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Technology Works Best When Combined With Human Intelligence

Advisors don't need to fear robo advisors, but they need to adopt the technology to meet evolving client demand.

The rise of so-called "robo advisors" remains a key concern for financial advisors, and understandably so. But in a positive development, many traditional advisors no longer fear that robo advisors will put them out of business. Instead, they are eager to incorporate the technology solutions underpinning robo advisory offerings—which provide a convenient, customizable experience where investors are in control—into their own practices.

For example, by year-end, Morgan Stanley will arm its 16,000 advisors with computer algorithms that can make trade recommendations based on changes in markets and clients’ lives. They'll also be able to archive all phone, email and website communications with clients to make personalized engagement and investment recommendations, and send reminders about client birthdays. An article about the initiative, which is due to be rolled out in a pilot program for 500 Morgan Stanley advisors this month, sums up the firm’s rationale: “The thinking is that humans with algorithmic assistants will be a better solution for wealthy families than mere software allocating assets for the masses.”

Just like in any business, survival depends on proactively adapting to meet the evolving demands and expectations of consumers. According to the most recent annual advisor survey by Shareholders Service Group (SSG), 80 percent of RIA respondents stated that they are “not concerned” about robo advisors, while half said they view the use of white-labeled robo platforms as an opportunity to enhance their businesses.

Harnessing robo technology can help advisors increase the value they provide to investors and grow their practices over the long term. The software and algorithms that robo advisors rely on can help investors automate parts of the investment selection process and enable investors to feel like they are in the driver’s seat.

But these algorithms can’t earn investors’ trust or understand their financial goals. Software and algorithms also can’t tailor investment strategies and product selections as investors experience significant life cycle events, or offer comfort and guidance for investors during market downturns.

Traditional advisors bring to wealth management and investing what robo advisory platforms don’t—a personal relationship based on trust and market insights formed by years of experience. Today’s investors want independence and automation, but they also want to know that their trusted, knowledgeable advisor is accessible when they need them.

This is another area where robo advisors can fall short. Robo advisory platforms typically have a very low advisor-to-investor ratio (generally one advisor for every 10,000 investors), so when investors are worried about sudden changes in market conditions, there is no guarantee that they will be able to speak with an advisor who can guide them. And if they do get through to an advisor, they won’t be speaking with someone familiar with their financial lives, goals and history.

The Perfect Complement

The wealth management technology solutions available today can aggregate data from thousands of financial institutions to present investors with a holistic view of their finances. Investors can securely log in at any time and from any location to track investment performance and progress toward financial goals.

In addition, digital advice applications allow investors to update goals as they evolve and immediately send alerts to advisors so they can proactively make contact and find out what has changed in a client’s life. Some technology platforms also enable investors to send notes to their advisor when they need them via secure, two-way instant messaging.

Advisors must keep in mind that today’s investors think of wealth management like shopping, banking, research, and writing to family and friends—something that they should be able to do online, when it’s most convenient. Modern digital advice offerings enable advisors to give investors the experience and control that they want, while remaining accessible when investors need them most. 

The data-aggregation, communication, customization and monitoring tools built into digital advice platforms can help advisors serve more accounts, regardless of size, without having to hire additional staff.

Furthermore, the capability to instantly pull up a real-time, holistic picture of any client’s overall wealth and adjust algorithms to fit each client’s goals and preferences, strengthens the value of the advice that an advisor provides.

Artificial intelligence works best when it is combined with human intelligence, and most investors agree. A 2016 study conducted by Harris Group on Northwestern Mutual’s behalf found that 54 percent of investors believe the best wealth management solution involves both technology and a human relationship. 

This is why advisors don’t need to fear that they will be replaced by robo advisors. It is encouraging that more members of the wealth management industry have internalized this reality and are using their insight to make the experience of working with an advisor more meaningful for hardworking Americans.

David Lyon is CEO and founder of Oranj, a Chicago-based provider of digital advice solutions for financial advisors.

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