Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Financial Planning > Behavioral Finance

How to Defend Against the Wave of Robo-Advice

Your article was successfully shared with the contacts you provided.

Imagine your best client leaving — and, adding salt to the wound — not even for another advisor but for a robo-advisor.

Far-fetched? Stephanie Bogan, senior vice president with national financial planning firm United Capital, doesn’t think so.

In an interview with ThinkAdvisor, Bogan cites the example of Wealthfront, a software-based financial advisor, which had no clients over 50 a year ago, though 10% of its clientele today is in that demographic group.

“Everyone thinks my aging clients are immune from this [robo-advice]. But what this tells you is that people in their 50s aren’t even safe now,” Bogan says, who adds the cold comfort that clients in their 70s and 80s are probably not going to opt for online advice.

What Bogan is in essence warning about is a consumer revolution, based on technological innovation, that is overtaking the entire economy and will reach advisors’ seemingly safe harbor as well.

“When you think about what consumers want, think of the [online travel agent] Expedia for example,” she says. “They want things that are faster, better, customized, cheaper. That’s the world we’re living in.”

As the United Capital exec tasked with responsibility for the client experience and advisor training, Bogan has been at work fostering a responsive and interactive client environment whose purpose is to constantly remind clients of their advisors’ value proposition.

That is because advisors cannot take their clients’ appreciation for their advice for granted.

She tells of one advisor who had a client that was anxiously seeking to pull all his money out of the market in 2008-’09. The advisor stopped him from doing this. Then, just two months ago, that same client said to the advisor: “Remind me, why am I paying you $8,000 a year again?”

The advisor replied: “You’re paying me for the mistakes I didn’t make.”

Bogan says “the advice process is the piece that cannot be commoditized; it’s helping you make an unemotional decision.”

And United Capital is doing that — asserting its value proposition — while incorporating online interactivity to match contemporary consumers’ expectations for instant feedback.

“What does that mean for the average advisory firm? We’ve built a friendly interactive experience based on a process of gamification. Not in the sense that consumers’ lives are a game. But they want things that are engaging, fun and interactive,” she says.

“They don’t just want to look at quarterly financial reports. So we’ve evolved the client experience over the last five years so that when we sit with clients, we look at the choices they’ve made and they get a score.

“So they’re truly driving the process and we’re the decision coaches, if you will. We’ve moved away from the patriarchal model with Marcus Welby, M.D., saying: ‘You’re just the client, you just execute.’”

The firm tracks client scores online, so when clients make financial decisions, they get immediate feedback on how it affects their long-term goals.

“If they decide to take $200,000 from their account, we’re going to note that,” and the clients’ score will go down. “To increase the score [back to its pre-withdrawal level], we will need to increase client retirement age to 70,” Bogan offers as an example.

“It’s ‘If you do this, it reduces your ability to accomplish this goal,’” she says. “That way, you [the client] own the outcome — good, bad or indifferent.”

The online scorecard aids in fostering client accountability, which Bogan says is critical for the viability of the advisor-client relationship, since “we all know you can’t control the market.”

Rather, it is client choices that are key to their long-term success, and her firm’s approach is to foster that in a manner that is relevant to the world we live in.

“They expect technology to empower them,” she says. “The old model of ‘I will only do what my gray-haired advisor tells me to’ is fundamentally shifting.”

So where does the consumer revolution leave your average advisor?

“They really have to ask themselves what are their options: ‘They can invest some of their income; they can believe everything’s okay and wait it out; or they can partner with firms like United Capital or others where [they] can do better than on [their] own,” Bogan says.

Major firms, she adds, are building retail versions of financial planning software, and while the new portals themselves may not put advisors out of business, a lack of clarity about an advisor’s value proposition is far more fatal.

“Any advisor who’s been around for any period of time has clients who ask questions about their value,” she says. “You have to [renew] that value proposition because clients forget. So we built something so that our clients don’t forget.”

Check out The Advisor of the Future: Neither Human Nor Robot, but Cyborg by Michael Kitces on ThinkAdvisor.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.