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November 26, 2014 at 04:55 AM
When you hear the term “robo-advisor,” what do you think of? Does it bring to mind the helpful gadgets that prepared hot meals at the press of a button for the Jetson family and then whisked them out the door each morning? Or does it instead conjure images of an army of red-eyed cyborgs like those from a Schwarzenegger film, slowly and menacingly emerging from the smoking remains of a burned-out landscape?
Whatever your reaction, the rise of the robo-advisor and other forms of technology within the financial services industry seems more inevitable each day. What’s not a given, though, is how those in the industry will prepare for the coming invasion.
“There’s going to be a time when the younger generation—those in their 20s and 30s—fully embraces the robo-advisor,” predicts Scott M. Dougan, RFC, founder of Global Plains Advisory Group in Prairie Village, Kansas. He anticipates a “commoditization of the majority of financial advisors and planners. Clients are going to be gathering assets, they’re going to be investing, and they’re never going to have to go talk to a person with a suit in a giant building with expensive carpet and wood. Over time, I think that’s going to be gone.”
Winds of change
Dougan started in 2001 as a captive agent with no previous background in the financial services industry. Two years later, he went independent and started his own firm. During the early years of his business, most of his clientele were over the age of 60, but once he earned his Series 65 license, his practice started to attract a younger set of clients—pre-retirees in their 50s.
“The type of marketing we do is education-based,” says Dougan. “People pay us to come to a university and talk for several two-hour sessions. We market to and attract people ages 54 to 70 for these events, and we tend to have a lot in common with that age group. I’m 41, so we can talk about similar things. I can understand them and put myself in their shoes. It’s been good for us; we really like that demographic.”
Along with his business partner, Dougan developed a two-day curriculum that focuses on retirement planning and is taught from a fiduciary standpoint. “We basically walk people through the retirement planning process and help them get a handle on what they want to experience,” he says. “What are their resources? What’s it going to take to live that retirement dream or lifestyle? And how do we allocate and protect the money going forward to make sure we achieve those goals?”
During these sessions and in his other interactions with clients, Dougan has noticed a growing trend. “If we ask our clients for their financial information, they’ll grab their iPhone or iPad and just pull it up for us. If they want to know a 401(k) balance, they pull their phone out and find it. That didn’t happen five years ago.” This shift means it’s more important than ever that advisors—and the industry as a whole—come to terms with technology in all its forms, Dougan says. “We need to embrace technology right now because of the influence of the younger demographic on our current clients. There’s going to be a time around the table at Thanksgiving when our best clients are talking to their grandkids or kids and the topic of money is going to come up. And they’re going to be asked, ‘Why are you paying that human being 1 percent when this robot can do it for a quarter of a point?’”
And on some level, who can blame them for this line of thought? “I mean, I get almost everything I need from Amazon,” Dougan says. “We’re on a first name basis with the UPS guy.” He expects that there will soon be “a group of people who are trained to just throw your money over to an automated investment service that will make allocation changes over time. And if I just check my app every once in a while, I’m good.” And he foresees a similar trend within the insurance space. “There are products that are coming up next year where people are going to be able to sign up online and put $250 a month into an annuity. It’s coming for sure.”
A matter of survival
What does all this mean to the average advisor? Is it time to close the shutters and start searching the help wanted ads? Not if you’re willing to adapt, says Dougan. While he anticipates a “thinning of the herd” within the advisory space in the coming years, he also believes there will be plenty of opportunity for those who remain.
“Advisors are going to have to differentiate themselves,” he says. “You need to specialize and find a niche that you can really over-serve. I think that’s going to be a key component of how we’re going to continue to grow.”
In addition, advisors must focus on building their relationships with clients, he says. “If you don’t have good relationships, you’re in trouble, in my opinion. We need to nurture the relationships we have and we need to show up differently.” And one of the best ways to do that? Technology.
“I think the industry as a whole needs to do a better job with technology,” says Dougan. He recalls a recent press release from a carrier announcing that their clients’ information would now be made available online. “I mean, come on,” he says with a laugh. At Dougan’s practice, they’ve embraced technology fully — and their clients are completely on board. In 2012, the company became paperless, scanning hundreds of documents and old records over a six-month period. “We used to have rows and rows of filing cabinets; now we have two, and they’re full of office supplies,” he says.
