Implementing Technology

Sue BerginSue Bergin, President, S Bergin Communications

You don’t necessarily need the most cutting-edge technology to get to the top of your game. According to a recent study, you can start by leveraging the technology you already have.

Fidelity Institutional Wealth Services’ 2013 RIA Benchmarking Study reveals that high-performing firms—those in the top quartile for growth, profitability and productivity—focused on smart technology and adoption, not getting the latest and greatest. These high-performing firms focus on optimizing their technology in three areas: portfolio management, service, and client reporting.

Here are ten steps you can take to make sure you get the most from your technology.

  1. Make adoption a priority. Commit putting in the time and effort to learn how best to maximize all of the system’s features. If you can’t do it yourself, make someone else in your office accountable.
  2. Plan. Learning a new software program is like learning a new language. It’s hard to know where to start. Your technology provider should be able to give you an implementation guide to show you the steps to follow, and milestones to hit.
  3. Set aside time. If you don’t carve out time on your schedule, it isn’t going to happen.
  4. Network. There are relatively few programs out there that haven’t already been tried and tested by others in similar positions as yours. Talk to everyone you know who has gone through the implementation process and find out what they did and what they wished they had done better.
  5. Gather resources. Request an inventory of the training your technology provider makes available. Once you know what they have for support materials, you can choose the format that best matches your learning style.
  6. Optimize Your TechnologyGet names and numbers. You need to have key information handy in a few different areas. Know the software name, version number, and license holder so that when you call or go online for help you can be sure you are asking about the right program. Also know the names and numbers of customer support persons at your technology provider.
  7. Troll the internet. Use social media find online user groups or other social media sites that could provide helpful implementation hints. For example, there may be a LinkedIn User Group already established for the purposes of optimizing your software.
  8. Monitor progress. Perform periodic self-checks to monitor your progress towards the goals set in your implementation plan.
  9. Celebrate incremental success. Even if you haven’t learned everything there is to know, make note of how the technology improves your efficiency. Success is a powerful motivator and will prompt you to plow through your learning curve.
  10. Provide feedback. Software engineers constantly strive to innovate. If there is something you don’t like about your program or would like to see handled differently, let them know. You may just have a function named after you in the next version!

The views expressed are those of Brinker Capital and are for informational purposes only.

Seeking a Greater Purpose in Investing

Dan WilliamsDan Williams, CFP, Investment Analyst

The “science” of investing is well known. The modern portfolio theory (MPT) of investments developed over the past 50 years, starting with Harry Markowitz, has become so ingrained into the investment management culture that the concept of portfolio diversification has become second nature to most people. This is of course due to the mathematical analysis showing that diversification improves investment portfolios’ risk and return characteristics. To say differently, it makes good math sense.

6.27.13_Williams_1Recently though, investment management research has begun to venture into the new field know as Behavioral Finance. At a high level, this theory points out that the owners of these investment portfolios are not emotionless robots that are attempting to optimize the expected value of portfolios for a given level of risk, but rather humans who have reactions to watching their portfolios change in value and who also have goals for the wealth created. Often times this theory’s task seems to be to point out our human flaws and biases so that we can move closer to MPT. This includes our confirmation bias (seeking out only information we agree with rather than information that challenges our thinking), overconfidence bias (believing we are above average in our skills), and loss aversion (finding that we will irrationally gamble to avoid a loss already sustained but unwilling to take a gamble that might result in a loss, even when the odds are in our favor). Still, this idea also points out what gets lost in the math of MPT. Specifically, that an investment portfolio has greater purpose than just the accumulation of money.

The meaning here can be shown in the following dream scenario. You take a trip to Vegas, you see a slot machine, you put a dollar into the machine for fun, pull the lever, and you hit the big jackpot. You are then told that you can either have the $10 million prize immediately, or a flip of a coin for the chance to win $25 million or lose it all. The vast majority of people would take the $10 million dollars. Consider instead the experience of the MPT optimizing robot. First, the robot would likely not put the $1 into the slot machine. Why put $1 in when the expected value is $0.95? Second, given the jackpot options the robot would likely gamble it all at the chance for $25 million as the expected value of $12.5 million is greater than the $10 million. The math is clear—the robot is optimizing and we are not. But that is not the whole story.

6.27.13_Williams_2First, most humans get utility from putting a dollar into a slot machine outside of the outcome of the gamble. As such, we may be rational to gamble if the utility of the $0.95 expected value and the experience of gambling together are greater than the utility of the $1 in our pocket. Second, given the jackpot options, outside of the fear of losing the $10 million, there is also a diminishing marginal utility to money. That is to say simply that an extra $1 million to you or me changes our lives a lot more than an extra $1 million to Warren Buffett. It is quite possible that the utility we tie to that first $10 million is greater than the utility to that next $15 million. As such, we could be rational in both the action to gamble and the decision to take $10 million.

While lottery dreams are nice, the practical meaning is that our investments allow us to do things. Said differently, our investment balance is not just a number, it represents our ability to meet goals. To some, that $10 million meant the ability to have the freedom to travel, to retire for others, a fleet of cars to those so inclined, and a chance to make the world a better place for still others.

NorthstarIn this line of thinking, the relatively newly developed bucket approach to investment management ties specific assets to specific goals. This simple concept turns a portfolio that is invested based on some risk profile that in an opaque manner will meet your goals into a portfolio of portfolios that represent directly your goals. Accordingly, rather than having portfolio performance measured against a generic market benchmark, the measure that matters is whether each of these portfolios is on track to meet their assigned goals. Accordingly, Brinker Capital’s recent offering in this area is appropriately named “Personal Benchmark.” A final point is that people draw utility not just from spending their investments to meet goals, but also from where and how they invest. Socially Responsible Investing, also known as ESG (Environmental, Social and Governance), allows people to allocate capital where they believe the welfare of those outside themselves is best considered. Outside of the fact that there is evidence that investing in industries and companies that have these positive attributes may also improve investment performance, the fact that we are able to encourage positive change in the world while we save for our goals is a powerful concept.

In aggregate, the recent changes to investment management are brilliant in their simplicity to give purpose back to investments. The more empowered we feel with meeting our goals with our investments, the more likely we are to meet, and even exceed, those goals.

Search and Selection: Finding the Right Hire for Your Firm

Bev FlaxingtonBev Flaxington, The Collaborative

It is often said that this isn’t a numbers business, it is a people business. Understanding the criticality of the human factor, it is interesting how often an advisory firm will simply hire to fill a role instead of putting the time and energy into search and selection to determine the right candidate, for the right role, in the right culture.

Success in a job comes from a number of factors. Let’s touch on a few and then talk about one in more detail, that of search and selection:

  • Behavioral fit – is the employee’s natural style right for the role? If he or she is a deeply analytical person, but the job calls for constant people interaction, will she or he be able to modify for success?
  • Cultural fit – are the values of the company in line with the employee’s values? Does the employee show a willingness to understand and uphold the company’s values?
  • Clarity of job expectations – does the employee know exactly what is expected of them? Has the employer clearly identified what success looks like for this role?
  • Compensation and motivators – are the right ones built in for this person, in this job?

In addition to these factors, advisors must consider where they find candidates (search) and how they determine who they will hire (selection). When looking for a new job, oftentimes people will focus on networking. However, in hiring for a new role networking may not be the best approach. In many cases, a person may get referred to the advisory firm and because they came from someone the advisor knows and trusts, they are assumed to be a good fit. An advisor may not go through as rigorous of a screening process in that case.

When searching for a candidate, ensure that you are pursuing all available avenues to locate candidates. In addition to the traditional posting options, be sure to include posting to groups such as the CFA Institute, or the FPA, or other financially oriented organizations. LinkedIn is growing in popularity and can be an excellent place to find candidates. Interview a minimum of three people for a role just to get an idea of different people.

Finding the Right Hire

Before you begin the interview process, establish how you will select the person. Who will be involved in interviewing? How much weight will each person have? Will you have an organized list of questions for each person to ask, or a matrix to assess feedback? What will be the feedback loop and how will people follow up on their thoughts? You want to establish final criteria for making the decision. In many cases a firm has a set of requirements but makes an exception based on “liking” a candidate. This might be okay, if all other criteria are met. Define this in advance.

Be sure to ask behavioral questions. Don’t just take a person’s “track record” for granted – ask how they found clients, what they did to work with them, how they go about generating referrals, how they work with COIs, etc. Pick those things most relevant to your firm and be sure to dig, dig, dig in your questioning until you really understand the background.

Lastly, be sure to check references. Don’t just do a cursory check-in with the three or four people that were listed on the person’s resume. Instead, try to do some digging on your own and find others to speak to. If the person is on LinkedIn or has relationships at prior firms, see if you are able to use your connections to learn a bit about the person outside of the given references.

It can sound like a great deal of work to find the right person, but the truth is that making a bad hire is costly for any firm.