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Three Things an Advisor Does That a Robo Can’t

It’s all about relationships and trust.

The robo advisory market no longer consists of only startups. Some of the largest players in the wealth management industry, including TIAA, Bank of America Merrill Lynch, Fidelity Investments, Raymond James, and Charles Schwab, have launched robo offerings to appeal to millennials and other investors who prefer a self-directed approach.

However, in spite of their growth, automated advice and digital platforms still hold a very small share of the advice market. Our industry survey found that only about 4 percent of mass affluent and high-net-worth individuals use an automated investing or robo advice tool.

The robo field may be more crowded in 2017 than in past years, but at the end of the day, robos will never be able to replicate the core benefits of working with an advisor, regardless of ongoing technology enhancements.

Here are three things that an advisor can do, and a robo can’t:

  • Form a Relationship with an Investor: All the computer algorithms in the world can’t make an investor feel like they have a relationship with an advisor they trust. A long-term relationship based on trust is only possible if there is a human connection. Robo advisors can’t talk with an investor to get a sense of their personal situation and goals and use that understanding to inform financial advice and planning. Unlike robos, advisors have a personal relationship with their clients combined with a higher-touch service model that enables them to connect during important life events, and proactively work with investors to adapt investment and planning strategies to meet their needs and goals as they change.
  • Take a Holistic Approach to Wealth Management: The relationship that an advisor can develop with an investor, but a robo can’t, helps the advisor understand all aspects of an investor’s life—as an individual, a spouse, a child, a professional, etc.—and take those factors into consideration when managing the investor’s accounts and portfolios. Robo-advisors make trading decisions using mostly economic or market conditions, and this is why they are unable to manage clients holistically. An advisor, on the other hand, can bring a variety of other factors to the table to make trading decisions, including the potential impact on an investor’s overall wealth, family members, and life goals.

    Investors understand this. According to our survey, about 67 percent of mass affluent and high-net-worth investors who rely on technology tools in many aspects of their daily lives retained their advisors specifically for holistic planning. Ironically, our survey found that members of this “tech heavy” demographic (the primary target of robos) are actually more likely than their counterparts who avoid technology to view holistic planning as the deciding factor for whether or not to retain an advisor.
  • Use Behavioral Coaching to Take Emotion Out of Investing: During a severe market downturn, people get scared. It’s a perfectly natural reaction to negative financial news. Fear is a powerful emotion, and if unchecked, it can lead people to make rash decisions they can regret later. One of the advisor’s most important responsibilities is using behavioral coaching to calm investors when they are scared, and talk them out of making poor financial decisions both inside and outside of their portfolio. However, the client/advisor ratio at robos can be as high as one advisor for every 10,000 investors, making it difficult for an investor to get through to somebody when it matters most.

Robo-advisory platforms are becoming more sophisticated, but they’ll never be able to replicate a human relationship based on trust, which makes it possible to provide holistic wealth management and behavioral coaching. Only traditional advisors can offer these benefits, and by leveraging the technology solutions that power robo offerings, they can reduce friction in the client/advisor relationship and deliver better outcomes for clients.

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

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