By Traci Mabrey
As wealth managers have explored ways to counter the digital successes of robo advisors, many have themselves turned to the promise of these automated platforms. A low-cost robo advisor combines the ease of online ordering with account interfaces that look good on a mobile device.
UBS’s partnership with SigFig resulted in a much better user interface for wealth advisors and clients. UBS also introduced the SmartWealth robo advisor in the U.K., which automates client onboarding and goal planning while advisors handle the asset allocation in the background.
With their assets expected to grow to $6.5 trillion by 2025, saying farewell to robo advisors might seem premature. A look beneath the interactive graphics tells a different story.
Demographically, the Ceiling Is Low
Except for do-it-yourselfers under 40, robo advice alone doesn’t offer much. Wealthfront CEO Andy Rachleff agreed, “We’re the only firm focused solely on people in their 30s and 40s. Others are trying to put a foot in both camps (digital and human advice) … they’re not very successful getting new clients under 45,” he told the authors of Roubini ThoughtLab’s Wealth and Asset Management 2022: The Path to Digital Leadership.
The oldest millennials will hit 40 in three years. While they are tech dependent, they aren’t committed to do-it-yourself portfolios. Surveys repeatedly have shown they prefer communicating with advisors to validate ideas.
High Tech Meets High Touch
The step beyond robo advisors has been shaping up to be a hybrid between a human advisor and cognitive computing. Wealth managers are implementing a variety of advice models that combine the characteristics of a human advisor with predictive analytics, cognitive computing and artificial intelligence.
Goals-based asset allocation, bucketing and risk management characterize this new style of customized, holistic advice. Machine learning and cognitive computing allow advisors to tailor their services in highly personalized ways. Analytics and performance reporting are attuned to planning goals and networked to accounts—even if held at other firms.
Data analytics will help investment managers become hybrid, “bionic” advisors. Statistics and data will drive the action. An advisor will come into the office and get notifications on a mobile device about social media posts or life events. At the click of a button, the advisor can send out a customer message.
In sharp contrast to fully automated robo advisors, Morgan Stanley committed to nurturing the digital skills of its workforce. They are also grooming a Siri-like AI assistant to help advisors locate key insights among thousands of research reports in seconds.
Robo Analysts, Cyborgs—and the “Next Best Action”
Commenting on their digital effort, Thomas H. Davenport and Randy Bean wrote in Harvard Business Review that “No one in the industry is particularly fond of the [robo advisor] term,” adding that Morgan Stanley calls its hybrid effort “Next Best Action.” “Call them cyborgs,” wrote Bloomberg’s Hugh Son about Next Best Action. By augmenting “its 16,000 financial advisers with machine learning algorithms,” their hybrid advisor can “suggest trades, take over routine tasks and send reminders to a client,” he said.
Forbes’ David Trainer says, “robo analysts, not robo advisors” will transform the investing experience. “The value proposition of a robo analyst is very different from a robo advisor. By shining an analytical light in the dark corners of financial filings, robo analyst technology can identify many critical, overlooked data points.”
Re-Imagining the Investor Experience Through Machine Learning
To survive, investment providers and wealth managers will need to consider how they can offer a digital client experience that is comparable to major technology retailers. If they don’t step up machine learning and AI efforts, the Roubini ThoughtLab report cautions, tech giants like Amazon, Google, Apple and Facebook “will step in ... and offer services like wealth and asset management.” There’s already evidence “some are moving in that direction.”
Wealth managers who have been lagging behind can still take heart. Digital leaders are made, not born. The challenges of adopting new technologies have been well-documented—and so have the solutions. History shows those nimble enough to adapt will become fit and improve their odds of thriving in this new digital analytics economy.
Traci Mabrey is the Head of Wealth Solutions at Broadridge Financial Solutions.