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Letter from the Editor: February 2018

Technology takes center stage.

The two most significant things I heard this month regarding the future of the financial advice industry were almost throwaways.

The first was at the Inside ETFs conference in Hollywood Fla., held late last month. The new CEO of Vanguard, Tim Buckley, spoke on how technology is threatening to automate much of what advisors do—namely, investment management—and that their jobs are threatened by automation. Standard stuff you’ll hear at just about every advisor conference.

But it was in a small gathering after his speech that it got a bit more real. When asked about Vanguard’s views on getting into the “robo” business, he demurred. Vanguard’s Personal Advisory Services—the closest thing it has to an automated investment platform, albeit with actual advisors giving phone consultations and a fee of 30 basis points—is doing great, he said. It has gathered close to $100 billion in assets since its launch in 2015. A “high 90 percent” of those assets were simply converted from traditional Vanguard client accounts, he said, and will guide the focus for Vanguard’s advice offerings going forward.

He went on to say that the job of providing an individual client with advice is now “so easy” and so in demand that some version of PAS could become “a default” service for Vanguard’s clients. Let the implications of that sink in.

The second was the recent news that Overstock.com—yes, Overstock.com—was going to launch a robo investment advisory service inside its “finance hub,” the same site from which the e-commerce company offers customers mortgages, auto loans and insurance. The reaction was swift and brutal: Jokes about ordering a diversified portfolio along with some bedroom furniture were pervasive. 

The point with both examples is how industry insiders reacted. To Vanguard, the threat is largely ignored. For Overstock.com, the instinct is to laugh and dismiss it as naive. Both seem to miss the larger point. I have no idea whether Overstock.com will ever gather a dime, but we hear all the time that the main thing holding the robos back is the cost of client acquisition. Do any of the digital native, client-centric companies have that issue? How long before Amazon offers investment services? Why wouldn’t they? 

Here’s the flip side: I think you all get this. I see the reason for optimism in the results of our most recent tech survey (highlights of which are included here). True, only 17 percent of advisors are using a robo platform for any portion of their client accounts. But a full 88 percent say clients have access to a digital portal with up-to-date portfolio performance and 56 percent have an online portal for clients to track progress toward financial goals. Those numbers would be dramatically up from even a few years ago if advisors were getting the need to be “digital first” with your clients.

Ignoring the threats to your business rarely turns out well. Fighting against the trends is also doomed to failure. Having the humility to learn from them is key. That’s what struck me about the three registered investment advisors we feature in this issue that are themselves early stage investors in technology. Steve LockshinMarty Bicknell and Ron Carson are giants of the industry; they say they’re investing in technology not primarily to profit, but to learn and grow. Fact is, fighting the changes going on outside the industry will end your career. Adapting to them and building businesses that complement them will be key to creating value for your clients—and ultimately for yourself.

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