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InvestmentNews takes advisers through the developments and innovations in technology that’ll change the way you do business today—and tomorrow.

6 lessons traditional advisers can learn from robos

Instead of questioning robo-advisers' legitimacy, advisers might ask themselves what they can learn from this new breed

Jul 25, 2014 @ 12:56 pm

By Megan Graf

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Many questions have been raised by traditional financial advisers about their robo-peers. Any time a digital investment adviser hits the headlines, somewhere on social media you can be sure someone is wondering aloud about robo-advisors' business models, investment strategies, and ability to personalize their services.

Instead of questioning whether robo-advisers serve clients' needs and can even survive, traditional advisers might ask themselves: what can I learn from this new brand of financial service? In a few months at FutureAdvisor, I've absorbed an enormous amount, which I've tried to condense to a few points.

1) The great unbundling is here. It happened to newspapers years ago, when each of their sections became a blog, classifieds went to Craigslist and advertising went to the search engines. It's happening to banks as we speak. Institutions that once purveyed a variety of goods and services are seeing each vertical tackled one by one by startups that market directly to consumers.

Financial advisers provide many services: cash-flow planning, tax and estate planning, and portfolio management to name a few. So far, only the last has been automated by robo-advisers, and only for passively-invested portfolios. Traditional advisers who see that their work can be served ŕ la carte, not packaged in a prix fixe menu, can strategically compete in their preferred service areas, where they have an advantage over technology-based services (for now, at least), like estate planning. Communication itself could be broken out — advisers could sell “bear market packages” where clients pay for less service up front, with commitments for ramped-up communications during corrections.

(More: Meet the humans behind algorithmic investing)

2) The Internet lets you market at scale. Personal Capital's free app was a stroke of marketing genius, which raised the visibility of what is essentially a traditional advisory firm. Most traditional advisers market the old-fashioned way, attending events and working the room. That's a hugely important skill, but it's also time consuming. The right outreach can do a lot of the work for you, and greatly reduce your cost of customer acquisition.

This concept is so powerful that the startup Hearsay Social built a business around enabling companies with individual advisers and agents to leverage social media for advertising and marketing, in a compliant but independent way. You might be better off utilizing a service like this than spending your weekends prospecting for clients.

3) Online experience is just as important as phone calls and face time. Just because traditional financial advice is high-touch doesn't mean you can't make low-touch interfaces feel great. That might just take some of the pressure off yourself and your staff. The launch of a startup like Upside Advisor, which white-labels an online experience for traditional advisers, is just one indicator of a changing industry.

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"A traditional adviser can compartmentalize their services to build scale within a small business in a strategic way." — Megan Graf, client service specialist at FutureAdvisor.

4) Clients don't need people as much as you think. FutureAdvisor has a phone number, of course, and clients do call us. But very few need to call us more than a couple times in a market like this. And in fact, they prefer not to. Portfolio management is a bit like dieting or exercise — people want results, but they prefer not to think about the process too much.

A particular group of service-based advisers feel that their clients ought to want something more. They want clients to value a personal relationship and pay fees for holistic advice — they want clients to feel like their needs are unique and that as an adviser, they deliver an impossible-to-replace custom solution to all needs. Some investors need that, but a lot don't. I see proof of that every day.

5) The presence of a robo-advisor is better than the absence of a traditional adviser. Many have rightly pointed out that robo-advisers don't provide a one-stop shop for financial planning. But until traditional advisers tackle the mass-affluent demographic, or robo-advisers get a lot more sophisticated about what they automate, most retail investors will have to make do with our particular brand of portfolio management. And our clients are okay with that. Their basic needs are met, which is more than they could say before, and the rest is just “nice to have.”

6) Creating templates works. If you look at the market from 1,000 feet up, most client situations just aren't that unique. There are consistent statistical patterns, and templates that can be used in response. As a result, a personalized strategy might not be worth paying for (nor worth the adviser's time) when some clients can just as easily benefit from a basic service. Can you develop a generic strategy that can be easily tweaked for a smaller client's suitability profile? Can you offer a newsletter instead of quarterly calls? Can you market a simpler “portfolio deliverable” for clients to buy that doesn't involve hours at PTA meetings and the country club?

The growth of online advisers so far shows that there's a service curve along which all sorts of businesses are possible. By scaling your size and streamlining your services, you can reach a pool of prospects untouched by your competitors. Short of building your own online platform, a traditional adviser can compartmentalize their services to build scale within a small business in a strategic way, and finally tap into the mass-affluent market. It's been waiting there all along.

Megan Graf is a client service specialist with online advice platform FutureAdvisor. If you have questions about life and work at a robo-adviser, feel free to e-mail her. The views expressed represent the opinion of the author and are not intended to reflect those of FutureAdvisor or serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities.

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