"As an entrepreneur, I firmly believe that if you can't find a solution to a problem, you should build a solution to a problem." Roger Kiger, Smart RIA

[The Institute for Innovation Development interview series invites innovation experts, innovative business leaders and emerging FinTech companies to talk to our readers about their latest innovation activities. The series seeks to learn from innovative business creators, uncover innovation best practices, and apply these insights into a financial services business model.

We recently sat down with Roger Kiger, Founder of Visionary Horizons Wealth Management, a Knoxville TN –based SEC-registered Investment Advisory firm, and Smart RIA, a software company that makes RIA firm’s compliance management and back office operations easier, less expensive and more efficient. We asked him to share his journey from RIA to tech entrepreneur and the behind the scenes story on his growing cloud-based software platform for advisors.]

Hortz:  Managing compliance and business requirements of a small-to- mid sized RIA is a challenge for most advisors. What went through your mind that motivated you to take it upon yourself to create a new solution, to become an innovator?

Kiger: When I started Smart RIA and began developing the software, it was really born out of necessity; we had compliance needs for our RIA. We needed a solution for internal compliance challenges, and as a business owner, I felt like it was important to find a long-term solution. Given that no long-term solution was available at the time, I decided it might be easier to create a system to address this problem. My thoughts were that developing a system might be cheaper and more efficient for us as our registered investment advisor firm began to grow.

The cheaper and more efficient part – for me at least – may not have turned out to be true, but for my firm over the long haul, and Smart RIA’s customers since then, it turned out to be a win.

Hortz: Please share with us the decisions you made to tackle this problem and what you learned along this process of building an innovative, first-to- market solution for frustrating industry problems?

Kiger: The first decision was whether or not I wanted to take on building a solution. That one was relatively easy to make, because I really didn’t know what I was facing. Regarding building a software program to tackle compliance issues, one of the most frustrating parts of that process was learning how to develop software when I am not from the software industry.  As an entrepreneur, I firmly believe that if you can't find a solution to a problem, you should build a solution to a problem. But it was really much more time consuming and expensive than I expected, and it took me away from my core business, even when I wasn’t working on it.

The next decision that I had to make over and over again was, “do I keep going?” Even though the product works very well now, 5 years after we got started, it wasn’t the most efficient solution that I thought it would be back in 2010. Starting a business in the software industry is much more difficult than just having a great idea. Now, the software is very functional and effective.  It just took a few years longer than we anticipated, and required a whole lot of persistence and general bull-headedness not to give up. There were a lot of times along the way when I was very tempted to quit, but now I’m glad I stuck with it!

Hortz: What best advice would you pass on to other advisors from your experiences?

Kiger: Be on the lookout for things that we used to do on our own, but we just cannot do it now because of the higher compliance requirement in our industry, because of the fee compression in our industry, and/or because of the difficulties and the challenges of just running a daily business.

Running an RIA is much more difficult today than it was ten, five or even just 2 years ago. So we have to find new ways to be efficient. The best way to do that is through the use of technology. The best advice I could pass on to other advisors from my experience as both a registered investment advisor and from a startup founder perspective, is to be on the lookout for ways to utilize technology to solve issues and challenges that used to be done in the past by simply performing manual labor tasks.

If you can’t find the technology that you need to solve a problem or ongoing inefficiency, that’s when you might start thinking about creating that technology yourself. Just be aware: it’s going to cost you way more than you think it will, it will take a lot of time, and it will involve a significant learning curve unless you’re already trained in software development. Even if you’re paying someone else, all of the above is still true, because you have to lead the process. It’s going to take time and attention away from your core business – running your RIA – and there’s no guarantee that it will ever be the tool that you’re really looking for. Taking it to the point that you’ll be offering your solution to other people as a Software as a Service that they pay for is a whole new level of complexity, expense and time that requires a book-length explanation. So I’ll leave it at this: be prepared for the process of creating your own solution to be more difficult, expensive and frustrating than just handling it the old fashioned way. But if you’re persistent and a little bit lucky, you’ll have the solution you need in the end. 

Hortz: Can you quickly review the problems Smart RIA addresses for advisors?

Kiger: To address compliance problems for advisors, the software automates a lot of the compliance tasks that people normally do by hand, and it organizes and locks down the results to make you more audit ready. Smart RIA runs in the background to look for compliance deficiencies, and alerts you to them as they occur. These are things that typically just take a lot of time from a compliance officer perspective to find. And from an advisor perspective, you just don’t want advisors spending their time looking for compliance deficiencies. You want them building their book of business and taking care of their clients.

You don't want to spend all day every day in compliance software, but if you can use it for what it's built for, it can really save a lot of time and theoretically it would save a lot of money from a compliance perspective in the event of an audit. I know that having gone through an audit and what the software did for us in that audit was pretty awesome. The audit only took eight hours where it should have taken five days, and we had no deficiencies – all due to the software. More over, I’ve gone from spending a quarter of my time on compliance as CCO for my firm to less than a half hour a day on an average day. Ultimately, that was the goal I was trying to achieve when I created the software: I’m prepared for an audit, and it doesn’t take me much time, thought or effort to maintain that status.

We accomplish all of this through multiple different modules all within one software as a service platform. A few of the different functions include: secure document storage at the company, client and CCO level; portfolio compliance; data-driven compliance deficiency alert system; compliance calendar; and compliance questionnaires and checklists. And, we deliver our platform through a role-based interface. So what CCOs see and control is different than what advisors see, is different than what admin support staff see, etc. We also have a one-to-many role built into our software so compliance consultants can interact with and guide their clients who use our software through the platform.

Hortz: How do you solve all those advisor issues on one software program?

Kiger: This was one of our most difficult tasks from the outset: how do we minimize the footprint of the software while solving as many problems as possible at the same time?

We built Smart RIA specifically from an RIA perspective, which is to say, it was built by advisors for advisors.  So the good news is: we tried to solve multiple challenges that advisors face on a day-in, day-out basis.  The software uses the same data in many different ways so that tasks do not have to be duplicated, and solving multiple compliance requirements can be handled by software logic instead of by manual effort.

What we have tried to do is make it so simple that it's very, very efficient for all involved. The downside to simplicity is: everybody wants it to do one more task or would like to see one more bell or whistle, and each time we add some feature, it makes the software just a little more complex. We have to work hard to keep it simple regardless of how much functionality we put in.  After having added new features each month for a few years, you can see where a simple software program becomes really complex but does a bunch of really neat things.  The disadvantage to that is it takes a lot to learn and understand all of these processes.  So it's a little bit of a chicken and an egg thing but our software team has done a great job in simplifying it down to multiple modules that are available in the software so someone doesn't have to learn all of the components of the client management or the asset allocation, if they only want to use the compliance tool.  That's taken a lot of time to take what should be more complex but make it more simple. I think we've finally been able to complete that with our latest “compliance only” version of the software, and our sales of the new version appear to be proving that to be true.

Hortz: Have you ever quantified the potential savings in time, compliance/audit penalty fees, and valuation benefits for an RIA in using your cloud-based software solution?

Kiger: On the basis of penalties, our first audit with the software had zero deficiencies and zero penalties. So…I don’t know what the average penalty is across all audits, and I can’t guarantee that other people will have those benefits, because we used the software as it was intended to be used. I know some people won’t use it to that degree. But even if they just use it “a little bit”, it will improve their compliance readiness, and they’ll know where their deficiencies are so it will be easy to take action to improve their compliance before the audit.

In trying to quantify the cost savings in time, let’s look at it this way. As CCO of my RIA firm, I used to spend hours a day every day on managing compliance. These days I spend less than half an hour a day, because of the software. The software is designed to keep operational compliance very simple, very efficient and I hesitate to think what it would take if we did not have the software – especially now that we’re spread across 3 states.  I suspect it would relate to a full time employee doing some of these things that the software specifically does by itself. 

More importantly than just the costs savings, we are able to help people get a whole picture view of their practice. We have all the compliance data, the client data, all of the fee data, and for our most advanced version of the software, all of the investment allocations for each advisor's practice.  Because that's all in one place, it makes that practice completely transferable and transparent, which quite frankly makes the practice itself more valuable.  So not only does this software save the time and the cost and the penalty fees and add efficiency, I believe it actually adds value to a practice because all the data, the history, all the information is in one consolidated place for a potential buyer to look over and evaluate, which makes that practice very easy to transfer to the next owner.

Hortz:  Smart RIA is considered a software as a service (SAAS) product. Can you explain exactly what that means and what the benefits are for this particular kind of product?

Kiger: This might be a question for our CEO, Mac Bartine. He leads the technology charge so I don’t have to…which is another thing I would advise readers of this article to learn from me – don’t try to become a tech expert if you don’t know how to solve a specific problem with technology. Hire people who already have that expertise.

Bartine: Essentially, Software as a Service is just what it sounds like. We license our software solution to our customers on a subscription basis. SaaS is also referred to as “on demand software”, which I think is a better short description. In Smart RIA’s case, we host our solution in the cloud to meet the “on demand” part, and that’s typically the case in SaaS companies.

Hortz:  Having built this platform for compliance and back-office management, do you see other applications it can have for an RIA firm going further?

Kiger: We built Smart RIA for compliance, but we really also built it initially from an operations perspective to handle all of the client data, all of the document storage, all of the asset allocation, and business valuations.  So conceptually, it was designed not just for compliance, but to handle all of the back office operation aspects and allow each advisor to customize their own components.

Going forward we are looking at project management functions, RMD alerts, billing and invoicing functionality, and the capability to capture and document website and social marketing. Lastly, there's clearly a need to add the same components of this software for other divisions of our industry, like the broker/dealer channel, or even the insurance industry. As we've built the software, we've already made it flexible enough that it can cross over to multiple divisions of our industry, simply and easily.  We strive to take all of these factors into consideration as we improve our software.

Hortz: What trends do you see going forward in the regulatory environment for advisors?

Kiger: This is a question that we look at every day from an RIA’s perspective and from a software perspective. The trend is just not really good for advisors. The fact that compliance gets more difficult and more expensive means that the smaller RIA firms who are arguably providing the best service for their clients will continue to feel pressure from the industry from a cost perspective.

Between fee compression from robo advisors and the constantly increasing regulatory environment, I believe it will be much more difficult for smaller RIAs unless they make a core commitment to strategically use technology to streamline and automate all of the functional areas of their business so they can focus on client acquisition and retention. Without technology solutions it will be very challenging to stay in business from a regulatory perspective.

Because Smart RIA is modern, nimble company, with deep pockets of industry knowledge through our founding and our board of directors, which comes to us in part through leading professionals in the compliance industry, we are well positioned to continually spot and stay ahead of the problems that our advisor clients will face now, and in the future.

 

Shortened version of this interview originally published on Financial Advisor Magazine Online.

The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines).