Posted By: Kaplan Financial Education
Updated: July 27, 2017
Our team recently attended think2perform’s Evolution of the Financial Advisory Practice conference in Minneapolis to learn more about key issues in financial advising. One major topic of focus was the place of robo advisors in the future of the industry. Will robo advisors replace financial advisors? ActFi’s Spencer Siegel enthusiastically argued that they will never replace financial advisors, but they can absolutely help an advisor create a better client experience. We wholeheartedly agree.
The rise of companies like Amazon and Uber has completely evolved the customer experience in recent years. As a result, the expectation that anyone can get anything they need right away in a couple of clicks on their phone or computer has expanded well beyond the retail market. Clients now expect their financial advisors to do things faster and provide a more convenient experience for them.
If customers expect rapid self-service, robo advisors can help fulfill that need. Robo advisors certainly fill a gap in the market for investors with less than $100,000 to manage by providing an affordable option for diversified investing with automatic rebalancing and tax loss harvesting. But, robo advisors cannot provide holistic financial planning services for their clients. They can’t help clients define goals and determine how to best meet those goals, nor can they provide tax or legal advice.
This is why a hybrid approach to financial advising, where advisors incorporate the use of robo advisors into their practice, is the best approach…and it benefits advisors just as much as it benefits customers. Robo advisors allow financial advisors to automate tasks like account opening, investment rebalancing, fund transfers between accounts, and tax-loss harvesting. These are tedious routine activities that you don’t want to spend your time on anyway because they take away from value-add activities you could instead be doing.
This allows you to instead focus your attention on what value you can bring to a client—providing the human side to financial advising. With the new DOL fiduciary standard coming soon, the shift toward holistic financial advice is going to be pivotal to success.
There are 10,000 people turning 65 in the United States every day. These baby boomer retirees will start using their retirement accounts for income; and helping investors spend their retirement dollars smartly will be an increasingly important element of an advisor’s value proposition. An asset-based fee approach leads to a decline in revenue for the advisor when the client retires, and possible temptation to provide advice that serves the advisor’s interest ahead of the client’s interest is the result. An advice-based fee model, on the other hand, would reward the advisor for unraveling the complexity of converting money from retirement accounts into retirement income, and keep the advisor in compliance with the DOL fiduciary rule.
Should advisors be afraid of robo advisors as competition? Robo advisors will definitely succeed in helping a new market of clients who have previously gone mostly ignored by advisors anyway: those who make under $100,000. Otherwise, advisors have little reason to be nervous about robo advisors if they embrace the holistic financial advice approach, which will not only make their human value-add more apparent, but keep in line with the DOL fiduciary standard rule as well.
The new DOL fiduciary rule is here! Are you prepared to handle the changes to your business model and the way you generate revenue? Learn from think2perform’s Doug Lennick how to create a competitive advantage from the DOL fiduciary rule by moving to a holistic practice with an advice-based fee model in this free download.