Financial planners who fear losing clients in the future to online investment advice platforms should be taking certain business management steps today, according to a new white paper by the Fox Financial Planning Network.
Online investment advice businesses, so-called robo-advisers, are rapidly disrupting the $27 trillion wealth management business — and only those firms that “evolve” beyond the status quo will survive, according to the report, released Wednesday.
For one, advisers may need to lower the fees they charge for investment management and consider upping their price for other services and client “perks,” the report said. Online platforms, which charge a fraction of the fees personal advisers do, will pressure the whole industry to charge less and be more transparent about prices overall.
“A 'robo shield' is the name we have given to the combination of streamlining, staffing and practice management changes firms choose to implement to inoculate themselves from the effects robo-advisers will be inflicting on the industry,” said Deborah Fox, founder of the Fox Financial Planning Network.
(7 client services robo-advisers can't provide)
One facet of the shield is upgrading technology, she said. Firms should improve their technology to create operational efficiencies and enhance client service, such as offering online portals for clients to view their accounts whenever they want, the report said.
Ms. Fox's firm recently received an alert from its client portal reporting a $600,000 increase in a client's bank account overnight, so the firm contacted their client to discuss how to invest those dollars in line with the existing financial plan. The move impressed the client and it couldn't have been matched by a robo-adviser, the report said.
The report also recommends that advisers think about forming a relationship with an online adviser platform as a way to offer “Tier 2” services to children of clients or others who may not meet firm minimums or other requirements. Some firms already have struck such alliances.
“"Advisers who white-label a robo-adviser service can create a profitable lower-end offering that they may be giving away now," said Tim Welsh, president of adviser consultancy Nexus Strategy, which helped develop the report.
He said advisers should be careful about which online advisers they team up with because not all will be winners and they don't all want to work with advisers. The report offers guidance on which online firms are most adviser friendly.
The Fox Planning Network report recommends that an adviser consider 20 specific practice-changing moves now to arm themselves against robo-adviser competition, including becoming known for serving a niche, creating a firm culture that puts clients first, standardizing and systematizing service pathways, automating workflow steps, lowering AUM fee and adding an annual retainer, and embracing social media.