Financial advisors surveyed for Investment Executive‘s 2016 Report Card series don’t consider the emergence of robo-advisors anything to fret about.
For the first time in the Report Card series, advisors at brokerages, mutual fund and full-service dealers, banks and insurance agencies were asked in a supplementary question about whether they consider robo-advisors to be a threat to their business. Overall, 81.5% of advisors said they don’t; 18.5% of advisors said they do.
Most of the advisors who were unconcerned about robo-advisors said these new services lack the “personal touch” that drives the relationships behind financial advice.
“This is a face-to-face, social business,” says an advisor in Alberta with Toronto-based TD Wealth Private Investment Advice. “If it weren’t for the relationship, you wouldn’t need us.”
In some cases, advisors said they view the emergence of robo-advisors as an asset that can be integrated into the advisor’s business to help clients with fewer assets build their portfolios.
“[Robo-advice] could be a service I offer millennials until they reach a certain asset value,” says an advisor in Ontario with Lévis, Que.-based Desjardins Financial Security Independent Network. “We have to move away from the idea that this [online platform] is a competitor.”
Some firms already include a robo-advisor platform to complement their traditional advisor distribution channel. For example, Toronto-based Bank of Montreal launched its robo-advisor platform, dubbed BMO SmartFolio, earlier this year.
“The [advice] industry is focused on high net-worth clients,” says an advisor in Ontario with BMO’s brokerage arm, Toronto-based BMO Nesbitt Burns Inc. “SmartFolio is a good offering for clients who don’t really fit into the Nesbitt channel.”
Meanwhile, HollisWealth Inc. and Richardson GMP Ltd., both based in Toronto, also are considering a similar approach to a robo-advisor platform.
“Providing an automated solution for smaller households will free up our advisors’ time to focus on the larger, more ultra-high net-worth clients,” says Andrew Marsh, Richardson GMP’s president and CEO.
Although most advisors surveyed for the Report Cards were not concerned about the impact robo-advisors could have on their business, some said they do view the lower fees and younger Canadians’ love of technology as two key reasons to worry.
“It’s legitimate competition,” says an advisor in British Columbia with Toronto-based CIBC Wood Gundy. “Low cost has become a front and centre issue. It’s becoming more important, particularly for clients [age] 40 and under. Robo-advisors are a legitimate alternative for some people.”
Mike Foy, director of J.D. Power and Associates’ wealth-management practice in New York, notes that the enhanced fee disclosure coming in as part of the second phase of the client relationship model (CRM2) could magnify investors’ focus on fees.
“The timing is perfect for the robo-advisors,” Foy says. “In some cases, CRM2 will be a catalyst for people to evaluate the value [of advice they receive]. A lot of people are going to have sticker shock.”
Most advisors who considered robo-advisors to be a threat fear they’ll lose the next generation of investors to the new digital competitors because that younger demographic is less willing to pay higher fees and often is more tech-savvy and willing to embrace new technological services.
“[Robo-advisors] are going to end up meeting the needs of the younger demographic,” says an advisor in Atlantic Canada with Toronto-based ScotiaMcLeod Inc. “They’re more comfortable dealing with a computer. They also can’t afford a dedicated advisor. Firms can’t afford to deal with smaller client [accounts] because of regulatory issues and costs. So, unfortunately, that [client] segment is being left in the dark.”
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