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6 Ways to Lure Clients Graduating From Robo-Advisors

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Robo-advisors have almost $16 billion in assets under advisement, according to Corporate Insight, and directly manage almost $4 billion. Furthermore, they’ve earned those assets in only a few years of providing online advice.

There are limitations to using an online advice provider, though, according to Equity Institutional. The firm recently released a white paper addressing those limitations.

For advisors anxious about that rapid growth and seemingly stiff competition, there are some ways you can position your firm to take advantage of robo-advisors’ boom in assets when investors outgrow the simple advice they provide and begin looking for something more sophisticated.

“When you’re talking about dealing with a robo-advisor, you can put in all your information and you can have your investments directed, but our advisors are telling us one of the things you can’t do is you can’t ask the why,” Jeff Kelley, senior vice president and chief operating officer for EI, told ThinkAdvisor on Friday. “You can’t go through discussions with your advisor as to what the rationale behind the decision making is and talk through the various situations in your life.”

In the white paper, EI suggested six ways advisors can position their firms to be prepared to inherit assets from investors leaving their robo-advisor.

1. Provide access to alternative investments. Robo-advisors rely heavily on ETFs and indexed investing to provide automated services to clients. In addition to their hands-on expertise, traditional advisors also provide clients with “expanded asset classes that you really need an advisor to work your way into,” Kelley said. “Those advisors that continue to focus on the newer asset classes that are gaining favor, they will always keep the advisor in that market and prevent them from ever becoming extinct.”

One example of newer assets classes quickly gaining favor is in liquid alts, which have grown 40% since 2008, according to Deutsche Bank, and are expected to grow another 44% by September 2015.

2. Remind flighty clients that robo-advisors are still being tested. A robo-advisor can build a portfolio for a client, “but then it misses that next step of logical thinking that takes the data and makes a decision based on the discussions with the client as opposed to just taking static information and creating a model and passing it back to you.” When clients need more than just direction for their investments — like when volatility increases and they need help resisting the urge to bail out of the market — traditional advisors will be able to provide services that can’t be automated.  

3. Engage with Generation X and Y. Although younger investors do tend to be more tech-savvy than older generations, research has shown that they have a lot in common with older generations. Advisors who can blend online services with personalized advice will be better able to attract and serve younger investors.

“We’re moving into a more technological age, and as the generations change, there’s more comfort with doing things online,” Kelley said. “The combination of online and in addition to the personal presence is something we’re seeing our advisors focus on.”

4. Adopt better technology. While having an advisor to go to for face-to-face guidance is one of the benefits of working with a traditional firm, that doesn’t mean advisors should force clients to choose between expertise and ease of use with more tech-based options.

“With all the products that are coming out these days that are really tied to the portfolio management systems, traditional advisors can expand their presence by taking advantage of some of those tools,” Kelley suggested. “There are many, many research tools that advisors can provide to clients to help them do their own research. They can also provide modeling tools.” Kelley noted that investors are increasingly interested in managing some of their own assets while getting help on other accounts. More frequently, they’re thinking, “‘I do have this sector that I really want help with, but I also want the ability to do some of my own financial planning.’ By putting that technology out there tied to their system, those advisors can not only retain those clients who like to do those things themselves, but they can also give them the ability to have that dual model and never leave the advisors’ control,” Kelley said.

5. Develop your online presence. Advisors with a reputation for providing access to information through easy-to-use technology will likely attract investors leaving robo-advisors for more sophisticated advice. “Once you move past that personal model and the intellect you benefit from by dealing directly with an advisor,” Kelley said, “the advisor can expand their presence in social media and offer the ease of use through technology that clients are getting through the robo-advisor networks, give them the ability to obtain information and even do some things electronically that historically that people haven’t tied to a direct relationship with an advisor.”

6. Review your fee structure to make it more transparent. For advisors who are providing services above and beyond what the robo-advisors provide, it makes sense to charge a little more.

“There’s going to be a segment of the population that is attracted to the robo-advisor concept,” Kelley said. “It’s certainly not going to be the entire industry and the entire body of investable assets, but it has a place. I think that place is in addition to those advisor services, not in lieu of those advisor services.”  

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