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Advisers should embrace the digital age and its impact on financial advice

Robos can be an effective on-ramp for deeper client relationships

Aug 10, 2015 @ 2:13 pm

By Bruce Milne

HitchBOT, the digital hitchhiking robot, met a sad end last week. While he was more experiment than trend, he serves as a representation of people's hesitance to trust robots to have our best interests in mind.

This ambivalence toward robots extends to the wealth management community, where advisers and firms question whether robo-advisers help their businesses or cannibalize and commoditize their franchises. I'd like to challenge this assertion and submit that robo-advisers can be an invaluable addition to the arsenal we equip our advisers with to deliver exceptional service and value to clients.

Research shows that more consumers are using online sources, blogs and social media to take the first steps in finding high-consideration, high-involvement products and services, from real estate to financial advice. This is a fundamental shift in the way they approach and initiate the buying cycle; they are learning to trust technology and (some parts of) the web to help them make educated decisions.

At the same time, a recent Gallup poll showed that more than 85% of investors still want to have some level of access to human advisers, even if digital tools are involved in their investment decisions. Advisers clearly still have a role in the value chain for financial services.

Robos are particularly good at some things, including informing prospective clients on financial services industry terminology, soliciting basic goals and financial data to outline a rudimentary plan, and tracking a portfolio automatically.

Conversely, robos aren't very good at more nuanced financial strategy, understanding personality, inventorying risk profiles or interpreting clients' intent. Even if there's a place to enter this sort of data, many investors, particularly younger ones, don't know how to interpret these questions. Assembling a comprehensive financial plan for a client requires human intuition, insights, experience and trust, which develop over time through personal relationships and communication.

Most advisers are keenly interested in landing new clients from the emerging affluent, mass-affluent and mass-transfer segments, especially as those groups inherit their boomer parents' assets and have a real need for financial advice for the first time. Increasingly, many new or younger investors will initially opt to work with a robo-adviser service rather than retain their parents' adviser. If leveraged correctly, those robos can be a perfect conduit to digitally introduce the investors to a human adviser's differentiated personal service.

Advisers who are active on social media recognize there's a high correlation between prospects who adopt robo-advisers for financial advice and people who communicate almost exclusively through social and messaging.

According to the Gallup poll, 84% of investors younger than 50 use digital sources of investment advice, and 45% use robo-advisers specifically. Advisers and firms who ignore channels like social and robo-advisers do so at their own peril.

The Pew Research Center says 87% of adults ages 18 to 29 use Facebook, while 37% use Twitter and 23% use LinkedIn. Social media and robo-advisers present an opportunity for advisers to add value for those younger investors by meeting them where they're already active.

In fact, Fidelity Research reports that 38% of emerging-affluent investors follow their advisers on social networks, and 30% are more likely to relate to an adviser who has a presence in social media. I expect this number to increase dramatically as advisers make themselves more available on social and through automated adviser services.

My suspicion is that we're going to quickly see an environment where all wealth managers, wirehouses and banks, regardless of size, offer an array of services that range from a fully online, self-service platform to a personalized, white-glove advisory model.

Those firms that reject the notion of robo-advisers will find themselves on the wrong side of history. Their target demographic will abandon the traditional model for upstart, lower-pressure, self-service options, the way it has in every other market that the Internet and social media have disrupted.

Firms will have to provide the spectrum of services to attract and retain clients, but it will be incumbent upon the advisers to establish digital relationships and convert those electronic leads to clients who value the personal, high-touch service, insight and experience that only a human adviser can offer.

Firms and advisers should stop thinking of robos as a threat, but rather embrace and capitalize on them as an unavoidable evolution. It's time for the financial services market to prove it can be as progressive as other industries in engaging with clients where they choose to build their relationships and make decisions.

Bruce Milne is executive vice president at Socialware.

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