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How to Robo-Proof Your Financial Advisory Firm

  • By Ironstone
  • |
  • October 13, 2015

How To Robo-Proof Your Financial Advisory Firm

The robo-advisor and its collision with traditional advisors has become a media staple. Conversations focused on robos and the changing landscape of technology take center stage among financial advisors and industry leaders. Warnings of fee compression and competitive automated services that robos provide are abound in the headlines.

There seems to be no argument that robo-advisors are driving change in the financial services industry. The debatable questions holding strong are, “To what degree is the robo invasion imposing threats in the traditional advisor space?” And, “Is there an urgent need to compete with them to remain viable?”

Robo-advisors come in a variety of fashions that focus on low cost and offer an array of options from online investment services, subscription options, and combo packages; offering both online and human assistance. The idea of automated computer algorithms that allocate, redistribute, and rebalance investments with minimal human interaction appeals to some, while others are not warming up to the idea.

Is the digital explosion of online wealth management a threat to our once comfortable human-to-human interaction? Or, is this the harsh push needed for traditional advisors to embrace new technology that most have been slow to adapt?

How Robos Are Impacting Traditional Advisory Firms

The impact of social, mobile, and digital technology is blatantly apparent. Client expectations have changed as consumers utilize online resources as a first step to find products and services, and financial advice is no exception. Consumers who interact with companies online are 40 percent more likely to buy products and services from them; which tells us there is a key shift in the way consumers determine who to do business with.¹ They are expressing confidence and trust in technology to help them make educated decisions.

While robo-advisors have garnered more than $19 billion in assets², a survey by Accenture says that just 19 percent of U.S. and Canadian advisors see robos as a severe threat.³ The survey goes on to say that some advisors still have plans to integrate robo-advisors into their business as part of an inexpensive way to serve the Henry investors (High Earning Not Rich Yet) who may become full-service clients.⁴

Evan Shear-CFP®, founding partner at CrossleyShear Wealth Management, covers all aspects of financial planning at his practice in Florida. When asked how robo-advisors have or will impact his firm, Mr. Shear says, “I think the idea of a robo-advisor should wake all of us up in that we need to refine and strive to differentiate ourselves and our services offered. We don’t feel it will diminish our practice. We could lose some that don’t need or want real advice from real people, but those are not the type of clients we wish to work with.”

A recent Gallup poll helps calm advisor anxiety concerning robos. The survey cites that more than 85 percent of investors want to have some level of access to human advisors, even if digital tools are involved in their investment decisions. The results of the survey show that human advisors can be assured they have a role in providing value to clients.

Rex Whiteside, President of Whiteside Wealth Management, Inc. in Houston, Texas, tells us, “It (robo-advisors) has caused us to raise our level of service in planning as investment management has become less of a differentiator. Just as younger and smaller investors have benefited from the automation of investment management, advisors are also benefiting. We have been able to increase our services at a lower cost and with less staff.”

Technological development and the automated advice platforms offered by robos pose as a threat to some advisors and make it difficult to compete, especially against their lower fees. On the other hand, there are a number of advisors who feel confident that their clients, referral networks, and centers of influence will alleviate the robo challenge, while others are taking steps to shield their firm from any potential attack.

In short, it seems most advisors will work toward a solution that capitalizes on offering additional services, incorporate workflows and processes to operate more efficiently, and deliver valuable, high-level client service.

What Investors Want That Robos Can’t Provide

Traditional advisors can benefit from the influx of robos by taking a look at one key question, “What do investors want that robos can’t provide?” A recent survey by Investment Management Consultants Association (IMCA) found that investors seek four primary services, none of which robos can deliver:

  • Help to maintain a long-term investing approach
  • Reassurance when markets are volatile
  • Keep them informed of current tax law changes
  • Provide access to cutting-edge investment strategies

“To most investors, cutting-edge strategies don’t have to do with aligning the best funds or timing the market,” says Sean Walters, IMCA CEO. “It has to do with helping clients align their objectives, finding the right allocations and buckets for their planning. Clients want to feel confident that the processes their advisors use have a long-term outlook.”

“Investors need/want solutions to holistic planning and investment management,” says Whiteside. “With a robo you can attempt to align your investments with your risk tolerance but how do you tie your investments to your financial goals and needs? We also find one of the largest aspects of successful investment management ties into behavior. This is behavior during both good and bad market cycles. Understanding the client’s state of mind during periods of fear and greed avoids possible tragic mistakes. When emotions enter the equation, I think the automated robo advisor falls short.”

Shear adds, “People want someone that can relate to their concerns, issues, problems, and dreams. A machine cannot do that. A machine doesn’t know the pain of losing a parent and how to deal with costs associated with caring for a loved one. We have lived those real life events and can apply our experiences with our clients.”

What investors want are services that can’t typically be delivered well by a robo-advisor, creating the opportunity for traditional advisors to market their human touch.

The Opportunity for Traditional Advisors – 10-Steps to Robo-Proof Your Advisory Firm

Robo-advisors are not likely to be a passing trend. Advisors should view their disturbance as a wakeup call to clearly communicate human advisor differentiation. Investors seek greater value from financial advisors. Advisors can embrace this disruption and use it to their advantage by creating an efficient, high-touch, personal service offering to clients.

Whiteside says his firm has taken steps to stay competitive with robos. “(We) have increased efficiency by going paperless, and incorporated (a risk alignment platform) to better understand our clients’ true risk tolerance – then match it with a customized investment solution. In addition, we utilize performance reporting that centers around clients’ needed return and not just benchmarks.”

What specific steps can you take to compete, survive, and remain relevant in a new investment and wealth management environment? There are tactics your firm can deploy to minimize effects of the robo-advisor platform, and continue to attract ideal clients while improving the services you provide. This will involve communicating the advantages of your service model and incorporating a clearly defined process that differentiates and distances you from robo-advisors.

1) Anticipate Needs
  • Be proactive and aware of the needs in your market. Provide answers to commonly asked questions that surround the challenges facing your ideal client. This information needs to be readily available, in an organized and convenient location on your website.
2) Know Your Unique Value Proposition
  • A recent Pershing Study cites 60 percent of investors found it hard to distinguish among advisors because most said the same things and made the same promises. Your value proposition statement needs to answer the question, “Why should I choose to do business with you?”
3) Actively Engage on Social Media
  • Establish relationships on social media and create a process to convert leads to clients. The 2015 Social Advisor Study performed by Putnam Investments reveals the use of social media by advisors is lending results. Seventy-nine percent of advisors report acquiring new clients through social media this year, versus 66 percent last year. Social media is one of the highest returns on investments you can make because the majority of prospects will research an advisor online before ever considering doing business with them.
4) Host Client Events
  • Client events help you strengthen relationships, provide an opportunity to network with potential clients, and position you as an expert and trusted resource. Choose topics that are important to your market, even if it means hosting several small events. Small targeted events may require more work on your part, but the bottom line is – if you know more about your clients and their network of friends, you’ll glean higher attendance rates with more prospective client potential.
5) Become a Specialist
  • Don’t be everything to everyone. A study by Cerulli, a Boston-based analytics firm, says that only 15 percent of advisors are specialists. You can use that low percentage to your advantage. Choose your specialty and utilize technology to tailor services to a specific group of clients and prospects. Adding a specialty makes it difficult for robo-advisors to compete and will position you to be sought out by those seeking your services.
6) Communicate with Clients
  • Research tells us that one of the most common reasons for clients jumping ship to a new advisor is due to lack of communication; yet many firms don’t have a formal communication plan in place. Client communication is a key component in your business and marketing plan. A solid communication strategy will increase: client retention, satisfaction, and referrals. Creating a successful communication plan will enhance client relationships provided you determine what communication methods clients prefer and expect versus methods that are easiest for your firm.
 7) Provide Other Areas of Financial Service
  • “Move the focus to full holistic wealth management that encompasses a client’s entire financial picture,” says Whiteside. “Prioritize the issues that need to be addressed and coordinate with other professionals, like CPAs and attorneys.” These are the types of services that robos can’t provide and investors want. By providing additional layers of advice and service to your clients, you are able to provide them with more value.
8) Re-invent Your Marketing Message
  • Social, mobile, and digital make marketing so much easier. Advisors have the ability to reach markets they never thought would be possible. No matter how great your products and services are the success of your firm will be limited without effective marketing. Marketing is about educating and communicating your value to your market, developing a relationship, and setting the stage for a solution when clients and prospects are ready to buy.
9) Offer Selected Services Online
  • Consider offering a select number of services online. Your digital services could include educational materials, market commentaries, and performance reports. Reserve comprehensive wealth management and planning services for in-person meetings. The list of available technology, covering everything from client-relationship management to investment research, can seem overwhelming. Adopting some of these technologies such as e-signatures, cloud-based file-sharing, and video conferencing can free you from the confines of your geographical market. A good place to start is to survey your clients. Ask which services they want to use online and automate what you can.
10) Don’t Forget Next-Gen
  • While the millennial generation leans their preference to many “do-it-yourself” services, research suggests they are not shunning a trusted advisor. More importantly, according to a study from consulting firm Accenture, over $30 trillion will transfer from one generation to another over the next few decades. A recent report by Salesforce indicates the majority of millennials prefer having an advisor and represent the generation most interested in one-on-one interaction with an advisor – 47 percent receive investment advice face-to-face, versus 36 percent of Gen X-ers and 46 percent of Baby Boomers.⁵ The desire to collaborate with advisors, express financial concerns and goals, and to learn how to manage money is undoubtedly apparent.
Maintaining a Thriving Advisory Practice

In conclusion, robo-advisors are shaking up the world of wealth management. The disruption doesn’t have to be detrimental to your practice. Instead, roll with the changes and create an extraordinary human touch that is impossible for robos to replicate.

“Digital allows for quicker access to share info with our clients. We have to be careful to not be too digital that we forget the physical. Always move forward and provide the best possible personal service,” says Shear.

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Author Bio

Ironstone is a learning and development consultancy with business acumen that translates across many industries. Our focus is on practice management strategies in order to enhance and improve both business and personal life. We support professionals who want major and comprehensive improvements that look at all aspects not just an isolated area for change. Ironstone has identified 4 key performance areas known as the Fundamental 4™, which are required to design, develop, and sustain a successful business.