robo

Three Tips To Remain Relevant In The Robo Era

Over the past five years, robo advisors figured out something the rest of the wealth management industry did not – accessibility and convenience are paramount for investors. The business of being an advisor today is just as much about being a service provider as it is being an investment expert. 

The robo advisor movement has traditional wealth managers scratching their heads trying to understand how to best address the demands of investors in today’s digital age. Robo advisors strongly connect with modern investors not because they have a better way to manage portfolios, but because they have found a better way to stay relevant in investors’ lives.

Every generation of advisors has faced its share of challenges. The industry has witnessed the shift from stockbrokers selling blue-chip stocks to financial advisors managing diversified portfolios and creating holistic financial plans. Advisors today are working in an ever-changing landscape of tighter regulation by the SEC, FINRA and now the DOL, not to mention greater attention on fees and tax efficiency.

The present generation of advisors may feel a need to try and compete with robo advisors, but they shouldn’t lose sight of the service and value they provide to clients that robo advisors will never be able to replicate. The typical robo advisor’s business model includes a service ratio of 10,000 clients for every one advisor, which runs contrary to the client-focused business of traditional advisors.

Contrary to the predictions of some industry experts, robo advisors are here to stay. One leader in the direct-to-consumer field recently passed $5 billion in assets under management, and a Morgan Stanley analyst reported that robos still have “a long runway for growth.”

Rather than focusing on how to compete, advisors can use the popularity of robos to their advantage by incorporating the technology at the heart of robo platforms into their businesses, and using that to increase the value they provide to their clients. Here are three tips for how advisors can flourish in the changing industry landscape:

  1. Be Really Good at One Thing: The emergence of robo advisors, the coming $30 trillion intergenerational wealth transfer, and over $9 trillion in self-directed assets have led some traditional advisors to try and diversify their businesses so they can focus on multiple lines of service. However, this is not a wise long-term response to these issues. Most advisors are small business owners, and small businesses struggle, and can fail, when they try to be too many things to too many different people. Advisors should instead focus on what they already provide — investment advice and financial planning — and improve the way they deliver these services to clients. 
  2. Be Aware, and Proud, of Your Value Proposition: There are three things that robo advisors can’t provide that traditional advisors can: a personal relationship, a high level of service, and customization. Money is emotional, and investors choose to work with traditional advisors because these benefits make them feel good about the financial decisions they make. This is the value proposition of traditional advisors, and any robo technology or service that they consider incorporating into their businesses should be evaluated based on how it can support that value proposition.  
  3. Embrace Modern Technology:  Too many advisors interact with and service clients the way they and their predecessors did 20 years ago, and this needs to change. Today’s investors lead their lives differently than those in decades past, and in order to foster long-term client relationships, and convert more prospects, advisors need to service the clients of 2016 and beyond on their terms. Advisors who adopt the latest digital technology are more likely to meet (virtually or in-person) with more referrals, and foster more meaningful engagement with clients.  

Robo advisors disrupted the wealth management industry, and they aren’t going away, but the disruption they’ve caused doesn’t have to wipe out traditional advisors. Innovation happens in two stages; the first is systemization, which robos have mastered. The second phase is customization, which advisors can master by utilizing robo technology to enhance the differentiating value they provide. 

David Lyon is CEO and co-founder of Oranj, which provides wealth managers with digital advice tools.

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