Skip navigation
Embracing Aspects of the Digital Wealth Model

Embracing Aspects of the Digital Wealth Model

Whether advisors like it or not, robo-advisors are behind the drive to improve advisor technology. Advisors need to embrace, not ignore, those improvements.

By now, every financial advisor has become painfully aware of the “robo-advisor” refrain—the cautionary tale of how automated services are creeping into the marketplace and snatching away clients with algorithm-based platforms and reduced fees. It’s true that they’ve penetrated the industry and managed to gain a captive audience, but advisors who dismiss robo-advisors as simply mindless disrupters who lack flexibility and a personal touch will miss out on an important growth opportunity.

That opportunity primarily concerns the underserved market of Gen X and Gen Y clients, the more technically-inclined but cost-sensitive demographic—some of whom stand to inherit sizable assets from their Baby Boomer parents. Much has been said about these generations, not the least of which concerns their reliance on technology. According to recent Pew Research Center data, 68 percent of U.S. adults have a smartphone, up from 35 percent in 2011, and tablet computer ownership has increased to 45 percent among adults. Furthermore, a Harris Poll survey commissioned by TradeKing Advisors indicated that 74 percent of millennials/Gen Y, and 66 percent of Gen X potential investors say the idea of meeting with a financial advisor has discouraged them from investing.

But that doesn’t mean these investors aren’t seeking advice. Digital advisor assets under management are expected to increase fourfold this year, according to research and advisory firm Aite Group. Digital wealth platforms have proliferated over the last two years, spawning features such as algorithm-based portfolio construction and account aggregation. Robo-advisors have made strides with user interfaces and online simplicity that appeal to these generations, and advisors who don’t want a shrinking practice need to embrace the more efficient aspects of the digital wealth model while maintaining the successful part of their practice model—thoughtful advice. That means striking a careful balance, one that captures the attention of the younger generations by adopting specialized software for complex tasks that supplement, not supplant, personalized service.

First, the modern advisor must know how to leverage that technology to appeal to the growing market of investors who are embracing innovation. The disadvantages in the digital space include limited customization, as well as a lack of multi-advisor coordination, personalization, holistic management, and active, goals-based adjustments. But let’s consider the advantages: a simplified process, efficient portfolio allocation, scalability of advice, low-cost solutions, and consistent passive management. These advantages, of course, are not new to all advisors as some have long offered similar features. The difference now is the role technology plays in their delivery and impacts the client engagement model. For advisors, the key is to resist any urge to just slap an access point on a website and hope the digitally-minded client gets engaged. Instead, they need to integrate a new digital framework.

The self-director, or “Do It Myself” investor wants little, if any, advice, and tends to access product via direct channels. That investor may buy research, data and tools and is often served by media and subscription services. Investment firms rarely deliver advice on an à la carte basis, but developments in online portfolio construction tools may encourage firms to consider offering certain services à la carte. Firms can also offer a goals-based approach so investors can see their probability of success and track it over time. That way, clients have a clear way to measure success on their own and interactively engage in the inputs that define their probability of success. Firms can use animation and clear data visualization, making data easy to understand and they can ensure that clients have instant access to them across multiple digital channels.

The 25-basis-point fee for a more minimal digital framework service will attract those clients. But advisors need to consider how to then transition those investors to 75 or 100 basis points once they have accumulated enough assets. Advisors can achieve this by focusing on their own business model and expanding their firm’s value proposition by offering more personalized client engagement and financial planning services. As high-net-worth clients mature and have more assets to invest, it is up to the advisor to educate them on the role of personalized services in financial planning, pointing to estate planning, tax management, and income strategies that are personally administered, but enhanced with specialized software.

New and underserved markets are changing the industry and how advisors engage with clients. These generations will become a critical part of the organic growth engine of financial advisory firms in the coming years. Whether advisors like it or not, robo-advisors are behind the drive to improve advisor technology. Advisors need to embrace, not ignore, those improvements.

Considering a niche practice that caters to the needs of younger generations with a more self-directed approach, or personalized service supplemented with technological tools, could mean the difference between surviving and thriving. The key is focusing on advisor-guided solutions that serve clients with scalability and efficiency, and what once felt like a disruption may turn into a healthier business model. 


Matt Matrisian is Senior Vice President, Practice Management & Strategic Initiatives at AssetMark, Inc. @AssetMark.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.