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How Advisors Can Best Educate Clients About Online Financial Tools

Clients don't rely on WebMD for serious medical concerns, so they shouldn't trust fintech with all their investing, insurance and tax needs.

By Michael A. Rousseau

With the ever-increasing proliferation of technology aiming to help individuals with virtually every aspect of their financial lives, it’s not surprising that many clients are turning to financial advisors with questions about how to incorporate these tools into the planning work they do together.

Too often, though, many advisors are hesitant to engage in this area out of fear that technology-driven tools will hurt their business. This resistance is shortsighted.

There are many times when financial advisors should leverage technology to both streamline simple but time-consuming tasks and to gain a better understanding of clients’ overall needs. This would produce a better service model, one in which a greater level of customized, holistic advice is complemented by more-useful and richer analytic data.

While advisors undoubtedly will continue to add value in ways that demand more intuition and a human touch, here are a few points to consider when having conversations with clients about how technology-driven tools can improve the relationship you have with them:

1. Take advantage of single sign-on.

Tools that provide investors with a comprehensive view of their investment accounts have proliferated in recent years. This includes those offered by financial-planning and money-management practices that show everything from brokerage accounts to IRAs, 401(k) plans and 529 college savings plans. But merely having all the data aggregated in one place is not nearly enough. Far more important is being able to see the allocation of those assets, which allows for deeper analysis and more-strategic planning. Though so-called "single sign-on" gives accountants and insurance agents a much-needed layer of added insight, make sure that your clients understand how this capability is particularly beneficial for advisors, allowing you to pair it with your own in-house solutions to get a fuller understanding of how they are invested. Ultimately, that opens the door for more productive and meaningful conversations that could pay dividends down the road.

2. Know that tech hasn’t cracked the code for insurance needs.

So far, insurance-related tech solutions are largely inadequate. When it comes to life insurance, for instance, many platforms just ask users simple questions about their age, income and family size. By themselves these are not enough to determine how much coverage someone needs or the length of the term quote. Then, of course, there is permanent insurance and a host of other insurance products to consider. Clients need to understand the risks associated with relying solely on an automated platform that spits out a recommendation based only on a few general questions, and why that approach increases the likelihood of their getting locked into an insurance product that doesn’t serve their needs. Finding the right type of structured policy is just as important as settling on the right amount. 

3. Some aspects of financial planning are simply too complex for tech.

When investors are left mostly to their own devices, they often make assumptions about market returns, interest rates or inflation that don’t mesh with reality. Inevitably, that leads to trouble. Working one-on-one with a professional is really the only way to fully flesh out questions like, “What’s the most efficient way to manage cash flow or pay down debt?” Or, “Are the investments in my portfolio properly aligned with my overall financial plan?” Similarly, as your client’s financial situation changes—for better or worse—so should their financial plan. But many automated tech-driven platforms fail to acknowledge this reality. Be sure to drive this point home in your conversations with clients.

4. Appreciate the limitations of online tax tools.

For clients with comparatively simple tax-related needs, an online tax tool or similar software program will generally do an adequate job of identifying opportunities, spotlighting frequently used deductions, and recommending tax-advantaged retirement or college savings accounts. Be candid about this fact, but be equally upfront that greater tax complexity makes such offerings less useful. Small business owners, especially, should have a professional take a look. Given the number of highly variable decisions that go into managing and structuring a business, not to mention all of the personal financial implications, it’s virtually impossible to believe that an online tax-filing service can capably serve a small business owner.

Just as it would not be wise for your clients to rely on WebMD when serious medical concerns crop up, nor is it advisable to trust fintech solutions with all their investing, insurance and tax needs. Get with your clients, go over the pros and cons of using online tools, and come up with a plan that makes the most sense for them.

Michael A. Rousseau is a financial planner with CCR Wealth Management LLC.

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