Want to Win the Robo Game? Think Like a Chess Champ: Envestnet CEO

Jud Bergman says the way forward for financial advisors combines human intelligence with integrated technology platforms

CEO Jud Bergman of Envestnet. CEO Jud Bergman of Envestnet.

Jud Bergman, chairman and CEO of Envestnet, the wealth management technology firm, has a message for financial advisors who fear robo-advisors and other technological advances in the industry: man plus machine delivers better outcomes than man or machine alone.

In other words, according to Bergman, who spoke at Envestnet’s Advisor Summit in Chicago, advisors enhance their value proposition for clients and are more effective if they use technology intelligently rather than fear or shun it.

He called this the “Kasparov Principle,” referring to the renowned Russian chess champion who famously played two six-game chess matches against IBM’s Big Blue supercomputer in 1996 and 1997. Kasparov won the first competition and lost the second, but only because he assumed the machine knew something that he did not when Big Blue actually threw away a move due to a glitch.

After that realization Kasparov began to play a new type of chess known as “freestyle chess” or  “advanced chess” where players can use computer programs in matches against other players and computers, explained Bergman. Following that approach, a couple of amateur chess players using three computers won a 2005 tournament, beating out not only the supercomputer but also grandmasters.

“The winning strategy for [the advisor] profession will look more like freestyle chess,” said Bergman. “Smart, wise experienced advisors are made more effective by technology.” They have more time to spend with clients and to think strategically and creatively, said Bergman.

Bergman noted that advisors who use “integrated technology” spend 20% more face time with clients and twice as long with prospective clients, "creating an astonishing level of business growth.” They are crossing the “digital divide” that separates other advisors and their practices from a more complete engagement with their clients, according to Bergman.

Technology is also affecting current and potential advisor clients. Referring to automated investment advisor services, Bergman said, “Robos are educating investors, making them better customers for advisors who have a true value position."

The effective use of technology is one of 10 principles spelled out in the new book “The Essential Advisor: Building Value in the Investor-Advisor Relationship,” written by Envestnet President and Co-Founder CEO Bill Crager and Managing Director Jay Hummel.

In the financial advisory industry today, technology is focused on financial planning, which is “moving to the center of the advisor value proposition,“ along with data aggregation and analytics, said Bergman.  He noted that advisors who aggregate data along with financial planning get twice the share of the client’s wallet than those who don’t.

They also tend to be more successful in managing investments, said Bergman, which is an easier proposition for advisors who regularly use technology. Bergman offered the example of advisors who rebalanced portfolios during 2007-2009,Those portfolios that were rebalanced outperformed portfolios that weren’t by 13.5% through 2015, said Bergman, noting that less than one of three advisors systematically rebalanced between 2006 and 2015.

“Data aggregation and analytics are key to more effective financial plans and more effective business,” said Bergman.

To that end, last August Envestnet acquired Yodlee, a provider of cloud-based management technology for advisors that focuses on data aggregation solutions. And at this week’s Advisor Summit Envestnet announced in a press release that it will unveil its new Open ENV, “an open-architecture ecosystem which extends its core technology and processing engine.” 

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