As the use of robo-advisors becomes more widespread, traditional human financial advisors will face increasing challenges in growing their business. One way to rise to the challenge is to adopt robos as part of a hybrid model of advice — to increase efficiency and lower your costs.
But that is not the only way to ensure survival, according to Jim Vlahos, senior vice president of sales at Franklin Templeton Investments Corp. in Toronto. “Traditional financial advisors make a difference when it comes to giving advice,” he says. “They do a lot of good things but are not good at articulating what they do. They must be able to show how they can add value beyond asset allocation.”
Human advisors bring a personal element to the planning equation, Vlahos says. For example, you can help clients in areas such as estate planning, insurance and education — which robos cannot do.
Robo advisors use complex algorithms to make investment decisions and are immune to the emotions, such as fear and greed, that drive human behaviors. The automated advice they offer comes with fees that are lower than those charged by traditional advisors, giving them a competitive advantage. But traditional, human advisors look beyond benchmarks, Vlahos says, and pay attention to much more than investment returns.
Although robos have been largely embraced by younger, tech-savvy clients, there is a growing shift in the preference for robos by wealthier clients who have traditionally favoured dealing with advisors face to face. A growing number of firms are taking advantage of this shift, especially south of the border, where firms believe that a mix of human touch and digital experience would attract a broader range of clients, leading to greater success for advisors who use a hybrid model.
So, rather than discarding the traditional advice model completely, an increasing collaboration between robos and human advisors is taking place. Several larger firms in the U.S., such as Switzerland-based UBS and New York-based Blackrock Inc., which traditionally have relied on mostly human advisors to serve their wealthier clients, have acquired robo-advisory firms.
Advisors will therefore have to adapt to the changing environment and embrace robos as a complement to their traditional business model in order to win and retain clients and to meet the robo challenge head on.
Below are two important measures you can take to deal with the implications of the rising use of robo advisors:
> Articulate your value
Document what you do and communicate to your clients that you do not focus only on asset allocation and generating returns, but also provide education and advice in areas such as estate planning, tax planning and insurance.
Explain that you look at clients’ complete financial picture through face-to-face discussions. While fees charged by robo advisors are lower, the implementation of CRM2 allows for greater clarity on fees, giving you the opportunity to explain what your clients are getting in return for those fees.
> Embrace technology
Explore the ways in which technology can improve your efficiency and productivity. Take a “hybrid” approach, using a combination of technology and face-time.
If you do not see robo advisors as a threat, Vlahos says, you may eventually embrace them.
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