How to Add a Robo Platform and Up Your Advice Game

At this point in the evolution of the robo-advisor movement, I think it is safe to say that advisors and the industry have pretty much done a 180-degree turn from when robos first hit the scene about 10 years ago.

Robos started out as being considered by advisors as interesting, but insignificant toys that no serious investor would ever consider. But as the technology became more sophisticated and was enhanced with elegant interfaces and compelling wealth aggregation capabilities, advisors quickly went to a scary place, thinking they would suffer the same fate as taxi drivers and travel agents due to the disruption these evil online platforms portended.

However, once the marketing hype cleared and all of the big online brands like Schwab, Fidelity, BlackRock and Merrill rolled out the same, vanilla, do-it-yourself robo, advisors overcame their fears and were ready to move on to the next phase. The “ah ha” moment happened a couple of years ago when advisors began seeing the many benefits their businesses could gain from this new automation and technology versus feeling threatened by it.

Ultimately, the most valuable digital advice platforms now are the ones designed for professional advisors to up their game with productivity and client experience capabilities.

Very similar to the Kubler-Ross model that explains the stages of grief people go through in order to heal, advisors apparently needed to go through a similar process of denial, anger, bargaining, depression and finally acceptance to get here.

So now that we are here at acceptance, how can you improve your advice game with automated investing platforms? How do you get started?

Step one is to define your strategy and target market. What are you trying to accomplish by deploying an automated investing platform? Are you looking to streamline operations, create scale and become more efficient? Are you looking to profitably target new markets with an automated service offering such as “HENRYs” — High Earning, Not Rich Yet professionals — who don’t have assets today, but will be prime candidates in the future as they progress in their careers? For many firms it’s difficult to attract these investors due to their minimums and high costs of their service offering.

Children of current clients can also be a great target market as they are set to inherit the wealth of your aging clients. Research shows that 90% of people fire their parents’ advisor upon receiving the money, so this is a critical area to address.

Don’t Build a ‘Robo Sidecar’

From a strategic point of view, the last thing you want to do is design a business model that is separate from your current brand and business line. On a relative basis, advisors have extremely limited resources. Thus, opening up a separate website as a “robo sidecar” requires extensive management time, technology resources and marketing dollars to get traction.

When you do the math, the average direct robo account is roughly $30,000. At 20 basis points, your revenues would only be $60 per year, yet the cost of client acquisition and overhead alone are 10 times that figure. This brings up a very interesting question about the future of the VC backed direct robos – how can they survive with such an upside down P&L? As the early gold diggers used to say, there is no gold in them thar hills – so don’t go there!

The next step is to identify the right platform for you. Due to the growth in the digital advice segment, the good news is that there are many choices and options now available for advisors to take advantage of. 

Key considerations to keep in mind are, does the platform offer more sophisticated investing strategies that go above and beyond simple passive investing?   Another bad practice is to simply slap a logo on a discount broker’s robo platform that will not differentiate your offering from the many large online brands out there. Look for platforms that are customizable, intuitive and can handle multiple investing models and strategies.

From there, the next step is to design and price the offering.  What level of human support will you provide? What are your break-even metrics in terms of minimum account sizes and services offered? What will the onboarding process be and how can you make that as client self-service as possible?

Once that has been accomplished you will then need to develop a communication plan to message the new offering to your various target client and prospect segments. Leading advisors often recommend starting with new clients at first and then slowly transitioning the appropriate existing clients to the new offering as it matures. As you learn from your experience, you can then refine, update and enhance your approach.

The benefits from digital investment management platforms for advisors are compelling. You gain needed efficiencies and scale to weather the fee compression storm coming, you enhance the online experience you provide to clients, and you create a growth pipeline of next generation investors to ensure the sustainability of your firm.

So, what’s keeping you from getting in the digital advice game?

--- Read Fintech Innovation Picks Up the Pace on ThinkAdvisor.

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