The robo-adviser buzz is heavy in industry media, but I had to put in my two cents. It's true that robo-advisers can be competition, but, for the most part, we advisers still have it all over them. It's simply a question of communicating our value.
I view what advisers bring to the table similarly to
Maslow's hierarchy of needs. Here is my illustration:
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Clients may look at the value of investment and financial services from some of or all the above levels. However, to the extent advisers can educate investors, we can better compete with robo-advisers. Let's look at each level.
Costs: Competing solely on cost is a losing proposition. Investors who consider advice an expense rather than as a benefit are going to opt for a robo-adviser charging 35 basis points with no trading costs. Advisers cannot compete with that, nor should they try. Missing out on this demographic is OK; it would not result in ideal clients, anyway.
(More: 5 steps to incorporating a robo into your firm)
Tangible benefits: Adding up the tangible benefits from advisers can compete well with online offerings. Their services are generally on a per-account basis and offer only a set selection of funds. Advisers can manage at the household level, allowing for the temporary and permanent tax savings afforded by location optimization. This strategy can be made more valuable through the inclusion of outside accounts. Location optimization and integration of outside accounts cannot be obtained through a robo-adviser. (As an aside, robo-advisers brag about tax loss harvesting on a daily basis. Besides questioning whether they would have issues with wash sales, investors typically don't realize that this strategy merely postpones tax.)
Intangible benefits: Do-it-yourselfers tend to have a tendency to sell low and buy high. An adviser can add discipline and help prevent clients from making emotional decisions. Having a professional to talk to and rely on can provide peace-of-mind and, ultimately, result in better long-term returns.
Goals: A diversified portfolio doesn't address the main purpose of investing: reaching goals. A financial adviser can coordinate investments with time-line, risk tolerance, tax situation, cash flow needs, estate goals and contingency planning. Helping clients fulfill their needs and achieve their desires is what truly sets us apart from robo-advisers.
Sheryl Rowling is chief executive of Total Rebalance Expert and principal at Rowling & Associates. She considers herself a nontechie user of technology.
