industry. That is why being local has been such a big deal, and why there haven’t been many national firms, a sort of nexus of new business and geography. But we are seeing more firms starting to go national using social media, their improving websites, the growing list of content-management technology companies, and even relatively low-tech vehicles like radio programs.

I think that the future technology that’s coming will actually accelerate that. At some point there is going to be an Angie’s List for advisors that will allow consumers to research firms. It exists in almost every other industry today.

Hurley: What role will brands play in all of this?

Durbin: Brands will matter, but will not be the principal driver of growth. What will be much more important is, “What is the quality of that person working under the brand, who is helping me with my special needs kid or my small business or my spiraling health-care costs?”

Hurley: What about specialization—firms that brand themselves as the experts in solving certain very complicated problems?

Durbin: A good point. For specialization, brands will matter a great deal. Also, technology will allow wealth managers to have multiple specialties within the same firm and will effectively make the advisor the sort of general contractor through which all of the clients’ needs flow.

Hurley: Where do you see robo-advisors fitting in versus traditional advisors?

Durbin: They will have a tremendous positive impact for consumers. But robo-advisors won’t replace the traditional advisor that sits above this fray and serves as the financial counselor to client. As the complexity of problems go up, the greater the need for the traditional advisor. And there will be more digitized solutions that will augment the value of traditional advisors.

Hurley: Given that the big custodians already have large client bases and strong brands, won’t they just amend their technology, and the future successful robo-advisors will be named Fidelity or Schwab?

Durbin: Perhaps. But a key question will be whether the new technology will require someone to move his or her assets from a custodian to get the advice. Not requiring this takes a lot of friction out of the system, and the premium models of robo-advisors allow no change of custodians.

Hurley: What new technologies for 10 years from now are being developed that no one knows about?

Durbin: On the early end will be the benefit of true technology integration. Second will be the expanded use of big data. It will enable advisors to see clients’ spending patterns and provide better advice. I’m not sure how it will be used in client recruitment, but it will.

Hurley: Sounds fairly Orwellian.

Durbin: It is hard for me to see how the consumer does not come out much better from all of this. And there is absolutely a role for the traditional advisor.

Hurley: Thank you.

Durbin: Thank you.

Mark Hurley is founder and chief executive of Fiduciary Network, a private bank specializing in the wealth management industry.