Three incorrect assumptions all robo-advisers make about clients

Joe Duran says understanding these points is key for advisers competing against low-cost digital advice

Jan 31, 2018 @ 4:56 pm

By Ryan W. Neal

United Capital CEO Joe Duran says the financial plan you've crafted for your client is wrong. In fact, the surer you are that it's accurate, the higher the chance that it's wrong.

Speaking Wednesday at TD Ameritrade's 2018 National LINC conference in Orlando, Fla., Mr. Duran said this is because financial plans are based on two incorrect assumptions — that clients and markets are average. But as life and the market inevitably change, the client's goals change and the financial plan becomes outdated.

Mr. Duran compared relying on an outdated plan to a driver blindly following Google Maps, and said the results can be disastrous.

"Our value is not in building the plan, it's in adjusting the plan along the way," he said. "The future of advising is not telling people what they need to do, but guiding them along the way."

This is especially important in an era of low-cost digital advice. Last week, Vanguard Group CEO Tim Buckley told advisers that more than half of their job is susceptible to automation, and their fees are likely to decline.

Mr. Duran said this should make it clear that Vanguard is coming after the wealth management industry with low-cost digital advice, the same way it once disrupted asset managers with index funds.

Back then, Vanguard argued that active management isn't worth the fees it charges. This time, the belief, one that Mr. Duran said is core to direct-to-retail robo-advisers like Vanguard, Betterment and Personal Capital, is that traditional advisers aren't worth the 1% fees they charge clients.

But he said robo-advisers are operating under faulty assumptions of their own — that advice is all about money, that all investors are average and that human advisers are too expensive. Mr. Duran said understanding these assumptions is key for the industry to fight back and defeat the threat technology poses to advisers.

"Money is only fuel," Mr. Duran said. "If all you do is talk about money and retirement and how [clients] are going to get there, you're going to miss the biggest opportunity to beat those tools."

To remain successful, advisers need to know clients' lives better than anyone else in the financial industry. Clients don't want to be just a number on a spreadsheet, but to be treated as unique and told when they are making a mistake.

This means changing the way advisers talk to clients about everything from how much money they need for the future to how they can use resources right now to spend time doing what they love, with the people they love.

"They don't want to be a number, they want to be special, cared about and treated as unique," Mr. Duran said. To do this successfully, advisers will have to embrace the technology available to them, he said, echoing comments earlier in the day from TD's chief information officer Vijay Sankaran.

"The future is bionic," he added. "The winning combination is mostly human, but powered by technology in everything they do."

(More: Joe Duran: How to compete in a technologically changing world)


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