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Technology Trends for 2008: Part One

By Joel P. Bruckenstein
Jan 10, 2008

As readers of my columns are no doubt aware, I write a year in review column regularly, but I usually shy away from making predictions at the beginning of the year. That's because I do not have a crystal ball, nor do I have any particular confidence in my personal ability to predict the future. Having dispensed with the disclaimer, I can tell you that I've received numerous calls and e-mails over the past month asking me to highlight some technology trends I see emerging in 2008, so I decided to take a chance and share 10 predictions with you.

Document Management 2.0
2008 will be the year that more robust, sophisticated document management software products begin to really take off within the financial advisor community. A few short years ago, paperless office technologies and digital documents were considered bleeding-edge technologies by most mainstream advisors, but these days most advisory firms use paperless office technologies to some extent. One would think that by this time virtually every firm in the industry has deployed document storage software, but apparently, this is not the case.

According to a recent survey by Financial Planning magazine, 38% of respondents said they did not use any document storage software at all. Of those respondents who did say they used a document storage solution, 32% said they relied solely on Adobe Acrobat, while another 9% used PaperPort.

Because of a number of factors I discussed in an article titled File Trials, I do not believe that Adobe Acrobat or PaperPort alone can address the needs of today's financial advisory firm. So (if we use the Financial Planning survey as a benchmark) although roughly 62% of advisors are using some form of document management software, only about 20% are using a system that is likely to be adequate, let alone optimal.

I believe this sorry state of affairs is about to change. Historically, with the possible exception of Laserfiche, firms that market document management software to advisors have not done a particularly effective job of educating advisors as to the finer points of their products. As a result, advisors think "Hey, I already have a paperless solution, so I must be OK." Here's a newsflash: They are not OK!

It is highly likely vendors in this niche will redouble their educational efforts in 2008, and when they do, an awareness of legal, regulatory and security concerns will cause advisors to re-examine their current document management tools, or lack thereof. Upon examination, many advisory firms will find their current systems lacking. This will cause them to turn to products from firms such as Cabinet NG, CEO Image Systems, DocuXplorer, LaserFiche, Xerox, Worldox, and others. These firms can provide more automation, built in workflow processing, improved indexing, robust search capabilities, granular rights management, and audit trails, plus numerous other advanced features.

If all the leading document-management firms serving advisors traded publicly and I could buy an ETF representing a basket of them, I'd be long the index. These firms are poised to prosper as advisors move to improve their document-management capabilities.

Document Authentication
The issue of document authentication is closely related to the whole area of document management, but it is a separate challenge worthy of its own discussion. As it relates specifically to digital documents and records, the issue is this: A client signs a contract, or any other document. You scan the document and save it as a digital file. At a later date, you produce the document to settle a dispute, satisfy a regulatory request, or support your case in a court of law. How do you prove that the digital image is authentic? How can you demonstrate that it has not been tampered with?

It would have been easy enough for a dishonest person to alter the digital image using any number of computer software programs, and the legal community is aware of this fact. In a number of court cases, including Vinhnee v. American Express Travel Related Services Company, Inc. and more recently Lorraine v. Markel American Insurance Company, judges have thrown out various forms of computer generated "evidence" because it could not be authenticated. This leads me to believe that advisors might be called upon to authenticate the validity of their records in the future. If that should happen, many advisors will discover that their records do not meet the standard of admissible evidence in a federal court.

So how can an advisor authenticate digital files? At least two firms that I am aware of, ProofSpace and Xerox offer authentication technologies and services. By the time you read this, it is likely that Cabinet NG, a document-management vendor that targets advisory firms, will have announced a deal to embed ProofSpace's patented ProofMark digital tamper-detection technology into Cabinet NG's document management solution, CNG-SAFE. If this partnership turns out to be as successful as I think it will be, it won't be long before just about every document management vendor offers some sort of authentication as an option on their respective products.

Online Statements
"Statements in Cyberspace," the lead article in the January 2008 issue of Inside Information, does an excellent job of making the case for automating the creation of clients' quarterly statements and putting them on the Web instead of printing and mailing them to clients, as has been the practice at most firms until very recently. A number of tech-savvy firms I know have been offering online statements for a while now, but as the tools improve, and as the choices proliferate, 2008 is likely to be remembered as the beginning of the end for paper client quarterly statements.

In the article, Bob Veres mentions a number of applications that automate the process of creating digital statements and posting them to the Web. Assemblage from Trumpet, Inc. collates pages, files them to Worldox, and posts them to a client lockbox on the web. CRM Software, the developers of the popular Junxure CRM program offer ClientView, an application that can batch performance reports from PortfolioCenter or dbCAMS and post them to a secure client website. In addition, ClientView allows advisors to batch other Junxure reports and upload them to the client web pages. Web hosting of the secure client pages is included in the price of ClientView.

LightPort, Inc., which Veres mentions briefly, offers two products which, when taken together, can automate the creation and posting of digital reports to the web. LightPort's PortfolioExpress automatically collates and customizes client statements for electronic posting or printing. It can take batch print jobs from sources such Axys, Centerpiece, PortfolioCenter ,or Excel, separate them for individual clients, and then print them to Adobe PDF. VirtualSafe enables advisors to upload user- or account-specific documents in most any file format to a secure client portal on the Web. AdvisorSquare offers secure client lockboxes with versioning capabilities.

According to Veres, "By far the most ambitious version of these client-specific Web sites comes from Andy Gluck at AdvisorProducts, Inc." AdvisorProducts offers highly customizable personal lockboxes to which advisors can add their blog, personal notes for clients, articles generated by AdvisorSites, and links to other Web sites. Eventually, secure information from other sources such as online financial planning programs will be fed into AdvisorSites AdvisorVaults.

Others vendors that offers some sort of online report posting/reporting capabilities include AssetBook, Black Diamond, BridgePortfolio, Family Office Network, and Portfolio Director.

Creating, collating, printing, and mailing reports to clients are inefficient, costly, and time-consuming processes at most firms. Technology can do it cheaper, faster, and better. Look for paperless reporting to expand dramatically in 2008 and beyond.

Integration
For years, financial advisors have been clamoring for better integration among their applications, and it is finally starting to happen! Interactive Advisory Software  has offered an integrated suite of products for a number of years, as has Morningstar and others. In 2007, a new membership organization composed of 22 technology vendors, Your Silver Bullet, was formed to help foster integration among products developed by member firms. Although it is less than a year old, members are already busy building technology bridges. I expect to see the fruits of their labor appear during the coming year.

In addition, custodians and independent broker/dealers are making an effort to help promote integration. Most leading broker dealers serving independent reps have bundled applications for their reps. In 2008, Fidelity has announced that it will offer an integrated web-based solution for RIAs. Increased integration is good news for advisors. It should lead to additional productivity gains in the years ahead.

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Joel P. Bruckenstein, publisher of Virtual Office News, is the industry's expert on applied technology for financial professionals. In addition to his monthly columns, Bruckenstein consults with companies large and small to help them achieve higher returns on their technology investment. For more information of Bruckenstein's consulting services, or to have him speak at your upcoming event, please visit www.joelbruckenstein.com.

The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar. Feedback about this article may be sent to advisorquest@morningstar.com.