As both a long-time practicing financial adviser and industry consultant, I need to view our industry through two lenses. That has forced me to stay up to date on the changing trends. Over the past decade and a half, I have been an early adopter of new technology for my own advisory firm. My objectives have always been twofold: Leverage technology to provide a high level of service to our clients in a well-organized manner and create a great working environment for my staff and me.
We started moving our business into the cloud and working with clients all over the country via online video meetings over a decade ago. To work as efficiently as possible, we also had to standardize and document all of our internal processes and then program them into our customer relationship management system's workflow engine in order to seamlessly deliver excellent service to our clients. Technology played a huge part in implementation. So when automated investment service (aka “robo-adviser”) technology hit my radar screen, I had to investigate.
Two years ago I began seriously following the emergence of robo-technology within our industry. I found it fascinating that Silicon Valley companies and venture capitalists started entering our space. I knew it was time to sit up and take notice. This was going to be a game changer. But how did it begin, and more importantly, what does it really mean for traditional advisory firms?
It appears Richard J. Koreto first coined the term “robo-adviser” for digitally-based investment management as part of the title of an industry article back in 2002. The first true digital service, Betterment, launched in 2010. Wealthfront launched soon after in late 2011. It wasn't until 2012 that robo articles began appearing with any frequency. The early stage disruption had begun. The robo-adviser and its threat to the traditional industry became a media darling. Warnings of fee compression, transparency and competing automation services were everywhere.
Now it seems that a day doesn't go by in which robos aren't in the news. Late last year, the message started to change. Before that most everyone was viewing the robo-invasion as a potential threat. I believe I was at least partly responsible for altering that view last fall when we published a significant white paper, “How to Build a Robo-Shield for Your Financial Advisory Firm.” I proposed two reasons that robo-technology is a positive for advisory firms.
First, the robo presence will force firms to do things they should have already been doing to evolve their firms technologically to work more efficiently and scale and grow. Second, a handful of the robo companies are adviser-friendly and offer cutting-edge technology with elegant user interfaces and automations with integrations for multiple investment management processes at an attractive price point.
(More insight: 5 ways to protect your firm from robo-advisers)
Yes, the platforms can be used to build a service tier for Gen X and Gen Y clients, but they also can attract and serve high-net-worth clients. Companies such as Jemstep and Trizic allow you to custody your own portfolios at TD Ameritrade with an integration to their platforms for access to features and benefits such as automated account opening, rebalancing, tax-loss harvesting, performance reporting and account aggregation. You can serve multiple tiers of investors by creating a unique set of portfolios for each. One tier, for example, can be offered to children and grandchildren of your high-net-worth clients so you can serve them profitably and establish the relationship.
I am so enthusiastic about these possibilities that my staff and I are in the process of reinventing our advisory firm so we can leverage robo-technology. I will be sharing more information about this in an upcoming post. In the meantime, recognize that robo-technology is here to stay. Now is the time to carefully design how you will evolve your firm to remain competitive in the years ahead. If you wait until later stages of this disruption, you will almost certainly find yourself in the unfortunate position of playing catch up.
Deborah Fox is chief executive and founder of Fox Financial Planning Network.