Some broker/dealers and independent financial advisors may be about to willingly give away hundreds of millions of dollars in assets and client relationships to their competitors. How can this be?
They’re doing so under a deeply flawed assumption that smaller clients can’t be supported in a fee-based context on a scalable basis. So in the future these clients — and prospects — with account balances under an arbitrary threshold (maybe $20,000 and sometimes even much higher) may be immediately directed to robo advisor offerings that have been reworked as “institutional” offerings that are dressed up and pitched to independent advisors.
Strategically, this is the equivalent of deciding that keeping the fox out of the hen house is too much trouble, and choosing to make it easier on everybody by tossing the smallest chickens over the hen house fence, straight to that waiting fox.
Robo advisors represent the classic threat of technology versus human beings. When discussing the dangers posed by artificial intelligence, a number of scientists, including world-renowned scientist Stephen Hawking, have raised the idea of humans mitigating this risk by embracing the idea of becoming cyborgs. This means integrating technology with the human body.
While still the stuff of science fiction generally, the analogy works when applied to the retail financial advice industry. Think about it as the rise of the "fi-borg" — the cyborg financial advisor.
Independent financial advisors can outfit themselves as "fi-borg" wealth managers by using technology that integrates the human side of financial advice with online collaboration and co-creation platforms, asynchronous communications and client support, and the complete automation of mundane and routine tasks. This means the creation of innovative new service models, possible only with modern digital technology.
By keeping smaller clients on whatever RIA platform enables the advisor to own those relationships, while outsourcing the technology that allows them to work with these clients, fi-borg advisors will be able to go toe-to-toe against robo advisors and win. Conversely, handing over even some portion of client ownership to the robots is likely to result in the long-term loss of client relationships, including the small relationships that will someday become big. It doesn’t take an accomplished futurist to predict this outcome.
The fi-borg wealth management platform of the future will be built by b/ds and RIA firms partnering with technology providers that can deliver the tools and innovation, but have no business interest in owning the client relationship or any part of it as a consumer-facing robo advisor would.
Here are four key features of the ideal fi-borg platform:
1) A digital onboarding solution that enables clients to sign up with the advisor anytime and anywhere, while giving the advisor the ability to automatically perform client segmentation. Account opening and re-papering procedures are time-consuming, so any fi-borg platform should begin with a digital solution that provides rapid and seamless onboarding support. This solution needs to be not just web-based, but also fully mobile-enabled to empower collaboration with clients (including millennials) on their device of preference.
At the same time, any such digital onboarding solution needs to include the ability on the advisor's part — preferably, sight unseen by end clients — to segregate lower-asset client relationships to entirely fi-borg-directed platforms. In other words…
2) A fi-borg-advised platform for the smallest accounts that delivers the advisor’s advice and personality digitally, and enables clients to "graduate" seamlessly to higher, more personalized levels of support and guidance. On a parallel path with establishing a client onboarding system that segregates lower-asset clients to self-directed platforms, the fi-borg wealth management platform also needs its own "fiborg advice" platform to capture these accounts and to own them. Robo advice platforms are not inherently bad, but technology in a vacuum can lead to frustrations and confusion that create more problems than solutions.
By coupling an integrated fi-borg advice platform to a "traditional" FA, the advisor has a path for future business growth with the client, and the client gains the ability to seamlessly graduate to a more traditional FA relationship as his or her life's financial assets and complexities increase over time.
3) Post-onboarding digital service experience that automates routine tasks for the advisor. Beyond digitizing one-time onboarding tasks, a fi-borg wealth management platform also needs to effectively augment an advisor's existing client-service operation, enabling growth on a scalable basis. The top tasks that should be automated, allowing end clients to work with a web-based and mobile-friendly interface and removing the advisor from the day-to-day equation, include those often done manually today, like drift tracking, rebalancing and reviewing results.
4) Analytics to provide clients with timely insights and to track and interpret their activities on an ongoing basis, turning such activity into intelligence the fi-borg advisor can leverage to improve the customer experience. Once you have the onboarding solution, fi-borg advice cornerstone and ongoing digital service platforms set up, it's mission critical to take advantage of your new technology to actively monitor and help you interpret your end clients' activities. Advisors have an enormous opportunity under the fi-borg model to learn more about their clients' planning, spending and savings preferences in just a few months time versus the years that it used to take. Imagine receiving alerts when clients have established a new goal or updated a college savings calculator. Then take the next step to imagine the end client receiving real-time personalized information, targeted to them, based on the intersection of their individual portfolios and what’s happening in the broader market that day.
Ultimately, independent advisors who focus on capturing lower account balance client relationships among millennials, as well as the "Main Street America" segment of the retail financial advice marketplace, on a cost-scalable basis and fee-based context, will not only survive — They'll find that their best days are yet to come.
RIAs and IBDs need to stop ceding potentially vital client territory of the future while allowing further potential regulatory, demographic and technology shifts in the next 10 years to call into question the viability of their businesses.
Instead, independent advisors can embrace the fi-borg wealth management model and help shape our industry's future.
Steve Dunlap is President and Chief Operating Officer of FolioDynamix (www.foliodynamix.com), a provider of wealth management technology platforms and solutions.