So-called “robo-advisors,” the derisive moniker pinned on online software-based advisory platforms like Wealthfront, Betterment, FutureAdvisor, and SigFig, are the source of a lot of fear in the industry right now. A lot of that worry may be well founded. Using sophisticated technology, slick online interfaces, and low account minimums, they’re aiming a gun right at the heart of the financial planning business by telling affluent investors that they don’t need professional advice.
What can financial advisors do to fight back?
1. Establish Your Personal Brand
The financial services industry is a relationship business. Establishing a brand around your unique blend of expertise, services, and personality creates an emotional connection between your firm and your clients. Your branding should highlight your in-depth understanding of the challenges your target market faces and show how your firm can achieve results. Differentiate yourself from high-tech competitors by emphasizing the value of a relationship with an actual human being and advice that is customized for their unique needs.
2. Emphasize Service & The Value of Your Advice
The biggest advantage you have over robo-advisors is your reassuring human presence and the additional services you can offer. Asset management is just one piece of the larger puzzle; affluent investors need financial planning, tax and estate advice, and help with their philanthropy and your branding should emphasize these add-on services. Remind anyone who asks that they would literally be a faceless account number at an online firm, instead of a valued client. By emphasizing these aspects of your practice and highlighting the holistic nature of your services, you’re showing how little these online competitors really offer.
Keep in mind that while it’s all fun and games when markets are up, you know that one of your most important roles is that of a reassuring voice on the phone when portfolio values slide. It will be very interesting to see how well robo-advisors do with their customer service reps and chat bots during the next market decline.
3. Leverage Outsourcing to Lower Costs
If you can’t beat ‘em, join ‘em. An increasing number of firms are separating their client-centric planning work from investment management to control costs. By leveraging relationships with specialist asset managers or outsourcing the work entirely, advisors can offer their clients sophisticated investment management while focusing on their core competencies. Assets managed by Turnkey Asset Management Platforms (TAMPS) and similar platforms have grown significantly over time and they can offer a compelling blend of price and functionality to advisors who are interested in outsourcing.
Keep in mind that outsourcing may not be for you or your clients. Many advisors cite investment management as one of their core offerings and just don’t see the benefit of paying someone else to do it. Other advisors prefer to focus on the financial planning side of the business and leverage outside expertise for things like investment research, portfolio guidance, and performance monitoring.
4. Make Your Fees More Transparent
Most advisors like to charge clients a flat fee based on AUM. The problem with this simplistic approach is that it’s charging everyone the same amount, regardless of what services they need and how much they cost the firm to serve.
Though it’s more work for you, a better approach would be to explicitly separate your fees for asset management and financial planning to better capture the actual services each client needs. This switch also brings the added benefits of clarifying the profitability of each account, gives your clients the increased transparency into your fees that they want, while illuminating the extra services you are providing for the price.
5. Take a Deep Breath
Despite what some alarmists would have you believe, it is unlikely that Robo-advisors will completely replace traditional financial advisors. Depending on how you look at it, robo-advisors perform the valuable service of introducing younger investors to the benefits of financial planning. Eventually, as these investors amass wealth and develop complex financial lives, they’ll seek more comprehensive advice. And there you’ll be, ready to serve them.