Over the past few years, there has been a tremendous amount of information regarding “robo advisors.” Thoughts of screaming children running through the streets and human financial advisors barricading themselves behind their mahogany desks come to mind.
Talking with advisors over the years, most fall into two groups on this: the first is really not paying attention and thinks this will never affect their clients. “That is for those indexing Bogleheads, not my clients — mine appreciate working with a real person!” The second group is paying attention, but scared and confused as to what a “robo advisor” really is and how they can affect your
Robo advisors are really nothing more than human financial advisors on an 800 line. The likes of Schwab has been doing this for years, of course now they are touting their “Intelligent Portfolios” as their version of a robo advisor. It is mostly marketing but it is highly effective marketing. I suggest you do your own homework, look into some of the larger and better funded ones such as Wealth Front and Betterment. If you are not familiar with them you should be; they do have some very positive attributes.
However, putting your head in the sand and assuming your clients will never talk to them is probably not a great plan. They attract most investors with the idea of very low fees and the idea that you don’t have to work with an evil, capitalistic commission-based advisor, plus, they claim, great service. Sound familiar? Like it or not many investors will not work with an advisor because they fear being sold. They assume every financial advisor is out to fill their pockets with commissions through high fees. Of course, we know better, but if someone repeats it enough our culture tends to adopt it as the truth.
Robo advisors are here to stay and my feeling is they will get better at marketing, attracting and even retaining clients over the years. I know these are fighting words but I will say it anyhow: they can do virtually anything a human advisor can do
. Yes, that’s right, anything. Also, artificial intelligence is getting much, much better. Plus many of the investors who call them will talk with a human financial advisor on the phone anyhow. They have asset allocation models, generic financial plans and even investment advisory services are offered. Of course, this is where it gets more interesting, the low fees start to get a bit higher when they do that. Plus, if they want investment advisory services to manage their money there may be additional fees.
So now the question is, “why do they need you the human advisor?” Well, maybe they don’t. Some advisors have really put things on auto pilot anyhow and do very little for their clients. Maybe some asset allocation here and there, maybe a vanilla newsletter they buy through some service once in a while. But for those of you that actually take time to connect with your clients and “coach” them through their financial life, you have a chance. You still have to adapt but you have a much better opportunity to not only survive but thrive. They need your “coaching” — and that is something that a robo advisor does not do. I am also aware of some advisors that are now using their own version of a robo advisor for clients just starting out. Once on board, they have the option of using a human advisor, not only because their portfolio is getting larger but because they are becoming more comfortable working with their firm.
In summary, I suggest the following:
- Do your own research on these firms, they are legitimate competition. Remember, they may not be digging into your pocket today but if your practice is to be of value in the future you will need to address this. A smart advisor is trying to create a multigenerational practice, so prepare for your practice’s future.
- Develop a strategy to work with smaller and newer clients with smaller portfolios. Give them good service without spending as much time as you do on your “A” clients. Remember, one day they will be “A” clients for someone and it should be you.
Robert Young is NTSA's President-Elect. He is the President of PlanMember Financial Center/PRO Financial Investment Coaching.
- Create a culture of service. If you have been in this business for 7-10 years or more you should be spending 60-70% of your time servicing, not selling. Studies show you don’t have all of your client’s money now anyhow.